South Korea

The first trial in December 2022 ordered Chey to pay 67.5 billion KRW; today’s ruling increased this to 1.38 trillion KRW plus 2 billion KRW, including splitting SK Inc. shares.
The increased settlement and SK Inc. share split could spark a management rights battle, causing SK Inc.’s stock price to jump as investors and shareholders react.
It may take a year for the final verdict, making a sustained stock price increase unlikely. Yet, differences between trial rulings could alter Chey’s SK Inc. stake, sustaining market interest.

Shift Up IPO: Valuation Insights

By Arun George

Shift Up (462870 KS) is Korea’s leading game development studio. It is seeking to raise up to US$320 million.
We previously discussed the IPO in Shift Up IPO: The Investment Case.
We examine the syndicate’s valuation methodology. Our analysis suggests that Shift Up is attractively valued in the IPO price range. We would participate in the IPO.

Legal Complications on Put Options on SSG.Com to Result in Ongoing Concerns for Emart and Shinsegae

Emart and Shinsegae are facing concerns about put options of nearly 1 trillion won on private equity investors’ investment in SSG.com nearly six years ago.
From AEP and BRV’s point of views, they want to get their money back through put options since an IPO is not likely in the near term.
The most probable result appears to be that this is likely to be dragged on for some time, which will cause continued concerns on both Emart and Shinsegae.

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May 30

Daily Brief South Korea: Korea Stock Exchange KOSPI 200, SK Bioscience and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Latest Info on Value-Up Index Involving KRX & NPS: Potential Flow Trading Patterns
Block Deal Prospects Arising from SK Group’s Corporate Reshuffle

Latest Info on Value-Up Index Involving KRX & NPS: Potential Flow Trading Patterns

The value-up index aims to align closely with the KOSPI 200’s composition, adjusting stock weights based on factors from KRX Governance Leaders 100 and KRX ESG Dividend Opportunities Index.
Insiders confirm NPS will create new funds to track the value-up index, needing SAA adjustments and Fund Management Committee approval. Despite hurdles, government backing suggests smooth NPS involvement.
Buybacks could cause passive outflows in KOSPI 200 rebalancing and inflows in value-up index rebalancing. This timing discrepancy could create a consistent passive flow pattern for these stocks.

Block Deal Prospects Arising from SK Group’s Corporate Reshuffle

The declining appeal of the separator business prompts SK to seek buyers for SKIET through block deals amid financial pressures. The first deal is anticipated despite recent stock price drops.
SK Ecoplant looks to sell its 37.6% stake in SK Oceanplant. Negotiations stall over the former major shareholder’s 20% stake, prompting consideration of a block deal.
SK Bioscience, under SK Discovery, faces possible sale amid SK’s bio company reshuffle. SK Chemicals may bring SK Biopharm under its wing to help SK Inc focus on semiconductors/batteries.

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May 29

Daily Brief South Korea: DS Dansuk, Shift Up and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

DS Dansuk: Block Deal Sale by Stonebridge Capital
Shift Up IPO: The Investment Case
Shift Up IPO – Thoughts on Valuations – Bear/Base/Bull

DS Dansuk: Block Deal Sale by Stonebridge Capital

After the market close on 28 May, it was announced that Stonebridge Capital plans to conduct a block deal sale of a portion of its stake in DS Dansuk.
This deal involves 210,000 to 290,000 shares of DS Dansuk. The block deal price range is from 99,800 won to 101,400 won, which represents 7.06% to 8.52% discount.
After this second block deal, there will be further overhang concerns about additional sales of DS Dansuk by Stonebridge Capital in the coming months.

Shift Up IPO: The Investment Case

By Arun George

Shift Up (462870 KS) is Korea’s leading game development studio. It is seeking to raise up to US$320 million.
Shift Up now focuses only on game development and has a policy of publishing games in cooperation with global partners such as Tencent (700 HK) and Sony Corp (6758 JP).
The investment case rests on a stellar game development track record, several growth drivers, high profitability and cash generation.

