South Korea

On the 8th of August, Insulet Corp (PODD US) filed a lawsuit accusing Eoflow (294090 KS) of the misappropriation of trade secrets, patent infringement, and trademark dilution.
The filing was pretty heavy on accusations. EOFlow declined ~11% on the news.
Undeterred, Medtronic (MDT US) continues to preach all is peachy, suggesting the EOFlow merger is a go, and Medtronic will deal with the lawsuit, as and when.

Korea – Positioning in Ecopro, JYP Entertainment, Hanwha Ocean, Hanmi Semi, CJ Corp, E-Mart

Ecopro (086520 KS), Jyp Entertainment (035900 KS), Hanwha Ocean (042660 KS), Hanmi Semiconductor (042700 KS), CJ Corp (001040 KS) and E Mart (139480 KS) have been on investors/traders radars recently.
There will be liquidity demand on the stocks in a week and there is pre-positioning on a lot of the stocks.
Since 10 August, retail investors have net bought Jyp Entertainment and E Mart, foreigners have net bought Ecopro, Hanwha Ocean and Hanmi Semiconductor, while local institutions have net bought CJ Corp.

EOFLOW/Medtronic Tender: Irrational Exuberance

By Arun George

Eoflow (294090 KS) shares were up 4.4% on the back of Medtronic Plc (MDT US)’s earnings call comment that it expects the acquisition to close at the end of 2023.
The bear view is that Medtronic’s messaging remained unchanged as it is still assessing Insulet Corp (PODD US) lawsuit and the potential impact on the timing and/or pricing.
The bull view is that Medtronic’s comment underscores its commitment to close the transaction. It’s tough to take a call on risk/reward profile – at best it’s a brave buy.

Doosan Robotics IPO Preview

Doosan Robotics is getting ready to complete its IPO in Korea in September. The expected IPO price range is 21,000 won to 26,000 won.
The company estimates its sales to surge from 67 billion won in 2023 to 766.3 billion won in 2027, representing 83.9% CAGR from 2023 to 2027.
One of the major reasons why local investors will have a positive view of Doosan Robotics is due to Samsung’s investment in Rainbow Robotics whose share price increased 232% YTD.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Aug 23

Daily Brief South Korea: Hanwha Ocean, Isupetasys and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Hanwha Ocean: Potential Capital Raise of Nearly 2 Trillion Won
KOSPI Size Indices – Plenty of Migrations to Attract Active Flows

Hanwha Ocean: Potential Capital Raise of Nearly 2 Trillion Won

Hanwha Ocean’s share price declined by 5% today, mainly due to local media reports about a potential capital raise of nearly 2 trillion won to 2.5 trillion won.
Although the company has not officially announced a rights offering, we believe the probability of Hanwha Ocean announcing a major rights offering is relatively high in the next 3-6 months.
We estimate this probability range is closer to about 60-70%. The company needs additional capital to improve its highly leveraged balance sheet and to make major investments.

KOSPI Size Indices – Plenty of Migrations to Attract Active Flows

The review period for the September rebalance of the KOSPI Size Indices started 1 June and will end 31 August. The changes will be implemented at the close 7 September.
We see 7 migrations from MidCap to LargeCap, 6 migrations from LargeCap to MidCap, 7 new adds to MidCap, and 17 migrations from SmallCap to MidCap.
Historically, stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Aug 22

Daily Brief South Korea: Samsung Electronics Pref Shares, SK Rent A Car, SK Networks, Hanwha Ocean, HMM Co., Ltd. and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Market Information About Samsung Electronics’ Shareholder Return
SK Rent A Car: SK Networks’ Tender Offer
SK Networks Launches a Tender Offer for SK Rent-A-Car
Hanwha Ocean’s Massive Issuance: Clearly, This Is Test-The-Water and How to Approach It
Privatization of HMM: Hapag-Lloyd, Harim, Dongwon, and LX Groups [Short-Listed Bidding Candidates]

Market Information About Samsung Electronics’ Shareholder Return

The local market is increasingly convinced that Samsung Electronics’ quarterly dividends for the latter half of this year will experience a reduction.
Samsung Electronics plans to apply the updated regulations from the 2024 1st quarter dividends, following the conclusion of the capital market law revision at the end of this year.
It might be prudent to refrain from trading that bets on a reduction in the 1P discount in the first half of this year.

