South Korea

• NPS will vote against the merger between SK Innovation and SK E&S, mainly due to significant concerns about destroying shareholder value (especially for SK Innovation shareholders). 
• Sustinvest also recommended that institutional investors vote against this merger, citing that the merger ratio between SK Innovation and SK E&S is disadvantageous to SK Innovation’s general shareholders.
• If NPS exercises its appraisal rights, this could put a knife in the wheel of the M&A merger between SK Innovation and SK E&S. 

• Eoflow announced Insulet had filed an injunction on 3 July against Eoflow and Menarini requesting a ban on the manufacture, sale, distribution, and use of EOPatch in 17 European countries.
• Given that Eoflow should have reported this event earlier, this is likely to result in further loss of confidence on Eoflow by many investors in the near term. 
• If Eoflow is able to complete its rights offering (albeit lower amount than proposed), this could boost its chances to become a formidable competitor to Insulet on a global basis. 

• It was announced that a tender offer to purchase a 17.54% stake in Hanwha Galleria has been launched by Kim Dong-Sun (Vice President at Hanwha Galleria).
• Tender offer price is 1,600 won per share, which is 22.8% higher than the closing price on 22 August. Tender offer amount is 54.4 billion won. 
• On 23 August, Hanwha Galleria’s share price is likely to rise close to the tender offer price as many investors believe the tender offer is likely to be successful. 

• NPS’s opposition suggests a likely vote against the merger, but if they plan to exercise appraisal rights, they might abstain to preserve that option.
• NPS typically exercises appraisal rights when the spread exceeds 5%, as seen in past mergers like Celltrion and Samsung. They didn’t act when the spread was below 5%.
• The key question is whether SK Innovation can boost its stock price to avoid NPS exercising rights. Otherwise, the merger may pass, but the stock could drop significantly.

• The new rule mandates that retail pool fees be tied to the fees paid by institutional borrowers, and this information must be publicly disclosed.
• This rule ensures faster, more accurate market release of stock-specific borrow fees, which are now tied to actual fees received, replacing the arbitrarily set rates by brokerages.
• With short-selling resuming next April, this rule could drive new flow trading strategies and significantly influence target screening in the short-selling market.

• KRX announced that both Hanwha Aerospace and the new Hanwha Industrial Solutions will be added to the KOSPI 200.
• Since 2020, two K200 spinoffs had both companies remain: DL Holdings and DL E&C in January 2021, and SK Telecom and SK Square in November 2021, with notable value increases.
• This trade isn’t risk-free and requires a sophisticated hedge setup, but the trading opportunities from this flow situation are worth close attention.

• After the market close on 21 August, Eoflow (294090 KS) announced a rights offering capital raise of 9.1 million new shares, representing share dilution of 23%.
• Based on the expected rights offering issue price of 9,040 won, the company is expected to raise 82.2 billion won in this capital raise. 
• Eoflow has monthly cash burn rate of about 3.3 billion won. If the rights offering is successful, it would have adequate capital resources for about a couple of years. 

• LG Electronics aims for 7% growth, a 7x EV/EBITDA multiple, and a ₩1,000 DPS with a 25% payout ratio, likely disclosing details by late October or early November.
• LG Electronics’ value-up disclosure highlights major non-financial companies’ participation before the value-up index launch, driven by regulatory pressure and concerns about index inclusion.
• Samsung and Hyundai are likely to disclose value-up plans by early September, prompting an upward revision of flow size predictions for the value-up index launch.

• From early June until yesterday, local pension funds have purchased nearly 4% of DB HiTek’s SO. This places DB HiTek in a dominant first position in their net buying list.
• The timing of local pension funds beginning to buy DB HiTek coincidentally aligns with May 22, when DB Inc was requested by the KFTC to transition into a holding company.
• Focus on potential price impact from DB Inc.’s buying and value-up index inflows. Considering a relative overweight in DB HiTek may be strategic despite some risk.

• On 21 August, SM Entertainment announced that it will sell its non-core assets including its controlling stakes in SK C&C and KeyEast.
• The combined sales amount could be about 110 billion won or more, representing 7% or more of SM Entertainment’s market cap. 
• Sale of SM C&C and KeyEast is likely to have a positive impact on SM Entertainment by selling its non-core assets and improving its balance sheet for higher shareholder returns.

• This final guideline formalizes earlier drafts by the FSS. Though not strictly mandatory, its detailed requirements mean it functions as a de facto rule that must be followed closely.
• The new, stringent requirements are likely to eliminate common stock borrowing practices in Korea, making timely transactions difficult.
• New trading patterns and market flows may emerge when short selling resumes in April, with increased importance of borrow balance data and potential rise in counter-flow trading.

• Increased exchange rate volatility affects the ADR premium, but past patterns show that exchange rate and ADR premium directions may not always align, requiring consideration of specific contextual factors.
• If the won appreciates below the 1,300s range, overseas institutions may shift to asymmetric selling of underlying shares for foreign exchange profit, as shown by rising ADR premiums.
• We should watch for peak conditions to capture significant ADR premiums. Trading options include borrowing underlying shares for ADR conversion, even under the current short-selling ban.