Shift Up IPO – Thoughts on Valuations – Bear/Base/Bull

Shift Up (462870 KS) plans to raise up to US$320m in its South Korean IPO.
Shift Up is a South Korean games developer, which as released three games so far for the global markets.
We have looked at the company’s performance in our past notes. In this note, we talk about valuations.

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May 28

Daily Brief South Korea: S.M.Entertainment Co, APR, Celltrion Inc, Shift Up and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

HYBE: Block Deal Sale of SM Entertainment
An Early Look at Potential Deletions and Additions to KOSPI200 in December 2024
FnGuide Top 5 Plus Index Rebalance Preview: Celltrion Could Replace KT&G
Shift Up IPO – Peer Comparison – Small in Size but Ranks High on Growth and Margins

HYBE: Block Deal Sale of SM Entertainment

After the market close on 27 May, HYBE (352820 KS) announced that it will conduct a block deal sale of 0.75 million to 0.94 million shares of SM Entertainment.
The block deal sale price discount is 4% to 5.5% discount to the closing price on 27 May (95,800 won).
One of the major positive, recent issues facing the Korean K-Pop related stocks has been the potential easing of Korean content restrictions by China.

An Early Look at Potential Deletions and Additions to KOSPI200 in December 2024

In this insight, we provide an early look at the potential additions and deletions to KOSPI200 rebalance in December 2024.
The seven potential additions are up on average 53.9% from end of 2023. The seven potential deletion candidates are down on average 14.2% YTD.
The average market cap of the seven potential additions is 2.2 trillion won. The average market cap of the seven potential deletion candidates is 0.7 trillion won.

FnGuide Top 5 Plus Index Rebalance Preview: Celltrion Could Replace KT&G

The Samsung KODEX Top5Plus Total Return ETF (315930 KS) tracks the FnGuide Top 5 Plus Index and has an AUM of KRW 1,357bn (~US$1bn).
We currently see a high probability of Celltrion Inc (068270 KS) replacing KT&G Corporation (033780 KS) in the index at the June rebalance.
There is between 1-2 days of ADV to trade on the potential add and delete and smaller flows on the other index members due to capping and funding changes.

Shift Up IPO – Peer Comparison – Small in Size but Ranks High on Growth and Margins

Shift Up (462870 KS) plans to raise up to US$320m in its upcoming South Korean IPO.
Shift Up is a South Korean games developer, which as released three games so far for the global markets.
In our previous note, we looked at the company’s past performance. In this note, we will undertake a peer comparison.

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May 27

Daily Brief South Korea: Korea Stock Exchange Kospi Index, Techwing Inc, HLB Life Science, CosmoAM&T and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KRX Announces Final Version of Value-Up Disclosure Guidelines Alongside Dedicated Website Launch
KOSDAQ150 Index Rebalance: Short Sell Ban Definitely Helping
What’s Still Concerning in the HLB Situation & HLB Life Science’s Stock Rights Trading Next Week
KOSPI200 Index Rebalance: Index Committee Knows Best; Cosmo AM&T the Winner

KRX Announces Final Version of Value-Up Disclosure Guidelines Alongside Dedicated Website Launch

Starting May 27th, KRX-listed firms can voluntarily disclose value-up details, publicly available on the website. Additionally, view five investment indicators for all KRX-listed companies below.
Finalized version similar to draft, with added content requested by listed companies, like R&D investment growth rate. Tax incentives excluded, awaiting alignment with Ministry’s plan in July.
KRX keeps a screening framework for the index akin to March’s criteria, with ROE likely having the highest weight. Recent signals hint at increasing dividend weighting.

KOSDAQ150 Index Rebalance: Short Sell Ban Definitely Helping

There are 13 inclusions and 13 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance to be implemented at the close on 13 June.
For the second consecutive review, Fadu (440110 KS) and Shinsung DeltaTech (065350 KS) have been kept out of the index. Not sure what the index committee’s beef with them is.
The adds have outperformed the deletes and the KOSDAQ150 since the start of the review period. This has been helped, in no small, part by the ban on short selling.

