Category

South Korea

Nov 26
0

Daily Brief South Korea: KB Financial, Classys and more

By | Daily Briefs, South Korea

In today’s briefing:

  • ELS Losses Related to Hong Kong H-Index Could Top Nearly 3 Trillion for Major Korean Banks in 2024
  • Classys (214150 KS): Record High Quarterly Performance in Q3; 2024 to Continue to Be Radiant

ELS Losses Related to Hong Kong H-Index Could Top Nearly 3 Trillion for Major Korean Banks in 2024

By Douglas Kim

  • The FSS has launched a formal investigation into KB Kookmin bank due to potentially massive losses related to the HSCEI linked ELS products. 
  • The three major listed banking groups (KB Financial, Shinhan Financial, and Hana Financial) could be burdened with nearly 86% of the HSCEI linked ELS losses (close to 2.6 trillion won). 
  • Major Korean banks may need a “Hail Mary” pass to avoid this disaster. Such positive outlook would include sharply rising HSCEI index in 2024, similar to what happened in 2016. 

Classys (214150 KS): Record High Quarterly Performance in Q3; 2024 to Continue to Be Radiant

By Tina Banerjee

  • Classys (214150 KS) reported solid performance in 3Q23, with revenue and operating profit growing 45% and 41%, YoY, respectively, mainly driven by export in devices and domestic sales of consumables.  
  • Despite being an offseason, Q3 2023 witnessed increase in both the number of countries selling the new product Ultraformer MPT and the monthly average domestic sales of Volnewmer.
  • Continued improvement in equipment sale and increasing consumables contribution should drive growth in 2024. Entry into the U.S. and China will be the key for re-rating of the stock.   

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Nov 25
0

Daily Brief South Korea: Orion Corp, Doosan Robotics and more

By | Daily Briefs, South Korea

In today’s briefing:

  • 2024 High Conviction: Orion Corp
  • 2024 High Conviction – Doosan Robotics – Levitating

2024 High Conviction: Orion Corp

By Douglas Kim

  • We are positive on Orion Corp. Regardless of the overall market movement next year (up or down), we believe Orion Corp could outperform KOSPI in the next 6-12 months.
  • The company has millions of loyal customers in major overseas countries including China, Russia, and Vietnam. Despite difficult operating conditions, Orion continues to generate stable growth in sales and profits.
  • Orion Corp’s valuations are attractive. Orion Corp is currently trading at 2024E EV/EBITDA of 4.4x (42% lower than average valuation multiple from 2019 to 2023).

2024 High Conviction – Doosan Robotics – Levitating

By Ethan Aw

  • In Oct 23, Doosan Robotics (454910 KS) raised around US$318m through its Korean IPO, after pricing the IPO at the top end of the range at KRW26,000/share.
  • Doosan Robotics (DR) manufactures and sells collaborative robots (Cobots). The firm’s product portfolio primarily includes different series of robot arms as well as its coffee module.
  • In this note, we will talk about the company’s past performance and future prospects.

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Nov 24
0

Daily Brief South Korea: Celltrion Healthcare , Eoflow , HDC Hyundai Development Co-Engineering & Construction, Korea Zinc, LX International and more

By | Daily Briefs, South Korea

In today’s briefing:

  • KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises
  • EOFlow (Further) Tests Investor Patience
  • KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used
  • Understanding & Assessing Yearend Dividend Arbitrage Structure Using Futures in Korea
  • LX International: Positive Impact from Not Participating in Main Bidding for HMM

KOSDAQ150 Index Rebalance: 17 Changes a Side; Many Surprises

By Brian Freitas

  • There are 17 inclusions and 17 exclusions for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance to be implemented at the close on 14 December.
  • While most of the inclusions were expected, there are many differences on the deletes. Trading the strategy becomes tougher with the short sell ban in place.
  • The adds have started to outperform the deletes over the last month and there could be more movement over the next 3 weeks to implementation.

EOFlow (Further) Tests Investor Patience

By David Blennerhassett

  • Back on the 25 May, when Medtronic Plc (MDT US) enter into a SPA with EOFlow (294090 KS)‘s CEO, with a follow-on Tender Offer, the whole construct looked pretty clean.
  • Then in August Insulet Corp (PODD US) launched its lawsuit, which in hindsight, should have been expected. Then earlier this month, news surfaced concerning a stock-backed loan to the CEO.
  • Now the CEO is selling, presumably to repay his collateralized loan. Shares are down 38% since the resumption of trading, and are now at a whopping 122% spread to terms. 