• I-Scream Media reported its IPO book building results. The IPO price has been determined at 32,000 won, which is at the low end of the IPO price range.
• A total of 561 institutional investors participated in the IPO survey. The final demand ratio was 31.3 to 1.
• Our valuation analysis suggests an implied price per share of 41,450 won, which represent a 29.5% upside from the IPO price.

• With the start of the review period around the corner, there could be two changes for the FnGuide Semiconductor Top10 Index at the October rebalance.
• Wonik Ips (240810 KS) and Techwing Inc (089030 KS) are potential adds while ISC Co Ltd (095340 KS) and Dongjin Semichem (005290 KS) are potential deletes.
• Passives will need to trade more than 2x ADV on two potential changes and more than 1x ADV on another potential change.

• The Hyosung siblings swapped ₩60B in shares over August 13-14, raising the elder brother’s Hyosung Corp stake to 40.9% and lowering HS Hyosung below 3%.
• The younger brother must sell additionally at least 11.2% of his 14.2% Hyosung Corp stake. The elder brother may buy, but his cash position and 40% stake limit his need.
• This block deal will be the first to apply the new pre-disclosure rule. So, we should use it to test how the rule affects price movements for better entry timing.

• After a large sell-off, similar to other major global markets, the KOSPI 200 INDEX last week rebounded and closed strongly up. In this insight we want to evaluate what’s next.
• According to our pattern models, at the moment the index is not overbought yet, so in theory the index could rise higher, this week.
• Pay attention when the index reaches the 385 price area, from there the index could start to encounter some resistance.

• Base case valuation of Lumir is target price of 18,542 won per share. Given the low upside relative to IPO price range, we have a Negative view of this IPO. 
• Our net profit estimates in 2025 and 2026 are 38% and 63.3% lower than the company’s estimates.
• Lumir provides key technologies for satellite systems, including small synthetic aperture radar (SAR) satellite systems and payloads.

• Peptron’s lack of single-stock futures means no risk-free arbitrage but also less speculative selling, making the 25% discount an attractive outright position opportunity.
• The low capital increase rate may stabilize the stock price, and more forfeited shares could lower the cost of securing subscription rights during the trading window.
• Consider buying rights during the trading period or targeting forfeited shares. Conservatively estimate the final offering price range to set a profitable cost for securing rights.

• Lumir is getting ready to complete its IPO on KOSDAQ in September. The IPO which is expected to raise between 49.5 billion won to 61.5 billion won.
• Lumir specializes in the development of observation satellite technology including image data processing devices and onboard computers for a number of government satellite series.
• Lumir had sales of 12.1 billion won (up 90.5% YoY) in 2023. Its sales surged by 477% YoY to reach 8.2 billion won in 1H24.

• Jeisys Medical announced that it has decided to exchange shares with Syracus Subco, its largest shareholder. The stock exchange ratio between Syracus Subco and Jeisys Medical is 1 to 1.3575606. 
• The exchange date is 23 October. Through this stock exchange, Archimed Group (owner of Syracus Subco) seeks to delist Jeisys Medical (287410 KS).
• Jeisys Medical also announced that it plans to cancel 1,075,838 common shares, representing 1.4% of its outstanding shares. 

• Archimed, via its Korean entity Syracuse Subco, now holds 91.35% of Jeisys Medical (287410 KS) following the second tender offer. Jeisys shares will be delisted in the next couple months.
• Jeisys Medical (287410 KS) is a KOSDAQ 150 Index (KOSDQ150 INDEX) constituent and there will be a replacement for the stock in the index.
• Recent ad hoc replacements to the KOSDAQ 150 Index (KOSDQ150 INDEX) have traded well and that warrants positioning for this event.

• Classys (214150 KS) posted strong 2Q24 result, with quarterly revenue and operating profit reaching record highs, mainly driven by the growth in sales of aesthetic medical equipment.
• Revenue from Classys medical devices increased 36% YoY and 44% QoQ to KRW30B (51% of revenue) as demand for core platforms has increased significantly in major global countries.
• If 1H24 momentum continues (which seems to be quite possible), the company will handily beat 2024 sales guidance of KRW225B, driven by both devices and consumables.

• Consider a two-phase strategy: go long on Bobcat spot and short futures until November 1. If Robotics’ price drops significantly, close the setup.
• If things go well, close the Bobcat futures short before November 1 and hold an unhedged Bobcat long until the listing date on November 25.
• Hold an unhedged long position during this trading suspension period because cancellation risk will be gone and Robotics may get stable inflows from MSCI inclusion.

• On 16 August, Peptron (087010 KS) announced that it decided to increase capital through a rights offering worth about 120 billion won, involving 2.64 million shares (12.8% of outstanding shares). 
• The expected rights offering price is 45,450 won, which is 22% lower than current price.
• We are negative on Peptron’s rights offering mainly due to much lower expected rights offering price, concerns about additional rights offering next 2-3 years, and continued lack of profitability.

