South Korea

• Value-Up plan announcements had a significant immediate price impact, especially for Woori Financial and Shinhan Financial, amplified by recent dividend tax reductions.
• We should target companies likely to announce value-up disclosures soon, focusing on those with prior notices. Notably, KB Financial and DB HiTek have issued prior notices.
• Both companies hold many treasury shares. KB Financial is a dividend stock, with value-up disclosures likely during their Q3 and Q4 earnings announcements.

• A new tax support framework for Korea’s value-up policy was introduced, but local markets argue that proportionate protection for minority shareholders is crucial for a significant market value increase.
• Korean political leaders are united in supporting this amendment to the Commercial Act, with recent events increasing the likelihood of bipartisan support for this crucial change.
• Given the administration’s commitment to the value-up and recent negative sentiment towards recent restructurings at Doosan and SK, there’s growing potential for minority shareholder protection to take root in Korea.

• One of the important factors of big changes at the Korean chaebols is the age factor of the chairman/honorary chairman of each of these conglomerates.
• In this insight, we provide the shareholding ownerships and ages of the top 10 Korean conglomerates where age could become a major factor in impacting big changes that could occur.
• Among the 10 conglomerates listed below, Hyundai Motor Group, Celltrion Group, and SK Group have shown greater willingness to improve their shareholder return policies.

• Shinhan Financial announced that it plans to increase shareholder return ratio to 50%, improve ROE to 10%, and reduce outstanding shares by 50 million+ by 2027.
• Shinhan Financial Group’s new, outstanding shareholder return policy has been one of the most impressive since the roll-out of the Corporate Value Up program in Korea a few weeks ago.
• The improved corporate governance policy is likely to lead to Shinhan Financial Group outperforming other financial stocks in Korea and KOSPI overall in the next 6-12 months. 

• Despite a negative share price reaction, following its 2Q2024 earnings report, SK Hynix (000660 KS) remains firmly amid an earnings upgrade cycle.
• With SK Hynix entering oversold territory, near-term momentum indicators are displaying bullish signals.
• SK Hynix trades at nearly one standard deviation below its 5-year historic average EV/EBITDA ratio and a discount to global peers.

• Sanil Electric (062040 KS) raised around US$193m in its Korea IPO, after pricing the deal above the top end of the range at KRW35,000/share.
• Sanil Electric is a specialized company that manufactures and sells reactors, transformers, railway vehicle parts, and switchboards. As an industrial transformer manufacturer, the company mainly manufactures power and distribution transformers.
• In this note, we will talk about the demand for the deal and other trading dynamics.

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.

• SK Hynix

• Expect True Wind to walk away rather than raising their price further for Sun Corp (6736 JP). They’d need to pay ¥5,500-5,800 to dislodge a large chunk. And they won’t.
• Amorepacific Group (002790 KS) plumbs new discount lows as Amorepacific Corp (090430 KS)  gets a boost from Amazon Prime Day.
• Canon Marketing Japan (8060 JP) is still significantly under-levered. That means the stock price will generically not be that volatile. That generally means one should buy dips and sell pops.

• A double dose of StubWorld this week: both the implied stub for Amorepacific Group (002790 KS) and the simple ratio (Group/Amorepacific Corp (090430 KS)) are around lifetime low levels.
• Preceding my comments on Amorepacific are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• On 26 July, it was reported in the local media that there has been a major breach of duty by nearly 40 current/former employees at Doosan Bobcat.
• The fact that this material breach of duty was not revealed prior to the merger announcement adds to the argument that this merger/split/delisting should be either cancelled or redone. 
• We remain negative on all major companies involved in this deal including Doosan Bobcat and Doosan Robotics. The breach of duty at Doosan Bobcat adds to the fire. 

