South Korea

• We should consider the complete prohibition of short selling for the next six months as practically finalized.
• Following the individual stock short selling ban, both position hedging and short demand will inevitably shift to the futures market, consequently inducing unavoidable immediate backwardation.
• We should design a setup that not only actively seizes sell arbitrage opportunities but also effectively capitalizes on the downward price pressure stemming from spot selling.

• Q323 revenues of KRW 67.4 trillion, up 12.3% QoQ but still down 7% YoY. 
• Operating profit KRW 2.4 trillion, a big improvement on the KRW 0.67 trillion in the second quarter but a far cry from the KRW 10.85 trillion in the year-ago quarter
• While Memory has turned the corner, yet further productions cuts are still required

• I tally 40 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deal was discussed on Smartkarma this week: Zhaojin Mining Industry H (1818 HK)‘s tilt for Tietto Minerals Ltd (TIE AU); and Teraoka Seisakusho (4987 JP)‘s MBO.
• Key updates took place for: Symbio Holdings (SYM AU), Lansen Pharmaceutical Holdings Co, Ltd. (503 HK), Celltrion Healthcare (091990 KS), and EOFlow (294090 KS).

• KRX did not acknowledge any business relevance between SK Square and the Semicon industry, leading to its exclusion from the KRX Semicon after the GICS change.
• We should consider the strong possibility that this same approach will be applied in the upcoming December KOSPI 200 IT rebalancing.
• If we observe a somewhat unusual downward trend in SK Square’s price from the 15th, this could be seen as a hint foretelling the announcement of SK Square’s exclusion.

• Back on the 17 August, biopharmaceuticals developer and producer Celltrion Inc (068270 KS) announced a merger with Celltrion Healthcare (091990 KS).
• On October 23rd, shareholders approved the merger. The appraisal rights exercise period commenced on the 23 October and ends on November 13. 28th December is the merger’s effective date.
• Initially, the stock purchase rights limit was set at 1₩tn; however Celltrion Group’s founder/Chairman Seo Jung-jin has removed this limit. That takes care of NPS, which opposes the merger.

• Lf Corp (093050 KS) is the 26th company in our Korea Small Cap Gems series. 
• LF Corp is one of the leading apparel companies in Korea which has a market cap of 411 billion won. LF Corp is trading at 0.3x P/B and 4x P/E.
• A key near-term catalyst is better than expected sales of the Reebok branded apparel that are promoted by the pop icon Lee Hyori. 

• The Appraisal rights exercise period ends on 13 November. If the NPS and other large shareholders exercise their rights in Celltrion Inc (068270 KS), the merger could be in trouble.
• Both stocks are trading close to their exercise price and could be supported due to the companies buying back their shares.
• There will be passive flows from local and global trackers and there does not appear to be pre-positioning. That is likely due to the risk of potential merger cancellation.

• We provide an updated NAV analysis of Hanwha Corporation which is a holding company of the Hanwha Group. We argue that Hanwha Corp’s shares are trading excessively below its NAV. 
• Hanwha Corp is down 10.5% YTD, underperforming Hanwha Aerospace (up 54.2% YTD). Hanwha Corp’s stake in Hanwha Aerospace is worth 1.9 trillion won (14% higher than Hanwha Corp’s market cap). 
• Our NAV analysis of Hanwha Corporation (000880 KS) suggests NAV of 2.3 trillion won or NAV per share of 30,203 won which is 33% higher than current price.

• This is our first report on South Korean e-commerce giant, Coupang Inc.
• The company delivered an all-around beat in the most recent quarterly result.
• The company observed an acceleration in revenue and active customer growth, particularly noteworthy for the rapid acceleration in active customer numbers.

• It was reported in numerous local media in Korea that FSS is investigating Kakao Mobility for a potential accounting fraud. 
• There are suspicions that Kakao Mobility may have artificially inflated its sales from 2020 to 2023 to enhance the value of the company prior to its IPO listing. 
• Given that the regulators are unlikely to make a final decision on this matter until next year, this is likely to be negative on both Kakao Mobility and Kakao Corp. 

• SK Hynix reported Q323 revenues of 9.066 trillion won, up 24% QoQ but still down 17% YoY
• Net income was -2.185 trillion won, a 27% improvement on the losses in the prior quarter.
• While DRAM has turned profitable, NAND remains stubbornly loss making and is likely to remain so for the foreseeable future

• We discuss the end of the mandatory lock-up periods for 48 stocks in Korea in November 2023, among which 6 are in KOSPI and 42 are in KOSDAQ.
• These 48 stocks on average could be subject to further selling pressures in November and could underperform relative to the market.
• Among these 48 stocks, top five market cap stocks include Doosan Robotics, Fadu, CanariaBio, Enchem, and Gigavis. 

• Asicland completed an excellent IPO book building results. IPO price has been determined at 25,000 won which is 17% higher than the high end of the IPO price range.
• A total of 1,906 institutional investors participated in this IPO book building results. The IPO demand ratio was 490 to 1. Asicland IPO will start trading on 13 November. 
• Our base case valuation of Asicland is implied market cap of 434 billion won or target price of 40,571 won per share, which is 62% higher than the IPO price.

