South Korea

• 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. 

• Macquarie Korea Infra Fund (088980 KS) announced that it is proceeding with a rights offering capital increase of 500 billion won, which represents about 9.4% of its current market cap. 
• MKIF plans to use higher liquidity increase in the following main areas: Seoul East Underground Expressway – 215 billion won Acquisition of Hanam Data Center – 423 billion won
• In the next 6-12 months, we believe MKIF has a solid chance of outperforming KOSPI (on combined capital gains/dividends basis). 

• Webzen Inc (069080 KS) will replace Connectwave (119860 KS) in the KOSDAQ 150 Index (KOSDQ150 INDEX) effective 16 August.
• There is over 2 days of ADV to trade on both stocks though the flows are not very large.
• The Connectwave (119860 KS) delisting will also have an impact on the changes to the KRX New Deal Internet Index in September.

• On 12 August, Skylake Equity Partners announced a tender offer of 6.58 million shares (28.9% stake) of BusinessOn Communication. The tender offer price is 15,849 won.
• BusinessOn is one of the leading digital tax invoice software providers in Korea. It also provides digital contracts, market intelligence, banner advertising, and supply chain management services. 
• Skylake plans to purchase all of the shares subscribed in this deal, regardless of the subscription rate. If the public offering target quantity is successful, Skylake plans to delist BusinessOn. 

• CS Wind Corp (112610 KS) is one of the biggest players in wind tower globally with a substantial presence in the US. 
• Excellent Q2 24 operating numbers led to a sharp increase in the share price that is mainly driven by short covering. 
• The revenue growth occurred without sacrificing profitability, a sign that the company is in the driving seat.

• The plan is to select 20 large-cap companies from around 30 with value-up disclosures by late August, then gradually expand the index’s constituents.
• Investors seeking both dividends and value-up benefits must buy stocks individually, as ETFs lack tax advantages, potentially triggering fund shifts from dividend ETFs to value-up stocks.
• We can target stocks in dividend ETFs not making value-up disclosures, as they may face overhang risk during fund migration to the value-up index.

• Kiswire Ltd (002240 KS) is the number one player for steel wire and rope products in Korea. More than 85% of its sales are generated overseas. 
• The company has a consistent record of generating positive net profit. It is trading at low valuations (P/B of 0.3x and EV/EBITDA of 4.5x).
• Its average net profit from 2021 to 2023 are much higher than previous three years from 2018 to 2020, which is a testament of increasing demand for its products globally. 

• Local market views Celltrion’s shareholder survey as the start of the merger process, with a decision expected from the boards within two to three months if there’s no major opposition.
• Under Korean law, if Celltrion Pharm’s market cap is under one-tenth of Celltrion’s, the merger can proceed as a small-scale merger, allowing Celltrion to avoid shareholder approval and appraisal rights.
• We should leverage the merger’s high predictability to proactively target merger swap and appraisal rights spreads and build a strategy in advance.

• Fila Holdings announced that its subsidiary Magnus Holdings plans to sell a 1.8% stake in Acushnet Holdings in a block deal sale worth about 98 billion won. 
• Our NAV valuation of Fila Holdings suggests an implied value per share of 49,192 won, representing 18.2% upside from current levels. Fila Holdings’ 51.9% stake in Acushnet Holdings.
• The block deal sale of Acushnet Holdings by Magnus Holdings is likely to have a positive impact on Fila Holdings as it could result in higher capital returns to shareholders.

• Trading opportunities arise when overseas traders’ SSF positions face unwinding by local market makers, who enter SSF positions and take opposing spot positions, unwinding at expiry.
• August-Expiry SSF data shows reverse flow impact by local market makers today, with varying degrees of impact per stock but an observable overall trend.
• With ongoing market volatility in Korea, consider setups targeting price impacts from reverse flows of sector pairs trading on the next SSF expiration date.

• SK Innovation is considering on using its treasury shares to inject capital into its EV battery making subsidiary SK On. 
• The appraisal rights exercise price is 111,943 won per share (15% higher than current price). Many minority shareholders are likely to exercise their appraisal rights in SK Innovation.
• We remain Bearish on SK Innovation. We continue to be negative on the SK Innovation and SK E&S merger. Plus, we are concerned about the continued weakness at SK On. 

• On 7 August, Korea Zinc (010130 KS) announced several impressive capital return plan that should help to increase shareholder value.
• The separation of Korea Zinc between the Choi and Jang families has been in progress in the past several years. The exact timing of when this occurs remains uncertain. 
• Our NAV Analysis of Young Poong is NAV per share of 470,065 won, representing a 52% upside from current levels.