South Korea

SK Innovation will buy back its shares, worth about 10% of the total issued shares, through a tender offer and offer SK On stocks as consideration instead of cash.
Even if there is allocation risk, as only 10% of SO are targeted, expectations that pricing discrepancy can sufficiently offset this should be the factor driving up the price today.
Additional trading openings? This depends on the disparity widening between the intrinsic value of SK On and the exchange ratio.

Samsung SDS Placement – Well Flagged and the Last One Did Well

By Clarence Chu

Lee Seo-Hyun, via KEB Hana Bank, is looking to sell her entire stake in Samsung Sds (018260 KS) to raise US$132m.
While a relatively large one to digest, the deal is very flagged.
In this note, we will run the deal through our ECM framework and talk about the recent updates.

Another Block Deal Sale of Samsung SDS by the Lee Family to Pay for Inheritance Taxes

After the market close today, Samsung Sds announced a block deal of 1.51 million shares at a discount range of 3.5% to 4.5% to the closing price of 117,900 won.
Lee Seo-Hyun, the daughter of the late Samsung Chairman Lee Kun-Hee, is selling her 1.51 million shares of Samsung SDS (1.95% of oustanding shares) in a block deal.
The company faces continued overhang on additional stake sale due to the inheritance tax issue in the next 2-3 years. As a result, we would avoid the block deal sale.

SK Inc: Shares Cancellation & Updated NAV Valuation

On 29 March, SK Inc announced that it will cancel 0.95 million in treasury shares, which represents 1.3% of the company’s outstanding shares and 5% of treasury shares.
One of the concerns about SK Inc in the past several weeks has been lower DPS of 5,000 won in 2022 versus DPS of 8,000 won in 2021.
Our base case valuation of SK Inc is NAV of 19.7 trillion won (NAV per share of 266,113 won), representing a 54% upside from current levels.

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Mar 29

Daily Brief South Korea: Hugel Inc, KT Corp, Cosmochemical, CUBox and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea FSC Officially Eases a Major Hurdle for a Tender Offer: Names to Watch
KT Corp (030200 KS): Foreign Room Increase Could Mean MSCI Inclusion
Additional Potential Inclusions in KOSPI 200 Rebalance in May 2023
CUBox IPO Preview

Korea FSC Officially Eases a Major Hurdle for a Tender Offer: Names to Watch

Korea FSC will accept financial institutions’ LOC and LPs’ investment performance agreements as certifying documents for securing funds. This revision will be effective right from April 1 this year.
The impact from a preemptive trading perspective is likely to be significant. Additional stake purchases through tender offers will increase more aggressively, particularly when purchasing shares from the majority shareholder.
We should first pay attention to companies where private equity (PE) is the largest shareholder whose stake is relatively low (less than 50%): Hugel, Hana Tour Service, & Hanssem

KT Corp (030200 KS): Foreign Room Increase Could Mean MSCI Inclusion

KT Corp (030200 KS) missed out on inclusion to the MSCI Korea Index at the May 2022 SAIR following a drop in foreign room below 15%.
Bottoming out at 6.5%, foreign room has started to increase again. The last data point shows foreign room at 14.43%, just shy of the 15% threshold for inclusion eligibility.
If foreign room increases above 15% in the next three weeks, KT Corp (030200 KS) will be added to the MSCI Korea Index at the May QCIR.

Additional Potential Inclusions in KOSPI 200 Rebalance in May 2023

In this insight, we discuss the potential new inclusions in KOSPI 200 rebalance in May 2023.
The five stocks that are potential inclusions in KOSPI 200 rebalance in May 2023 include Kumyang, Cosmo Chemical, Dentium, Jeju Air, and Youlchon Chemical.
Kumyang and Cosmo Chemical are up on average 177% YTD. We would not chase these two stocks as their share prices have already risen considerably.

CUBox IPO Preview

CUBox is getting ready to complete its IPO in KOSDAQ in May. Given its leading position in the face recognition AI technology, it is expected to generate strong interest.
CUBox is a leading company in Korea that specializes in artificial intelligence (AI) image recognition.
The company is offering 1.5 million shares (100% new shares) in this IPO. The IPO price range is 17,200 to 23,200 won.

