South Korea

The KRX gives three heads-up types: WARNING (illegal trading), ADMINISTRATIVE (insolvency), & ATTENTION (inappropriate accounting). Those losing eligibility are ADMINISTRATIVE (KOSPI 200) and ADMINISTRATIVE + ATTENTION (KOSDAQ 150).
Those designated as WARNING keep the eligibility for KOSPI 200/KOSDAQ 150 unless delisting is decided. We can find these heads-up designations on the KRX website, which is available in English.
Osstem is currently an ATTENTION issue, so ineligible at this point. Knotus was designated as a WARNING issue in June and underwent a trade suspension. Nevertheless, it maintains eligibility.

LionHeart Studio Pre-IPO – The Negatives – Appears to Be Well past Its Peak, Founder Cashed In $700m

Lionheart Studio (426630 KS), a game development studio based in South Korea, aims to raise around US$420m via its South Korean IPO.
The company is majority owned by Kakao Games Corp (293490 KS) , which after having recently hiked its stake, owned 54.94% of the company prior to listing.
In this note, we will talk about the not-so-positive aspects of the deal.

MSCI Korea November SAIR: Potential Deletes Continue to Slide

By Brian Freitas

With a week to the start of the review period, we forecast one inclusion and a lot more deletions for the MSCI Korea Index at the November SAIR.
The impact from passive fund trading is pretty large on the potential and close deletes while the impact is a lot more muted on the sole potential add.
There will be pre-positioning on most of the names already and part of that shows up in sharply higher short interest on a few stocks.

MSCI Korea: Potential Inclusions & Exclusions in November 2022 Highlighted by Locals

We discuss the potential inclusions and exclusions in the next MSCI Korea Index rebalance announcement (10 November) that are being highlighted by the locals.
The potential inclusion candidates in the MSCI Korea Index emphasized by the locals in November 2022 include Hyundai Mipo Dockyard (010620 KS) and Hanwha Aerospace (012450 KS).
Potential exclusion candidates include Seegene Inc (096530 KS), Meritz Financial Group (138040 KS), and Green Cross (006280 KS).

Lock & Lock – Announces Dividends Worth 25% of Market Cap

After the market close today, Lock&Lock announced that it will pay out dividends per share of 1,653 won worth 83 billion won, representing 25% of the company’s market cap.
The shareholders date of record that could receive the dividends is as of 30 September 2022.
Although the high dividend payment should benefit the existing shareholders, we are not sure on the company’s ability to continue to maintain high dividend payout ratio.

LionHeart Studio IPO – Peer Comparison – Youngest and Most Untested

Lionheart Studio (426630 KS), a game development studio based in South Korea, aims to raise around US$420m via its South Korean IPO.
The company is majority owned by Kakao Games Corp (293490 KS), which after having recently hiked its stake, owned 54.94% of the company prior to listing.
We spoke about the company’s past performance in our previous note. In this note, we’ll undertake a peer comparison.

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Oct 11

Daily Brief South Korea: Lionheart Studio, Lotte Confectionery, KB Financial, K Car, SAMG Entertainment and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Lion Heart Studio Pre-IPO – The Positives – Got One Hit
KOSPI200 Index Rebalance Preview: Few Changes, Big Impact
South Korean Banks Screener; KB Financial Is Our Core Pick
K Car Lockup – Small Stock with a Big Lockup – Money Recouped, Any Price Is a Good Price to Sell
SAMG Entertainment IPO Preview

Lion Heart Studio Pre-IPO – The Positives – Got One Hit

Lionheart Studio (426630 KS), a game development studio based in South Korea, aims to raise around US$420m via its South Korean IPO.
The company is majority owned by Kakao Games Corp (293490 KS), which after having recently hiked its stake, owned 54.94% of the company prior to listing.
In this note, we will talk about the positive aspects of the deal.

KOSPI200 Index Rebalance Preview: Few Changes, Big Impact

By Brian Freitas

90% of the way through the review period of the Kospi 200 Index December rebalance, we see two potential changes to the index. There is another potential inclusion failing liquidity.
This rebalance is expected to have the lowest turnover as compared to any of the Kospi 200 Index rebalances over the last few years. Partly lower markets, partly no IPOs.
That said, passive trackers are estimated to need to trade over 10 days of ADV on one of the potential adds and both potential deletes.

