South Korea

Korea’s partial short-selling system, implemented in May last year, created a new trading pattern, a surge in short selling for new additions, immediately after index rebalancing.
Canaria Bio, HPSP, and SungEel Hitech are highly likely to be the primary targets for short selling, but there is one more thing we need to consider.
KODEX will likely begin rebalancing buying on HPSP and SungEel on December 9, the same day the short-selling starts for them. So, we need a more flexible setup.

Coupang: Market Share Loss Likely Due to Launch of Naver’s 24 Hours Next Day Delivery Service

In December 2022, Naver plans to launch its long awaited 24 hours delivery service (Naver Arrival Guarantee Solution), competing directly against Coupang’s “rocket delivery” services in Korea.
Coupang’s valuations are not attractive at current levels and the heightened competition in the 24 hour delivery service market from Naver/CJ Logistics is likely to negatively impact Coupang.
By providing 24 hours quick delivery service, Naver is expected to take away market share from Coupang from the fast delivery services in Korea.

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Nov 07

Daily Brief South Korea: Sk Chemicals Co Ltd/New and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

MSCI Korea November SAIR: Potential Changes, Impact, Short Interest & Pre-Positioning

MSCI Korea November SAIR: Potential Changes, Impact, Short Interest & Pre-Positioning

We see 1 potential inclusion and 12 potential deletions for the MSCI Korea Index at the November SAIR. The final changes will depend on what day MSCI uses.
Nearly all the stocks have over 4 days of ADV to trade from passive trackers. There have been big moves on short interest and excess volume on some stocks.
The announcement will be made Friday morning pre-market open and there could be some big moves in the stocks this week.

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Nov 06

Daily Brief South Korea: Millie’s Library and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Millie’s Library IPO Valuation Analysis

Millie’s Library IPO Valuation Analysis

Our base case valuation of the company is target price of 26,404 won per share, which represents 6% higher than the high end of the IPO price range.
Given the low upside, we have a Negative view of this IPO.
All in all, while we believe Millie’s Library is a solid company with excellent fundamentals, the IPO price range is not valued at meaningful discount to the intrinsic value.

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Nov 05

Daily Brief South Korea: Millie’s Library, KT Corp and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Millie’s Library IPO Preview
KOSPI 200 Index Review: Names Subject to Float Rate Adjustment

Millie’s Library IPO Preview

Millie’s Library is getting ready to complete its IPO on the KOSDAQ exchange in November. The IPO price range is from 21,500 won to 25,000 won per share.
Millie’s Library is the largest platform for e-books subscription in Korea. The major shareholder of Millie’s Library is Genie Music Corp (an affiliate of KT Group) with a 38.63% stake.
The company started to generate positive operating margin in 1H 2022 when it had sales of 21.1 billion won (up 66.1% YoY) and operating margin of 5%.

KOSPI 200 Index Review: Names Subject to Float Rate Adjustment

We have seven constituents of KOSPI 200, which are subject to a float rate adjustment due to major shareholder stake sales and lockup release in the upcoming rebalancing in December
In terms of passive impact x ADTV, LG Energy Solution, KT Corp, and Shinhan Financial are expected to receive the most attention from flow traders.
The preemptive setups of flow traders will likely be more inclined toward these float rate changes since this December rebalance will have the lowest number of constituent changes ever.

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Nov 04

Daily Brief South Korea: KT&G Corporation, Nongshim Co Ltd, Bionote, Samsung Electronics and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KT&G Announces a Share Buyback Worth 350 Billion Won
A Pair Trade Between Nongshim Co & Nongshim Holdings (Youlchon Chem Is Breaking Out)
Bionote Pre-IPO Peer Comp – Larger Segment Leads in Margins, but Trend Could Be Reversing
Launching Single-Stock ETFs in Korea: Market Flow Impact Analysis

KT&G Announces a Share Buyback Worth 350 Billion Won

On 3 November, KT&G announced that it will buy back 350 billion won worth of common shares (3.7 million shares).
KT&G has mentioned that it could increase its DPS by at least 200 won in 2022. Assuming DPS of 5,000 won in 2022 would suggest a dividend yield of 5.3%.
KT&G had another solid results in 3Q 2022 slightly beating the consensus sales and operating profit estimates.

