Category

South Korea

Jul 25
0

Daily Brief South Korea: Doosan Bobcat Inc, K Bank, Jeisys Medical, Shinsung Tongsang, LS Electric, Hanwha Corporation, Samsung Biologics and more

By | Daily Briefs, South Korea

In today’s briefing:

  • FSS Orders Doosan Group to Resubmit the Merger Plan – “Merger Plan Is Not Illegal, But Is It Fair?”
  • Korea’s New IPO Bookbuilding & Lockup Results Disclosure Rule, Effective from August
  • Clarifications Regarding the FSS’s Unexpected Revision Request for the Doosan Mergers
  • Archimed Group Plans to Conduct a Second Tender Offer for Jeisys Medical
  • Shinsung Tongsang: Tender Offer Fails and How to Take Away Customers From Uniqlo
  • KOSPI Size Indices: Outperformance Slows on Momentum Stalls
  • Hanwha Energy Acquires An Additional 5.2% of Hanwha Corp Through a Tender Offer
  • Samsung Biologics (207940 KS): Strong 2Q24 Result; Annual Revenue to Surpass KRW4 Trillion

FSS Orders Doosan Group to Resubmit the Merger Plan – “Merger Plan Is Not Illegal, But Is It Fair?”

By Douglas Kim

  • On 24 July, the Financial Supervisory Service (FSS) ordered the Doosan Group to resubmit the merger plan. 
  • It is rare for FSS to reject companies’ merger reports but there has been an exception this time since this deal is egregiously negative to many minority investors.
  • Doosan Group needs to resubmit a revised merger plan within next three months. Otherwise, the securities report involving the merger plan of the Doosan Group companies will be considered withdrawn. 

Korea’s New IPO Bookbuilding & Lockup Results Disclosure Rule, Effective from August

By Sanghyun Park

  • FSS’s leaked IPO guidelines include new, highly attention-grabbing additions: specifically, the disclosure of extra information from the bookbuilding and lockup results not mentioned in May.
  • Institutions submitting prices outside the indicative band must be disclosed by KRX investor type. Additionally, average placed price information for lockup-pledged investors must be disclosed.
  • FSS will distribute new IPO guidelines this week and apply them from next month. Major IPOs like K Bank must disclose more detailed bookbuilding and lockup results, impacting trading dynamics.

Clarifications Regarding the FSS’s Unexpected Revision Request for the Doosan Mergers

By Sanghyun Park

  • The FSS requested Doosan Robotics to revise the prospectuses for both the Share Swap with Doosan Bobcat and Merger with Doosan Enerbility.
  • Although the FSS’s wording seems aggressive, it does not request the cancellation. Authorities are displeased but lack political momentum to derail Doosan’s restructuring.
  • The FSS asks Doosan to clarify merger synergies, warn of Robotics’ overvalued stock price and potential decline, and highlight the collaborative robot market’s growth risks.

Archimed Group Plans to Conduct a Second Tender Offer for Jeisys Medical

By Douglas Kim

  • In the first tender offer, 42.5 million shares of Jeisys Medical were purchased by Archimed Group. Post tender offer, Archimed now owns an 82.1% stake in Jeisys Medical. 
  • On 24 July, it was announced that Archimed will be conducting a second tender offer for Jeisys Medical. The second tender offer will be made for 17.2% of common shares.
  • It could be difficult for Archimed to gain more than 95% stake at the end of the second tender offer. Rather, a third tender offer is likely in 2025.

Shinsung Tongsang: Tender Offer Fails and How to Take Away Customers From Uniqlo

By Douglas Kim

  • Shinsung Tongsang shares rose 10% to 2,510 won today after it was announced that the tender offer failed. Basically, the tender offer failed because the tender offer price was too low. 
  • Only 26% of the 31.664 million shares responded to the tender offer. Accordingly, the shareholding ratio of Chairman Yeom and his related parties increased from 77.98% to 83.88%. 
  • Top Ten has benefited from executing its strategy well (such as employing Lee Na-Young in advertisements to grab customers from Uniqlo). Overall, we remain positive on Shinsung Tongsang.