What’s Still Concerning in the HLB Situation & HLB Life Science’s Stock Rights Trading Next Week

HLB expects Jiangsu Hengrui to receive another CRL from the FDA, but specifics on CMC issues remain unclear. Due to the lack of clarity, it’s advisable to avoid trading HLB.
HLB IR stated they’ll apply for KOSPI transfer listing after FDA approval when asked by local media, suggesting it’s currently not under consideration.
We should instead consider short-term trading opportunities in HLB Life Science. Anticipate a surge in forfeited shares from Day 1, reminiscent of last year’s CJ CGV rights offer event.

KOSPI200 Index Rebalance: Index Committee Knows Best; Cosmo AM&T the Winner

There will be 6 additions and 6 deletions for the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) at the June rebalance that will be implemented on 13 June.
The index committee has used a boatload of discretion in the inclusion of CosmoAM&T (005070 KS) and the deletion of some of the stocks.
The adds and deletes from the Information Technology sector will also have passive flow from the sector ETF and will increase the impact of the changes.

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May 26

Daily Brief South Korea: Eoflow and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Last Week in Event SPACE: Mitsui Matsushima, L’Occitane, Prosus/Tencent, EOFlow

Last Week in Event SPACE: Mitsui Matsushima, L’Occitane, Prosus/Tencent, EOFlow

By David Blennerhassett

Murakami-San now owns far more in Mitsui Matsushima (1518 JP) than he can easily get out of other than by corporate action. Murakami-san is not a dumb guy. He knows this.
The unique investigative shareholder register confirms what has been long rumoured about a certain shareholder activist in L’Occitane (973 HK). It is also informative for what isn’t present.
Prosus (PRX NA)‘s discount to NAV and implied stub widened after Fabricio Bloisi’s CEO appointment the previous week. But the sell-down of Tencent (700 HK) to buy-back Prosus will continue.

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May 25

Daily Brief South Korea: Hanmi Semiconductor, DB Hitek Co., Ltd. and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSPI200 June ’24 Rebalance: Index Changes Released, 6 Additions & 6 Deletions
Unexpected Inclusion of Cosmo AM&T in KOSPI 200 Sparks Notable One-Day Flow Via KOSPI 200 IT

KOSPI200 June ’24 Rebalance: Index Changes Released, 6 Additions & 6 Deletions

By Charlotte van Tiddens, CFA

The KRX have announced the index changes for the KOSPI200 June review.
The index will be rebalanced in the closing auction on Thursday the 13th of June.
There will be 6 additions to the index and 6 deletions.

Unexpected Inclusion of Cosmo AM&T in KOSPI 200 Sparks Notable One-Day Flow Via KOSPI 200 IT

Unexpectedly, KRX included Cosmo AM&T (005070 KS) despite not meeting the market cap cutoff and excluded DB Hitek (000990 KS) and Lotte Energy Materials (020150 KS).
Cosmo AM&T’s unexpected inclusion triggers a significant one-day passive flow event through the KOSPI 200 IT, the sector index with the largest AUM.
Sector index rebalancing, a single-day event managed by one ETF operator, more significantly correlates flow direction with price impact. We should consider a long-short setup for these on June 13th.

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May 24

Daily Brief South Korea: Eoflow, Korea Stock Exchange KOSPI 200, Shift Up, S.M.Entertainment Co and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

EOFlow (294090 KS): Suitably Pumped
FSS Head Lee Made an Urgent TV Appearance Today to Discuss the Resumption of Short Selling
Shift Up IPO – The Positives – All Games Have Done Well
Shift Up IPO – The Negatives – Changing Monetisation Model, Censorship Issues
A Pop in Major K-Pop Stocks Driven by Potential Easing of Korean Contents Restrictions by China

EOFlow (294090 KS): Suitably Pumped

By David Blennerhassett

For a company that strives to improve people’s lives, investors in EOFlow (294090 KS) shares have mostly faced a world of pain over the past year.
After Insulet Corp (PODD US) filed a lawsuit on the 8th August 2023, accusing EOFlow of misappropriating trade secrets, patent infringement, and trademark dilution, shares declined ~88% by year-end.
Earlier this month, the courts quashed Insulet’s preliminary injunction. EOFlow is up 200%. Insulet is up 3% (?). And Medtronic (MDT US), EOFlow’s prior suitor, is no doubt weighing options.