A Pair Trade Between Nongshim Co & Nongshim Holdings (Youlchon Chem Is Breaking Out)

In this insight, we discuss a pair trade of Nongshim Holdings (072710 KS) (go long) and Nongshim Co Ltd (004370 KS) (go short).
We believe the price gap between these two stocks have widened too much in the past six months and this gap is likely to decrease again.
Nongshim Holdings’ stake in Youlchon Chem has been rising rapidly in the past six months which should also act as a positive catalyst on Nongshim Holdings.

Bionote Pre-IPO Peer Comp – Larger Segment Leads in Margins, but Trend Could Be Reversing

By Clarence Chu

Bionote (377740 KS) is looking to raise approximately US$200m in its Korean IPO. The IPO would consist of both a primary and secondary selldown.
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.
In this note, we look at peers and undertake a peer comparison.

Launching Single-Stock ETFs in Korea: Market Flow Impact Analysis

The target market size that will be affected by the Default Option is estimated to be ₩92T. Up to 30% of them (₩30T) can flow into single-stock ETFs.
Competing against TDFs, half of this ₩30T is a conservative estimate for single-stock ETFs. Then, up to 40% of the ₩15T becomes the flow size entering the local stock market.
KODEX’s Samsung Electronics single-stock ETF may dominate the market. In this case, at least ₩3-4T can flow into Samsung Electronics Ord.

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Nov 03

Daily Brief South Korea: Samyang Foods, Orion Corp, SK Square and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSPI200 Index Rebalance Preview: Potential Changes, Excess Volumes & Pre-Positioning
A Pair Trade Between Orion Holdings and Orion Corp
Sweden’s EQT Partners to Invest Big in SK Shieldus: Impact on SK Square

KOSPI200 Index Rebalance Preview: Potential Changes, Excess Volumes & Pre-Positioning

With the review period complete, we see 1 high probability change and 1 lower probability change for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in December.
We estimate passive trackers will need to trade over 10 days of ADV on the high probability names. There are indications that there are pre-positions built on the stocks.
With short-sell eligibility flipping post implementation of the changes, a lot of pre-positions will be unwound prior to implementation and there will be trading opportunities on the reverse side.

A Pair Trade Between Orion Holdings and Orion Corp

In this insight, we discuss a pair trade between Orion Holdings (001800 KS) (go long) and Orion Corp (271560 KS) (go short).
Orion Holdings has a dividend yield of 4.6% versus 0.7% for Orion Corp. For the value investors that seek higher dividends, Orion Holdings is more attractive versus Orion Corp.
We believe the price gap between these two stocks have widened too much in the past several months and this gap is likely to decrease again.

Sweden’s EQT Partners to Invest Big in SK Shieldus: Impact on SK Square

On 2 November, it was reported that Sweden’s EQT Partners is to acquire a 36.87% stake in SK Shieldus.
EQT Partners is expected to invest more than 2 trillion won in SK Shieldus which is expected to be valued at about 4.5 trillion won to 5.2 trillion won.
Our base case valuation of SK Square is NAV per share of 59,272, which is 59% higher than current price.

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Nov 02

Daily Brief South Korea: SK Innovation, LG Energy Solution, Hana Financial and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SK On Valuation at 22 Trillion Won – Impact on SK Innovation
Close Out the Pair Trade Between LG Chem & LG Energy Solution
Hana – Granular Data On China

SK On Valuation at 22 Trillion Won – Impact on SK Innovation

SK On announced that it recently received 1 trillion won in investment, valuing the company at 22 trillion won, 29% higher than SK Innovation’s market cap of 17 trillion won.
The recent investment of nearly 1 trillion won in SK On was in the form of convertible preferred stock (CPS), which guarantees a minimum return of 7.5%.
Our SoTP valuation of SK Innovation suggests a target price of 254,396 won per share, which represents a 39% higher levels than current price.