KOSPI Size Indices: Outperformance Slows on Momentum Stalls

By Brian Freitas

  • The review period for the September rebalance of the KOSPI Size Indices commenced on 1 June and will end on 31 August.
  • We see 8 migrations from MidCap to LargeCap, 1 new addition to LargeCap, 11 stocks moving from SmallCap to MidCap and 3 new additions to MidCap.
  • There are a few stocks that are expected to have passive flows from global and local index trackers over the next few months and that will add to the impact.

Hanwha Energy Acquires An Additional 5.2% of Hanwha Corp Through a Tender Offer

By Douglas Kim

  • After the market close on 24 July, Hanwha Corporation (000880 KS) announced that Hanwha Energy secured an additional 5.2% stake in Hanwha Corp through a tender offer.
  • A total of 3.9 million shares have been applied for the tender offer as of 24 July (65% of targeted amount). 
  • We believe that the Hanwha Group is likely to grab more shares in Hanwha Corp through an additional tender offer sometime in the next 6-12 months. 

Samsung Biologics (207940 KS): Strong 2Q24 Result; Annual Revenue to Surpass KRW4 Trillion

By Tina Banerjee

  • In 2Q24, Samsung Biologics (207940 KS) reported 34% YoY revenue growth to KRW1,157B, driven by full utilization of Plants 1–3, ramp-up of Plant 4, milestone payment, and favorable Fx.
  • The company expects annual revenue to exceed KRW4T mark this year, thereby setting a record for the Korean pharmaceutical and biotechnology sector.
  • During 1H24, Samsung Biologics has secured order worth of KRW2.6T. Currently, the company is serving 16 out of the top 20 global pharmaceutical companies, up from 14 last year.

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Jul 24
0

Daily Brief South Korea: Kakao Corp and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Kakao Group Founder Kim Beom-Su Gets Arrested – What’s Next?

Kakao Group Founder Kim Beom-Su Gets Arrested – What’s Next?

By Douglas Kim

  • As a result of the arrest of Kim Beom-Su, the near term impact on the Kakao companies (including Kakao Corp, Kakao Bank, Kakao Pay, and Kakao Games) is clearly negative.
  • Given that this is a highly publicized event, it is likely that this legal case will be PROLONGED and finally decided by the Supreme Court which could take several years.
  • Some of the scenarios include Kakao Group selling partial stakes in Kakao Bank and SM Entertainment but this is likely to get dragged on, resulting in further uncertainty.

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Jul 23
0

Daily Brief South Korea: Korea Stock Exchange Kospi Index, KakaoBank , Doosan Bobcat Inc, Kumho Tire Co and more

By | Daily Briefs, South Korea

In today’s briefing:

  • KRX’s Plan to Integrate KOSPI & KOSDAQ into a Tiered System: Trading Considerations
  • Kakao’s Kim Beom-Su Arrested: Analyzing Its Impact on Related Companies
  • Robotics+Bobcat Merger: Merger Ratio Revision Possibility & Arb Spread Recalculations
  • Block Deal Sale of Kumho Tire: More Shares Likely to Be Sold by Creditors

KRX’s Plan to Integrate KOSPI & KOSDAQ into a Tiered System: Trading Considerations

By Sanghyun Park

  • The major framework of this realignment is likely decided, integrating KOSPI and KOSDAQ into a tiered system based on liquidity, market cap, and financial status, with periodic replacements.
  • The KOSPI 200’s continued existence is uncertain under the new realignment plan, which may shift its role to the value-up index, resembling Japan’s market restructuring model.
  • The first-tier market’s entry requirements will likely reflect value-up index criteria, suggesting greater speculative money movement toward the value-up index starting in September.

Kakao’s Kim Beom-Su Arrested: Analyzing Its Impact on Related Companies

By Sanghyun Park

  • Kakao’s Kim Beom-su has been arrested over alleged stock price manipulation in the SM Entertainment buyout, marking a new peak in the company’s legal troubles.
  • Kakao Corp’s stock might drop due to the absence of a key figure. KakaoBank could also struggle from uncertainty about its largest shareholder and weakened business ties.
  • Kakao’s potential sale of SM Entertainment shares could initially hurt the stock price, but potential bidding interest might boost it.

Robotics+Bobcat Merger: Merger Ratio Revision Possibility & Arb Spread Recalculations

By Sanghyun Park

  • During Kim Byung-hwan’s hearing, he acknowledged market concerns about the Doosan merger, increasing skepticism about Doosan’s ability to maintain the original merger ratio.
  • Calculating Bobcat’s net asset value using the net asset value method yields approximately ₩6.1T, derived from ₩5.95T in year-end equity plus ₩0.13T in adjustments.
  • Reassess arb trading opportunities; with no short hedge for Robotics, consider an outright long position in Bobcat if its swap price is revised and the spread widens.