KOSPI200 Index Rebalance: Mostly Expected Though Some Discretion Used

By Brian Freitas

Understanding & Assessing Yearend Dividend Arbitrage Structure Using Futures in Korea

By Sanghyun Park

  • As the ex-dividend date in Korea has been before the dividend is determined, SSFs trade at a discount based on the anticipated dividend rather than adjusting dividend settlement proceeds explicitly.
  • The current dividend arbitrage yield for the financial companies can be seen as reflecting the postponement of the ex-dividend date to the next year.
  • We should pay attention to those with a significant dividend arbitrage yield but that did not amend their articles of incorporation earlier this year.

LX International: Positive Impact from Not Participating in Main Bidding for HMM

By Douglas Kim

  • LX International announced today that it will not participate in the main bidding to acquire HMM Co.
  • This is likely to have a positive impact on LX International’s share price as many investors are relieved that company will not raise excessive amounts of capital to acquire HMM.
  • In addition, by not acquiring HMM, LX International has enough financial resources to continue to pay high dividends. 

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Nov 23
0

Daily Brief South Korea: K Car , SOCAR, DS Dansuk and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Ecopro Materials KOSPI 200 Fast Entry Assessment: With K Car as the Outgoing Constituent
  • A Potential Fight for Management Rights of Socar Between Lee Jae-Woong and Lotte Rental
  • DS Dansuk IPO Valuation Analysis

Ecopro Materials KOSPI 200 Fast Entry Assessment: With K Car as the Outgoing Constituent

By Sanghyun Park

  • The fast entry screening spans from November 17th to December 7th. Given its current market cap, we should anticipate the potential success of fast entry.
  • The implementation date will coincide with the effective day of the December rebalancing, which is December 15th. There are precedents of successfully achieving fast entry with such a tight schedule.
  • The setup will be challenging due to the short selling ban. Nevertheless, with an existing position, there may be value in a market timing approach.

A Potential Fight for Management Rights of Socar Between Lee Jae-Woong and Lotte Rental

By Douglas Kim

  • It was announced that founder of Socar Lee Jae-Woong purchased 336,000 additional shares of Socar. This signals a potential M&A fight for Socar between Lee Jae-Woong/related parties and Lotte Rental.
  • Founder Lee Jae-Woong and related parties currently own 37.8% stake in Socar versus Lotte Rental which has 32.9% stake.   
  • Socar is currently trading at more attractive valuations and we like the company’s aggressive strategy to raise profitability. 

DS Dansuk IPO Valuation Analysis

By Douglas Kim

  • Our base case valuation of DS Dansuk is 113,948 won per share which is 28% higher than the high end of the IPO price range (89,000 won). 
  • We estimate bio energy to account for 64.7% of total sales, followed by battery recycle (21.5%), plastic recycle (6.7%), and others (7.1%) in 2023. 
  • DS Dansuk is an eco-friendly company with three core businesses including bio energy, battery recycling, and plastic recycling.

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Nov 22
0

Daily Brief South Korea: Hanwha Ocean, Nice Holdings and more

By | Daily Briefs, South Korea

In today’s briefing:

  • What Should We Do About the Futures Basis Spread Caused by Hanwha Ocean’s Rights Offering?
  • Nice Holdings: Material Increase in Dividends and Share Cancellations

What Should We Do About the Futures Basis Spread Caused by Hanwha Ocean’s Rights Offering?

By Sanghyun Park

  • The day the basis spread disappears is this Friday, the 24th of November. This mirrors a comparable pattern observed during Korean Air’s rights offering in 2020.
  • If the spot price does not fall below the futures price of our entry until this Friday, we could potentially be in a profitable range.
  • There has been a notable pattern where the spread continues to exist until just before the moment when new share selling becomes feasible.