Close Out the Pair Trade Between LG Chem & LG Energy Solution

On 25 October, we recommended a pair trade between LG Chem (go long) and LGES (go short). Since then, this trade has resulted in a net gain of 15.7%.
It is very unusual to get this kind of alpha sized gains on Korean large caps in such a short time period.
Given the sharp net appreciation on this pair trade in the past week, we would close out this trade.

Hana – Granular Data On China

By Daniel Tabbush

Hana Financial Group reported a loss in its China banking business in 9MQ22
Hana Bank (China) recorded credit costs at KRW119bn or 20% of group total
Off balance sheet commitments in China appear to be moving on balance sheet

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Nov 01

Daily Brief South Korea: HPSP, SillaJen Inc and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSDAQ150 Index Rebalance Preview: Big Churn in IT, Healthcare Stocks
End of Mandatory Lock-Up Periods for 54 Companies in Korea in November 2022

KOSDAQ150 Index Rebalance Preview: Big Churn in IT, Healthcare Stocks

With the review period complete, we see 11 potential changes to the KOSDAQ 150 Index (KOSDQ150 INDEX) at the December rebalance.
Most of the potential changes are high probability ones, but there are some stocks that are very close to market cap and liquidity cutoffs.
The impact of passive trading will be much higher on the potential deletes as compared to the potential inclusions, though trade notionals are higher for the potential adds.

End of Mandatory Lock-Up Periods for 54 Companies in Korea in November 2022

We discuss end of the mandatory lock-up periods for 54 stocks in Korea in November 2022, among which 2 are in KOSPI and 52 are in KOSDAQ.
These 54 stocks on average could be subject to further selling pressures in November and could underperform relative to the market.
Among these 54 stocks, the top 5 market cap stocks include Enchem, Sebit Chem, DearU, Sillajen, and Sampyo Cement. They could be exposed to greater selling pressures in November.

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Oct 31

Daily Brief South Korea: LX Semicon, Amorepacific Group and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

LX Semicon KOSPI Migration & KOSDAQ 150 Special Change
MSCI Korea IR: Market Cap Cutoff, NOC, & Constituent Changes

LX Semicon KOSPI Migration & KOSDAQ 150 Special Change

LX Semicon (108320 KS) will be traded on KOSPI from November 3rd. This event has no trade suspension. So, it will be traded on KOSDAQ until November 2nd.
Nextin (348210 KS) will replace LX Semicon for KOSDAQ 150. Again, the effective date is November 3rd. So, the index trackers will rebalance-trade at the close on November 2nd.
LX Semicon will see an outflow of -1.91x ADTV, whereas Nextin will enjoy an inflow of 3.93x ADTV. This Special Change will likely save AptaBio Therapeutics (293780 KS) from deletion.

MSCI Korea IR: Market Cap Cutoff, NOC, & Constituent Changes

The NOC of MSCI Korea Standard is 111, and the market cap of the 111th-ranked company is ₩2.44T on Day 1 and ₩2.40T on Day 2.
In addition to Hyundai Mipo, Ecopro passed the screening. On the other hand, only Meritz Securities and CJ ENM managed to stay inside the safe zone among the deletion candidates.
The recently increased price fluctuations likely resulted in delaying the entry timing of flow trading. So, we should set the expected return of our basket trade a bit more aggressively.

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Oct 30

Daily Brief South Korea: Hyundai Elevator Co, Nextin and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Hyundai Elevator: Announces a Major Share Buyback Program
KOSDAQ150 Ad Hoc Index Rebalance: LX Semicon OUT, Nextin IN

Hyundai Elevator: Announces a Major Share Buyback Program

On 28 October, Hyundai Elevator Co (017800 KS) announced a major share buyback program worth 2.1 million shares, representing 5.1% of outstanding shares or about 50 billion won.
Hyundai Elevator Co Ltd makes excellent elevators and it is the number one player in the elevator industry in Korea with a 41% market share as of 2Q 2022.
Despite the company’s valuations trading at lower levels than its recent historical levels, the negative factors impacting the company are much bigger in scale than the share buyback program.

KOSDAQ150 Ad Hoc Index Rebalance: LX Semicon OUT, Nextin IN