SK Rent A Car: SK Networks’ Tender Offer

Korean car rental play SK Rent A Car (068400 KS) has announced a Tender Offer from SK Networks (001740 KS), its largest shareholder with ~76%.
SK Rent shareholders have the option of receiving cash or SK Networks scrip. Appraisal rights are also afforded.
The shareholder vote is a lock. The current trade is the cash offer, which is trading tight to terms.

SK Networks Launches a Tender Offer for SK Rent-A-Car

We have a positive view of SK Networks’ tender offer of SK Rent-A-Car.
SK Networks is trying to buy the entire SK Rent-A-Car which is enjoying solid growth in sales and profits. SK Networks plans to eventually delist SK Rent-A-Car.
The shareholders of SK Rent-A-Car have a choice of tendering their shares receiving cash (at the tender offer price of 13,500 won) or receiving shares in SK Networks.

Hanwha Ocean’s Massive Issuance: Clearly, This Is Test-The-Water and How to Approach It

Multiple local news outlets reported Hanwha Ocean is undergoing a 2.5 trillion won equity increase. The official disclosure regarding this matter is expected to be released within this month.
We have repeatedly observed a pattern of testing the waters through leaks to the local media. The case of Hanwha Ocean can also be seen in this light.
It’s challenging to envision this magnitude being absorbed seamlessly by the market. There is a considerable likelihood that both issuers and bankers will aggressively attract inflows of arbitrage-seeking hot money.

Privatization of HMM: Hapag-Lloyd, Harim, Dongwon, and LX Groups [Short-Listed Bidding Candidates]

After the market close on 21 August, it was reported that Harim Group, Dongwon Group, LX Group, and Hapag-Lloyd have been short-listed as preliminary bidders for HMM.
KDB and KOBC are selling 38.9% stake in HMM on a fully diluted basis. The local media have mentioned that the potential sales price could be about 5-6 trillion won.
We continue to have a Negative view of HMM. e expect additional 20-30%+ downside risk over the next 6-12 months.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Aug 21

Daily Brief South Korea: Eoflow , Celltrion Healthcare and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Eoflow’s US Subsidiary (Nephria Bio)’s Technology in MXene Advanced Material
Weekly Deals Digest (20 Aug) – Celltrion, Sanei, T&K Toka, Costa, DDH1, Tesserent, VinFast

Eoflow’s US Subsidiary (Nephria Bio)’s Technology in MXene Advanced Material

Eoflow (294090 KS)’s shares rose 2.7% to 27,000 won on 18 August with 1.4 million shares traded, which was 5.7x higher than the previous three days of trading.
The main reason for this was due to the local news flow on Eoflow’s US subsidiary’s (Nephria Bio) technology on the advanced material MXene.
This news flow on MXene is likely to put further positive boost to Eoflow’s share price closer to the tender offer price (or at least limit further downside risk).

Weekly Deals Digest (20 Aug) – Celltrion, Sanei, T&K Toka, Costa, DDH1, Tesserent, VinFast

By Arun George

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 – Vinfast (VFS US)‘s rollercoaster debut, Rakuten Securities (RAKUSEC JP), EbixCash (EBIXC IN) and Lalatech Holdings Co Ltd (LALA HK) IPOs.
Event-Driven developments – Celltrion Healthcare (091990 KS), Sanei Architecture Planning (3228 JP), T&K Toka Co Ltd (4636 JP), Costa Group Holdings (CGC AU), DDH1 (DDH AU), Tesserent Ltd (TNT AU).

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Aug 20

Daily Brief South Korea: Celltrion Inc and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Celltrion, Sanei Architecture, T&K Toka, MPI, Chindata

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Celltrion, Sanei Architecture, T&K Toka, MPI, Chindata

I tally 48 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Three new deals this week: the Celltrion Inc (068270 KS)/Celltrion Healthcare (091990 KS) merger; and the Tender Offers for Sanei Architecture Planning (3228 JP) and T&K Toka (4636 JP).
Key updates took place for Tesserent Ltd (TNT AU), DDH1 (DDH AU), L’Occitane (973 HK), Metro Pacific Investments Co (MPI PM), and Chindata Group (CD US).

