South Korea

The review period for the March rebalance of the KOSPI Size Indices ends 28 February. The results will be announced early March and implemented at the close on 9 March.
We see 5 migrations between MidCap and LargeCap, 8 migrations from SmallCap to MidCap, 3 new adds to MidCap, and 11 migrations from MidCap to SmallCap.
Stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.

K-Pop Battle: HYBE’s Tender Offer For S.M. Entertainment:

By David Blennerhassett

In a move to counter Lee Soo-man’s influence, S.M.Entertainment Co (041510 KS) intends to issue new shares (9.05% on a fully diluted basis) to Kakao Corp (035720 KS).
Lee, with 18.4% in SM, responded by selling 14.8% to SM’s rival HYBE (352820 KS). HYBE concurrently announced a tender offer for an additional 25%, at ₩120,000/share, a 22% premium.
Kakao and SM are less than impressed. But these developments are a power grab for the pioneer of K-pop.

Long Short Idea: Ecopro Co Ltd & Iljin Materials on March 9 with K-New Deal Rebalancing

One constituent change is expected in the BATTERY index rebalancing as Ecopro Co Ltd surpassed Iljin Materials based on the average daily market cap during the review period.
Ecopro Co Ltd is a pure holding company, so it may not be subject to inclusion. However, KRX recognizes related sales from unlisted subsidiaries as sales from the holding company.
The actual passive impact of the rebalancing day will likely be 0.15x or more for both. This level can enable a long-short setup for these from a day trading perspective.

Both C&T & SDS Are Still on the Table for Block Deals by Lee Seo-Hyun, Here’s Why

The family devoted all their efforts to maintaining 33.4% of voting shares in Samsung C&T, a level that can block a special resolution at the general shareholders’ meeting.
The most likely scenario being speculated by the market at this point is to touch both Samsung C&T and Samsung SDS. However, the C&T stake sale is to be minimized.
The possibility currently circulating in the local market is that she has 0.40% (Hana Sec) and 0.62% (Hana Bank), which currently have the highest interest burden, on the table.

Potential Inclusions & Exclusions in KOSPI 200 Rebalance in May 2023

We discuss potential inclusions and exclusions of the upcoming KOSPI 200 rebalance in May 2023. With regards to the upcoming KOSPI 200 rebalance, we like the following long-short trading strategy.
We would short a basket of potential exclusions from KOSPI 200 rebalance which would include the bottom 5% of KOSPI 200 index (10 stocks).
We would go long a basket of potential inclusions in KOSPI 200 rebalance which include four stocks including Dentium, Jeju Air, Samyang Foods, and DGB Financial.

Ecopro Co: A Likely Inclusion in MSCI Korea May Rebalance

Ecopro Co Ltd (086520 KS) is one of the likely inclusions in the MSCI Korea rebalance in May 2023.
Many investors have pushed up share price of Ecopro Co, already factoring in that this stock will be included in the next round of MSCI Korea index rebalancing.
Our NAV analysis of Ecopro Co suggests an implied NAV per share of 207,087 won, representing a 5% upside from the current price.

South Korea’s Top ESG Risk Trend in 2022: Analysis of News Articles on More than 2,000 Entities

By Yujin Oh

The result of analyzing 23,940 news articles on 2,722 Korean listed companies released between 1 January and 31 December 2022, reveal that 565 companies (20.7%) had ESG risks.
Companies with ESG risks has decreased compared to 2021, which is the first time a decrease trend has been recorded since Who’s Good began conducting ESG analysis in 2015.
Social risk ranked as the highest risk among ESG (Environment, Social, Governance) with the highest ranking ESG issue being ‘Supply Chain Management’.

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Feb 14

Daily Brief South Korea: Osstem Implant and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Osstem Implant: Founder Choi Changes CB Sale Terms to MBK-Unison & KCGI Agrees to Sell Its Shares

Osstem Implant: Founder Choi Changes CB Sale Terms to MBK-Unison & KCGI Agrees to Sell Its Shares

Due to the enormous controversy regarding Chairman Choi Gyu-Ok’s children exchange CB call options for BWs, the Choi family has decided to change and simplify this transaction structure.
Previously, MBK-Unison decided to acquire the call option on CB that Chairman Choi gave to his children. Under revised contract, MBK-Unison agreed to acquire the convertible bond itself.
We believe MBK-Unison consortium is getting a relative bargain in this deal and the valuation of Osstem Implant remain attractive (EV/EBITDA of 6.4x and P/E of 11.7x in 2024).

