South Korea

I confirmed that Posco DX will be incorporated into the KOSPI 200 IT Sector Index. The implementation date for this is also scheduled for March 15th.
The direct flow size from the KOSPI 200 IT into Posco DX is approximately 0.3x ADTV, implying a noteworthy price impact on March 14th, concentrated from 2:00 PM to close.
When designing Posco DX’s March 14 KOSPI 200 inclusion flow setup, we must also proactively design strategies to capture flows from the KOSPI 200 IT within a narrow time window.

Mohegan Gaming’s Inspire Resort to Launch the First Foreigners Only Casino in Korea in 19 Years

On 24 January, Mohegan Gaming & Entertainment announced that it has received the final approval to open a foreigners-only casino at its Inspire resort complex in Incheon, South Korea.
This will become the first new foreigners-only casino in Korea in 19 years. Currently, there are 17 foreigners-only casinos in Korea.
The opening of the Inspire Resort in Incheon, Korea will likely have a negative impact on the foreigners only casino operators in Korea including Paradise Co Ltd (034230 KS).

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Jan 24

Daily Brief South Korea: L&F Co Ltd, EcoPro Materials and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSPI200 Index Rebalance (March): Fast Entry for PoscoDX; Will L&F Make It Too?
A Sharp Downturn in Price Momentum of Rechargeable Battery Stocks in Korea in January 2024

KOSPI200 Index Rebalance (March): Fast Entry for PoscoDX; Will L&F Make It Too?

KRX has announced that Posco DX (022100 KS) will replace Shinsegae International Co (031430 KS) in the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) at the close on 14 March.
Passive trackers will need to buy 0.5 days of ADV in Posco DX (022100 KS) while selling in Shinsegae International (031430 KS) is larger at over 7 days of ADV.
L&F (066970 KS) lists on the KOSPI market on 29 January; there is a possibility that the stock is also added to the index in March as a Fast Entry.

A Sharp Downturn in Price Momentum of Rechargeable Battery Stocks in Korea in January 2024

In this insight, we discuss the sharp share price declines of rechargeable battery related stocks in Korea so far in 2024.
The top 20 market cap rechargeable battery related stocks in Korea are down on average 15.9% YTD, underperforming KOSPI which is down 6.7% in the same period.
Many rechargeable battery related names in Korea continue to have lofty valuations. The 20 rechargeable battery names are trading at median P/E of 79.7x in 2023 and 39x in 2024.

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Jan 23

Daily Brief South Korea: L&F Co Ltd, Coupang and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSDAQ150 Adhoc Index Rebalance: Seronics to Replace L&F
Temu and AliExpress Taking Away Meaningful Market Share from Coupang in Korea

KOSDAQ150 Adhoc Index Rebalance: Seronics to Replace L&F

L&F Co Ltd (066970 KS) will move from the KOSDAQ Market to the KOSPI Market on 29 January. That means KOSDAQ 150 Index deletion at the close on 26 January.
As the highest ranked non-constituent from the Information Technology sector at the December rebalance, Seronics Co Ltd (042600 KS) will be added to the index.
Short interest on L&F Co (066970 KS) is 1.8m shares (KRW 364bn; 4.98% of shares outstanding; 7.24% of float; 2.4x ADV). There could be recalls from passives and forced covering.

Temu and AliExpress Taking Away Meaningful Market Share from Coupang in Korea

In this insight, we discuss how Temu and AliExpress have been taking away meaningful market share away from Coupang (CPNG US) in Korea in the past year.
Temu’s MAU skyrocketed in the past year in Korea. Temu’s MAU surged from zero in January 2023 to 3.28 million as of December 2023.
One could argue that Coupang’s valuations are overvalued relative to its Chinese competitors such as PDD Holdings (PDD US).

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Jan 22

Daily Brief South Korea: Korea Stock Exchange KOSPI 200 and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KRX Introduces Market Orders for Single Stock Futures: Potential Trading Impacts

KRX Introduces Market Orders for Single Stock Futures: Potential Trading Impacts

KRX notified local brokerages last week about allowing market orders for single stock futures (SSF) from April. Currently, 192 SSFs are listed.
Anticipating short-term effects, heightened frequency and impact of erroneous orders may cause spot market confusion. KRX plans real-time bid disclosure for SSFs to prevent price distortions.
Nonetheless, we will likely observe SSF price volatility surges. Real-time bid exposure could exacerbate volatility due to premature information revelation. Preemptive position setups considering these factors are advised.

