South Korea

Hyundai’s TSR target is 35%+ (dividends plus buybacks), up 10 percentage points from previous years. They’ve also set a new annual dividend of ₩10,000, paid evenly quarterly.
Hyundai’s Value-Up targets may not fully meet market expectations, but the key is the timing. By aligning early with government policies, Hyundai has reduced risks and secured investment flow.
Hyundai plans a pref-skewed buyback, likely continuing this approach as retiring preferred shares first may boost ROE.

Alpha Generation from the New Entries in the ‘KOSDAQ Rising Stars’

In this insight, we discuss the potential alpha generation from new entries in the “KOSDAQ Rising Stars.”
For the KOSDAQ Rising Stars New Entries in 2023, there was a massive outperformance. Of course, we want to reiterate that past performance is NOT indicative of future performance.
On 28 August 2024, KRX provided a list of 39 KOSDAQ Rising Stars companies (including 29 existing ones and 10 new companies).

Hyundai Motor Announces Its Corporate Value Up Policies

On 28 August, Hyundai Motor announced its Corporate Value Up policies, including a minimum dividend per share this year targeting 10,000 won per share for common shares.
Hyundai Motor plans to implement a shareholder return policy based on a total shareholder return (TSR) of 35% or more from 2025 to 2027.
Hyundai Motor’s Corporate Value Up plan of providing TSR of 35% or more from 2025 to 2027 is certainly better than what it provided in the past three years (26%).

Impact of Woori Financial’s Tongyang Life Acquisition Below ₩1.5T on Value-Up Flows

Woori Financial’s value-up plan centers on improving the CET1 ratio to boost shareholder returns, with the total return ratio directly tied to the CET1 ratio.
The market believed that if the acquisition cost stayed under ₩1.9 trillion, the CET1 ratio impact would be minimal, potentially leading to mid-term gains from non-banking profits.
Though this may hurt Tongyang Life’s short-term stock, it opened the door for local institutional investors, especially NPS, to consider Woori Financial for value-up investments.

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Aug 28

Daily Brief South Korea: OCI Co, SK Square , LG Corp, KT Corp, LG Electronics and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KOSPI 200 December Rebalancing: Key Points to Watch for in Proactive Position Build-Up
Understanding Potential Issues Within SK Group from Hynix’s Kioxia CB Conversion
LG Corp: Three Key Catalysts + NAV Valuation
KT Corp (030200 KS): Foreign Room Drops Below Critical Level; Passive Selling to Come
Latest Information on LG Electronics India Subsidiary’s IPO on the Indian Stock Market

KOSPI 200 December Rebalancing: Key Points to Watch for in Proactive Position Build-Up

The momentum for getting ahead on positions with KOSPI 200 rebalancing is holding steady. With around 60% of the screening period behind us, it’s time to start preparing our positions.
The current rebalancing’s screened changes have a relatively lower price volatility, suggesting a stronger chance for more aggressive position build-up now compared to previous rebalancings.
Trading volumes vary greatly among these changes, affecting their passive impact sizes. Consider using different weights in basket trading instead of equal weights.

Understanding Potential Issues Within SK Group from Hynix’s Kioxia CB Conversion

Hynix’s potential 15% stake in Kioxia doesn’t violate the 20% rule because KFTC’s mandatory stake rule doesn’t apply to foreign investments.
SK Group may transfer Hynix’s 15% Kioxia stake to SK Square by splitting Hynix and merging its investment arm with SK Square for future AI investments.
SK Square may attract more attention than Hynix short-term, as Kioxia’s stake via Hynix could boost market expectations for value transfer to SK Square.

LG Corp: Three Key Catalysts + NAV Valuation

Three key catalysts for LG Corp include potential inclusion in Korea Value Up Index, an IPO of LG CNS in 1Q 2025, and an increasing probability of higher shareholder returns.
An IPO of LG CNS is likely in 1Q 2025. LG CNS is currently valued at about 7 trillion won and LG Corp has a 50% stake.
Our base case NAV valuation analysis of LG Corp suggests implied NAV of 15.3 trillion won or NAV per share of 96,957 won, which is 19.8% higher than current price.

KT Corp (030200 KS): Foreign Room Drops Below Critical Level; Passive Selling to Come

Foreign investors have continued buying KT Corp (030200 KS) and the stock has outperformed SK Telecom (017670 KS), though not by a lot.
Foreign buying has pushed foreign room in KT Corp (030200 KS) below 3.75% and the stock could be deleted from a global index at the next rebalance.
There will be some interesting trading dynamics in KT Corp (030200 KS) over the next couple of months and there will be trading opportunities versus its peers.