Block Deal Sale of Kumho Tire: More Shares Likely to Be Sold by Creditors

By Douglas Kim

  • Woori Bank completed a block deal sale of 11 million shares of Kumho Tire Co (073240 KS) (3.83% of outstanding shares) on 18 July. 
  • After the recent sales by Woori Bank and the Export-Import Bank of Korea, the creditors’ stakes in Kumho Tire has been reduced to 19.17%.
  • Despite Kumho Tire’s recent improvement in financial performance, we are more concerned about the additional stake sale by the financial institutions that still own 19.2% stake in the company. 

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Jul 22
0

Daily Brief South Korea: Com2us Corp and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Korea Small Cap Gem #29: Com2Us

Korea Small Cap Gem #29: Com2Us

By Douglas Kim

  • Com2Us’s net cash (including long-term financial investments) is 151% of its market cap. It is trading at P/B ratio of only 0.45x. 
  • The company paid out 2,600 won in DPS in FY23. If we assume the same DPS, this would suggest a dividend yield of 6.7% at current price of 38,900 won. 
  • Com2Us is a turnaround story. It had an operating profit of 1.2 billion won in 1Q 2024, improving from an operating loss of 13.3 billion won in 1Q 2023. 

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Jul 21
0

Daily Brief South Korea: Samsung C&T and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Examining Market Interest in the Potential Samsung C&T and SDS Restructuring

Examining Market Interest in the Potential Samsung C&T and SDS Restructuring

By Sanghyun Park

  • Maximizing Lee Jae-yong’s dividend income is crucial, making Samsung SDS’s ₩5.5T cash assets key, thus prompting the merger of Samsung C&T and Samsung SDS’s BPO division.
  • With no legal risks for Lee Jae-yong, Samsung C&T needs the merger to increase assets and avoid forced holding company conversion, making the acquisition of Samsung SDS’s BPO division necessary.
  • We should target a setup for likely appraisal rights for C&T. Monitor and capture the spread between the stock price and appraisal rights exercise price.

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Jul 19
0

Daily Brief South Korea: KT Corp, SK Innovation and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Reasons Why KT’s Foreign Room Is Likely to Fall Below the 3.75% Cutoff Level
  • SK Innovation’s Merger with SK E&S: Bad Timing for SK Innovation and Higher Risks from RCPS

Reasons Why KT’s Foreign Room Is Likely to Fall Below the 3.75% Cutoff Level

By Sanghyun Park

  • KT’s foreign room has been exhausted due to value-up trading inflows, NPS selling shares, and KT canceling treasury stocks.
  • Hyundai Motor may sell 0.5% of its KT stake, likely to overseas investors. KT’s 700,000 share cancellation will lower foreign ownership to the low-4% range, possibly below 3.75% by November.
  • Focus on the stock price surge from ETF recall requests around the effective date, and note that passive outflow corrections typically occur afterward.

SK Innovation’s Merger with SK E&S: Bad Timing for SK Innovation and Higher Risks from RCPS

By Douglas Kim

  • On 17 July, SK Innovation (096770 KS) officially announced a merger with SK E&S. The merger ratio between SK Innovation and SK E&S has been set at 1 to 1.1917417.
  • We believe this is the wrong timing for this merger from SK Innovation’s point of view. SK Innovation is trading at near three year lows.
  • This merger is likely to generate backlash from KKR which holds SK E&S redeemable convertible preferred stock (RCPS) worth 3.1 trillion won.

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Jul 18
0

Daily Brief South Korea: Hyundai Glovis, SK Innovation, Sanil Electric and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Trading Opportunities Arising from the Enactment of The “Doosan Bobcat Prevention Law”
  • SK Innovation & SK E&S Merger Official Disclosure: Unexpected Merger Ratio
  • Sanil Electric IPO Book Building Results Analysis

Trading Opportunities Arising from the Enactment of The “Doosan Bobcat Prevention Law”

By Sanghyun Park

  • Korea’s majority party plans to amend the Capital Markets Act to base listed companies’ merger ratios on intrinsic rather than market value, dubbed the “Doosan Bobcat Prevention Law.”
  • Other conglomerates, like Hanwha and Hyundai Motor Group, may execute mergers just before this amendment.
  • We should expect shareholder-favorable merger ratios. So, we should position in such companies before announcements, ideally just before the new amendment’s enforcement.