• NPS is concerned that aggressive value-up measures by bank holding companies and ongoing cancellations might quickly use up their room up to the 10% ownership limit.
• With their stake already at mid-8%, they may not buy as much as the index suggests, creating new trading opportunities in the four major bank holding companies.
• Woori Financial has more room for buying, so as the year ends, NPS’s skewed-buying could give it a better price impact than other bank holding companies.

• Celltrion Inc announced that its proposed merger with Celltrion Pharm has been cancelled due to disapproval of this deal among an overwhelming percentage of Celltrion Inc shareholders.
• This cancellation of a merger between Celltrion Inc and Celltrion Pharm is likely to continue to have a positive impact on Celltrion Inc and negative impact on Celltrion Pharm.
• The major reason is because Celltrion Pharm trades at high valuation multiples while Celltrion Inc trades at lower valuation multiples. Celltrion Pharm’s P/B valuation is more than 3x Celltrion Inc’s.

• Coupang’s recent quarter highlights a strong performance driven by strategic initiatives and operational improvements, alongside a promising outlook tempered by certain challenges that need to be addressed for sustained growth.
• The company’s revenue grew by 30% year-over-year in constant currency, showcasing impressive sales momentum.
• This growth was partly fueled by the acquisition of Farfetch, which played a key role in the company’s multifaceted growth strategy.

• The September KOSPI Size Index rebalancing could bring back the typical price impacts seen over the past decade, unlike the March rebalancing.
• The previous rebalancing had anomalies due to newly listed stocks in LARGE and a stronger downward trend in LARGE-to-MID transitions, disrupting the expected price impact.
• For September’s rebalancing, fewer distortions are expected compared to March. The NPS Mid to Small Cap fund, a key influence, shows no significant changes in benchmark or AUM.

• In this insight, we discuss how Warren Buffett’s recent investment in Ulta Beauty is likely to have a positive impact on CJ Corp’s valuation. 
• CJ Olive Young (largest shareholder is CJ Corp) is the dominant health & beauty cosmetics chain in Korea. CJ Olive Young has a similar business model to Ulta Beauty.
• Our NAV analysis suggests an implied market cap of 4.7 trillion won or implied price of 160,977 won per share for CJ Corp, representing a 38% upside from current levels.

• There are increasing signs that Hankook Tire & Technology’s M&A of Hanon Systems could be falling apart. 
• The deadline for signing the main M&A contract to purchase a 25% stake in Hanon Systems has been postponed indefinitely.
• New contingent liabilities at Hanon Systems have been uncovered during the 10 week due diligence process of Hanon Systems by Hankook T&T.

• On the 25th July, SkyLake Equity Partners acquired a 46.9% stake from Praxis Capital Partners in BusinessOn Communication (138580 KS), Korea’s leading B2B SaaS company; plus 24.3% from BusinessOn’s management. 
• SkyLake has now launched a Tender Offer for 28.94% of BusinessOn. The Tender offer price is ₩15,849/share.
• Super clean deal. SkyLake will acquire all shares tendered. There is no minimum tendering % condition. 

• According to our NAV analysis, it suggests a base case valuation of 122,473 won per share for HD Hyundai, representing a 50% upside from current levels.
• The combined value of HD Korea Shipbuilding & Offshore Engineering, HD Hyundai Electric & Energy, and HD Hyundai Marine Solution is 11.4 trillion won.
• We estimate HD Hyundai’s 73.85% stake in Hyundai Oilbank to be 7.0 trillion won. We also applied a 5x OP of its core business and a 50% holdco discount.

• On 14 August, Shift Up (462870 KS) reported its 2Q 2024 results, which was the first earnings report post its IPO. 
• Shift Up reported sales of 65.2 billion won (up 65.4% YoY and 19.5% below consensus) and OP of 45.1 billion won (up 49% YoY and 21.4% below consensus) in 2Q24. 
• The company is preparing for a PC release of Stellar Blade in the near future to continue its strong popularity and it expects better results on PC than on console.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Samvardhana Motherson International Ltd
• SK Hynix
• Vedanta Resources

• Our NAV analysis of SK Square suggests NAV of 15.6 trillion won or 115,605 won per share, representing 48% higher than current share price.
• SK Square’s market cap is only 39% of SK Square’s stake in SK Hynix. SK Square’s share price has declined by 27% since reaching its recent peak on 11 July. 
• SK Square had excellent results in 2Q 2024, driven by improving results of its affiliates including SK Hynix. 

• In this insight, we discuss the recent share cancellation at S.M. Entertainment, valuations, and the launch of a new British boy band in August 2024. 
• Dear Alice boy band will start its promotion with the broadcast of “Made in Korea: The K-Pop Experience” on BBC One and BBC iPlayer on 17 August.
• We are cautiously positive on Dear Alice band. Unlike most aspiring boy bands, Dear Alice has a HUGE advantage of launching the band on the BBC through a TV show.

• DB Hitek’s investment in a golf course operating company is a poor investment, one that destroys shareholder value.
• Most investors would rather have DB Hitek increase shareholder returns through share buybacks/cancellations and dividends as well as invest in its core semiconductor business rather then buy a golf course. 
• Given DB Inc’s lack of cash, there is a growing possibility that it will use the proceeds from selling its DB World shares to increase its stake in DB Hitek.