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Mar 28

Daily Brief South Korea: S.M.Entertainment Co, Sun Kwang, WCP and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SM Entertainment: Tender Offer Allocation Ratios Announced
Target & Timing for Flow Trading Position Setup in NICE I&S KOSPI Transfer Event
W-Scope IPO Lock-Up – US$300m Worth of Shares to Come Free

SM Entertainment: Tender Offer Allocation Ratios Announced

Korea Investment & Securities announced the final competition rate for the tender offer of SM Entertainment by Kakao Group (8,333,641 shares of SM Entertainment at 150,000 won per share).
The competition ratio of the tender offer was 2.2655436 to 1. Accordingly, the allocation ratio was set at 44.1395170%.
At the current price of 95,100 won, SM Entertainment’s shares are undervalued by about 25% to 45% over the next 6-12 months, in our view.

Target & Timing for Flow Trading Position Setup in NICE I&S KOSPI Transfer Event

NICE I&S will likely complete the transfer schedule in early May, meaning that an ad-hoc change may occur before the regular rebalancing of the KOSDAQ 150 in June.
If this gets completed before SK Oceanplant’s transfer listing schedule, the top reserved issue in NICE’s GICS sector (INDUSTRIALS) will be included. It is Sun Kwang (003100 KS).
As evidenced in the case of LX Semicon, we should set up a preemptive position for potential ADDITION at the time of the T or T-1 KRX corporate action announcement.

W-Scope IPO Lock-Up – US$300m Worth of Shares to Come Free

By Sumeet Singh

WCP (393890 KS) raised around US$314m via in its Korean IPO. The stock was listed on 30th Sep 2022, its six-month lockup will expire soon.
WCP designs, manufactures, and sells separators, which are one of the four core materials for secondary Lithium-ion batteries.
In this note, we will talk about the lock-up dynamics and updates since our last note.

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Mar 27

Daily Brief South Korea: Samsung FN Reit, Hanmi Pharm and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Samsung FN REIT: Book Building Results
Hanmi Pharm (128940 KS): Strong Base Business; Innovative Biologic Drug Commercialized in US

Samsung FN REIT: Book Building Results

Samsung FN REIT announced its IPO book building results. The IPO price was determined at 5,000 won per share. The demand ratio was 24.88 to 1.
The core investment thesis of Samsung FN REIT is that it is the only publicly listed Samsung affiliate that provides REIT services.
It is a stable business with excellent locations for its existing properties and the company is expected to provide 5.6% annual dividend yield in the next three years.

Hanmi Pharm (128940 KS): Strong Base Business; Innovative Biologic Drug Commercialized in US

By Tina Banerjee

Hanmi Pharm (128940 KS) posted revenue of KRW1.33T in 2022, the largest ever in the company’s history. Strong product competitiveness driven by high R&D investment strengthened Hanmi’s dominant industry positioning.
In October 2022, Hanmi’s US partner Spectrum Pharmaceuticals launched Rolvedon in the U.S. market. During 4Q22, Rolvedon generated revenue of $10.1M. Rolvedon is expected to report $100M revenue this year.
By leveraging on its biopharmaceutical development and manufacturing capabilities, Hanmi plans to launch a large-scale CMO and CDMO, which can be the new growth engines of the company.

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Mar 26

Daily Brief South Korea: DGB Financial Group, Cellivery Therapeutics, S.M.Entertainment Co and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSPI200 Ad Hoc Index Rebalance: DGB Financial (139130 KS) To Replace Meritz Sec (008560 KS)
KOSPI 200: Special Changes & Rising Delinquency Ratios of Banks in Korea
KOSDAQ150 Ad Hoc Index Rebalance: Humasis (205470 KS) To Replace Cellivery (268600 KS)
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Healius, Mincor, Osstem, Golden Energy, S.M.Entertainment

KOSPI200 Ad Hoc Index Rebalance: DGB Financial (139130 KS) To Replace Meritz Sec (008560 KS)

As expected, DGB Financial Group (139130 KS) replaces Meritz Securities (008560 KS) in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the close on 31 March.
We estimate passive trackers will need to buy 5.15m shares (KRW 35.5bn; 12.1 days of ADV) of DGB Financial Group (139130 KS) at the close of trading on 31 March.
DGB Financial Group (139130 KS) trades cheaper than its peers on forward PE and Price to Book. There could be relative outperformance over the next week.