Latest Information on LG Electronics India Subsidiary’s IPO on the Indian Stock Market

LG Electronics has already picked the bankers for the Indian IPO. JP Morgan and Morgan Stanley are on board as the lead underwriters, along with two unnamed local Indian banks.
LGEIL is aiming to submit the Draft Red Herring Prospectus (DRHP) to India’s SEBI by the fourth quarter of this year.
LG Electronics plans to raise about USD 700 million by selling around 25% of its stake in a secondary offering.

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Aug 27

Daily Brief South Korea: Samsung Kodex Banks ETF, Hyundai Motor India , STCube, LS Electric and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

KRX Value-Up Index Will Have Two Separate Indices, Excellent & Promising, With 150 Constituents
Hyundai Motor India IPO Valuation Analysis
STCube: Rights Offering Capital Raise of 89 Billion Won
KOSPI Size Indices: Momentum Stalls; (Some) Upward Migrations Sell-Off

KRX Value-Up Index Will Have Two Separate Indices, Excellent & Promising, With 150 Constituents

KRX plans to launch the Value-Up Index as two separate indices: the “Excellent Value-Up Index” and the “Promising Value-Up Index.”
The universe will include 150 constituents from KOSPI 200 and KOSDAQ 150. Allocation between indices is undecided, with sector limits on number and weight confirmed.
The key indicators (ROE, PBR, shareholder return rate) remain unchanged. The Promising Index’s weights are undisclosed, but the Excellent Index favors financial and automotive stocks.

Hyundai Motor India IPO Valuation Analysis

Our base case valuation of Hyundai Motor India is market cap of US$18.6 billion, based on P/E of 24.4x our estimated net profit of 64.1 billion INR in FY25.
There have been some increasing concerns about Hyundai Motor India paying out higher royalty to its parent Hyundai Motor and dividend to shareholders, which could lower profit.
According to a recent article by livemint, the expected valuation of Hyundai Motor India has fallen to about USD16 billion to USD20 billion.

STCube: Rights Offering Capital Raise of 89 Billion Won

STCube announced it plans to increase capital by 89 billion won (13 billion won through a third party rights offering and 75.7 billion won through shareholder preferred capital increase).
We have a positive view of STCube’s capital raise and there could be some alpha generating returns in our view.
The fact that the company’s share price surged nearly 5x from the last rights offering in May 2022 (to October 2022) is likely to positively impact capital raise this time.

KOSPI Size Indices: Momentum Stalls; (Some) Upward Migrations Sell-Off

The review period for the September rebalance of the KOSPI Size Indices commenced on 1 June and will end on 31 August. Only 4 trading days to go.
We see 7 migrations from MidCap to LargeCap, 1 new addition to LargeCap, 12 stocks moving from SmallCap to MidCap and 3 new additions to MidCap.
The upward migrations have underperformed the downward migrations over the last month as a few stocks have sold off hard. Some despite being included in global indices.

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Aug 26

Daily Brief South Korea: Doosan Bobcat Inc, S&T Motiv and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea FSS Chief Calls for 10% Premium/Discount on Doosan Merger, Boosting Swap Spread to 30%
KRX Sector Indexes’ Rebalancing Event, Often off Traders’ Radar but with Significant Price Impacts

Korea FSS Chief Calls for 10% Premium/Discount on Doosan Merger, Boosting Swap Spread to 30%

FSS Governor Lee challenged the legality of the Robotics-Bobcat merger ratio, citing Article 176-5 of the Capital Markets Act, allowing a 10% premium or discount.
Following the FSS Governor’s statements, Doosan must likely apply a 10% premium/discount to the Robotics-Bobcat merger, creating a 30% spread based on current stock prices.
Doosan may still revise or cancel the merger, but the FSS Governor’s comments might boost Bobcat short-term. Given the uncertainty, aggressive trading is risky.

KRX Sector Indexes’ Rebalancing Event, Often off Traders’ Radar but with Significant Price Impacts

Early position buildup has minimal price impact, and even after the announcement, only a few stocks with a larger passive impact see significant movement.
Since these KRX sector indices include many small to mid-cap stocks, the price impact of constituent changes on ETF rebalancing day was quite noticeable.
Due to potential learning effects, build positions in predictable high-impact stocks before the announcement, then monitor flows and impacts to decide on targeting the ETF rebalancing trading day.

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Aug 25

Daily Brief South Korea: Korea Zinc and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Trading Situation for Hyundai Motor’s 5% Stake in Korea Zinc, Set to Be Unlocked in October

Trading Situation for Hyundai Motor’s 5% Stake in Korea Zinc, Set to Be Unlocked in October

The market is watching closely for when Hyundai Motor might sell its 5% stake in Korea Zinc, with the lockup ending on October 7th.
Hyundai might mediate to end the lawsuit and lift the injunction, potentially agreeing to sell the stake to a third party or on the market.
The uncertainty around Hyundai’s Korea Zinc stake sale makes trading challenging, but its actions in Q4 could significantly affect Korea Zinc’s stock price and create trading opportunities.

