South Korea

• After biopharmaceuticals developer and producer Celltrion Inc (068270 KS) recently completed its merger with Celltrion Healthcare (091990 KS), Celltrion Pharm (068760 KS) came (more) into focus.
• Pharma is now up ~37% since Inc and Healthcare merged.
• That’s quite a lot of expectation baked in.  Probably too much.

• In this insight, we highlight the recent pricing gap divergences of the major Korean holdcos and opcos which could provide trading opportunities in 1Q 2024. 
• We highlight 38 pair trades that involve Korean holdcos and opcos.
• Of the 38 pair trades, 26 of them involved holdcos outperforming opcos in the past six months and 12 of them involved opcos outperforming holdcos in the same period.

• The review period for the March rebalance ends on 31 January, the changes will be announced early March and implemented at the close of trading on 14 March.
• There is one change currently for each of the Secondary Battery, Bio, Internet and Game indices. There are two changes for the BBIG Index.
• There will be big flow on Ecopro BM (247540 KS) and Posco Future M (003670 KS) and big impact on Douzone Bizon (012510 KS) and DearU (376300 KS). 

• In this insight, we discuss numerous gap trades involving Korean preferred and common shares in 1Q 2024. 
• The excessive gaps in the preferred and common shares of Kumho Petro Chemical, Amorepacific Corp, and Samsung Electronics could reverse in the next several months.
• We see some attractive longer-term opportunities for Amorepacific, Doosan Fuel Cell, LG Electronics, and CJ Cheiljedang which have especially high discounts for the preferred shares versus their counterpart common shares.

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.

• Indika Energy
• Lippo Malls Indonesia Retail Trust
• SK Hynix
• Vedanta Resources

• KRX’s lack of a standardized English translation platform may lead to non-standardized terminology and varying translation quality. KRX stresses cross-checking Korean and English disclosures due to potential errors. 
• The 3-day lag between Korean and English disclosures poses timeliness challenges, requiring consistent cross-checking. Overall, the process for foreign investors using Korean market disclosure sites remains largely unchanged.
• The common procedure should still be to first check disclosures using English titles, then convert to Korean for reading. If English disclosures exist, utilize them for cross-checking.

• Hyundai Hyms is getting ready to complete its IPO in KOSDAQ in January. The total IPO offering amount is 43.5 billion to 54.9 billion won. 
• The company is offering 8.7 million shares in this IPO, of which 40% are old shares and 60% are new shares. 
• Hyundai Hyms specializes in shipbuilding equipment. Hyundai Hyms’s main business includes shipbuilding equipment and related services. 

• We discuss the end of the mandatory lock-up periods for 41 stocks in Korea in January 2024, among which 4 are in KOSPI and 37 are in KOSDAQ.
• These 41 stocks on average could be subject to further selling pressures in January and could underperform relative to the market.
• Among these 41 stocks, top five market cap stocks include Posco International, Doosan Robotics, Rainbow Robotics, Qualitas Semiconductor, and PhilEnergy.

• Our base case valuation of APR is implied price of 370,809 won per share, representing an 85% upside from the high end of the bankers’ valuation range. 
• We estimate APR to generate sales of 683.9 billion won (up 25.7% YoY) and operating profit of 114.6 billion won (up 39.5% YoY) in 2024. 
• APR is one of the best IPOs in the Korean cosmetics sector in the past several years.

• APR is getting ready to complete an IPO in KOSPI in February 2024. The IPO price range is from 147,000 won to 200,000 won. 
• According to the bankers’ valuation, the company’s valuation is expected to range from 1.1 trillion won to 1.6 trillion won post IPO. 
• The company’s best selling product is its skin care beauty device product called Medicube Age-R. 

• On 29 December, Ecopro Group announced large selling of Ecopro Co Ltd (086520 KS) and Ecopro BM (247540 KS) by Daisy Partners worth 272 billion won in December.
• Daisy Partners is a company 100% owned by Chairman of Ecopro Group Lee Dong-Chae and his family members.
• Daisy Partners is likely to sell more shares in Ecopro Co and Ecopro BM in the next several years to increase the foundation’s capital to about 500 billion won.

• The spot prices of the newly listed SSFs generally exhibited a notable upward trend. This trend was consistently more pronounced in KOSDAQ-listed stocks compared to KOSPI-listed ones.
• Various factors, including actions by ETF operators, may contribute. Their SSF purchases could deepen contango, leading to temporary spot price increases through arb spread seekers anticipating this development.
• We should focus on a potentially consistent price pattern persisting before a sufficient learning effect accumulates. The tight schedule after July increases the likelihood of similar opportunities next March.