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Aug 19

Daily Brief South Korea: Celltrion Healthcare , SK Rent A Car and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Celltrion Inc/Healthcare Merger. Pharm Is Next
Merger Between Celltrion Inc and Celltrion Healthcare (Phase I First)
Fully Disseting SK Rent A Car’s Hybrid Tender Offer Disclosure, Whose Cash Offer at a 5.7% Spread

Celltrion Inc/Healthcare Merger. Pharm Is Next

It’s finally happening: biopharmaceuticals developer and producer Celltrion Inc (068270 KS) will acquire Celltrion Healthcare (091990 KS).
Inc will issue 0.4492620 new shares for each share in Healthcare. The swap prices of ₩148,853 for Inc and ₩66,874 for Healthcare are firm.
Celltrion Pharm (068760 KS) is excluded from the original three-way merger plan, but is expected to be merged with the enlarged Inc/Healthcare entity around July 2024.

Merger Between Celltrion Inc and Celltrion Healthcare (Phase I First)

On 17 August, Celltrion Inc announced that it will merge with Celltrion Healthcare. The merger ratio is 0.449262 Celltrion Inc share for each share of Celltrion Healthcare.
There was a negative surprise which was that Celltrion Pharm will not be included as part of the three companies merger which has been promised in the past several years.
Overall, we believe that this merger will have a positive impact on Celltrion Inc and Celltrion Healthcare’s share prices.

Fully Disseting SK Rent A Car’s Hybrid Tender Offer Disclosure, Whose Cash Offer at a 5.7% Spread

With just the SK Networks stake, both of these conditions are already satisfied. So, the key point will be how quickly the spread of the cash offer narrows next Monday.
We need to watch whether the spread for the exchange offer opens. As SK Networks is a K200 constituent, it’s subject to short selling, making a Long Short play possible.
Worth noting, among the 24% minority shareholders, NPS and KIT hold a combined 15%, potentially leading to limited market circulation volume. This is something we should also be mindful of.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Aug 18

Daily Brief South Korea: Celltrion Inc, Celltrion Healthcare , Amorepacific Group and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Celltrion Merger: Index Implications
Celltrion Merger Swap: Conditions & Schedule
Celltrion (068270 KS) Merger with Celltrion Healthcare (091990 KS)
Amorepacific Group: SoTP Valuation and Meaning of Min-Jung Suh Taking One Year Leave of Absence

Celltrion Merger: Index Implications

Celltrion Inc (068270 KS) and Celltrion Healthcare (091990 KS) will merge later this year. Celltrion Pharm (068760 KS) has been left out for now; it could be merged next year.
For each share of Celltrion Healthcare (091990 KS) held, shareholders will receive 0.449262 shares of Celltrion Inc (068270 KS).
There will be implications for the Korea Stock Exchange Kospi Index (KOSPI INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) with funding flows and index replacements.

Celltrion Merger Swap: Conditions & Schedule

The swap prices, ₩148,853 for Celltrion Inc and ₩66,874 for Celltrion Healthcare, specified below are not tentative prices but confirmed prices. So, the merger ratio has been determined as 1:0.4492620.
The key focus now is the appraisal rights exercise. Both offer attractive spreads. Yet, the ₩1T combined ceiling might seem restricted considering potential dissenting Celltrion Inc shareholders exceeding expectations.
Nonetheless, considering the strong determination of the company towards this merger, we should consider a strategy of approaching this spread aggressively while keeping the cancellation risk in mind.

Celltrion (068270 KS) Merger with Celltrion Healthcare (091990 KS)

By Arun George

Celltrion Inc (068270 KS) will merger with Celltrion Healthcare (091990 KS). Celltrion Healthcare shareholders will receive 0.4492620 Celltrion shares per Celltrion Healthcare share.
The merger requires shareholder (approval by at least two-thirds of the votes of the shareholders present representing at least one-third of the outstanding shares) and Fair Trade Commission approval.
The merger ratio, based on regulations, is attractive compared to historical VWAP exchange ratios and multiples. At last close prices, Celltrion Healthcare shares are trading broadly at terms.

