South Korea

• On 8 May, Eoflow announced that the U.S. federal court has decided to suspend the effect of the first injunction decision.
• While the effect of the second preliminary injunction decision remains intact, Eoflow has requested a review of the suspension of the effect of the second revised injunction decision as well.
• There has been a renewed optimism on Eoflow (294090 KS)’s share price in the past week which increased by 46% from 7 May to 10 May.

• In our latest South Korean banks screener, we keep Woori on the buy list along with KB Financial as our Korean banks picks
• Delinquency ratios continued to worsen QoQ, yet Woori is the benchmark for NPL ratio; Woori had lagged in terms of returns, but these are holding at the pre-provision level
• KB has a low PBV ratio relative to its ROE, it delivers rising post-provision returns, with cost of risk declining and it has a healthy CET1 ratio

• Celltrion Inc (068270 KS) posted revenue of KRW700B+ in 1Q24, thanks to increasing demand for Remsima in Europe. The market share of Remsima is approaching 80–90% in select European countries.
• 1Q24 profit setback is temporary as COGS ratio is expected to improve rapidly starting from 2Q24 as the inventory is digested, leading to sequentially improved profit margins in coming quarters.
• With the successful U.S. launch of Zymfentra and continued solid uptake of the existing products, the company is well-positioned to meet its 2024 revenue target of KRW3.5T (+60% YoY).

• This is an update to our previous insight published on April 22nd: “EQD | KOSPI 200 WEEKLY Bounce: Rally or Not?“.
• The KOSPI 200 INDEX  has performed a nearly +6% rally in the last 3 weeks, closing up 3 weeks in a row (CC=+3).
• We have something to say about this pattern that was identified 3 weeks and ago and so we wanted to post this insight to explicit our view.

• After the market close on 9 May, Netmarble announced that it plans to sell 2.6% stake in HYBE for 219.9 billion won. 
• The transaction is based on PRS (price return swap) basis. Previous to this deal, Netmarble sold 2.5 million shares (about 6%) of HYBE shares in November 2023. 
• We continue to remain negative on HYBE including on this deal involving Netmarble’s plan to sell additional 2.6% stake in HYBE.

• Classys (214150 KS) started 2024 on a strong note with highest ever quarterly revenue and operating profit in 1Q24. Faster-than-expected consumables orders from overseas markets drove the overall performance.
• The proportion of consumable sales rose to 53% (1Q23: 48% and 4Q23: 43%), increasing by 42% and 32% QoQ. Increasing contribution from high-margin consumables sales improved the profitability substantially.
• Favorable industry tailwind, global expansion, and new launches remain main growth drivers. Classys still expects 2024 revenue of KRW225B, up 25% YoY. In April, Classys obtained FDA approval for Volnewmer.

• On 8 May, it was mentioned in numerous local media that Naver is under pressure from the Japanese government to sell its stake in LINE.
• One of the reasons behind Japanese government’s efforts to force Naver to sell its stake in LINE is due a major data breach incident in November 2023.
• Based on our current understanding of this situation, the most likely scenario is for Naver to sell about 20-30% stake in A Holdings (the controlling shareholder of LINE) to SoftBank.

• After a 96.5% gain on listing day, HD Hyundai Marine Solution (443060 KS) is very close to levels needed for Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) inclusion in June.
• HD Hyundai Marine Solution needs to outperform the 50th ranked stock in the KOSPI2 INDEX by 11.4% on average over the next 15 trading days to be added to the index.
• Retail investors sold 25% of their allocation on listing day while foreign investors sold 22% of their IPO allocation with local institutions mopping up the shares.

• Innospace is getting ready to complete its IPO in June 2024. According to bankers’ valuation, the implied market cap of Innospace is from 347 billion won to 434 billion won.
• Innospace engages in the satellite launch vehicle production and launch service business.
• The company estimates its sales to increase from 0.2 billion won in 2023 to 2.0 billion won in 2024, 47.8 billion won in 2025, and 97.2 billion won in 2026.

• ICTK reported excellent book building results. ICTK’s IPO price has been determined at 20,000 won, which is 25% higher than the high end of the IPO price range.
• ICTK is a security company specializing in Internet of Things (IoT) based on physical copy prevention technology called PUF which is a cutting-edge technology during the chip manufacturing process.
• Our base case valuation is implied market cap of 376.8 billion won or target price of 28,694 won, which is 43% higher than the IPO price (20,000 won).

• Local institutions, notably pension funds, are increasingly investing in Samsung SDS, coinciding with the company’s more active investor engagement. This has sparked speculation about Samsung’s strategic motives.
• Timing-Wise, as AI infra demands rise in Samsung Group, conditions for boosting SDS’s performance improve. They monitor Samsung’s moves to drive SDS’s stock upward, considering its reliance on Samsung’s revenue.
• Local pension funds actively adopting overweight positions in Samsung SDS underscore the importance of crafting strategies tailored to overweighting SDS within the broader Samsung Group context.

• KOSPI 200 is a Korean blue-chip index that tracks the 200 largest and most-liquid names listed in the KOSPI section of the Korea Exchange (KRX).
• The reference period for the June 2024 index rebal event ended recently. In this insight, we take a look at our final expected ADDs/DELs.
• There has been one change to our list of expected ADDs presented in my last insight (link).

