South Korea

Our base case valuation of SK Inc is NAV of 17.5 trillion won (NAV per share of 239,095 won), representing a 60% upside from current levels.
SK Inc has underperformed most other SK Group related companies YTD but this underperformance may be excessive and SK Inc could outperform as more value investors seek deeply discounted companies.
SK Inc’s dividend yield is 3.3%, which is higher than the dividend yields of most other major SK Group companies excluding SK Telecom which has a dividend yield of 6.5%.

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Sep 22

Daily Brief South Korea: SK Square , Hanwha Systems Co Ltd, LG Corp, Kum Yang and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SK Square: Updated NAV Analysis Amid Potential Sale of 11st to Alibaba
A Proactive Long Short Basket Setup Targeting KOSPI Size Index’s Next Rebal
LG Corp: Updated NAV Analysis & Outperformance Likely Driven by Value Investors
KRX Plans to Introduce Float Market Cap & Extreme Price Increases to KOSPI 200 Screening

SK Square: Updated NAV Analysis Amid Potential Sale of 11st to Alibaba

In this insight, we provide an updated valuation analysis of SK Square (402340 KS) amid a potential sale of 11st to Alibaba (ADR) (BABA US).
Our NAV analysis of SK Square suggests NAV of 9.2 trillion won or NAV per share of 65,069 won, representing a 55% upside from current levels.
If SK Square is able to sell its stake in 11st to Alibaba, the capital inflow from the sale could be used to raise dividends and complete more share buybacks.

A Proactive Long Short Basket Setup Targeting KOSPI Size Index’s Next Rebal

We need to focus on the top 2 candidates among the Mid→Large candidates in the screening table mentioned above and the bottom 4 candidates among the Large→Mid candidates.
Since they are relatively far from the borderline, there is a significant likelihood that their classification will change. So, flow trading timing on these candidates could be brought forward.
Monitoring Doosan Robotics’s market cap potentially nearing ₩3T and keeping an eye on the listing date of Ecopro Materials, we should make changes to the Mid→Large candidates from early December.

LG Corp: Updated NAV Analysis & Outperformance Likely Driven by Value Investors

Our NAV analysis of LG Corp suggests an implied market cap of 16.9 trillion won or 107,217 won per share which is 28.4% higher than current share price.
We believe that LG Corp could announce another share buybacks representing 2-3% of outstanding shares in the next 6-12 months.
Another reason that could result in LG Corp’s shares outperforming other major LG related shares is due to the value investors increasing capital allocation to higher dividend paying LG Corp.

KRX Plans to Introduce Float Market Cap & Extreme Price Increases to KOSPI 200 Screening

In addition to full market cap and trading value, float-adjusted market cap will be added as a quantitative screening tool.
Regarding extreme price increases, KRX plans to utilize the deviation between the average daily market capitalizations for two, three, and six months leading up to the screening base date.
We should consider designing trading setups that target stocks with relatively low free-float rates and high price volatility in recent months.

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Sep 21

Daily Brief South Korea: HLB Inc, Seoul Guarantee Insurance and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

HLB: Hires Korea Investment & Securities for a Potential Switch to a KOSPI Listing
Seoul Guarantee Insurance IPO: The Bear Case

HLB: Hires Korea Investment & Securities for a Potential Switch to a KOSPI Listing

On 20 September, HLB Inc announced that it has hired Korea Investment & Securities as an advisor for a potential switch from KOSDAQ to KOSPI listing.
In our view, there is a 80-90%+ probability of HLB switching its listing from KOSDAQ to KOSPI sometime in the next 6-12 months.
If HLB finally decides to switch its listing from KOSDAQ to KOSPI, it is likely that HLB will be included in KOSPI 200 index in 2024.

Seoul Guarantee Insurance IPO: The Bear Case

Seoul Guarantee Insurance (031210 KS), a leading guarantee provider in Korea, is pre-marketing an IPO to raise up to KRW362 billion (US$272 million).
In Seoul Guarantee Insurance 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 ongoing market share losses, weak performing credit insurance business, a 1H23 increase in the combined ratio and a decline in ROA/ROE metrics.

