South Korea

They said that EOflow has made a strategic decision not to raise any objections to the court’s injunction to temporarily suspend the sale and marketing activities of EOPATCH.
They stated their commitment to making efforts to actively prove that they are not subject to KRX’s substantive delisting examination. Hence, they aim to resume trading from November 1st.
They subtly hinted at a degree of caution, suggesting that the final agreement with Medtronic might undergo slight modifications to align with the outcome of this preliminary injunction.

Asian Dividend Gems: Koentec

We are starting a new series called “Asian Dividend Gems.” We plan to write about outstanding companies in Asia with high dividend yields (5% to 20%).
The first company in this series is Koentec. From 2018 to 2022, its dividend yield averaged 5.2% and its dividend payout averaged 80.8%. The current dividend yield is 7%.
Koentec is a leading Korean company that provides industrial waste incineration, steam production (utility), and waste landfill services.

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Oct 13

Daily Brief South Korea: Korea Stock Exchange Kospi Index, EcoPro Materials and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea Finally Offers Reliable Data Channel on Companies with Improved Dividend Procedures
Ecopro Materials: Reduces IPO Price Range
EcoPro Materials IPO: The Bear Case

Korea Finally Offers Reliable Data Channel on Companies with Improved Dividend Procedures

The Obligatory Corporate Governance Report Disclosure System will stand as the only source for furnishing trustworthy data on the proportion of listed companies that have genuinely adopted enhanced dividend procedures.
From a dividend strategy perspective, the companies of primary interest for strategic trading are predominantly those falling under the scope of this disclosure obligation.
Next year, it’s anticipated that with dependable data, we will have the means to craft dividend strategies aimed at this specific group.

Ecopro Materials: Reduces IPO Price Range

Ecopro Materials reduced the upper end of the IPO price range from 46,000 won to 44,000 won.
The bankers reduced the IPO discount, EV/EBITDA valuation multiple, and outstanding shares.
We maintain our Bearish view of the Ecopro Materials IPO. Our base case valuation of 37,436 won per share is towards to lower end of the IPO price range.

EcoPro Materials IPO: The Bear Case

EcoPro Materials (ECO123 KS) is a leading player in the electrode material industry. It is seeking to raise up to US$477 million in a KRX IPO.
In EcoPro Materials IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
The bear case rests on weakening sector market sentiment, margin pressure likely to persist, cash burn, elevated leverage and high related-party transactions.

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Oct 12

Daily Brief South Korea: Eoflow , Posco DX, Kia Corp, Kiwoom Securities and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

EOFlow’s Suspension Is Not (All) Negative
EOFLOW/Medtronic Tender: On Life Support
Eoflow: Temporary Trading Suspension
POSCO DX (022100 KS): Index Impact of KOSDAQ to KOSPI Transfer
A Noteworthy ETF Flow Trading Opportunity Targeting the Pair Comprising Kia & Posco Future M
Kiwoom Securities: Announces Material Improvement in Shareholder Return Policies

EOFlow’s Suspension Is Not (All) Negative

By David Blennerhassett

On the 6th of October, a US district court judge entered a preliminary injunction (PI) against EOFlow (294090 KS), pending a trial. This development should have been expected.
Less expected was the suspension of EOFlow shares today, and the cessation of sales globally.
The latter measure appears extreme, noting the PI addresses only sales in the US, which EOFlow is not permitted anyway, without FDA approval. There’s clearly more than meets the eye.

EOFLOW/Medtronic Tender: On Life Support

In reaction to the preliminary injunction, Eoflow (294090 KS) shares were suspended as it is reviewing whether it is subject to a substantive review for KOSDAQ listing eligibility.
Medtronic Plc (MDT US) is in an unprecedented situation of potentially acquiring a company whose shares are suspended, has a preliminary injunction against it and exposure to possible liabilities.
Medtronic could have prevented this development by reaffirming its commitment to the deal. The transaction is on increasingly shaky grounds, which is reflected in the 38.2% gross spread.

Eoflow: Temporary Trading Suspension

On 10 October, the Korea Exchange announced a temporary suspension of trading of Eoflow (294090 KS) shares starting 11 October.
Eoflow decided at its board of directors meeting the previous day (10th) to suspend production and sales of Eoflow patches until the outcome of the lawsuit is resolved.
In this insight, we provide various scenario analysis including the worst case, best case, and in-between cases of the Eoflow M&A tender offer process.