South Korean Banks Screener; KB Financial Is Our Core Pick

By Victor Galliano

Six of the seven South Korean banks screen favourably on valuation versus returns metrics to June 2022; we like KB Financial, whilst Woori Financial is a wait and see story
KB has undemanding valuations, and one of the lowest PEG ratios; it delivers steady pre-provision returns, has sound core capital ratio of close to 13% and healthy credit quality ratios
Woori Financial and potentially KakaoBank are two names to review post 3Q22 results, with Woori and KakaoBank having seen their 2Q22 cost of risk rise sharply; we seek positive catalysts

K Car Lockup – Small Stock with a Big Lockup – Money Recouped, Any Price Is a Good Price to Sell

K Car completed its IPO in South Korea in Oct 21. It raised around US$300m after having downsized the offering and cut the asking price to below the IPO range.
K Car is a used car marketplace and dealership operating in South Korea.
In this note, we will talk about the recent updates and the upcoming lockup expiry.

SAMG Entertainment IPO Preview

SAMG Entertainment is getting ready for an IPO on the KOSDAQ market. SAMG Entertainment is a leading children animation and digital contents focused entertainment company targeting young children.
The IPO offering amount is from 37.8 billion won to 46.7 billion won. The book building for the institutional investors starts on 1 November.
The company operates 42 Youtube channels including 15 domestic channels and 27 overseas channels. The total number of subscribers for these 42 Youtube channels exceeds 39 million.

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Oct 09

Daily Brief South Korea: SKC Co Ltd, HMM Co., Ltd., Kakao Corp and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

SKC Co: Announces a Share Buyback of 5% of Outstanding Shares
Rule Changes in Disclosing the Identities of Foreign Short Sellers in Korea
Is Kakao Cheap or Not? Actions Louder than Words

SKC Co: Announces a Share Buyback of 5% of Outstanding Shares

On 7 October, SKC Co Ltd (011790 KS) announced that it will conduct a share buyback of 1.89 million shares, representing 5% of outstanding shares.
We continue to maintain a Negative view of SKC Co.
We remain concerned about lack of clear measures to protect existing minority shareholders if its major subsidiaries (such as Nexilis) complete IPOs in the next several years.

Rule Changes in Disclosing the Identities of Foreign Short Sellers in Korea

Chairman Kim of the FSC mentioned potential rule changes in disclosing the names of short sellers at the state audit last Thursday.
The first is to reveal the identity of short sellers who traded through a swap contract with a broker, which is currently exempt from the short-selling disclosure obligation.
The second is to disclose the identity of investors caught in illegal short-selling activities, mostly naked short-selling and wall-crossing.

Is Kakao Cheap or Not? Actions Louder than Words

By Ken S. Kim

Why KakaoBank (323410 KS) , Kakao Games Corp (293490 KS) and Kakao Pay (377300 KS) were hit recently
Aside from the sum of the 3, why Kakao Corp (035720 KS) is getting hit further
Are near the bottom or is there more to go?

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Oct 06

Daily Brief South Korea: CanariaBio, Samsung Electronics, Amorepacific Corp and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSDAQ 150 Rebalancing: 7 Regular Changes + 2 Special Entries
Samsung Electronics: Lee Jae-Yong Orders the Creation of a New Task Force to Raise Shareholder Value
Trading Ideas on the Possibility of Samsung Electronics’ Special Shareholder Returns
A Senior Korean Govt Official Provides the Likely Time of the End of Indoor Mask Mandate

KOSDAQ 150 Rebalancing: 7 Regular Changes + 2 Special Entries

KOSDAQ 150’s December rebalancing will feature seven regular changes and two special entries.
Among the additions, we should focus on Dear U and ISC, which have a balanced level of liquidity and flow, rather than those theme stocks with high volatility.
As for Nature Holdings, Eoflow, and Nextin, I suggest a more aggressive entry point due to low trading volume. Then, I’d basket-trade the deletions on equal weight.

Samsung Electronics: Lee Jae-Yong Orders the Creation of a New Task Force to Raise Shareholder Value

On 4 October, it was reported that Samsung Electronics (005930 KS) has set up a task force to raise shareholder value of the company.
This task force was formed at the order of Samsung’s Vice Chairman Lee Jae-Yong.
All in all, a major share buyback and cancellations coupled with higher dividends could result in a share price turnaround for Samsung Electronics.

Trading Ideas on the Possibility of Samsung Electronics’ Special Shareholder Returns

1P/Ord LONG/SHORT betting on a 1P-skewed buyback does not look very desirable. The Lee family’s financial needs are short-term, so there is no need for a 1P-skewed buyback.
Given that the 1P discount rate has stabilized again, a strategy betting on the mean reversion does not seem very timely either.
We should look at the possibility that false expectations for a special year-end dividend will further deepen futures backwardation. This situation can lead to quite a juicy spot/futures spread opening.

A Senior Korean Govt Official Provides the Likely Time of the End of Indoor Mask Mandate

In the past few days, a senior government Korean official announced that the indoor mask mandates will likely be lifted in March 2023.
Although this is not officially finalized, we believe that there is a very high probability of the Korean government finally ending the indoor mask mandate sometime in March 2023.
The end of the indoor mask mandate is likely to have a positive impact on the Korean cosmetics companies. Nonetheless, we are still concerned about the relatively high valuation multiples.

