South Korea

• On 5 February, SK Innovation (096770 KS) announced a large-scale shares cancellation of 4.92 million shares, representing 4.9% of outstanding shares. 
• This is the first ever large scale shares cancellation for SK Innovation since it was first established in 2011.
• All in all, despite the company’s disappointing results in 2023, the large scale share cancellation should help to support SK Innovation’s share price in the coming weeks. 

• Today, 5 February, PE-outfit Hahn & Co commenced its Tender Offer for the 20.1% of shares not held in cement manufacturer Ssangyong C&E (003410 KS).
• The Tender Offer price is ₩7,000/share, a 9.2% premium to last close; although shares did gain ~12.2% just prior to the Offer.
• There is no minimum acceptance condition. Hahn & Co will purchase all shares tendered. Payment is the 8 March. This will trade tight. 

• On 4 February, the local media reported that Hahn & Co private equity firm is launching a tender offer on the remaining shares of Ssangyong Cement Industrial (003410 KS) (Ssangyong C&E).
• Tender offer price is 7,000 won (9.2% higher than the closing price on 2 February) and the tender offer amount is 702 billion won. 
• We believe Ssangyong C&E’s shares are likely close to the tender offer price today. We believe there is higher probability of Hahn & Co successfully completing this tender offer. 

• Samhyun is getting ready to complete its IPO on the KOSDAQ exchange in March. The IPO total offering amount is 40 billion won to 50 billion won. 
• The company generated sales of 99.8 billion won (up 45.5% YoY) and operating profit of 9.8 billion won (up 250% YoY) in 2023.
• Samhyun developed one of the world’s first CVVD (Continuously Variable Valve Duration) technology for automobile engines, which improves fuel efficiency by controlling the engine’s valve opening time. 

• We discuss the end of the mandatory lock-up periods for 53 stocks in Korea in February 2024, among which 3 are in KOSPI and 50 are in KOSDAQ.
• These 53 stocks on average could be subject to further selling pressures in February and could underperform relative to the market.
• The top five market cap stocks including those with 1% or higher A/B ratio include the following: Sam A Aluminum, Jeio, HLB Therapeutics,  Polaris Office, and Mirae Asset Venture Investment. 

• Samsung’s earnings was recently reported, with memory revenues up nearly 50% in the fourth quarter
• This gain has been driven by very strong growth in AI and a normalization of inventory levels
• The memory business is approaching positive margins once again, and SK hynix is already profitable

• The review period for the March rebalance ended yesterday, the changes will be announced early March and implemented at the close of trading on 14 March.
• We forecast one change for each of the Secondary Battery, Bio, Internet and Game indices. There could be two changes for the BBIG Index.
• Douzone Bizon (012510 KS) is up 65.5% in the last month and we’d look to lighten positions on this move higher.

• Samsung C&T announced that it plans to cancel treasury shares including 7,807,563 shares of common stock (4.2% of outstanding shares) and 159,835 shares of preferred stock (9.8% of outstanding shares). 
• This would represent share cancellation amount of 1.1 trillion won and 17 billion won for Samsung C&T (028260 KS) (common) and Samsung C&T (02826K KS) (preferred).
• For the remaining treasury shares, the company will cancel 7.8 million shares in 2025 and 7.8 million shares in 2026. 

• Korean Air has reported a 4Q23 net loss of KRW235bn, which is down from a profit of KRW354bn in 4Q22. We had expected KRW264bn profit but higher opex/financing costs weighed
• We highlight 4Q23 saw KRW409bn in other financial expenses, which compared to an income of KRW322bn in 9M23. Without this, KAL would have generated profit of around KRW200bn in 4Q23
• Pre-Pandemic, 4Q saw a near-breakeven performance (KRW17-38bn losses in 4Q18-4Q19) so a KRW184bn profit in 4Q23 still remains strong relative to pre-pandemic levels

• One of the emerging trends in the Korean equity markets in the past several weeks has been the shift out of high beta, high P/E stocks to deep value stocks.
• In this insight, we will discuss about the top 10 stocks in Korea with highest net cash as percentage of market cap. 
• These 10 stocks are up on average 2.9% YTD, outperforming KOSPI which is down 5.9% in the same period.

• Today, the Financial Services Commission of Korea announced treasury stock rule improvements: (1) No new share allocation to treasury shares during equity spinoffs. (2) Strengthened disclosure requirements.
• No mandatory cancellation may disappoint the market. Nevertheless, the decision not to issue new shares during equity spinoffs amplifies the volume targeted during subsequent tender offers, potentially intensifying price impacts.
• Also, enhanced disclosure for treasury stocks, especially for companies with over 10% holdings, may trigger significant trading events based on pre-information about holdings and disposals.