POSCO DX (022100 KS): Index Impact of KOSDAQ to KOSPI Transfer

By Brian Freitas

Posco DX (022100 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 in the next two months.
That means a deletion from the KOSDAQ 150 Index (KOSDQ150 INDEX) and inclusion in the Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX). But the timeline is important.

A Noteworthy ETF Flow Trading Opportunity Targeting the Pair Comprising Kia & Posco Future M

Kia is set to make a comeback, while the exclusion of Posco Future M is on the horizon.
The screening date is set for November 30th, and the effective date is December 18th, which means the ETF rebalancing will take place on December 15th.
The exposure period to the market is relatively short, so it’s essential to acknowledge the limited accumulation of learning effects. This suggests we can anticipate a notably substantial price impact.

Kiwoom Securities: Announces Material Improvement in Shareholder Return Policies

On 10 October, Kiwoom Securities announced shareholder friendly policies. This could lead to Kiwoom Securities outperforming other major Korean securities companies in the next several months.
First, the company will return more than 30% of its net profit to the shareholders in the next three years through dividends and share buybacks/cancellations of treasury shares.
In addition, Kiwoom Securities plans to cancel all 1.4 million treasury shares it currently holds, representing 5.3% of outstanding shares.

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Oct 11

Daily Brief South Korea: Cosmecca Korea and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Cosmecca Korea (241710 KS): Strong 2Q23 Result; Favorable Industry Tailwind to Enhance the Glow

Cosmecca Korea (241710 KS): Strong 2Q23 Result; Favorable Industry Tailwind to Enhance the Glow

By Tina Banerjee

Cosmecca Korea (241710 KS) clocked revenue of KRW115.7B (up 15% YoY) and operating profit of KRW11.2B (up 265% YoY) in Q223. Operating profit margin expanded 670bps YoY to 9.7%.
Cosmecca is a key beneficiary of the increasing global demand for the affordable indie cosmetics brands. These brands are now outpacing the overall beauty and personal care industry.
Since reporting strong Q1 result in May, Cosmecca Korea shares are on fire. Cosmecca is expected to continue its growth momentum due to strong global demand for affordable cosmetics.

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Oct 10

Daily Brief South Korea: SK Telecom, Daesang Corporation, Seoul Guarantee Insurance, EcoPro Materials and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea – Positioning in Stocks That Could Have Global Passive Flows
Prime Target for Flow Trading Due to Low Pre-Exposure in December KOSPI 200 Rebalancing
Seoul Guarantee Insurance IPO Industry Analysis
EcoPro Materials IPO: The Bull Case

Korea – Positioning in Stocks That Could Have Global Passive Flows

By Brian Freitas

Posco DX (022100), Kum Yang (001570), SK Telecom (017670), Lotte Energy Materials (020150), Kakao Games (293490), Pan Ocean (028670), BGF retail (282330), Netmarble (251270) have been on investors/traders radars recently.
There could be liquidity events in some of the stocks next month as passive index trackers look to buy/sell the stocks.
Foreign investors have sold Lotte Energy Materials (020150 KS), Kakao Games (293490 KS), Pan Ocean (028670 KS) and Netmarble (251270 KS) while buying BGF retail (282330 KS).

Prime Target for Flow Trading Due to Low Pre-Exposure in December KOSPI 200 Rebalancing

Posco DX’s KOSPI 200 fast entry effective date will likely coincide with the December regular rebalancing date.
We should focus on the ad-hoc change deletion as we can expect more pronounced price impact near the effective date due to lower chances of premature exposure than regular reviews.
The following three candidates are screened: K Car, Daesang Corporation, and Shinsegae International. They are all likely to exhibit a significant passive impact (x ADTV).

Seoul Guarantee Insurance IPO Industry Analysis

In this insight, we provide additional industry analysis of Seoul Guarantee Insurance Corp which is getting ready to complete its IPO in Korea in the next several weeks.
The IPO of Seoul Guarantee Insurance is an important signal that the Korean government may allow greater competition in the local surety insurance market in 2-3 years.
SGIC has promised high dividends. If we assume the IPO price at the low end of the IPO price range (39,500 won), this would suggest a dividend yield of 8%.

EcoPro Materials IPO: The Bull Case

EcoPro Materials (ECO123 KS) is a leading player in the electrode material industry. It is seeking to raise up to US$500 million in a KRX IPO.
EcoPro Materials is offering 14.5 million shares at an IPO price range of KRW36,200-46,000 per share. Book building runs from 30 October to 3 November, with pricing on 7 November.
The bull case rests on attractive addressable markets, aggressive production capacity expansion, ambition to be the leading non-Chinese player, strong revenue growth and improving cash conversion cycle.