Nice Holdings: Material Increase in Dividends and Share Cancellations

By Douglas Kim

  • On 21 November, Nice Holdings (034310 KS) announced new shareholder return policies that included material increase in dividends and share cancellations.
  • First, Nice Holdings has decided to raise dividends by more than 10% every year for the next three years. Nice Holdings paid dividend per share of 410 won last year. 
  • Nice Holdings also announced that it will cancel more than 1% of total outstanding shares every year for the next three years. 

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Nov 21
0

Daily Brief South Korea: DS Dansuk, Hyundai Elevator Co and more

By | Daily Briefs, South Korea

In today’s briefing:

  • DS Dansuk IPO Preview
  • Hyundai Elevator: Hyun Jeong-Eun Resigns from the BOD Chairwoman Position

DS Dansuk IPO Preview

By Douglas Kim

  • DS Dansuk is getting ready to complete its IPO in Korea in the next several weeks. The IPO price range is from 79,000 won to 89,000 won. 
  • The book building for the institutional investors will be from 5-11 December. The IPO offering amount is from 96.4 billion won to 108.6 billion won. 
  • According to the bankers’ valuation, DS Dansuk’s valuation would range from 462 billion won to 522 billion won. 

Hyundai Elevator: Hyun Jeong-Eun Resigns from the BOD Chairwoman Position

By Douglas Kim

  • On 17 November, Hyun Jeong-Eun resigned from the Hyundai Elevator Co Board of Directors Chairwoman and internal director positions, mainly due to strong pressures from other major shareholders.
  • With Hyun Jeong-Eun finally out of the company, Hyundai Elevator is likely to significantly emphasize on improving its corporate governance.
  • Hyundai Elevator is considering new shareholder return policies, including a potential 50%+ dividend payout, higher share buybacks, and a mandatory minimum dividend yield.

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Nov 20
0

Daily Brief South Korea: BGF retail , Eoflow and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Understanding Extreme SSF Spreads in Korea & Trading Approaches
  • Merger Arb Mondays (20 Nov) – Eoflow, Origin, OreCorp, Azure, Hollysys, Toyo, Amara, Haitong Intl

Understanding Extreme SSF Spreads in Korea & Trading Approaches

By Sanghyun Park

  • Futures backwardation resulting from the short selling ban will persist. Also, the contraction of market making will lead to more widespread and frequent occurrences of extreme spreads.
  • The straightforward sell arbitrage (reverse cash and carry) is no longer viable. We must pay attention to the emergence of new price and trading patterns driven by these market conditions.
  • One potential pattern is the possibility of spot buying centered around those that exhibited extreme spreads at expiration. This has already been observed to some extent in this month’s expiration.

Merger Arb Mondays (20 Nov) – Eoflow, Origin, OreCorp, Azure, Hollysys, Toyo, Amara, Haitong Intl

By Arun George

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Nov 19
0

Daily Brief South Korea: SK Square and more

By | Daily Briefs, South Korea

In today’s briefing:

  • SK Square: Two Remaining Credible Options for 11 Street

SK Square: Two Remaining Credible Options for 11 Street

By Douglas Kim

  • We discuss the two remaining options for 11 Street post the cancellation of its sale to Qoo10 Pte.
  • As these strategic sale of 11 Street to Qoo10 Pte. has failed, the possibility of a forced sale of 11 Street by the financial investors has increased.
  • The higher probability event is for the Nile Holdings consortium to try to sell 11 Street to other financial investors.

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Nov 17
0

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

By | Daily Briefs, South Korea

In today’s briefing:

  • New Phase in Korean Short Selling: Immediate Impact of MM and LP Short Selling Ban
  • EOFlow Craters. Medtronic Stays Mum
  • Key Points We Should Know Regarding the Current Status of EOFlow

New Phase in Korean Short Selling: Immediate Impact of MM and LP Short Selling Ban

By Sanghyun Park

  • There is a prevailing sentiment in the local market that short selling by market makers (MM) and liquidity providers (LP) will effectively be prohibited very shortly.
  • The widening of the futures basis extends the influence of futures on the spot market prices. This is precisely where trading opportunities that we should be keenly observing may arise.
  • It also leads to a significant widening of ETF tracking errors due to the direct sell-off of underlying shares. We must capitalize on extreme spreads in ETFs.