• The de facto beneficiary of the EU EV subsidy, and historically, 46% of the sales were generated from Audi and BMW EVs. 
• Valuation has hit the trough, but with no positive catalyst in sight, it is difficult to make a bull case for Samsung SDI (006400 KS) .
• If the EU put up higher trade tariff for Chinese EV, it could jolt up SDI’s share price but until then, stay away. 

• The change in the dividend payment system in Korea in 2024 is likely to result in some attractive “double dividends” opportunities.
• According to the Korea Exchange, there are seven stocks that have changed their dividend record dates policy last year and also that pay quarterly dividends. 
• Hyundai Motor (005380 KS) (common) provides a dividend yield of 5.8% and Hyundai Motor (005385 KS) (pref) provides a dividend yield of 9.6% at current prices.

• There are a few stocks in Korea that have outperformed/ underperformed their peers and could be added to or deleted from global passive portfolios next month.
• There could be buying in EcoPro Materials and Hanjin KAL while Hotel Shilla, Pearl Abyss, F&F, Hyundai Mipo Dockyard, Hanon Systems and Jyp Entertainment could be sold.
• There will be a lot of flow on the stocks and passive trackers will need to trade over 7 days of ADV in most stocks.

• E Mart Inc (139480 KS) has been a strong outperformer this year (up 5.6% YTD) versus KOSPI which is down 5.8% in the same period. 
• We expect E Mart to outperform the market in the rest of 2024 driven by two major factors including “open on Sundays” policy and focus on low P/B stocks. 
• E Mart is trading at P/B of 0.2x versus Coupang which is trading at P/B of 8.3x. E Mart is more attractive than Coupang, especially considering the recent catalysts. 

• LS Materials completed its 15-day review but hasn’t been announced for fast entry, likely due to KRX’s Korean document disclosing the effective date starting February 1, 2024.
• LS Materials will be in the June rebalancing, having not met the 6-month listing requirement for the June review, thus subject to the special entry rule.
• Hyundai Hyms, surging 300% from IPO, ranks 58th by market cap, poised for KOSDAQ 150 entry. If successful, Unitest will be removed.

• SK Hynix reported Q423 revenues of 11.31 trillion won, up 25% QoQ and up 47% YoY
• Operating profit of 346 billion won, marking the first quarter of profit following four straight quarters of losses.
• SK Hynix is investing heavily in custom memory solutions driven by AI-related demand. It’s a far better and more profitable business model than the mainstream commodity one.

• The US Department of Transport (DOT) has ordered the termination of Delta and Aeromexico’s joint venture from October 2024 due to access restrictions in Mexico City.
• This follows the (unrelated) US blocking of JetBlue’s planned acquisition of Spirit Airlines on the grounds that it would negatively impact consumers.
• Each case is different, but the US has previously voiced concerns regarding Korean Air’s planned merger with Asiana, and the bar continues to rise for M&A/JV approval globally.

• Samsung Biologics (207940 KS) reported 11% YoY growth in revenue to KRW1.07 trillion in 4Q23 driven by the ramp-up of operation of its Plant 4 and robust sales backlog.
• The company closed 2023 with record high revenue and operating profit, bucking the weakening trend in overall global CDMO sector.
• The outlook remains strong, with resilient business performance expected to drive a 10–15% annual growth in revenue for 2024.

• The KOSPI 200 INDEX closed the last week up, after 3 weeks down in a row (CC=-3).
• The index could pullback again this week, after last week’s bounce, support is around 332-325 or, if the market goes lower, around the 313 price area.
• Most likely the pullback will last only for 1-2 weeks (if any), but caution is advised: a longer pullback that could reach below 313 is not impossible.

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 Malls Indonesia Retail Trust
• SK Hynix

• Yesterday, five companies disclosed dividend record dates and amounts. Hyundai Motor set record dates before March futures expired. Hyundai Motor offers single stock futures, presenting arbitrage opportunities.
• Daily updates and monitoring of dividend arbitrage spread are crucial. Despite limited English support, KLCA webpage proves effective with prompt updates, simplifying the process.
• KLCA webpage offers real-time updates and intuitive layout, ideal for dividend arbitrage trading preparation in the Korean market.

• Foosung announced a rights offering worth 101 billion won. The estimated rights offering price is 7,850 won which is 22% discount to closing price on 25 January (10,070 won). 
• The rights offering will involve 12.9 million shares (13.7% of outstanding shares). Of the 101 billion won in rights offering, the company will use 88.3 billion won in facility investments.
• We are negative on Foosung overall and on the rights offering. Despite the company’s turnaround this year, there are concerns about share dilution plus valuations are not particularly attractive.