SK Innovation & SK E&S Merger Official Disclosure: Unexpected Merger Ratio

By Sanghyun Park

  • The merger ratio, not as unfavorable to SK Innovation as feared, shows SK Group acting cautiously amid political and regulatory scrutiny.
  • SK Inc.’s stake will drop to mid-60s; the 1.2x merger ratio for SK E&S could positively affect SK Innovation’s stock price short-term.
  • Persuading KKR is crucial. SK E&S won’t convert ₩3T in RCPS or grant appraisal rights, potentially leading KKR to consider litigation, a significant risk to the merger.

Sanil Electric IPO Book Building Results Analysis

By Douglas Kim

  • Sanil Electric reported excellent IPO book building results. The IPO price has been determined at 35,000 won, which is 16.7% higher than the high end of the IPO price range.
  • The demand ratio from 2,205 institutional investors was 414 to 1. Sanil Electric (062040 KS) IPO will start trading on 29 July 2024. 
  • Our base case valuation of Sanil Electric is market cap of 1.8 trillion won or target price of 58,593 won (67% higher than the IPO price of 35,000 won).

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Jul 17
0

Daily Brief South Korea: Doosan Robotics , I-Scream Media and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Doosan Group: Index Implications of the Corporate Restructuring
  • I-Scream Media IPO Valuation Analysis

Doosan Group: Index Implications of the Corporate Restructuring

By Brian Freitas

I-Scream Media IPO Valuation Analysis

By Douglas Kim

  • Our valuation analysis suggests a base case implied market cap of 567 billion won or implied price per share of 41,450 won.
  • This suggests a 3% upside to the high end of the IPO price range. We would not subscribe to this IPO due to lack of upside.
  • Our base case valuation is based on P/E of 18.8x using the company’s net profit of 30.2 billion won in 2023.

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Jul 16
0

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

By | Daily Briefs, South Korea

In today’s briefing:

  • Recently Observed Market Flow Movements Related to Korea’s Value-Up Initiatives
  • SK Innovation and SK E&S to Discuss a Potential Merger on 17 July

Recently Observed Market Flow Movements Related to Korea’s Value-Up Initiatives

By Sanghyun Park

  • Nine companies disclosed value-up plans, with four official and five pending disclosures. Initially, these announcements boosted stock prices, but long-term correlations were inconclusive. Yet, shareholder returns notably rose in H1.
  • NPS increased stakes in three of the nine recently announced value-up companies. They share traits in value-up trading (large caps & low PBR), potentially guiding our strategy as NPS enters.
  • BlackRock’s Hong Kong branch has recently engaged with six Korean asset management firms for potential entrustment of its Asian fund’s Korean investment portion, focusing on the value-up policy.

SK Innovation and SK E&S to Discuss a Potential Merger on 17 July

By Douglas Kim

  • SK Innovation (096770 KS) and SK E&S plan to hold a board meeting on 17 July to discuss the potential merger between the two companies.
  • If this merger is successful, it would create the eighth largest company in Korea with a combined assets of 106 trillion won (US$77 billion). 
  • Although the merger ratio is not yet available, we believe that this potential merger could potentially benefit SK E&S and SK Inc but could be negative on SK Innovation.

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Jul 15
0

Daily Brief South Korea: POSCO Holdings and more

By | Daily Briefs, South Korea

In today’s briefing:

  • POSCO Holdings: Announces Shares Buyback and Cancellation of Nearly 2 Trillion Won

POSCO Holdings: Announces Shares Buyback and Cancellation of Nearly 2 Trillion Won

By Douglas Kim

  • POSCO Holdings (005490 KS) announced a major shareholder return policy to buyback and cancel nearly 2 trillion won worth of treasury shares from 2024 to 2026. 
  • The company will cancel 5.25 million treasury shares representing 6.2% of outstanding shares (about 1.9 trillion won). It will also repurchase and cancel additional 100 billion won of shares.
  • POSCO Holdings has taken a major initiative to provide greater returns to its shareholders and this should have a positive impact on its share price. 

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