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Sep 20

Daily Brief South Korea: Korea Stock Exchange KOSPI 200, Doosan Robotics, ASICLAND , KakaoBank , Seoul Guarantee Insurance, SK Biopharmaceuticals and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea NPS’s Funds Influx into Local Stock Market Starting Next Year: What to Know
Trading Strategy of Doosan Robotics in the First Day of Trading Post Book Building Results
Asicland IPO Preview: The Only Value Chain Alliance (VCA) Company of TSMC in Korea
KakaoBank – Term Deposits +47% | Net Int Inc/Assets -80bps | Provisions: 10% to 23% of Net Int Inc
Seoul Guarantee Insurance Pre-IPO – The Negatives – The Tide Could Be Turning. Overhang Looms
Asicland IPO Valuation Analysis
SK Biopharmaceuticals (326030 KS): Solid Growth in Xcopri US Sales in 2Q23; Operating Loss Narrowed

Korea NPS’s Funds Influx into Local Stock Market Starting Next Year: What to Know

The proposal to increase NPS’s annual target investment return rate by 1%p by 2028. A rough mathematical estimate suggests the necessity of an additional investment of nearly ₩60T until 2028.
It augments the overall investment volume in local stocks to ₩200T. This projection implies an annual net purchase of approximately ₩12T from the forthcoming year through 2028.
Consequently, this matter is currently among the most captivating topics in the Korean local market, and efforts are underway to identify the sectors and stocks that stand to benefit.

Trading Strategy of Doosan Robotics in the First Day of Trading Post Book Building Results

Doosan Robotics (454910 KS) reported excellent IPO book building results. The IPO price has been finalized at 26,000 won (upper end of the IPO price range).
A total of 1,920 institutional investors participated in the IPO demand forecast survey and the demand ratio was 272 to 1.
The trading strategy on the first day of IPO is to take some profits (25%-50% of total) if the share price shoots much higher than the IPO price by 70-100%+.

Asicland IPO Preview: The Only Value Chain Alliance (VCA) Company of TSMC in Korea

Asicland is one of eight companies in the world and the only TSMC VCA (Value Chain Alliance) company in Korea.
The IPO price range is from 19,100 won to 21,400 won. The IPO offering amount is from 50.4 billion won to 56.4 billion won.
Asicland’s sales and operating profit increased at a CAGR of 71.8% and 220%, respectively from 2020 to 2022. Operating margin improved from 4.7% in 2020 to 16.5% in 2022.

KakaoBank – Term Deposits +47% | Net Int Inc/Assets -80bps | Provisions: 10% to 23% of Net Int Inc

By Daniel Tabbush

Major pressure on net interest income where deposits are growing much faster than loans in the past six months, especially with term deposits, is creating major NIM contraction
Earnings may disappoint based on weakening net interest income, weakening margins, and where the overlay is far higher credit costs; from KRW17bn to KRW59bn in 2 yrs to 2Q23
Operating costs are not helping to support ROA and with a new virtual bank investment in Thailand, costs can remain high; fixing operational risks can also keep costs high.

Seoul Guarantee Insurance Pre-IPO – The Negatives – The Tide Could Be Turning. Overhang Looms

By Clarence Chu

Seoul Guarantee Insurance (031210 KS) is looking to raise around US$270m in its Korean IPO.
Seoul Guarantee Insurance (SGI) is a guarantee insurance firm operating predominantly in Korea.
In this note, we will talk about the not so positive aspects of the deal.

Asicland IPO Valuation Analysis

Our base case valuation of Asicland is target price of 40,571 won per share, which is 90% higher than the high end of the IPO price range (21,400 won).
Our target price of 40,571 won is based on 43x P/E using our estimated net profit of 10.1 billion won in 2024.
Asicland is one of eight companies in the world and the only TSMC VCA (Value Chain Alliance) company in Korea.

SK Biopharmaceuticals (326030 KS): Solid Growth in Xcopri US Sales in 2Q23; Operating Loss Narrowed

By Tina Banerjee

In 2Q23, Xcopri U.S. sales increased 57% YoY and 18% QoQ to KRW63.4B, marking the 13th consecutive quarter of growth since the company launched Xcopri in the U.S. in May’20.
Operating loss narrowed for the second consecutive quarters to KRW18.9B from KRW22.7B in 1Q23 and KRW40.1B in 2Q22. The company is on track to swing back to black in 4Q23.
SK Biopharmaceuticals (326030 KS) entered licensing agreement with Hikma Pharmaceuticals (HIK LN) to commercialize Xcopri in 16 countries in MENA, including Saudi Arabia, Egypt, and Algeria – three biggest epilepsy markets.

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Sep 19

Daily Brief South Korea: SK Telecom, Lotte Non Life Insurance Co, Seoul Guarantee Insurance, SD Biosensor and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Analyzing Proactive Flow Trading Targeting SK Telecom’s Passive Movements
Lotte Non-Life Insurance: Who Will Buy?
Seoul Guarantee Insurance IPO: The Bull Case
Seoul Guarantee Insurance Pre-IPO – The Positives – Broad Coverage Across Guarantee Insurance
SD Biosensor (137310 KS): No Change of Fate Is Seen in Near-Term; Visibility to Improve in 2024 Only

Analyzing Proactive Flow Trading Targeting SK Telecom’s Passive Movements

As of last Friday, SKT has utilized 86.2 billion won out of the allotted 300 billion won for share buybacks, resulting in the acquisition of 1,810,242 shares.
If there are indications of the foreign room potentially falling to a risky level, SKT will likely proceed with an aggressive buyback, targeting 20-30% of the daily trading volume.
Another particularly intriguing observation is the absence of local retail flow directed towards SKT. This indicates there is still potential momentum for an upward price movement at this juncture.