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Oct 09

Daily Brief South Korea: Eoflow , EcoPro Materials and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Merger Arb Mondays (09 Oct) – Eoflow, Haitong Intl, NWS, Boustead, Newcrest, Liontown, Hollysys
Ecopro Materials IPO – Thoughts on Valuation – Needs a Margin of Safety

Merger Arb Mondays (09 Oct) – Eoflow, Haitong Intl, NWS, Boustead, Newcrest, Liontown, Hollysys

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 – Haitong International Securities Group (665 HK), 111 Inc (YI US), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US), IMAX China Holding (1970 HK), BPLANT.
Lowest spreads – Yaizu Suisankagaku Industry (2812 JP), Healius (HLS AU), T&K Toka Co Ltd (4636 JP), Pact Group Holdings (PGH AU), Seiko Pmc Corp (4963 JP).

Ecopro Materials IPO – Thoughts on Valuation – Needs a Margin of Safety

By Ethan Aw

EcoPro Materials (ECO123 KS) is looking to raise up to US$500m 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 note, we covered the company’s performance and undertook a peer comparison. In this note, we will share our thoughts on valuation.

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Oct 08

Daily Brief South Korea: SK Innovation, Eoflow and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SK Innovation – Why It Hasn’t Worked
(Mostly) Asia-Pac Weekly Risk Arb Wrap: EOFlow, Newcrest, JMDC, Boustead Plantation, Symbio, Aeon

SK Innovation – Why It Hasn’t Worked

By Ken S. Kim

Has SK Innovation raised enough money for its longer term ambitions?
What is the stock pricing in that is not apparent on the balance sheet?
It seems really given their capex outlet, dilutive cap raising is the only solution

(Mostly) Asia-Pac Weekly Risk Arb Wrap: EOFlow, Newcrest, JMDC, Boustead Plantation, Symbio, Aeon

By David Blennerhassett

I tally 47 – 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 deals were discussed on Smartkarma this week: Haitong International Securities Group (665 HK)‘s Scheme; and Aeon Co (8267 JP)‘s partial. Arguably, Boustead Plantations (BPLANT MK)received another offer.
Key updates took place for: EOFlow (294090 KS), Newcrest Mining (NCM AU), JMDC (4483 JP), Boustead Plantations (BPLANT MK), Symbio Holdings (SYM AU), and T&K Toka Co Ltd (4636 JP).

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Oct 07

Daily Brief South Korea: Eoflow , Eo Technics, Amorepacific Corp and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

EOFlow: Insulet’s Injunction Doesn’t Thwart Medtronic’s Acquisition
Long Short Flow Trading Opportunity: TIGER Semicon Top 10 ETF Rebalancing Next Friday
What Did NPS Buy and Sell in 3Q 2023?

EOFlow: Insulet’s Injunction Doesn’t Thwart Medtronic’s Acquisition

By David Blennerhassett

After Insulet Corp (PODD US) lodged a lawsuit against EOFlow (294090 KS), Flex, inter alia, on the 3rd August, the judge has thrice extended the temporary restraining order.
But the big (ger) news is that a preliminary injunction comes into force today. Shares are down 2.5% as I type.
This latest development should have been expected. And put simply: a proposed preliminary injunction doesn’t prevent Medtronic Plc (MDT US) from acquiring EOFlow.

Long Short Flow Trading Opportunity: TIGER Semicon Top 10 ETF Rebalancing Next Friday

LX Semicon and Tokai Carbon Korea will be excluded, and these two positions will be filled by Eo Technics and either HPSP or ISC Co Ltd.
The effective date is October 16th, and the rebalancing trading by the TIGER ETF occurs towards the closing (likely to start around 2 p.m.) on Friday, October 13th.
The practical setup would entail an EO Technics-TCK Long Short pair. For a more aggressive strategy, we could explore the inclusion of HPSP in this setup.

What Did NPS Buy and Sell in 3Q 2023?

In this insight, we provide the major changes in NPS’ stakes in 25 Korean companies in 3Q 2023.
In 3Q 2023, NPS reduced its stakes in the IT, construction, and contents related stocks. On the other hand, NPS increased its stakes in China’s re-opening and cosmetics related stocks.
Five Korean cosmetics stocks that NPS net purchased in 3Q 2023 are up on average 12.8% from end of June 2023 to as of 6 October 2023.