• On 3 May, it was reported that Hankook Tire & Technology agreed to purchase a 25% in Hanon Systems for 1.37 trillion won from Hahn & Co private equity firm. 
• After this deal, Hankook Tire & Technology will own a controlling 50.5% stake in Hanon Systems.
• We have a negative view on Hankook Tire & Technology’s additional purchase of Hanon Systems, which has experienced a declining profit margins in the past several years.

• HD Hyundai Marine Solution (443060 KS) had raised around US$539m in its Korean IPO, after pricing the deal at the top end of KRW83,400/share.
• HD Hyundai Marine Solution (HMS from hereon) is a ship aftermarket service provider that provides necessary services throughout a ship’s life cycle after the delivery of a new ship.
• In this note, we will talk about the demand for the deal and other trading dynamics.

• Aggressively curbing naked short selling may enhance flow conditions for Value-Up stocks by reducing market turnover.
• Liquidity decline may worsen KOSDAQ’s underperformance relative to KOSPI stocks due to its higher vulnerability to liquidity fluctuations.
• We should also monitor price impact from phased short selling in the absence of intra-day naked short selling post-regulation tightening.

• Ssangyong C&E will be excluded in June pre-delisting due to the float rate rule. Replacement will be chosen from the highest market cap existing constituents excluded in the June review.
• Likely owing to the recent expansion of macro variables in the local market, a clear correlation between results and price impact is not observed even at the screening period’s conclusion.
• There’s a chance of price impact closer to the effective date, suggesting potentially more effective basket trading. However, short instrument absence necessitates using market indices as hedges.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, a number of deals were launched in India, while HD Hyundai Marine Solution (443060 KS) will list in the coming week.
• On the placement front, the two deals in Australia, WorleyParsons Ltd (WOR AU) and Endeavour Group /Australia (EDV AU) delivered opposing results.

• MMAS prioritizes dividends over low-PBR, key to government’s Value-up momentum. Despite initial market disappointment, dividend stocks rebounded, underscoring continued investor interest.
• Government officials are collecting historic dividend data to simulate separate taxation impact of dividend income, likely to be included in July’s tax reform bill for National Assembly approval.
• Local institutions focus on dividend-centric Value-up trading, targeting stocks with high cash reserves and dividends. Strategy needed to manage market impact pre-tax reform bill in July.

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.

• Lippo Karawaci
• Lippo Malls Indonesia Retail Trust
• MGM China Holdings
• SK Hynix

• Gridwiz is getting ready to complete its IPO on KOSDAQ in June. Gridwiz focuses on the power demand resource management (DR) business, involving utilities, energy storage system, and solar power.
• The IPO price range is from 34,000 won to 40,000 won. The IPO offering amount ranges from 47.6 billion won to 56 billion won. 
• According to the bankers’ valuation, the market capitalization post listing is expected to reach 285 billion won to 335 billion won. 

• Today, NPS made the final decision to introduce a reference portfolio. The critical point is the increase in risky assets from 56% to 65%, also decided at today’s meeting.
• Initially, overseas equity was prioritized, but recent forecasts suggest significant potential in increasing local equity, aligning with the value-up policy.
• Monitoring NPS’s execution plan, including allocation and timing by asset class, is vital to gauge inflow size, especially for Value-up beneficiaries.

• On 2 May, Jusung Engineering (036930 KS) announced an equity spin-off as well as a physical division split.
• We are negative on this combination of equity spin-off and physical division split of Jusung Engineering. 
• After the two units are listed on 6 December 2024, it is likely that the semiconductor unit (Jusung Engineering Co) will rise while Jusung Holdings Co is likely to decline.

• With the review period complete, there could be up to 15 changes for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance.
• Even with 15 changes, there is some sector balance among the potential adds and deletes with big churn in the Information Technology sector.
• The potential adds have outperformed the potential deletes and the KOSDAQ 150 Index (KOSDQ150 INDEX) since the start of the review period but performance has flattened over the last month.

• With the review period complete, there could be up to 5 changes for the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) at the June rebalance.
• Hahn&Co now own over 96% of the shares in Ssangyong Cement Industrial (003410 KS) and there could be another change at or before the June rebalance.
• Passive trackers will need to trade between 0.5-15x ADV on the index changes. There are big shorts in L&F (066970 KS) and Lotte Tour Development Co, Ltd. (032350 KS). 

• Of utmost importance in these guidelines will be the framework for Value-up disclosure. Local authorities aim to encourage proactive disclosure, starting with companies that are well-prepared.
• Two companies are being closely watched as potential candidates for the first Value-up disclosure: CJ Cheiljedang (097950 KS) and Koh Young Technology (098460 KS).
• The rationale for us to actively engage in alpha trading with these two names stems from the strong probability that they will emerge as cornerstone constituents of the Value-up index

• We discuss the end of the mandatory lock-up periods for 54 stocks in Korea in May 2024, among which 4 are in KOSPI and 50 are in KOSDAQ.
• These 54 stocks on average could be subject to further selling pressures in May and could underperform relative to the market.
• The top three market cap stocks including those of which at least 1% of outstanding shares could be sold in May include EcoPro Materials, Enchem, and Gaonchips. 

• In this insight, we discuss the alpha generation through companies that announced share buybacks in Korea in March and April 2024.
• We provide a list of 30 stocks in the Korean stock market that have announced share buyback programs in the past two months.
• Major companies that have announced share buybacks in Korea in the past two months include Krafton (259960 KS), Celltrion Inc (068270 KS), and Woori Financial Group (316140 KS).