Lotte Non-Life Insurance: Who Will Buy?

It was reported in numerous local media that the sale process of Lotte Non Life Insurance Co (000400 KS) could start in October 2023.
There are four companies including Shinhan Financial (055550 KS), Hana Financial (086790 KS), Woori Financial Group (316140 KS), and Kyobo Life Insurance that may be interested in acquiring Lotte Non-Life Insurance.
Minority shareholders are not likely to benefit from this potential huge management M&A premium of Lotte Non-Life Insurance.

Seoul Guarantee Insurance IPO: The Bull Case

Seoul Guarantee Insurance (031210 KS), a leading guarantee provider in Korea, is pre-marketing an IPO to raise up to KRW362 billion (US$272 million).
The IPO price range is KRW39,500-51,800 per share. The bookbuilding will run from 13 to 19 October, with pricing on 25 October. The shares will be listed in November.
The bull case rests on a leading market share, solid premium growth, the highest industry margins, a high solvency ratio and a high dividend payout.

Seoul Guarantee Insurance Pre-IPO – The Positives – Broad Coverage Across Guarantee Insurance

By Clarence Chu

Seoul Guarantee Insurance (031210 KS) is looking to raise around US$270m in its Korean IPO.
Seoul Guarantee Insurance (SGI) is a guarantee insurance firm operating predominantly in Korea.
In this note, we will talk about the positive aspects of the deal.

SD Biosensor (137310 KS): No Change of Fate Is Seen in Near-Term; Visibility to Improve in 2024 Only

By Tina Banerjee

SD Biosensor (137310 KS) is reporting significant decline in revenue due to the fading demand of COVID-19 tests. 2Q23 revenue declined 80% YoY and 11% QoQ to KRW162.6B.
SD Biosensor reported operating loss of KRW97.8B and KRW76.4B in 1Q23 and 2Q23, respectively, leading to 1H23 operating loss of KRW174.2B, compared with an operating profit of KRW348B in 1H22.
SD Biosensor is on track to launch next-generation ultra-small continuous blood glucose meter (CGMS) in Korea in 2024. Thus far, Korea has approved four CGMS, including one locally-developed.

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Sep 18

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

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SK Telecom (017670 KS): Foreign Room & Passive Inflows
Merger Arb Mondays (18 Sep) – Eoflow, Costa, Liontown, Pact, T&K Toka, IMAX, Poly Culture
EQD | KOSPI 200 Index WEEKLY OVERBOUGHT (Or Break-Out Rally?)

SK Telecom (017670 KS): Foreign Room & Passive Inflows

By Brian Freitas

Foreign room in SK Telecom (017670 KS) increased above 15% in July and is currently just above 16%. Foreign investors have resumed buying again and foreign room is moving lower.
Foreign room staying above 15% for another month could result in passive buying at the end of November. SK Telecom (017670 KS) has outperformed peers over the last few weeks.
Foreign buying over the next month could lead to foreign room dropping below 15% in which case there will be no passive inflows. But the stock could be higher.

Merger Arb Mondays (18 Sep) – Eoflow, Costa, Liontown, Pact, T&K Toka, IMAX, Poly Culture

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), Symbio Holdings (SYM AU), Costa Group Holdings (CGC AU), Orecorp Ltd (ORR AU), Mason Group Holdings (273 HK), JSR.
Lowest spreads – Healius (HLS AU), Toyo Construction (1890 JP), Yaizu Suisankagaku Industry (2812 JP), Pacific Current (PAC AU), Pact Group Holdings (PGH AU), T&K Toka Co Ltd (4636 JP).

EQD | KOSPI 200 Index WEEKLY OVERBOUGHT (Or Break-Out Rally?)

By Nico Rosti

The KOSPI 200 INDEX WEEKLY did rise last week and is approaching OVERBOUGHT territory based on the current short-term trend pattern (Q3 resistance is at 346).
The current pattern is bearish, but if the market gains momentum and rallies for 2 more weeks, it could reach 357 during the 3rd week up (not earlier).
The alternative scenario, a better fit for this bearish pattern, is that the index starts to pull back this week, or remains weak this week and falls the next.

