South Korea

• The closing date of the Eoflow (294090 KS)/Medtronic Plc (MDT US) transaction has been extended from 25 October 2023 to 3 January 2024. All other terms are unchanged.
• The bull view is that despite the preliminary injunction and share suspension, Medtronic’s move underscores its commitment to the transaction on current terms.
• The bear view is that the extension was Medtronic’s best move as it retains option value should Insulet’s lawsuit start floundering in court and KRX reinstate trading in Eoflow shares. 

• On 25 October, Eoflow announced that the M&A of Eoflow by Medtronic has been postponed. 
• The closing date for Eoflow’s stock transfer agreement with Medtronic has now been changed to 3 January 2024. 
• Although we believe Medtronic will continue to pursue Eoflow, the M&A tender offer price could be lowered to about 26,000 won, which would be nearly 20% higher than current price.

• We must acknowledge that the acquisition contract has not been withdrawn, signifying that we have averted the worst-case scenario.
• During the shareholders’ meeting on November 15th, it is crucial for us to pay attention to whether personnel from Medtronic are included in the list of new board candidates.
• If that’s the case, we can infer that Medtronic intends to go through with this deal, regardless of the litigation issues in the United States.

• LS Materials is getting ready to complete its IPO in Korea in late November. The IPO price range is from 4,400 won to 5,500 won per share. 
• According to the bankers’ valuation, the expected market cap after the IPO is from 298 billion won to 372 billion won. 
• 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.

• Curexo Inc (060280 KS) has been showing sales growth for five consecutive quarters since Q1 2022, mainly driven by the medical robot business, which accounts for nearly 50% of sales.
• In 2Q23, Curexo’s medical business sold 29 units and recorded highest quarterly sales of KRW9,744M (up 173% YoY and 15% QoQ), driven by strong demand in domestic and Indian market.
• Curexo raised 2023 sales guidance to KRW74 billion from KRW70 billion. Medical business is expected to sell 100 units and register revenue of KRW35 billion in 2023.

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.

• Adani Green Energy
• SK Hynix

• KRX has amended the stock selection methodology for the KOSPI2 INDEX and KOSDQ150 INDEX and added ‘Expert Judgement’ as a criteria.
• The qualitative and quantitative criteria and the detailed filtering standards will be described in the manual but will NOT be publicly disclosed.
• There is no change from using full market cap to free float market cap in stock selection, so the stocks that could be added/deleted will be broadly same as forecasts.

• In the past several days, there have been numerous local news about a substantial defense cooperation between Saudi Arabia and South Korea. 
• This could result in billions of dollars in new military/defense related systems new orders for numerous companies in Korea in the coming decade. 
• If there are major long-term arms deal between Saudi Arabia and South Korea, it could benefit the top defense companies in Korea including Hanwha Aerospace and Korea Aerospace Industries. 

• Celltrion Chairman Seo made a public statement, affirming that they are prepared to bear the entire cost, even if it exceeds the ₩1T ceiling, and proceed with the merger. 
• The relatively substantial cost risk associated with Celltrion Inc. due to the involvement of NPS is causing the merger swap spread to widen once more in comparison to Celltrion Healthcare.
• If the prices persist above the appraisal rights exercise prices, the relative cost risk for Celltrion Inc. could escalate, leading to a significant widening of the swap spread.

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – 111 Inc (YI US), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US), JSR Corp (4185 JP), Haitong International Securities Group (665 HK), Lithium Power International (LPI AU). 
• Lowest spreads – Healius (HLS AU), Pact Group Holdings (PGH AU), Origin Energy (ORG AU), T&K Toka Co Ltd (4636 JP), Kenedix Retail REIT (3453 JP), Chindata Group (CD US).

• Seoul Guarantee Insurance (031210 KS) stated today that it will cancel its IPO mainly due to low demand.
• Despite the company’s emphasis on high dividends and high ROA of 5.8% in 2022 (5x average ROA of the domestic non-life insurance companies), many institutional investors emphasized on the negatives.
• The major negatives include high interest rates, lack of growth potential, concerns about additional shares sale overhang, and unattractive valuations. 