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Jan 20

Daily Brief South Korea: Hyundai Steel and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Identifying Specific Implementation Plans for Korea’s Low-PBR Improvement Policy

Identifying Specific Implementation Plans for Korea’s Low-PBR Improvement Policy

The Korean government has introduced policies ahead of April’s elections, with a recent notable announcement addressing the “Korea Discount” by enhancing low PBR stock valuations.
A leading proposal involves creating an index of low PBR companies. There are hints of listing ETFs tracking this index, with potential directives compelling pension funds to invest.
Identifying early inclusions is vital. High-likelihood candidates are low PBR large caps with maintained earnings, dividends/share buyback potential, including Hyundai Dept, E-Mart, Hyundai Steel, IBK, Korean Re, & DL E&C.

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Jan 19

Daily Brief South Korea: EcoPro Materials, APR and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Spotting Position Patterns: TIGER Battery ETF January Review & KODEX ETF’s March Rebalancing
Why Is APR IPO Getting Delayed?

Spotting Position Patterns: TIGER Battery ETF January Review & KODEX ETF’s March Rebalancing

TIGER ETF (305540) rebalanced on January 11th, with Ecopro Materials correcting by 4%, contrasting a 20% surge from Jan 8-10. TIGER recorded net purchases aligning with a 2% inclusion weight.
Preemptive positions by local hedge funds were observed from Jan 8-10, closing on the 11th. Despite a KOSPI decline and minimal sector movement, Ecopro Materials exhibited this unusual price pattern.
Observing this pattern implies a potential recurrence during the March rebalancing of KODEX ETF. Notably, local hedge funds may initiate similar preemptive positions. We should consider this in position setup.

Why Is APR IPO Getting Delayed?

APR announced it will delay its IPO. Now, APR’s book building has been postponed to 2 to 8 February. The IPO price range remains the same.
The company has provided updated preliminary sales and operating profits for 2023 in the revised IPO prospectus. Revenue was a bit light but OP was better than expected in 4Q23.
Our base case valuation of APR is 370,809 won per share which represents an 85% upside from the high end of the bankers’ valuation range (200,000 won).

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Jan 18

Daily Brief South Korea: EcoPro Materials, Samsung C&T and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSPI Size Indices – The Outperformance Continues
A 140% Increase in Share Cancellations by Korean Companies from 2021 to 2023

KOSPI Size Indices – The Outperformance Continues

The review period for the March rebalance of the KOSPI Size Indices started 1 December and will end 29 February. The changes will be implemented at the close 14 March.
We currently see 3 migrations from MidCap to LargeCap, 3 new adds to LargeCap, 6 migrations from LargeCap to MidCap, and 11 migrations from SmallCap to MidCap.
Historically, stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.

A 140% Increase in Share Cancellations by Korean Companies from 2021 to 2023

The total amount of share cancellations by Korean companies increased sharply in the past three years. Share cancellations of 6.1 trillion won in 2023 represented a 140% increase from 2021.
Although the total amount of share cancellations of 6.1 trillion won in 2023 seems fairly large, this represented only 0.24% of total market caps of Korean companies.
We also provide a list of seven Korean companies that have been targeted by activist investors to cancel more shares and improve corporate governance.

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Jan 17

Daily Brief South Korea: Hyundai Motor, LS Materials , Hyundai Hyms , Korean Air Lines, Orion Corp, Dongwon Industries and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

40 Names for Dividend Arbitrage in 1Q, Marking a Pioneering Initiative in Korea
KOSDAQ150 Index Rebalance Preview: Potential Adds Soaring; Short Sell Ban Not Helping
Hyundai Hyms IPO Bookbuilding Results Analysis
Korean Air – US Blocking of JetBlue/Spirit Continues Trend of M&A Opposition
Orion Corp: Concerns About Diversification into LegoChem Bioscience
Dongwon Industries – Announces Cancellation of 22.5% of Outstanding Shares

40 Names for Dividend Arbitrage in 1Q, Marking a Pioneering Initiative in Korea

K200 futures’ yearend contango exceeded expectations, triggering a surge in buy arbitrage. The subsequent selling pressure intensified, with strategic shifts observed in January futures/options, contributing to KOSPI’s underperformance this year.
Still, significant closure of K200 futures buy arbitrage should come around March, impacting February or March single-stock futures, potentially introducing substantial contango and suggesting lucrative dividend arbitrage in select stocks.
These 40 K200 constituents, with single-stock futures, are vital for our pioneering dividend arbitrage in Korea, directly influenced by buy arbitrage closures using K200 futures from last year.