KOSPI 200: Special Changes & Rising Delinquency Ratios of Banks in Korea

The Korea Exchange announced special changes in KOSPI 200 index.
Effective 3 April, Meritz Securities (008560 KS) will be excluded from the KOSPI 200 index and DGB Financial Group (139130 KS) will replace it.
We think that there could be slightly better capital flow into DGB Financial as compared to other regional/smaller banks in Korea including BNK Financial

KOSDAQ150 Ad Hoc Index Rebalance: Humasis (205470 KS) To Replace Cellivery (268600 KS)

Following Cellivery Therapeutics (268600 KS) designation as an Administrative Issue and an Investment Attention Issue, the stock will be deleted from the KOSDAQ 150 Index and replaced with Humasis (205470 KS).
The timing of the index change is currently uncertain but will be implemented latest by the close of trading on 17 April.
Humasis (205470 KS) was limit up on Friday following the ex-date of a 1:3 scrip issue. The stock could continue to move higher over the next week.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Healius, Mincor, Osstem, Golden Energy, S.M.Entertainment

By David Blennerhassett

There are 42 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Four new deal was discussed on Smartkarma this past week: Australian Clinical Labs (ACL AU)/Healius (HLS AU), Wyloo/Mincor (MCR AU), JIC/Toshiba Corp (6502 JP), and MBk/ Osstem Implant (048260 KS).
Key updates took place for Essential Metals (ESS AU), Golden Energy & Resources (GER SP), and S.M.Entertainment Co (041510 KS).

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Mar 25

Daily Brief South Korea: KT Corp, SD Biosensor and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Assessing KT’s MSCI Re-Inclusion in May QCIR with Foreign Room Finally Hitting 15%
SD Biosensor (137310 KS): COVID Test Revenue Tapering Off; Global Expansion to Drive Future Growth

Assessing KT’s MSCI Re-Inclusion in May QCIR with Foreign Room Finally Hitting 15%

It is virtually certain that KT’s foreign rooms will exceed 15% today or tomorrow. This month, foreign net sales of 200-300k are continuing almost every day.
Assuming the Cutoff of the MSCI Korea Standard to be 2.7 trillion won and setting the float rate to 25%, KT beats the hurdles quite comfortably.
If KT achieves re-inclusion with a 25% float rate, a passive inflow worth 140 billion won is expected to occur. This is a 3.55x ADTV.

SD Biosensor (137310 KS): COVID Test Revenue Tapering Off; Global Expansion to Drive Future Growth

By Tina Banerjee

2023 will be a transitional year for SD Biosensor (137310 KS), with revenue and earnings taking a massive hit due to the declining revenue contribution of the COVID-19 tests.
The company is reaping the benefits of its continuous effort in adding new growth engines through M&A and global expansion of its all-in-one molecular diagnostic system called the Standard M10.
SD Biosensor is set to enter the US market through the acquisition of Meridian. With ~40% share of the global IVD market, the US has big potential.

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Mar 24

Daily Brief South Korea: Samsung Sds, Em Tech Co Ltd, Rebellions, HD Hyundai and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSPI 200 Flow Trading: Those Subject to a Significant Float Rate Change
KOSDAQ150 Ad Hoc Index Rebalance: EM-Tech (091120 KS) To Replace SBW Life (151910 KS)
KOSDAQ 150: Special Changes (SBW Life Science: Deletion & EM-Tech: Addition)
Rebellions: Challenging Nvidia in the AI-Powered Semiconductor Chips
HD Hyundai: NAV Boost From Record Results At Hyundai Oilbank + High Dividend Yield

KOSPI 200 Flow Trading: Those Subject to a Significant Float Rate Change

Samsung SDS and Meritz Financial will welcome a 6%p and 30%p increase, respectively, in the upcoming rebalancing in June.
Assuming a K200 tracking fund size of 65 trillion won, they are expected to receive 2.69x and 5.47x ADTVs, respectively. This is enough for us to consider a preemptive position.
However, in the case of Samsung SDS, we need to consider potential price correction by the scheduled block deal (1.95%) and develop a multi-phased approach to minimize timing conflicts.