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Feb 13

Daily Brief South Korea: Kakao Pay, S.M.Entertainment Co, Kumho Petro Chemical, Industrial Bank Of Korea and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Kakao Pay (377300 KS): MSCI Inclusion (Finally!)
HYBE’s Tender Offer of SM Entertainment: Closing the Price Gap
MSCI Korea: Names to Trade for Feb IR & Names to Watch for May IR
South Korean Banks Screener; Highlighting Industrial Bank of Korea (024110 KS)

Kakao Pay (377300 KS): MSCI Inclusion (Finally!)

MSCI will add Kakao Pay (377300 KS) to the MSCI Korea Index at the February QCIR. There are 7 trading days to implementation on 28 February.
Local institutions and foreign investors have been sellers in the last couple of weeks and retail investors have been buying to mop up the selling.
Cumulative excess volume indicates a fair amount of pre-positioning and we’d look to sell ahead of the passive MSCI buying.

HYBE’s Tender Offer of SM Entertainment: Closing the Price Gap

We believe that there is a very high probability of a successful tender offer of 25% stake in SM Entertainment by HYBE.
There is a 4.6% gap between the tender offer price and current price. There is a strong probability of this gap being closed in the next several weeks.
There could also be an on-going interest by Kakao to try to take over the controlling interest in SM Entertainment but HYBE is not likely to give up control easily.

MSCI Korea: Names to Trade for Feb IR & Names to Watch for May IR

POSCO Holdings and Kumho Petro Chemical are expected to experience a level of passive outflow worthy of our attention in Feb QCIR.
Newly emerging ones for May OCIR are Ecopro Co Ltd and Amorepacific Group. Ecopro’s inclusion is almost certain, and AmoreG isn’t too far off the borderline.
Hanwha Aerospace also settled in the inclusion zone, whereas Posco International has moved somewhat away from the borderline. Lastly, there is S.M. Entertainment, which also deserves our attention.

South Korean Banks Screener; Highlighting Industrial Bank of Korea (024110 KS)

By Victor Galliano

In our latest South Korean banks screener; we add Industrial Bank of Korea to the buy list alongside Hana Financial; we cut KB Financial to a neutral rating
Industrial Bank of Korea has very attractive multiples and PEG ratio and the best pre-provision and post-provision returns of the peer group, it also has sound broad credit quality metrics
We introduce a broader credit quality metric to the screens and also EPS revisions over the last week and last month to give a sense of earnings momentum changes

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Feb 12

Daily Brief South Korea: Kakao Pay, Sebang Co Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

MSCI Korea Index Rebalance: Kakao Pay Included
KOSPI Size Index Migration: Names to Trade as We Are 30D Towards Effective

MSCI Korea Index Rebalance: Kakao Pay Included

MSCI announced its MSCI Korea index rebalance on 10 February. Kakao Pay (377300 KS) was the only company to be included in the MSCI Korea index.
There were also nine Korean companies included in MSCI Small Cap index including Osstem Implant, DearU, and ISC Co.
Hanwha Aerospace (012450 KS) and Ecopro Co Ltd (086520 KS) are higher probability potential candidates for inclusion in MSCI Korea Index rebalance in May.

KOSPI Size Index Migration: Names to Trade as We Are 30D Towards Effective

Amorepacific Group is more likely to remain in LargeCap due to its share price surge earlier this year. Instead, Hyundai Autoever will likely face a large→mid migration.
Of Small→Mid migrants. Sebang and Kum Yang deserve attention, as they will rank high in the Mid due to the rapid market cap growth over the past six months.
YTD performance seems to have a higher correlation with individual sector performance than causality with this event. So, there is still a circumstantial probability that justifies the trade.

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Feb 11

Daily Brief South Korea: Alteogen Inc and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Alteogen (196170 KS): Distinct Platform Technology; Biosimilar Pipeline; Potential Value Unlocking

Alteogen (196170 KS): Distinct Platform Technology; Biosimilar Pipeline; Potential Value Unlocking

By Tina Banerjee

Alteogen Inc (196170 KS) signed its fourth licensing deal for ALT-B4, a proprietary human recombinant hyaluronidase enzyme, with Sandoz. Given the strong demand more such deals are expected to follow.
Alteogen is reportedly in talks with global pharmaceutical companies for a technology transfer deal for Herceptin SC biosimilar. If successful, Alteogen will be a re-rating candidate.
Alteogen has established Altos Biologics to facilitate global phase 3 clinical trials and commercial development of Eylea biosimilar. Altos Biologics aims to be listed on the KOSDAQ in 2024.