• With the review period nearly complete, we see 15 potential changes for the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
• There could be index changes even before the December rebalance if there are prolonged trading suspensions and stocks migrate from the KOSDAQ Market to the KOSPI Market.
• The potential adds have sold off hard over the last six weeks, similar to the performance at the June rebalance.

• With the review period nearly complete, we expect 7 changes to the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX) in December. Couple of changes are low probability though.
• The Materials sector could be the biggest gainer at the rebalance while nearly all deletions could come from the Consumer Discretionary sector.
• The impact on the potential inclusion ranges from 0.15-15 days of ADV while the impact on the potential deletions varies from 1.7-8.1 days of ADV.

• Financial regulators will likely mandate Kakao Corp to divest all but 10% of its stake in Kakao Bank. The deadline is six months from the date of the order.
• If this issue is resolved through the forced sale of the stake, it is anticipated that this stake volume will eventually be released into the market through block deals.
• Kakao may proactively divest its Kakao Bank stake to transfer the majority shareholder position to KIS, regardless of the judicial outcome.

• The KOSPI 200 INDEX closed down last week (CC=-1) and is going towards the Q2/median support at 314. The index is also OVERSOLD MONTHLY (CC=-3)
• One possible scenario is to see the index downtrending into early/mid-November, find a bottom, and then begin a counter-rally from there.
• The index could go down more this week, but a LONG trade could begin at 314 support, and if that does not hold, the next support area is at 306.

• For the impending December rebalancing, the effective date is set for December 18th, while the ETF rebalancing trading will take place on December 15th.
• Jusung Engineering and Eugene Technology are likely to be added, while Lake Materials and SFA Semicon are expected to exit the index.
• Aside from constituent changes, Hansol Chemical is anticipated to significantly benefit from the passive impact as the primary beneficiary of the ceiling reversion.

• On 19 October, Kolmar Korea announced that it will conduct a merger share swap with Yonwoo early next year to make it into a 100% wholly owned subsidiary.
• We believe the merger share swap agreement between Kolmar Korea and Yonwoo is likely to have positive impact on both Kolmar Korea and Yonwoo.
• After this share swap is completed, Yonwoo will be delisted. This merger is aimed at improving the inefficient governance structure caused by duplicate listings and improve management efficiency.

• While Ecopro Co’s stock has undergone significant corrections since August, KB Financial has sustained an upward trajectory, leading to a significant reversal in float-adjusted market cap.
• The current disparity between the two exceeds ₩2T, making it challenging to anticipate another reversal until the screening period.
• Ecopro Co and LG Energy Solution also warrant attention due to the narrow gap in their float-adjusted market capitalization. We should monitor any changes in their market capitalization moving forward.

• Youngpoong Paper Mfg’s shares declined sharply by 30% to 33,900 won today, trading only 190k shares (3% of ADTV). 
• There is high probability that this sell-off could be related to CFD related margin call. 
• Daiyang Metal, the largest shareholder of Youngpoong Paper Mfg, also dropped limit down today. The Korea Exchange has temporarily suspended trading of both Youngpoong Paper and Daiyang Metal. 

• On 18 October, DL E&C announced that it will conduct a small scale share swap with DL Construction to make it into a 100% wholly owned subsidiary.
• We believe this merger share swap will have a positive impact on both DL E&C (375500 KS) and DL Construction (001880 KS) shares.
• To prevent shares dilution, DL E&C plans to cancel the same number of treasury shares of common stock as the number of newly issued shares of DL E&C common stock.

• On 16 October, Douzone Bizon (012510 KS) announced that it is entering the global software-as-a service (SaaS) market in cooperation with Amazon Web Services (AWS). 
• The agreement stipulates that Douzone Bizon will develop global SaaS through AWS support and enter overseas markets. 
• We believe shares of Douzone Bizon have been oversold. Valuations have become more attractive and its cooperation with AWS is also likely to improve the company’s overseas sales and profits. 