KOSDAQ150 Ad Hoc Index Rebalance: EM-Tech (091120 KS) To Replace SBW Life (151910 KS)

Following Nanos Co Ltd (151910 KS)‘s designation as an Investment Attention Issue, the stock will be deleted from the KOSDAQ150 Index and replaced with Em Tech Co Ltd (091120 KS).
Passive trackers are estimated to buy 1.3 days of ADV on Em Tech Co (091120 KS) while they will need to sell 1.1 days of ADV on Nanos (151910 KS).
Em Tech Co Ltd (091120 KS) was up yesterday but the stock is still way off its highs. The stock should trade higher over the next few days.

KOSDAQ 150: Special Changes (SBW Life Science: Deletion & EM-Tech: Addition)

The Korea Exchange announced special changes in KOSDAQ 150 after the market close today.
Effective 28 March, SBW Life Science (151910 KS) will be excluded from KOSDAQ 150 index and Em Tech Co Ltd (091120 KS) will replace it.
We expect 20-30% additional upside for EM-Tech from the KOSDAQ 150 inclusion and further downside risk for SBW Life Science from the index exclusion.

Rebellions: Challenging Nvidia in the AI-Powered Semiconductor Chips

Established in 2020, Rebellions is a leading AI based fabless startup in Korea. In February 2023, Rebellions launched a new artificial intelligence chip, challenging the global leader NVIDIA.
According to the company, its ATOM chip targets specific tasks, allowing the chip to consume only about 20% of the power of an Nvidia A100 chip on those tasks.
Since the company’s inception, Rebellions raised 122 billion won in funding including 30 billion won from KT. The company was last valued at 350 billion won in June 2022.

HD Hyundai: NAV Boost From Record Results At Hyundai Oilbank + High Dividend Yield

According to our NAV analysis, it suggests a base case valuation of 70,272 won per share for HD Hyundai, representing a 23% upside from current levels.
The expected dividend yield of HD Hyundai in 2023 is 7.8% which is attractive.
Hyundai Oilbank generated record results in the past year and this has been a key boost to the NAV of HD Hyundai.

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Mar 23

Daily Brief South Korea: Osstem Implant, LG CNS, Byc Co Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

MBK/Unison Launch ANOTHER Tender on Osstem Implant (048260 KS) To Squeeze Out Minorities
MBK/Unison Capital Announces a Second Tender Offer for Osstem Implant to Take It Private
LG CNS: Aggressive Expansion of AI Capabilities in B2B IT Consulting Services
Korea Small Cap Gem #20: BYC

MBK/Unison Launch ANOTHER Tender on Osstem Implant (048260 KS) To Squeeze Out Minorities

By Travis Lundy

As discussed in MBK/Unison Capital Korea Do a Deal for Osstem Implant (048260 KS) Thwarting Activist KCGI, at end-Jan, they launched a deal to get a minimum of 15.4%.
They ended up getting 61.16%. That left 10.6% of shares out in unaffiliated hands.
Now they have launched another tender offer to buy the remaining at the same KRW 190k price. There is no minimum. Straight simple risk arb.

MBK/Unison Capital Announces a Second Tender Offer for Osstem Implant to Take It Private

MBK/Unison Capital consortium announced a second tender offer for Osstem Implant (048260 KS) today in order to take the company private.
The tender offer price is 190,000 won per share, which is the same price as the first tender offer price.
The number of shares for the tender offer is 1,654,916, accounting for 10.62% of the outstanding shares.