Amorepacific Group: SoTP Valuation and Meaning of Min-Jung Suh Taking One Year Leave of Absence

About a week ago, it was announced that Chairman’s elder daughter Min-Jung Suh will take a long one year leave of absence.
Chairman Suh is very dissatisfied with the company’s results in the past three years and wants to shake up the company to improve its operations, in our view.
Our base case NAV valuation of Amorepacific Group (002790 KS) is 39,611 won, which is 29% higher than current price.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Aug 17

Daily Brief South Korea: Green Cross, Lotte Tour Development Co, Ltd. and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Green Cross (006280 KS): Turns Profitable in Q2; All Eyes on the Maiden US Approval of Blood Product
Addressing Misconceptions: Lotte Tour’s Short-Selling Entry Point

Green Cross (006280 KS): Turns Profitable in Q2; All Eyes on the Maiden US Approval of Blood Product

By Tina Banerjee

Green Cross (006280 KS) reported decent Q2 performance, with revenue and operating profit increasing 2% and 81%, YoY, respectively. Vaccine and blood products business remained the major growth drivers.
The company has re-submitted marketing application for GC5107, a blood derivative product to the FDA, which has accepted it with a target action date of January 13, 2024.
If approved, the company aims to enter the U.S. market in 2H24. Supply shortage amid increasing demand makes the U.S. an attractive market for the company’s blood products.

Addressing Misconceptions: Lotte Tour’s Short-Selling Entry Point

Lotte Tour has emerged as a prominent short-selling target in the Korean market, and there are efforts to use an ₩80B convertible bond (CB) to exploit its dilution/overhang risk.
Linden Capital and LMR, upon obtaining the CB, promptly borrowed 4.6M shares from Donghwa for short selling. Thus, the CB conversion incentive remains largely unaffected by stock price changes.
We should avoid synchronizing our entry point with CB conversion. Instead, we should target the likely rights issuance in the latter half of the year, anticipated in the market.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Aug 16

Daily Brief South Korea: Value Added Technologies, Amorepacific Corp, SOCAR and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSDAQ150 Ad Hoc Index Rebalance Preview: VAT Could Replace Lutronic
Amorepacific Corp: Return of the Korean Cosmetics King With End of Ban on Chinese Group Tours
SoCar Lock-Up – Close to All-Time Low but Can Expect Some Post-Lockup Selling

KOSDAQ150 Ad Hoc Index Rebalance Preview: VAT Could Replace Lutronic

Following the two tender offers, Han & Co now holds more than 90% of the common shares in Lutronic Corp (085370 KS) and is looking to buy the remaining shares.
Lutronic Corp (085370 KS) is a member of the KOSDAQ 150 Index and delisting would mean an index replacement. Value Added Technologies (043150 KS) is a potential inclusion.
Value Added Technologies (043150 KS) has underperformed its peers and trades cheaper on nearly all valuation parameters.

Amorepacific Corp: Return of the Korean Cosmetics King With End of Ban on Chinese Group Tours

Amorepacific Corp (090430 KS) is likely to be one of the biggest beneficiaries of the return of Chinese group tours in Korea.
Now that the Chinese government is allowing group tours to South Korea, this will likely lead to a sharp improvement in the company’s sales and profits in 2023-2024.
We expect the consensus to raise sales estimates of Amorepacific Corp by about 3-5%+ and operating profit estimates by 20-30%+ in 2023 and 2024.

SoCar Lock-Up – Close to All-Time Low but Can Expect Some Post-Lockup Selling

By Ethan Aw

SOCAR (403550 KS) was listed on 22nd Aug 2022, where it raised US$78m in its Korea IPO. Its one-year lockup will expire on 21st Aug 2023.
SoCar is a Korean car sharing business aiming to become an all-in-one mobility solutions provider, with approximately 83% domestic market share in the car sharing space as of 1H23.
In this note, we will talk about the lock-up dynamics and updates since our last note.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Aug 15

Daily Brief South Korea: Sindoh Co Ltd, Samsung SDI and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea Small Cap Gem #24: Sindoh Co [Net Cash More than 220% of Market Cap]
Samsung SDI (006400KS): Controversy on Battery Fire Impacting Reputation and Financial Performance

Korea Small Cap Gem #24: Sindoh Co [Net Cash More than 220% of Market Cap]