• Both the implied stub for Amorepacific Group (002790 KS) and the simple ratio (Group/Amorepacific Corp (090430 KS)) are around lifetime low levels. 
• Preceding my comments on Amorepacific 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%.

• EcoPro Materials (ECO123 KS) is looking to raise up to US$469m in its Korean IPO.
• Ecopro Materials (EPM) manufactures and sells high-nickel precursors, one of the key materials for high-nickel cathode materials for secondary (rechargeable) batteries.
• In our previous notes, we covered the company’s performance, undertook a peer comparison and shared our thoughts on valuation. In this note, we will share our updated thoughts on valuation.

• On 30 October, Kum Yang announced that it has submitted an agenda to expand the issuance limit of CB and BW to 10 trillion won.
• This increase in the limit of CB and BW issuance to 10 trillion won would mean potential capital raise through these methods that are nearly 2x its entire market cap.
• Kum Yang may be trying to raise large amount of capital (several trillion won) which could result in significant dilution risk for the existing shareholders. 

• Our base case valuation of LS Materials IPO is target price of 6,628 won per share, which is 21% higher than the high end of the IPO price range.
• We estimate LS Materials to generate sales of 155.5 billion won (down 4% YoY) and 197.2 billion won (up 26.8% YoY) in 2024. 
• LS Materials is one of the largest players globally in the large-size ultracapacitors, which stabilize power supply and are used to replace and supplement primary batteries and lithium-ion batteries.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – EcoPro Materials (ECO123 KS), Cainiao Smart Logistics (1437124D HK), VNG (VinaGame) (VNG US) IPOs
• Event-Driven developments – Eoflow (294090 KS), Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), Symbio Holdings (SYM AU), Haitong International Securities Group (665 HK), Hollysys Automation Technologies (HOLI US). 

• L&F Co Ltd (066970 KS) has applied to the KRX for a transfer from the KOSDAQ market to the KOSPI market.
• Based on history, the approval for the transfer and the listing change could take place some time in December.
• L&F (066970 KS) will not be short-sell eligible for 6 months or longer. That means short covering prior to index deletion and a possible overshoot in the stock price.

• I tally 40 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deal was discussed on Smartkarma this week: Sociedad Quimica y Minera (SQM/B CI) tilt for Azure Minerals (AZS AU); and another MBO for Hollysys Automation Technologies (HOLI US).
• Key updates took place for: Energy One Ltd (EOL AU), EOFflow (294090 KS) , and Celltrion Healthcare (091990 KS) 

• In 3Q23, revenue jumped 2.5x YoY and 12.1x QoQ to KRW231.8 billion, mainly due to the inflow related to Novavax vaccine contract settlement and resumption of flu vaccine production.
• Despite significantly improved Q3 result, SK Bioscience is expected to end 2023 on a weak note, due to the absence of contract manufacturing revenue from Novavax.
• SK Bioscience has applied for EUA for the updated Novavax COVID-19 vaccine in Korea. Once approved, the company targets to distribute the vaccine during 2023–2024 winter seasons in Korea.

• L&F will likely be listed on the KOSPI in mid-December. The top reserved issue within the KOSDAQ 150 IT Sector will be added to the index via an ad-hoc change.
• Selvas AI stands as the foremost candidate for the screened top reserved issue, with a mere two trading days remaining in the six-month screening period.
• Given the relatively limited proactive position buildup due to more uncertainty regarding timing, the price impact leading up to the effective date might become even more significant.

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. Adani Green Energy
2. Vedanta Resources
3. China Jinmao Holdings
4. Geely Auto
5. First Pacific Co

and more…

• The pivotal question now is the number of these companies that will effectively defer their year-end ex-dividend date to April next year.
• The most reliable way to accurately confirm this would be to check how many of them will publicly announce the dividend reference date two weeks before the December year-end deadline.
• This will serve as the most critical indicator in determining whether this year’s year-end flow trading event, the most significant in Korea, will recur.

• On 26 October, it was announced that Ecopro Innovation is selling 160k shares of Ecopro BM shares (0.2% of outstanding shares), representing about 32 billion won.
• Although the percentage of shares is small relative to its outstanding shares, this additional selling is likely to further negatively impact Ecopro BM’s shares in the near term.
• Ecopro BM’s shares have seen a significant drop in price over the past few months, but its current P/E (87.3x in 2023) and EV/EBITDA (46.9x in 2023) multiples remain unattractive.

• In this insight, we discuss the increasing probability of Kakao Corp (035720 KS) losing its controlling shareholding of KakaoBank (323410 KS).
• The FSS Chairman Lee Bok-Hyun emphasized that the FSS may punish Kakao Corp for a potential stock manipulation of S.M.Entertainment amid the M&A tender offer process earlier this year.
• At this point, the higher probability event appears to be a combination of fine and Kakao Corp selling at least 10% of its stake in Kakao Bank to another company.

• In 3Q23, Samsung Biologics (207940 KS) reported record high quarterly revenue of KRW1.03 trillion, driven by successful ramp-up of plant 4 and full-scale operation of plant 1–3.
• Cumulative CDMO backlog surpassed $11.8B and the company has secured 14 of the global top 20 biopharmaceutical companies as its clients.
• Encouraged by strong ramp-up of plant 4, Samsung Biologics continues to expect 20%+ revenue growth in 2023. The company targets to complete the construction of plant 5 in April 2025.