• Among bigger cap GEM banks, we pick five longs and two shorts as our conviction calls; we add country-based equity risk premia to our screening process
• Our core buys are Bank Mandiri from Indonesia, Hana Financial from South Korea, CIMB Group from Malaysia, Bradesco from Brazil and CCB from China; four of these are value picks
• Our sells are Kotak Mahindra Bank and ICICI Bank from India, both richly valued larger cap banks that have benefited from past economic and political tailwinds with headwinds now emerging

• The highest dividend tax rate drops from 49.5% to 25%, leading the local capital market to view the reform as more shareholder-focused than company-focused.
• The top inheritance tax rate drops from the 60% range to 40%, a meaningful reduction for conglomerates like Hyundai and Hanwha, though below initial expectations.
• Tax incentives in the reform are less aggressive than expected, with modest corporate and inheritance tax cuts. However, this compromise increases the likelihood of its passage, boosting short-term market expectations.

• Last month, aesthetic laser maker Jeisys Medical (287410 KS) announced French PE outfit Archimed SAS was seeking to delist the company.
• Via a Tender Offer, Archimed sought to acquire 72% of Jeisys at ₩13,000. Archimed also inked agreements with founders/directors for 26.44%, taking its possible % holding to 98.44%.
• The Tender Offer closed on the 22nd July with Archimed holding 81.39% (including the aforementioned agreements). Archimed has now reloaded, on the same terms. There is no minimum acceptance condition. 

• Doosan Robotics reported disappointing 2Q 2024 results. It generated sales of 14.4 billion won (up 10.1% YoY) and operating loss of 7.9 billion won in 2Q 2024.
• After the disappointing results in 2Q 2024, it is likely that the consensus will lower their sales and profit estimates of Doosan Robotics for the next three years.
• The consensus is likely to lower sales estimates by at least 15-20%+ in the next two years. In addition, the profit margin estimates are likely to be reduced materially. 

• On 24 July, the Financial Supervisory Service (FSS) ordered the Doosan Group to resubmit the merger plan. 
• It is rare for FSS to reject companies’ merger reports but there has been an exception this time since this deal is egregiously negative to many minority investors.
• Doosan Group needs to resubmit a revised merger plan within next three months. Otherwise, the securities report involving the merger plan of the Doosan Group companies will be considered withdrawn. 

• FSS’s leaked IPO guidelines include new, highly attention-grabbing additions: specifically, the disclosure of extra information from the bookbuilding and lockup results not mentioned in May.
• Institutions submitting prices outside the indicative band must be disclosed by KRX investor type. Additionally, average placed price information for lockup-pledged investors must be disclosed.
• FSS will distribute new IPO guidelines this week and apply them from next month. Major IPOs like K Bank must disclose more detailed bookbuilding and lockup results, impacting trading dynamics.

• The FSS requested Doosan Robotics to revise the prospectuses for both the Share Swap with Doosan Bobcat and Merger with Doosan Enerbility.
• Although the FSS’s wording seems aggressive, it does not request the cancellation. Authorities are displeased but lack political momentum to derail Doosan’s restructuring.
• The FSS asks Doosan to clarify merger synergies, warn of Robotics’ overvalued stock price and potential decline, and highlight the collaborative robot market’s growth risks.

• In the first tender offer, 42.5 million shares of Jeisys Medical were purchased by Archimed Group. Post tender offer, Archimed now owns an 82.1% stake in Jeisys Medical. 
• On 24 July, it was announced that Archimed will be conducting a second tender offer for Jeisys Medical. The second tender offer will be made for 17.2% of common shares.
• It could be difficult for Archimed to gain more than 95% stake at the end of the second tender offer. Rather, a third tender offer is likely in 2025.

• Shinsung Tongsang shares rose 10% to 2,510 won today after it was announced that the tender offer failed. Basically, the tender offer failed because the tender offer price was too low. 
• Only 26% of the 31.664 million shares responded to the tender offer. Accordingly, the shareholding ratio of Chairman Yeom and his related parties increased from 77.98% to 83.88%. 
• Top Ten has benefited from executing its strategy well (such as employing Lee Na-Young in advertisements to grab customers from Uniqlo). Overall, we remain positive on Shinsung Tongsang.

• The review period for the September rebalance of the KOSPI Size Indices commenced on 1 June and will end on 31 August.
• We see 8 migrations from MidCap to LargeCap, 1 new addition to LargeCap, 11 stocks moving from SmallCap to MidCap and 3 new additions to MidCap.
• There are a few stocks that are expected to have passive flows from global and local index trackers over the next few months and that will add to the impact.