LG CNS: Aggressive Expansion of AI Capabilities in B2B IT Consulting Services

LG CNS provides various IT consulting services in the key digital growth areas including cloud, artificial intelligence (AI), big data, smart factory, and smart logistics.
LG CNS’s core strength in the AI sector is to capitalize on all the major AI based technologies and providing consulting services to business customers to improve their operations.
LG Corp (003550 KS) owns 49.95% stake in LG CNS, which is expected to complete its IPO sometime in 2023/2024.

Korea Small Cap Gem #20: BYC

Byc Co Ltd (001460 KS) is the 20th company in our Korea Small Cap Gems series.
Estimated value of BYC’s real estate is more than 2 trillion won, which is much higher than its current market cap of 302 billion won.
A large local fund called Truston has been going activist on BYC for more than a year. Plus, BYC’s Chairman Han is being sued by his mum for inheritance recovery.

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Mar 22

Daily Brief South Korea: S.M.Entertainment Co, Korea Kolmar and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

S.M. Entertainment: Proration Musings
Korea Kolmar: When Will People in Korea Stop Wearing Masks?

S.M. Entertainment: Proration Musings

By David Blennerhassett

After HYBE (352820 KS) conceded to Kakao Corp (035720 KS) earlier this month, S.M.Entertainment Co (041510 KS)‘s shares have declined 23%.
Kakao’s Partial Offer of ₩150,000/share closes on the 26 March.
Unadjusted proration is 36.8%, conservatively rising to 48.5%. It may settle at 61% if HYBE maintains its position – but that is probably a tad optimistic.

Korea Kolmar: When Will People in Korea Stop Wearing Masks?

The Korean government removed mask mandates for public transportation in Korea as of Monday, 20 March including in buses, taxis, and subways.
There are four major reasons why it will take much longer time for most people in Korea to stop wearing masks.
As millions of people stop wearing masks in the coming year, there will be clear, visible higher demand for cosmetics, which should benefit companies such as Korea Kolmar.

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Mar 21

Daily Brief South Korea: Seoul Broadcasting System, Hanwha Aerospace, Bionote, Ace Technologies and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korean Government’s Official Statement on Foreign Ownership Limits & The Names Still to Watch
MSCI Korea May QCIR: Potential Changes, Impact, Positioning & Short Interest
Bionote Lock-Up – Uncertainty on the Horizon, Likely to See Some Selling Pressure
Potential Inclusions & Exclusions in KOSDAQ 150 Rebalance in May 2023

Korean Government’s Official Statement on Foreign Ownership Limits & The Names Still to Watch

Hankyung exclusively reported that the Korean regulators were considering abolishing the foreign ownership limit. This morning, the Ministry of Economy and Finance released a statement that this report is untrue.
Nevertheless, circumstantially, given the current government’s all-out effort to make it to MSCI Developed Market status, there is a high possibility that it will resurface not too far from now.
Four out of the 33 foreign ownership-restricted stocks will likely be immediately affected: SKT, KT, and Korea Gas (MSCI inclusion) and SBS (flow improvement).

MSCI Korea May QCIR: Potential Changes, Impact, Positioning & Short Interest

We currently forecast 2 potential inclusions and 3 potential deletions for the MSCI Korea Index at the May QCIR. That will change over the next few weeks till cutoff date.
Passive trackers are estimated to buy between 0.6-3.3 days of ADV on the potential inclusions while selling between 6.9-14.2 days of ADV on the potential deletions.
Short interest on the potential deletions has moved significantly higher in the last few weeks and there will be pre-positioning on the stocks.

Bionote Lock-Up – Uncertainty on the Horizon, Likely to See Some Selling Pressure

By Clarence Chu

Bionote (377740 KS) was listed on 22nd Dec 2023, when it raised US$73m in its downsized Korean IPO. Its three-month lockup will expire on 21st Mar 23.
Bionote is an integrated producer of diagnostics test products and biocontent products. Based on its unique recombinant antigen and antibody manufacturing technology, the firm researches and develops diagnostic reagent products.
Coming up for three-month lockup expiry are the firm’s three pre-IPO investors, together with Gunwoo Ha (ex-CEO). The three pre-IPO investors had earlier trimmed their respective stakes in the IPO.

Potential Inclusions & Exclusions in KOSDAQ 150 Rebalance in May 2023