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Oct 06

Daily Brief South Korea: Eoflow , POSCO Holdings, Samsung Biologics , Ecoeye and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

EOFLOW/Medtronic Tender: Proposed Preliminary Injunction Is a Problem
Eoflow: Ozempic and Wegovy Reducing Need for Disposable Insulin Injection Devices + Ongoing Lawsuit?
Exploring the Launch of a Posco Group-Focused ETF: Flow Trading Insights
Samsung Biologics (207940 KS): Raises 2023 Sales Guidance Second Time This Year; Buy the Dip
Ecoeye IPO Valuation Analysis

EOFLOW/Medtronic Tender: Proposed Preliminary Injunction Is a Problem

The US judge has proposed a preliminary injunction which prevents Eoflow (294090 KS) from using Insulet Corp (PODD US)’s trade secrets and disclosing them to any third party.
Eoflow and other defendants must respond by 5 October. The court hearing is set for 16 October. The potential trial is to be discussed in Spring of 2024.
Medtronic Plc (MDT US) faces a difficult choice. If the injunction is enforced, Medtronic would acquire a ring-fenced asset exposed to potential court-determined liabilities.

Eoflow: Ozempic and Wegovy Reducing Need for Disposable Insulin Injection Devices + Ongoing Lawsuit?

Eoflow’s share price has dropped 27% lower than the proposed tender offer price of 30,000 won. Two major factors have negatively impacted Eoflow (294090 KS)’s share price.
First, in September 2023, there were new data that suggested that popular weight loss drugs including Ozempic and Wegovy could reduce the need for insulin injections with patients with diabetes.
Second, the ongoing lawsuit by Insulet continues to remain a major headache. Eoflow is not a KISS (“Keep It Simple Stupid”) stock.

Exploring the Launch of a Posco Group-Focused ETF: Flow Trading Insights

KRX approved the listing of ACE POSCO Group Focus. This fund mirrors the performance of the FnGuide POSCO Group Focus Index. KRX will announce the listing date next week.
This index encompasses 6 Posco affiliates and 4 non-Posco stocks. The top 3 constituents, each assigned a 25% weight, are POSCO Holdings, Posco International, and Posco Future M.
We should explore various long-short setups for stocks within the local battery sector (long Posco affiliates and short others), starting with the listing of this ACE POSCO Group Focus ETF.

Samsung Biologics (207940 KS): Raises 2023 Sales Guidance Second Time This Year; Buy the Dip

By Tina Banerjee

Samsung Biologics (207940 KS) expects 2023 revenue to grow by more than 20% YoY compared to 15–20% YoY growth expectations earlier, due to better-than-expected utilization of Plant 4.
For the first time in the company’s history, Samsung Biologics has won contracts worth nearly KRW3T during the first half of 2023, with eight contracts worth more than KRW100B each.
Anticipating strong demand, Samsung Biologics is building its fifth manufacturing plant with 180KL capacity, which is expected to be completed by April 2025.

Ecoeye IPO Valuation Analysis

Our base case valuation of Ecoeye IPO is 45,421 won per share, representing 31% higher than the high end of the IPO price range.
Given the solid upside, we have a positive view of Ecoeye IPO. The target P/E multiple of 28.8x is based on a 20% premium to the comps’ average valuation multiple.
We believe this premium valuation multiple is appropriate given higher sales growth rate and operating margin for Ecoeye as compared to the comps.

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Oct 05

Daily Brief South Korea: Doosan Robotics, CJ Corp, Taeyoung Engineering & Construction, Hugel Inc and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Doosan Robotics IPO Trading – Strong Insti Subscription Rates but Still Feels like a Punt
CJ Corp: FTC Could Crack Down on CJ Olive Young With Huge Fines
Korea Small Cap Gem #25: Taeyoung E&C [P/E of 1x and P/B of 0.2x]
Hugel Inc (145020 KS): Achieves Record High Revenue in 2Q23; Resubmits Marketing Application in US

Doosan Robotics IPO Trading – Strong Insti Subscription Rates but Still Feels like a Punt

By Ethan Aw

Doosan Robotics (454910 KS) raised around US$318m in its Korea IPO, after pricing its 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 demand for the deal and other trading dynamics.

CJ Corp: FTC Could Crack Down on CJ Olive Young With Huge Fines

CJ Corp’s share price declined sharply by 10.7% to reach 80,200 won on 4 October. CJ Olive Young is the number one health & beauty store chain in Korea.
According to local media, CJ Olive Young is in danger of being fined large amounts of money by the Fair Trade Commission (FTC).
It appears likely that CJ Corp’s share price could fall further close to the five year low end of the trading range (60,000 won) in the next several weeks.

Korea Small Cap Gem #25: Taeyoung E&C [P/E of 1x and P/B of 0.2x]