• After the market close on 24 July, Hanwha Corporation (000880 KS) announced that Hanwha Energy secured an additional 5.2% stake in Hanwha Corp through a tender offer.
• A total of 3.9 million shares have been applied for the tender offer as of 24 July (65% of targeted amount). 
• We believe that the Hanwha Group is likely to grab more shares in Hanwha Corp through an additional tender offer sometime in the next 6-12 months. 

• In 2Q24, Samsung Biologics (207940 KS) reported 34% YoY revenue growth to KRW1,157B, driven by full utilization of Plants 1–3, ramp-up of Plant 4, milestone payment, and favorable Fx.
• The company expects annual revenue to exceed KRW4T mark this year, thereby setting a record for the Korean pharmaceutical and biotechnology sector.
• During 1H24, Samsung Biologics has secured order worth of KRW2.6T. Currently, the company is serving 16 out of the top 20 global pharmaceutical companies, up from 14 last year.

• As a result of the arrest of Kim Beom-Su, the near term impact on the Kakao companies (including Kakao Corp, Kakao Bank, Kakao Pay, and Kakao Games) is clearly negative.
• Given that this is a highly publicized event, it is likely that this legal case will be PROLONGED and finally decided by the Supreme Court which could take several years.
• Some of the scenarios include Kakao Group selling partial stakes in Kakao Bank and SM Entertainment but this is likely to get dragged on, resulting in further uncertainty.

• The major framework of this realignment is likely decided, integrating KOSPI and KOSDAQ into a tiered system based on liquidity, market cap, and financial status, with periodic replacements.
• The KOSPI 200’s continued existence is uncertain under the new realignment plan, which may shift its role to the value-up index, resembling Japan’s market restructuring model.
• The first-tier market’s entry requirements will likely reflect value-up index criteria, suggesting greater speculative money movement toward the value-up index starting in September.

• Kakao’s Kim Beom-su has been arrested over alleged stock price manipulation in the SM Entertainment buyout, marking a new peak in the company’s legal troubles.
• Kakao Corp’s stock might drop due to the absence of a key figure. KakaoBank could also struggle from uncertainty about its largest shareholder and weakened business ties.
• Kakao’s potential sale of SM Entertainment shares could initially hurt the stock price, but potential bidding interest might boost it.

• During Kim Byung-hwan’s hearing, he acknowledged market concerns about the Doosan merger, increasing skepticism about Doosan’s ability to maintain the original merger ratio.
• Calculating Bobcat’s net asset value using the net asset value method yields approximately ₩6.1T, derived from ₩5.95T in year-end equity plus ₩0.13T in adjustments.
• Reassess arb trading opportunities; with no short hedge for Robotics, consider an outright long position in Bobcat if its swap price is revised and the spread widens.

• Woori Bank completed a block deal sale of 11 million shares of Kumho Tire Co (073240 KS) (3.83% of outstanding shares) on 18 July. 
• After the recent sales by Woori Bank and the Export-Import Bank of Korea, the creditors’ stakes in Kumho Tire has been reduced to 19.17%.
• Despite Kumho Tire’s recent improvement in financial performance, we are more concerned about the additional stake sale by the financial institutions that still own 19.2% stake in the company. 

• Com2Us’s net cash (including long-term financial investments) is 151% of its market cap. It is trading at P/B ratio of only 0.45x. 
• The company paid out 2,600 won in DPS in FY23. If we assume the same DPS, this would suggest a dividend yield of 6.7% at current price of 38,900 won. 
• Com2Us is a turnaround story. It had an operating profit of 1.2 billion won in 1Q 2024, improving from an operating loss of 13.3 billion won in 1Q 2023. 

• Maximizing Lee Jae-yong’s dividend income is crucial, making Samsung SDS’s ₩5.5T cash assets key, thus prompting the merger of Samsung C&T and Samsung SDS’s BPO division.
• With no legal risks for Lee Jae-yong, Samsung C&T needs the merger to increase assets and avoid forced holding company conversion, making the acquisition of Samsung SDS’s BPO division necessary.
• We should target a setup for likely appraisal rights for C&T. Monitor and capture the spread between the stock price and appraisal rights exercise price.