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Feb 10

Daily Brief South Korea: Samyang Foods, Samsung Sds, S.M.Entertainment Co, OASIS Corp, Krafton Inc and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea Spin-Offs: Details and KOSPI200 Index Impact
Discussing the Timing of the Samsung SDS Block Deal by Lee Seo-Hyun
HYBE to Acquire a 39.8% Stake in SM Entertainment
Oasis Corp IPO Preliminary Book Building Results
Krafton: Improving Corporate Governance Through Shares Cancellation & Stock Based Compensation
Critical Details of Regulatory Filing for the SM Ent Tender Event

Korea Spin-Offs: Details and KOSPI200 Index Impact

Hyundai Dept Store Co (069960 KS), Hyundai Greenfood (005440 KS) and Oci Co Ltd (010060 KS) will spin-off divisions and list them prior to the next rebalance in June.
The equity spin-offs will result in passive flows prior to the trading suspension as well as on relisting of the stocks post the spin-off.
We expect one change to the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in April as one stock will be deleted due to low market cap following the spin-off.

Discussing the Timing of the Samsung SDS Block Deal by Lee Seo-Hyun

The term of Lee’s trust contract with Hana Bank is from February 2nd to April 28th, and the volume is 1.95% of SO, the total remaining quantity owned by Lee.
The price movement on the day the previous block deals by the Lee family were executed was substantial. Of particular note is that SDS showed the most significant price impact.
We should focus on the possibility that a block deal will come to the market much earlier, as SDS is in short-term overbought territory from a valuation perspective.

HYBE to Acquire a 39.8% Stake in SM Entertainment

On 10 February (prior to market open), Seoul Economic Daily reported that HYBE will conduct a tender offer of SM Entertainment shares taking over the controlling ownership of the company.
HYBE agreed to acquire a 14.8% stake from SM Entertainment’s founder Lee Soo-Man at 120,000 won per share, which represents a 21.8% premium to the closing price on 9 February.
HYBE is also conducting a tender offer to minority shareholders and it plans to acquire up to 25% additional shares at 120,000 won per share, representing 717 billion won.

Oasis Corp IPO Preliminary Book Building Results

The local media mentioned that the preliminary book building results of the Oasis IPO were terrible.
Therefore, the company is likely to either materially lower the IPO price range or postpone the IPO altogether.
Our base case valuation of Oasis Corp is target price of 24,847 won per share, which is 18.5% lower than the low end of the IPO price range.

Krafton: Improving Corporate Governance Through Shares Cancellation & Stock Based Compensation

Krafton has announced a meaningful shareholder return policy including shares buyback, cancellation, and share based compensation in the next three years.
The combination of improving shareholder return policy along with new games development and China’s opening up of its game industry to overseas game makers are likely to positively impact Krafton.
Given Krafton’s current market cap of 8.9 trillion won, the estimated share buybacks of 713 billion won would represent 8% of market cap over three years.

Critical Details of Regulatory Filing for the SM Ent Tender Event

There is no cancellation risk, regardless of where and how the ongoing proxy battle will be heading and unfolding. But there is a pro rata allocation risk, though.
Regarding tax, a tender event in Korea is treated as an over-the-counter trade. So transfer income tax is imposed.
SM provides shorting instruments necessary for arb trade, and the possibility of an arb opening coming out during tendering isn’t completely dead, given the uncertainties surrounding the current proxy battle.

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Feb 09

Daily Brief South Korea: Samyang Foods, Naver Corp and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSPI 200 Ad-Hoc Change: Hyundai Greenfood Out & Samyang Foods Fresh Buy-In on April 10
Naver (2023 High Conviction Update): Turbo-Charged by Expected Launch of Korean Version of ChatGPT

KOSPI 200 Ad-Hoc Change: Hyundai Greenfood Out & Samyang Foods Fresh Buy-In on April 10

From a trading perspective, we should pay attention to the KOSPI 200 corporate actions in Hyundai Department Group’s demerger events, as both companies are KOSPI 200 constituents.
Hyundai Green Food’s surviving company won’t beat the cutoff, resulting in a KOSPI 200 constituent change on April 10. Samyang Foods will be a new addition.
Even the size of KOSPI 200 ETFs that will likely go into mechanical trading on April 10 will cause a significant price impact from a day trading perspective.