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Aug 24

Daily Brief South Korea: Hanwha Corporation, Hanwha Galleria , CMES AI Robotics and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

StubWorld: More Partial Offers In The Hanwha Group Complex
Examining the Severity of Proration Risk in the Hanwha Galleria Tender Offer
CMES AI Robotics IPO Preview

StubWorld: More Partial Offers In The Hanwha Group Complex

By David Blennerhassett

After the Kim family-backed Hanwha Energy completed Hanwha Corporation‘s Partial Offer last month, Hanwha Galleria (452260 KS)‘s VP Kim Dong-seon has now launched a Partial Offer for 17.5% in Galleria.
Preceding my comments on Hanwha are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Examining the Severity of Proration Risk in the Hanwha Galleria Tender Offer

The Hanwha Galleria tender offer has no cancellation risk but carries proration risk, keeping the spread at around 7%.
For Hanwha Galleria, most floating shares are held by retail investors, and the smaller float size compared to Hansol Logistics further reduces proration risk.
Even though the actual trading volume might be a concern, it’s still worth thinking about going for an aggressive strategy to take advantage of the spread, which is around 7%.

CMES AI Robotics IPO Preview

CMES AI Robotics is getting ready to complete its IPO on KOSDAQ in October. The expected IPO price is 20,000 won to 24,000 won.
CMES provides intelligent robot solutions that combine artificial intelligence (AI) and three-dimensional (3D) vision technology. CMES’s core technologies include 3D vision sensors and image processing algorithms.
Robotics related IPOs have generated enormous interest in Korea. Although CMES is a small cap name, this robotics related IPO is also likely to garner high interest as well.

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Aug 23

Daily Brief South Korea: SK Innovation, Eoflow, Hanwha Galleria , Korea Stock Exchange KOSPI 200, Hanwha Aerospace and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

NPS Will Vote Against the Merger Between SK Innovation and SK E&S
Insulet Launches a Patent Lawsuit Against Eoflow in Europe
A Tender Offer to Purchase a 17.5% Stake in Hanwha Galleria by Kim Dong-Sun
NPS Effectively Decides to Exercise Appraisal Rights Against SK Innovation: Trading Considerations
Korea’s New Retail Pool Borrow Fee Calculation & Disclosure Rules: Impacts on Flow Trading
Both Hanwha Aerospace Spinoffs Remain in KOSPI 200: Trading Value Gap Between Trading Suspension

NPS Will Vote Against the Merger Between SK Innovation and SK E&S

NPS will vote against the merger between SK Innovation and SK E&S, mainly due to significant concerns about destroying shareholder value (especially for SK Innovation shareholders).
Sustinvest also recommended that institutional investors vote against this merger, citing that the merger ratio between SK Innovation and SK E&S is disadvantageous to SK Innovation’s general shareholders.
If NPS exercises its appraisal rights, this could put a knife in the wheel of the M&A merger between SK Innovation and SK E&S.

Insulet Launches a Patent Lawsuit Against Eoflow in Europe

Eoflow announced Insulet had filed an injunction on 3 July against Eoflow and Menarini requesting a ban on the manufacture, sale, distribution, and use of EOPatch in 17 European countries.
Given that Eoflow should have reported this event earlier, this is likely to result in further loss of confidence on Eoflow by many investors in the near term.
If Eoflow is able to complete its rights offering (albeit lower amount than proposed), this could boost its chances to become a formidable competitor to Insulet on a global basis.

A Tender Offer to Purchase a 17.5% Stake in Hanwha Galleria by Kim Dong-Sun

It was announced that a tender offer to purchase a 17.54% stake in Hanwha Galleria has been launched by Kim Dong-Sun (Vice President at Hanwha Galleria).
Tender offer price is 1,600 won per share, which is 22.8% higher than the closing price on 22 August. Tender offer amount is 54.4 billion won.
On 23 August, Hanwha Galleria’s share price is likely to rise close to the tender offer price as many investors believe the tender offer is likely to be successful.

NPS Effectively Decides to Exercise Appraisal Rights Against SK Innovation: Trading Considerations

NPS’s opposition suggests a likely vote against the merger, but if they plan to exercise appraisal rights, they might abstain to preserve that option.
NPS typically exercises appraisal rights when the spread exceeds 5%, as seen in past mergers like Celltrion and Samsung. They didn’t act when the spread was below 5%.
The key question is whether SK Innovation can boost its stock price to avoid NPS exercising rights. Otherwise, the merger may pass, but the stock could drop significantly.