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Oct 04

Daily Brief South Korea: Kakao Pay, K Car, Hanall Biopharma and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Kakao Pay Placement Lockup Expiry – Alipay Is Soon Going to Be Free to Shed Its US$1.6bn Stake
Noteworthy Lockup Releases for the Next Two Months in Korea
Hanall Biopharma (009420 KS): Clinical Trial Progress of Key Pipeline Assets to Provide Some Upside

Kakao Pay Placement Lockup Expiry – Alipay Is Soon Going to Be Free to Shed Its US$1.6bn Stake

In early Jun 2022, Alipay raised around US$386m via selling 3.3% of outstanding shares of Kakao Pay (377300 KS). That was the first selldown by Alipay (Alibaba (ADR) (BABA US)).
Despite pricing the shares at an enticing 11.8% discount to last close, the stock failed to hold the deal price and hasn’t looked back since.
In this note, we will talk about the previous deal and the upcoming lockup expiry.

Noteworthy Lockup Releases for the Next Two Months in Korea

K Car’s major shareholder is Hahn & Company, which has already fully recovered the initial investment. So, there is an actual probability that it will make an aggressive exit.
SingEel’s 3-month IPO institutional and VCs will be released, 6.18% of SO. All of them are in a profit zone, there is a possibility that an aggressive overhang will occur.
Kakao’s 47% holdings in Kakao Pay will be released. The possibility of lowering the stake seems quite low. Nevertheless, we must consider the risk that this will affect market sentiment.

Hanall Biopharma (009420 KS): Clinical Trial Progress of Key Pipeline Assets to Provide Some Upside

Hanall Biopharma (009420 KS) has two leading pipeline assets, HL161 (batoclimab) and HL036 (tanfanercept), which are being developed by global license partners.
Batoclimab is in phase 3 trial for myasthenia gravis, which causes weakness of voluntary muscles. Tanfanercept is being developed as a treatment for dry eye disease in China and U.S.
Batoclimab and tanfanercept trials are approaching multiple data readouts in near-term. Hanall will be entitled for milestone payments for clinical trial progress of its out-licensed assets.

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Oct 02

Daily Brief South Korea: Woori Financial Group and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Woori – Plenty to Worry About

Woori – Plenty to Worry About

By Daniel Tabbush

Woori is the fastest growing major bank in Korea, not positive into a downturn
Credit metrics look poor in granular data on loans and in credit costs
Capital levels are relatively low, while funding mix is worsening

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Oct 01

Daily Brief South Korea: Lionheart Studios, Boryung Pharmaceutical and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Lionheart Studio IPO Preview
Boryung Pharmaceutical (003850 KS): Oncology Portfolio Expansion to Accelerate Growth Momentum

Lionheart Studio IPO Preview

Lionheart Studio is getting ready to complete its IPO in November 2022. Lionheart Studios is the second largest IPO in Korea after LG Energy Solution (373220 KS) in 2022.
The IPO offering amount is 410 billion won to 604 billion won. This would also suggest implied market cap of 3.1 trillion won and 4.5 trillion won.
A key investment risk for the company is its excessive reliance on one game (Odin: Valhalla Rising) for its revenue and profits.

Boryung Pharmaceutical (003850 KS): Oncology Portfolio Expansion to Accelerate Growth Momentum

Boryung Pharmaceutical (003850 KS) is expanding its oncology portfolio mainly through in-licensing and co-promotion agreement and aims to achieve revenue of KRW217 billion from oncology segment in 2026.
This month, Boryung received approval for in-licensed drug Zepzelca (lurbinectedin), indicated for the treatment of small-cell lung cancer in Korea. The drug has demonstrated high adoption rate in the U.S.
This year, Boryung launched two in-licensed neutropenia drugs and one generic drug for breast cancer. The company plans to launch 18 oncology drugs during 2022–2026, including 10 first generics.

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Sep 29

Daily Brief South Korea: LG Energy Solution, WCP, SK Telecom and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

TIGER (FnGuide) Top 10 ETF Rebalancing: Noteworthy Changes Emerging
WCP IPO Trading – Peer Correction Means Price Cut Still Wasn’t Enough
Launch of KRX/S&P ESG High Dividends Index

TIGER (FnGuide) Top 10 ETF Rebalancing: Noteworthy Changes Emerging

There was a substantial increase in the AUM even in the current market condition. More funds must have sought blue chip stocks as relatively safe assets in this volatile market.
Celltrion and LG Energy Solution will likely replace KB Financial and Shinhan Financial. On the other hand, POSCO is out of the race even with a +5%p float rate change.
LG Energy also has an up-weight event of the KOSPI 200. Since these passive flow events have an interval of only one day, we expect a fairly concentrated passive impact.