KOSDAQ150 Index Rebalance Preview: Potential Adds Soaring; Short Sell Ban Not Helping

With over 40% of the review period complete, there could be 15 changes for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the June rebalance.
There could be two changes before that if L&F Co Ltd (066970 KS) and HLB Inc (028300 KS) complete their transfer from the KOSDAQ market to the KOSPI market.
The adds have outperformed the deletes and the KOSDAQ 150 Index since the start of the review period. The ban on short selling could lead to another leg up.

Hyundai Hyms IPO Bookbuilding Results Analysis

Hyundai Hyms reported excellent IPO bookbuilding results. IPO price has been determined at 7,300 won per share, which is 16% higher than the high end of the IPO price range.
A total of 2,099 institutional investors participated in this IPO book building. The demand ratio was 681 to 1. Hyundai Hyms IPO will start trading on 26 January.
Given the solid upside, we expect investors to push up the share price above the high end of our IPO sensitivity analysis (9,092 won) in the first day of trading.

Korean Air – US Blocking of JetBlue/Spirit Continues Trend of M&A Opposition

By Neil Glynn

The US Supreme Court has just blocked JetBlue’s planned acquisition of Spirit Airlines, ruling on the side of the US DOJ, which had sued to block the proposed deal.
Reuters has reported that the European Commission should approve Korean Air/Asiana imminently following analysis of concessions provided. However, the US and Japan also need to approve the deal.
In “Korean Air – Plan B should Asiana merger fail to gain approval” on 26 October 2023, we highlighted Korean Air is well positioned to continue as a standalone entity.

Orion Corp: Concerns About Diversification into LegoChem Bioscience

On 15 January, Orion Corp announced that its subsidiary PAN Orion Corp will purchase a 25.7% stake in Legochem Biosciences for 549 billion won.
LegoChem Bio specializes in antibody-drug conjugate (ADC) technology. Legochem Bio signed a total of 13 technology transfer contracts amounting to 8.7 trillion won in the past 9 years.
Most investors in Orion Corp would rather have the company focus on its core confectionery/snack business, rather than expand into high risk/high reward biotech business.

Dongwon Industries – Announces Cancellation of 22.5% of Outstanding Shares

On 16 January, Dongwon Industries (006040 KS) announced that it will cancel 10.46 million shares, representing 22.5% of outstanding shares.
We are positive on Dongwon Industries. This large amount of share cancellation will boost the company’s earnings per share and book value per share.
The shares subject to cancellation are the treasury stocks acquired by Dongwon Industries when it merged with Dongwon Enterprises in 2022.

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Jan 16

Daily Brief South Korea: L&F Co Ltd, Fila Holdings and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

L&F (066970 KS): Will the Stock Move Like PoscoDX Following the KOSDAQ to KOSPI Transfer?
Insiders Are Buying Shares In These Korean Companies in January 2024

L&F (066970 KS): Will the Stock Move Like PoscoDX Following the KOSDAQ to KOSPI Transfer?

Posco DX (022100 KS) rallied 50% following approval of its application to transfer from the KOSDAQ to the KOSPI market. Then the stock dropped 20% following completion of the transfer.
With L&F Co Ltd (066970 KS) applying for a section transfer a couple of weeks after Posco DX (022100 KS), approval could be imminent.
L&F Co Ltd (066970 KS) is up 46% since the start of November, but the stock has performed in line with the average of its peers.

Insiders Are Buying Shares In These Korean Companies in January 2024

We provide a list of four companies including Fila Holdings, Kolmar BNH, KG Mobility, and Hanwha Galleria where the insiders have been buying shares of their own companies.
These four stocks are up on average 5.6% in the past one month, outperforming KOSPI which is down 1.6% in the same period.
Insiders at Fila Holdings are probably increasing their stakes to capitalize on the price discrepancy as Fila Holdings’ 51% stake in Acushnet is 39% more than its current market cap.

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Jan 15

Daily Brief South Korea: Posco DX and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSPI200 Index Rebalance Preview: Four Potential Changes in June

KOSPI200 Index Rebalance Preview: Four Potential Changes in June