• On 27 December, Kum Yang announced that its shares will be listed on the US stock market in the form of DRs, resulting in its shares rising by 11.7%.
• The listing of Kum Yang ADRs is likely to have a short-term positive impact on its share price as this is likely to reduce free float of local common shares.
• Nonetheless, over the next 6-12 months, we expect Kum Yang’s share price to trade much lower (30% or more) as its shares are highly overvalued. 

• It was reported today that SK Pharmteco completed a 660 billion won in pre-IPO funding valuing the company at 4 trillion won.
• Prior to this investment, SK Inc owned a 100% stake in SK Pharmteco. After this investment, it is estimated that SK Inc will own about 83.5% stake in SK Pharmteco. 
• Our base case valuation of SK Inc is NAV of 19.0 trillion won (NAV per share of 258,967 won), representing a 47% upside from current levels.

• The Korean Supreme Court’s ruling on the stock transfer lawsuit between Hahn & Company private equity fund and Namyang Dairy’s Chairman Hong Won-Sik is confirmed for 4 January 2024.
• The expectation of Hahn & Co winning this legal dispute has positively impacted the share price of Namyang Dairy Products.
• The higher probability scenario is for the Korean Supreme Court to rule in favor of Hahn & Co, agreeing with the decisions of the two lower courts in Korea.

• The KOSPI 200 INDEX closed  up 8 weeks in a row and breached the Inner Fence resistance target at 349, the index is now very OVERBOUGHT.
• The upcoming pullback could be an occasion to go LONG at better prices: based on pattern analysis there is a chance the correction may be a large one, albeit fast.
• Support levels to buy are in the 346-336 price area.

• The adhoc KOSDAQ 150 Index rebalance and the regular Nifty200 Momentum30 Index rebalance will be implemented on Thursday and the SET 50 Index rebalance will be implemented on Friday.
• The review cutoff period for a whole bunch of indices ends on 29 December and the announcement of the results and implementation will take place early next year.
• There were big inflows to China ETFs and to Emerging Market ETFs including iShares Core Emerging Mar (IEMG US), Vanguard Emerging Markets (VWO US) and iShares Emerging Markets (EMXC US). 

• Fast entry is now permissible for KOSDAQ 150. Within 15 trading days post-listing, the average daily total market cap must rank among the top 30 ordinary stocks on KOSDAQ.
• KOSDAQ 150 will also allow newly established entities in corporate spin-offs, following KOSPI 200’s model. Inclusion is granted if the subsidiary ranks within KOSDAQ 150’s top 160 (80%).
• The ₩1.5T cutoff for KOSDAQ 150 fast entry suggests potential candidates nearing this threshold, like Oasis, Kurly (and maybe Kakao Entertainment).

• CPNG will provide Farfetch with a bridge loan to save it from default. In exchange, CPNG acquires Farfetch business and its US$ 460mn+ net debt.
• For Farfetch to achieve profitability, CPNG will need to conduct major layoffs and cancel brand deals, but both are difficult to achieve, in our view.
• CPNG only found limited overseas success in Taiwan, and EU poses an even greater challenge. We cut TP to US$ 14.1 on increased debt and FCF burden.

• Recent developments have continued to reinforce our bullish outlook on global equities (MSCI ACWI).
• There is no reason to fight this bullish trend, and we continue to expect more upside into the early part of 2024.
• Upgrading Mexico to Overweight; Technology Remains Global Leadership; Actionable Themes: 44 individual stock buy recommendations within Technology, Services, Consumer Discretionary, Financials, and Materials

• A double dose of StubWorld this week as Hanwha Corporation (000880 KS) comes up “cheap” on my monitor.
• Preceding my comments on Hanwha 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%.

• Posco DX (022100 KS) will move from the KOSDAQ Market to the KOSPI Market on 2 January. That means KOSDAQ150 Index (KOSDQ150 INDEX) deletion at the close on 28 December.
• In line with our forecast, Temc (425040 KS) will be added to the KOSDAQ 150 Index (KOSDQ150 INDEX) as a replacement.
• Short interest increased in Posco DX (022100 KS) following its inclusion in a global index and there should continue to be unwinding over the next week.

• HLB Inc (028300 KS) announced that it has decided to transfer listing from KOSDAQ exchange to KOSPI exchange.
• HLB currently has a market cap of 6.5 trillion won and HLB is likely to be included in KOSPI 200 in 2024. 
• One of the key reasons why the company has a large market cap is due to its Rivoceranib liver cancer drug which is being reviewed by the U.S. FDA. 

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Meituan
2. Lippo Malls Indonesia Retail Trust
3. SK Hynix
4. China Jinmao Holdings
5. Geely Auto

and more…