Naver (2023 High Conviction Update): Turbo-Charged by Expected Launch of Korean Version of ChatGPT

Naver plans to launch its own Korean version of ChatGPT in 1H 2023.
We believe that this will act as an important catalyst that is likely to further fuel Naver’s share price higher.
Naver has been our high conviction call in 2023 and we continue to have a Positive view of Naver.

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Feb 08

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

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SM Entertainment: A Rights Offering & CB Issue to Kakao Corp
Coupang(CPNG US) Rating Change: Margin Still Has Upside, Upgrade to BUY

SM Entertainment: A Rights Offering & CB Issue to Kakao Corp

On 7 February, it was announced that SM Entertainment will conduct a third party rights offering and CB issue to Kakao Corp.
Post these deals, Kakao Corp will own a 9.05% stake in SM Entertainment.
The rights offering and the CB issue have all the hallmarks of an intermediate deal prior to an eventual takeover of SM Entertainment by the Kakao Group.

Coupang(CPNG US) Rating Change: Margin Still Has Upside, Upgrade to BUY

By Shawn Yang

We estimate that Coupang’s 4Q22’s revenue is in-line while non-GAAP net income beats cons by 29% because of the continuous cost-saving methods.
We cut Coupang’s TP from US$22 to US$19 because of several challenges in 2023, including inflation, barriers in international expansion, and difficulty in growth.
Yet, our TP is still 17% above current price, so we upgrade Coupang’s rating to BUY to reflect its advantages in competitive landscape, and margin expansions.

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Feb 07

Daily Brief South Korea: Korea Stock Exchange Kospi 200 Index, Jeju Air, Jeio, Com2us Corp and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea: Upcoming Changes to Dividend Rules & Implications
Korea NPS Reportedly Finalized Additional 50 KOSPI Stocks in Its BM for Direct Management
JEIO IPO: Book Building Results Analysis
Com2uS Corp: The Most Likely Corporate Activist Target in Korea’s Game Industry

Korea: Upcoming Changes to Dividend Rules & Implications

On 31 January, Korea’s Financial Services Commission (FSC) and the Ministry of Justice announced plans to improve rules regarding dividends to bring them in line with international standards.
Companies will be able to decide the dividend amount prior to the record dates for quarterly dividends, while the ex-date of the final dividend will be post the AGM.
This was one of the issues highlighted by MSCI for Korea’s upgrade from EM to DM. There are also implications for the KOSPI200 futures basis and futures rolls.

Korea NPS Reportedly Finalized Additional 50 KOSPI Stocks in Its BM for Direct Management

NPS said it would add 50 KOSPI stocks to KOSPI 200 for direct management. However, the key was when this would be implemented and which ones would be included.
SBS, one of Korea’s major networks, exclusively reported that NPS finalized the constituent stocks of the NPS-KR250 and started rebalancing trading on the 50 additional KOSPI stocks from January.
Hence, tracing and identifying who these additional 50 KOSPI stocks are is becoming the hottest topic in Korea’s local market at this point.

JEIO IPO: Book Building Results Analysis

Jeio (418550 KS) announced its IPO price of 13,000 won, which was at the high end of the recently revised down IPO price range of 10,000 won to 13,000 won.
There were 1,174 institutional investors that participated in this IPO survey. The demand ratio was 352.6 to 1.
Our base case valuation of JEIO is target price of 12,575 won per share, which is 3.3% lower than the IPO price 13,000 won.

Com2uS Corp: The Most Likely Corporate Activist Target in Korea’s Game Industry

Com2us Corp (078340 KS) is the most likely corporate activist target in Korea’s game industry.
Our base case valuation of Com2uS suggests a target price of 97,321 won which is 49% higher than current price.
Finally, the company is expected to launch at least 3-4 promising new games this year. All in all, we have a positive view of Com2uS Corp.

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Feb 06

Daily Brief South Korea: Hanwha Corporation and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Introducing ARIRANG K-Defense, Sector ETF Currently in the Limelight in Korea

Introducing ARIRANG K-Defense, Sector ETF Currently in the Limelight in Korea