FSS Head Lee Made an Urgent TV Appearance Today to Discuss the Resumption of Short Selling

Lee urgently appeard on TV today and said, “In June, we will explain whether and when short selling will be resumed, and what criteria we might use for the resumption.”
He noted considering flexible partial short selling resumption even if only some conditions are met, contrasting the Presidential Office’s stance from two days ago.
Presidential Office led short selling ban, now likely under FSC/FSS jurisdiction for resumption.

Shift Up IPO – The Positives – All Games Have Done Well

Shift Up plans to raise up to US$320m in its upcoming South Korean IPO.
Shift Up is a South Korean games developer, which as released three games so far for the global markets.
In this note, we talk about the positive aspects of the deal.

Shift Up IPO – The Negatives – Changing Monetisation Model, Censorship Issues

Shift Up (462870 KS) plans to raise up to US$320m in its upcoming South Korean IPO.
Shift Up is a South Korean games developer, which as released three games so far for the global markets.
In this note, we talk about the not-so-positive aspects of the deal.

A Pop in Major K-Pop Stocks Driven by Potential Easing of Korean Contents Restrictions by China

The major K-Pop stocks had the biggest up day so far this year on 23 May, driven by potential easing of Korean cultural contents restrictions by the Chinese government.
In the past nine years, there has been a ban on Korean singers’ performances in China.
Among the major K-Pop stocks, we continue to have a Positive View on S.M.Entertainment Co (041510 KS) but bearish on HYBE (352820 KS) and YG Entertainment (122870 KS).

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May 23

Daily Brief South Korea: Korea Stock Exchange KOSPI 200, Shift Up and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

July Short Selling Resumption in Korea: Local Market Info & Trading Considerations
Shift Up IPO Valuation Analysis

July Short Selling Resumption in Korea: Local Market Info & Trading Considerations

According to market information confirmed so far, the resumption is set for July 1st, and short selling will be restricted to the constituents of KOSPI 200 and KOSDAQ 150.
The surge in trading volume likely stemmed from the return of long-short positions post-short-selling ban, leading to an overall market volume increase.
Another critical factor is the buying pressure on value-up stocks resuming in early July. We should aim at the price impacts of intersecting long-short flows and value-up stock purchases.

Shift Up IPO Valuation Analysis

Our base case valuation of Shift Up is target price of 95,510 won, which is 59% higher than the high end of the IPO price range (60,000 won).
We believe Shift Up deserves higher valuation multiples than its peers mainly due to higher sales growth, much higher operating margins, and higher ROE.
Since its launch in April of this year, Stellar Blade (PS console game) has ranked first in sales in eight countries, including the United States, United Kingdom, Canada, and Japan.

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May 22

Daily Brief South Korea: Kia Corp, Ls Industrial Systems and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

A Plausible Explanation for Korea NPS’s Unusually Large Outflow on Local Stocks in May
KOSPI Size Indices: Potential Migrations in September Are Moving

A Plausible Explanation for Korea NPS’s Unusually Large Outflow on Local Stocks in May

NPS’s May net selling of ₩700B likely stems from retrieving outsourced management funds to allocate to the newly selected three value-up outsider managers.
These value-up managers will start investing in Q3. NPS’s May net selling matches their allocations. We should design a setup targeting the likely inflow into value-up targets starting early July.
In particular, we should watch non-financial value-up stocks like Kia Corp and Hyundai Motor, which had more significant May price impacts likely due to NPS outflow.

KOSPI Size Indices: Potential Migrations in September Are Moving