EOFlow Craters. Medtronic Stays Mum

By David Blennerhassett

  • Five weeks after shares were suspended, EOFlow (294090 KS) shares resumed trading this morning, the 16 November. Wording is sparse on the resumption.
  • One small consolation was that EOFlow may benefit from the temporary ban on short selling. Irrespective, shares have declined ~27% at the open, as I type.  
  • Elsewhere, Medtronic Plc (MDT US) provides no guidance. The only other news of note are the various court filings in the District Court of Massachusetts.

Key Points We Should Know Regarding the Current Status of EOFlow

By Sanghyun Park

  • It can be considered that the suspension of EOFlow’s trading and, furthermore, the risk of delisting have been completely eliminated at this point.
  • EOFlow emphasizes the possibility of circumventing sales of EOPatch by supplying EOPump to a JV in China. The key factors that initially sparked Medtronic’s interest in EOFlow are still valid.
  • If CEO Kim fails to repay a stock collateral loan of ₩20B or secure additional loans, approximately 4% of the total issued shares could be sold in the market.

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Nov 16
0

Daily Brief South Korea: Eoflow , SK Telecom, EcoPro Materials, KB Financial and more

By | Daily Briefs, South Korea

In today’s briefing:

  • EOFLOW/Medtronic Tender: Trading Suspension Lifted, Now for the Hard Part
  • Eoflow: Outlook After Trading Resumes on 16 November
  • SK Telecom: Three Key Catalysts
  • Ecopro Materials IPO Trading – One of the Weakest Subscription Rates of the Year
  • S Korean Banks Screen; KB Financial (105560 KS) Most Compelling on Valuations, Return Trends & PEG

EOFLOW/Medtronic Tender: Trading Suspension Lifted, Now for the Hard Part

By Arun George

  • The KRX has completed its review and excluded Eoflow (294090 KS) from the substantive review for listing eligibility. Therefore, trading will resume tomorrow, 16 November.
  • The shares should rise on trading resumption as Medtronic’s tender remains in play, KRX’s review supported Eoflow’s business continuity and the short-selling ban-driven market rally.
  • Deal break risks remain significant. Medtronic Plc (MDT US)’s long-dated closing date and lack of Eoflow integration job postings suggest it remains concerned about near-term unfavourable court rulings. 

Eoflow: Outlook After Trading Resumes on 16 November

By Douglas Kim

  • On 15 November, the Korea Exchange announced that Eoflow (294090 KS) will start trading again on 16 November.
  • The fact that KRX has allowed Eoflow to trade again will be viewed positively by many investors. Plus, the recent temporary ban on short selling should also positively impact Eoflow.
  • We believe a higher probability event is for Medtronic to complete a tender offer of Eoflow sometime in 2Q 2024 at about 26,000 won. 

SK Telecom: Three Key Catalysts

By Douglas Kim

  • In this insight, we discuss three key catalysts that are likely to positively impact SK Telecom in the next several months.
  • The current gap between SK Telecom’s 2023 expected dividend yield (6.6%) and US 10 year treasury note (4.47%) is 2.13%.
  • The gap between SK Telecom’s dividend yield and US 10 year treasury note yield could widen to 3-4%+ in 2024, making SK Telecom’s dividend yield more attractive. 

Ecopro Materials IPO Trading – One of the Weakest Subscription Rates of the Year

By Ethan Aw

  • EcoPro Materials (ECO123 KS) raised around US$320m, after downsizing the deal and pricing its IPO at the low end of the range at KRW36,200/share.
  • Ecopro Materials (EPM) manufactures and sells high-nickel precursors, one of the key materials for high-nickel cathode materials for secondary (rechargeable) batteries.
  • In this note, we will talk about the demand for the deal and other trading dynamics.

S Korean Banks Screen; KB Financial (105560 KS) Most Compelling on Valuations, Return Trends & PEG

By Victor Galliano

  • In our latest South Korean banks screener; we switch from Hana Financial to KB Financial as our preferred Korean banks pick
  • NPLs and precautionary quality credits continue on a rising trend, whilst KB has controlled its NPL ratio and precautionary ratio better than most to 3Q23
  • KB has a low PBV ratio relative to its ROE, rising post-provision returns, a healthy CET1 ratio and a healthy LDR; Kakaobank is one for the watchlist

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