• The KOSPI 200 Index is currently rising for the 3rd week in a row and approaching the Q2 WEEKLY resistance level, but it’s a very weak rally.
• Between 329 and 331 there id a good area to go SHORT, the index could fall for 2-3 weeks from here, into early November.
• A negative close in October would be =3 months down in a row (CC=-3), November in that case would have good odds for a rebound and close up.

• On 17 October, Pan Ocean (028670 KS) announced that it will sell its 3.9 million shares (5.85% stake) in Hanjin KAL Corp (180640 KS) for about 163 billion won. 
• The main purpose of this stake sale is to secure more funds for Pan Ocean to potentially acquire HMM Co., Ltd. (011200 KS). 
• As evidenced by the recent increase in Baltic Dry Index, the potential expansion of the war in Israel could benefit major bulk shipping companies such as Pan Ocean.

• On 16 October, Kumho Petrochem (011780 KS) announced that it will cancel 0.77 million shares on 23 October, representing 2.6% of its outstanding shares or about 100 billion won. 
• We particularly like Kumho Petrochem preferred shares which provide a dividend yield of nearly 6.7% which is 2x the dividend yield of the common shares.
• Foreigners have been net buyers of Kumho Petrochem preferred shares this year while they have been net sellers of its common shares this year. 

• Bluemtec is getting ready to complete its IPO in KOSDAQ in the next several weeks. Bluemtec operates the number one pharmaceutical e-commerce platform in Korea. 
• The company is offering 1.4 million shares in this IPO. The IPO price range is from 15,000 won to 19,000 won.
• The company sales and gross profit growth increased impressively in the past several years. The company’s sales increased at a CAGR of 60.5% from 2020 to 2022.

• Latest filings on Insulet Corp (PODD US)’s voluntary dismissal without prejudice only to Flex (FLEX US), Eoflow (294090 KS)’s motion to restart Korean sales, dismiss a count and a timetable.
• Examining the court filings suggests Medtronic Plc (MDT US)’s access to court unredacted documents is restricted. Medtronic’s limited access makes evaluating the transaction’s potential litigation risk challenging.
• Eoflow’s defence in the court documents is based on reverse engineering and procedural arguments. The KRX will rule on Eoflow’s share trading suspension by 1 November.

• First, we can take on some risk and build up a short position using SSFs from now, aiming for an aggressively low price (likely Day 1) during the rights trading. 
• If this approach seems somewhat risky, the second is to wait until the rights trading and, although accepting some sacrifice in the spread, build positions relatively risk-free. 
• We can also actively build up a long position in the significantly backwardated SSFs from now and, instead, set up an aggressive short on the underlying shares.

• EcoPro Materials (ECO123 KS) is a leading player in the electrode material industry. It is seeking to raise up to US$470 million in a KRX IPO.
• We previously discussed the IPO in EcoPro Materials IPO: The Bull Case and EcoPro Materials IPO: The Bear Case.
• In this note, we look at the syndicate’s valuation methodology. Our valuation analysis suggests that the IPO price range is unattractive, and we would pass on the IPO.

• Should the nominated directors, to be voted on by EOFlow (294090 KS)‘s shareholders at the November EGM, include Medtronic Plc (MDT US) executives, then game on.
• Fast Retailing (9983 JP) STILL has a Nikkei 225 problem, which means it probably has to underperform Nikkei 225 slightly between now and the Base Date (31 July 2024).
• JMDC (4483 JP) has been one of the more annoying partial tenders out there. Even post-facto, it is tough to know what the disposition was. This is extraordinarily vexing.

• Hanall Biopharma (009420 KS)‘s licensed partner Harbour BioMed announced that the China’s NMPA has officially accepted the Biologics License Application for batoclimab for the treatment of generalized myasthenia gravis.  
• Immunovant announced positive initial result from the single-ascending dose portion of the Phase 1 trial of IMVT-1402. Initial data from the multiple-ascending dose cohorts are expected in October/ November 2023.
• Hanall and Daewoong have initiated phase 1 clinical trial of HL192 for the treatment of Parkinson’s disease, and dosed the first subject. The initial results are expected in 2H24.