WCP IPO Trading – Peer Correction Means Price Cut Still Wasn’t Enough

WCP raised around US$314m via selling a mix of primary and secondary shares in its Korean IPO.
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 demand for the deal and other trading dynamics.

Launch of KRX/S&P ESG High Dividends Index

KRX plans to launch KRX/S&P ESG High Dividends Index on 4 October. This index will be composed of stocks in KOSPI 200 which have high dividend yields and ESG scores.
We provided a list of 20 stocks in KOSPI with high dividend yields with at least 500 billion won in market cap and those that have higher ESG scores.
Amid a major downturn in the global stock markets, there is a greater emphasis on the preservation of capital and increasing capital allocation to higher dividend yielding stocks.

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Sep 28

Daily Brief South Korea: Top Material, Lotte Chemical, DB Hitek Co., Ltd., Caregen Co Ltd and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Top Material IPO Valuation Analysis
Lotte Chemical Close to Acquiring Iljin Materials
Minority Shareholders Convince DB Hitek to Stop a Company Split
Caregen (214370 KS): Business Recovery Backed by Strong Global Demand; New Products Brighten Outlook

Top Material IPO Valuation Analysis

Our base case valuation of Top Material (360070 KS) is a target price of 37,965 won per share, which is 33% higher than the mid-point of the IPO price range.
Given the solid upside, we have a Positive view of the IPO. Our base case valuation is based on 25.6x P/E using our estimated net profit in 2022.
We estimate the company to generate sales of 73.7 billion won (up 131.1% YoY) and operating profit of 14.1 billion won (up 190.3% YoY) in 2022.

Lotte Chemical Close to Acquiring Iljin Materials

On 27 September, it was announced that Lotte Chemical (011170 KS) is close to acquiring a 53.3% stake in Iljin Materials (020150 KS) for about 2.7 trillion won (US$1.9 billion).
Iljin Materials has relatively high valuation multiples. Despite recent share price decline, its shares are trading at 32.4x P/E and 15.7x EV/EBITDA in 2022.
At such a high valuation premium (93% higher than current prices), there are going to be significant concerns that Lotte Chem may have overpaid for this acquisition.

Minority Shareholders Convince DB Hitek to Stop a Company Split

On 26 September, DB Hitek Co., Ltd. (000990 KS) announced that it will stop the proposed split-off of its semiconductor design business.
This move to stop the company split comes after numerous minority shareholders banded together to stop this move which could have a negative impact on DB Hitek.
Overall, we believe DB Hitek’s decision to stop the company split driven by the campaigns from the minority shareholders is likely to have a positive impact on the company.

Caregen (214370 KS): Business Recovery Backed by Strong Global Demand; New Products Brighten Outlook

Caregen Co Ltd (214370 KS) is a niche biotech company, with focus on biomimetic peptide-based cosmeceuticals and medical devices targeting anti-aging industry. The company has a large addressable market opportunity.
Despite the negative impact from the re-spread of COVID-19, Caregen reported 4% y/y growth in total revenue in H1 2022, with operating profit margin expanding 260bps.
Caregen’s COVID-19 nasal spray is in phase 1 trial. FDA has registered Caregen’s health functional food to control blood sugar as a new dietary ingredient (NDI).

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Sep 26

Daily Brief South Korea: DB Hitek Co., Ltd., Hanwha Solutions, Classys and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

New Pricing Rule for Appraisal Rights in ECO: Potential Arb Openings in DB Hitek
Hanwha Solutions: Biggest Restructuring Measures in 50 Years
Classys (214150 KS): Overseas Expansion +Portfolio Enlargement = Consistent & Sustainable Growth

New Pricing Rule for Appraisal Rights in ECO: Potential Arb Openings in DB Hitek

A South Korean lawmaker introduced legislation that would mandate that appraisal right exercise prices in split-off listings (equity carve-out) be based on asset/earnings value rather than market price (stock price).
We may find an arb opening in DB Hitek. The appraisal price based on the asset/earnings value is at an 11.31% premium to the last close.
If DB HiTek postpones the split-off listing to next year, FY22 earnings should be reflected. In this case, the appraisal price will be at a 90% premium.

Hanwha Solutions: Biggest Restructuring Measures in 50 Years

On 23 September, Hanwha Solutions announced a set of restructuring measures which are probably the biggest ever moves by the company in the past 50 years.
The spin-off of the Hanwha Galleria is a good move. Clearly, having both the renewable energy and a luxury department store business under one roof does not make much sense.
We also like the company’s move expand its U.S. solar module production capacity. The total amount of potential benefit could be nearly US$2 billion over the next decade.

Classys (214150 KS): Overseas Expansion +Portfolio Enlargement = Consistent & Sustainable Growth