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Sep 17

Daily Brief South Korea: Seoul Guarantee Insurance and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Seoul Guarantee Insurance Corp IPO Valuation Analysis

Seoul Guarantee Insurance Corp IPO Valuation Analysis

Our base case valuation of Seoul Guarantee Insurance is target price of 48,052 won which is within the IPO price range of 39,500 won to 51,800 won.
Given the lack of upside relative to the IPO price range, we have a negative view of this deal.
We are not impressed with the company’s lack of top-line sales growth and worsening operating profit in 2023. The valuation range as proposed by the bankers is also not attractive.

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Sep 16

Daily Brief South Korea: Ilooda, Doosan Robotics, Millie Seojae and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Latest Development & Potential First Target of Mandatory Tender Offer in Korea
Doosan Robotics IPO: Exuberance Results in Valuation Disconnect
Millie’s Library IPO Book Building Results Analysis

Latest Development & Potential First Target of Mandatory Tender Offer in Korea

Considering the progress of the legislative process at this juncture, the effective date could be as early as the end of this year or, at the latest, early next year.
Ilooda (164060 KS) will likely become the first case. A tender offer at ₩11,000 (a 30% premium to the current price) per share for 14%+1 share may greet us.
There is sufficient value in monitoring the interaction between the offer structure and stock price movement in the context of the first application of a mandatory tender offer in Korea.

Doosan Robotics IPO: Exuberance Results in Valuation Disconnect

Doosan Robotics (454910 KS) IPO has coincided with a fortuitous rerating of peers as robotics has recently emerged as a dominant theme in the Korean stock market.
We previously discussed the IPO in Doosan Robotics IPO: The Bull Case, Doosan Robotics IPO: The Bear Case and Doosan Robotics IPO: Valuation Insights.
The risk is that sentiment can quickly shift the other way before the listing. Our bull-case DCF suggests that the IPO price range is, at best, fully priced.

Millie’s Library IPO Book Building Results Analysis

Millie’s Library (418470 KS) announced its IPO book building results. The IPO price has been determined at 23,000 won which is at the high end of the IPO price range.
A total of 1,915 institutions participated in this IPO survey and the demand ratio of 619.2 to 1.
Our valuation analysis suggests base case target price of 31,769 won per share, which is 38% higher than the the IPO price of 23,000 won.

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Sep 15

Daily Brief South Korea: SK Square , SK Bioscience and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SK Square: Will Alibaba Acquire 11st?
SK Bioscience (302440 KS): Flu Vaccine Output Resumes; Next-Gen Typhoid Vaccine Is On Card

SK Square: Will Alibaba Acquire 11st?

Maeil Business Daily reported that Alibaba Group Holding (9988 HK) is considering on acquiring a controlling stake in 11st, which is a leading e-commerce platform owned by SK Square
In 2018, 11st was valued at 2.7 trillion won by financial investors. However, the current valuation of 11st is estimated to have declined to about 1 trillion won (US$760 million).
We estimate that the probability of Alibaba acquiring 11st is about 60-70%.

SK Bioscience (302440 KS): Flu Vaccine Output Resumes; Next-Gen Typhoid Vaccine Is On Card

By Tina Banerjee

SK Bioscience (302440 KS) resumed flu vaccine shipment for 2023–24 flu season. The company temporarily stopped the production of flu vaccine to focus on the supply of COVID-19 vaccine.
In August 2023, SK Bioscience has entered joint development agreement with Australia-based privately held biotechnology company Vaxxas to develop a second-generation needle-free patch delivery of typhoid conjugate vaccine.
The company’s successful phase 2 clinical trial for first-in-class pneumococcal conjugate vaccine (PCV20+) in pediatric market is a step toward entry to the premium vaccine market.

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Sep 14

Daily Brief South Korea: SK Innovation, Youlchon Chemical, Contec and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SK Innovation: Update on Its Rights Offering Subscription Allocation
A Fresh Short-Selling Target in Korea: Youlchon Chemical
Contec IPO Preview

SK Innovation: Update on Its Rights Offering Subscription Allocation

On 13 September, SK Innovation announced that the subscription rate for the rights offering allocated to ESOA and existing shareholders was 87.66%.
The rights offering price is 139,600 won, which is 12.7% lower than current price of 159,900 won.
There is likely to be a strong demand for the subscription of rights offering forfeited shares for the general investors scheduled to take place on 14 to 15 September.

A Fresh Short-Selling Target in Korea: Youlchon Chemical

Youlchon Chemical’s CFD balance accounts for 3.54% of SO, with approximately 2x leverage trading. It is one of the few in the top CFD balance list that can be short-sold.
Our primary concern should lie with the upcoming December rebalancing of the KOSPI 200 index. Youlchon Chemical finds itself perilously close to the borderline within the Materials sector.
When proactive flow trading targeting KOSPI 200 is set to influence prices early October, we must remain vigilant regarding the potential trades aimed at exploiting a CFD balance squeeze.

Contec IPO Preview