Korea’s New Retail Pool Borrow Fee Calculation & Disclosure Rules: Impacts on Flow Trading

The new rule mandates that retail pool fees be tied to the fees paid by institutional borrowers, and this information must be publicly disclosed.
This rule ensures faster, more accurate market release of stock-specific borrow fees, which are now tied to actual fees received, replacing the arbitrarily set rates by brokerages.
With short-selling resuming next April, this rule could drive new flow trading strategies and significantly influence target screening in the short-selling market.

Both Hanwha Aerospace Spinoffs Remain in KOSPI 200: Trading Value Gap Between Trading Suspension

KRX announced that both Hanwha Aerospace and the new Hanwha Industrial Solutions will be added to the KOSPI 200.
Since 2020, two K200 spinoffs had both companies remain: DL Holdings and DL E&C in January 2021, and SK Telecom and SK Square in November 2021, with notable value increases.
This trade isn’t risk-free and requires a sophisticated hedge setup, but the trading opportunities from this flow situation are worth close attention.

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Aug 22

Daily Brief South Korea: Eoflow, LG Electronics, DB Hitek Co., Ltd., S.M.Entertainment Co and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Eoflow: Rights Offering of 82 Billion Won and [Medtronic & Eoflow – Don’t You Forget About Me]
LG Electronics’ Value-Up Disclosure Today: Impact on Initial Flow Sizing for the Value-Up Index
Trading Situation Arising from Local Pensions’ Unusual Buying of DB HiTek
SM Entertainment: Disposal of Non Core Assets – SM C&C and KeyEast

Eoflow: Rights Offering of 82 Billion Won and [Medtronic & Eoflow – Don’t You Forget About Me]

After the market close on 21 August, Eoflow (294090 KS) announced a rights offering capital raise of 9.1 million new shares, representing share dilution of 23%.
Based on the expected rights offering issue price of 9,040 won, the company is expected to raise 82.2 billion won in this capital raise.
Eoflow has monthly cash burn rate of about 3.3 billion won. If the rights offering is successful, it would have adequate capital resources for about a couple of years.

LG Electronics’ Value-Up Disclosure Today: Impact on Initial Flow Sizing for the Value-Up Index

LG Electronics aims for 7% growth, a 7x EV/EBITDA multiple, and a ₩1,000 DPS with a 25% payout ratio, likely disclosing details by late October or early November.
LG Electronics’ value-up disclosure highlights major non-financial companies’ participation before the value-up index launch, driven by regulatory pressure and concerns about index inclusion.
Samsung and Hyundai are likely to disclose value-up plans by early September, prompting an upward revision of flow size predictions for the value-up index launch.

Trading Situation Arising from Local Pensions’ Unusual Buying of DB HiTek

From early June until yesterday, local pension funds have purchased nearly 4% of DB HiTek’s SO. This places DB HiTek in a dominant first position in their net buying list.
The timing of local pension funds beginning to buy DB HiTek coincidentally aligns with May 22, when DB Inc was requested by the KFTC to transition into a holding company.
Focus on potential price impact from DB Inc.’s buying and value-up index inflows. Considering a relative overweight in DB HiTek may be strategic despite some risk.

SM Entertainment: Disposal of Non Core Assets – SM C&C and KeyEast

On 21 August, SM Entertainment announced that it will sell its non-core assets including its controlling stakes in SK C&C and KeyEast.
The combined sales amount could be about 110 billion won or more, representing 7% or more of SM Entertainment’s market cap.
Sale of SM C&C and KeyEast is likely to have a positive impact on SM Entertainment by selling its non-core assets and improving its balance sheet for higher shareholder returns.

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Aug 21

Daily Brief South Korea: Korea Stock Exchange KOSPI 200, KB Financial ADR, I-Scream Media, Techwing Inc, Hyosung Corporation, Lumir and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Korea FSS Releases Final Guidelines for Short Selling Compliance: Trading Implications
Trading Considerations for Won Appreciation & Korean ADR Premium Volatility
I-Scream Media IPO Book Building Results Analysis
FnGuide Semiconductor Top10 Index Rebalance Preview: Two Changes Likely in October
Hyosung Siblings’ Cross-Transfers Are Done: The 10%+ Hyosung Corp Stake Block Deal Remains
EQD | KOSPI 200 Rising With Room to Go Higher (This Week Only)
Lumir IPO Valuation Analysis

Korea FSS Releases Final Guidelines for Short Selling Compliance: Trading Implications

This final guideline formalizes earlier drafts by the FSS. Though not strictly mandatory, its detailed requirements mean it functions as a de facto rule that must be followed closely.
The new, stringent requirements are likely to eliminate common stock borrowing practices in Korea, making timely transactions difficult.
New trading patterns and market flows may emerge when short selling resumes in April, with increased importance of borrow balance data and potential rise in counter-flow trading.

Trading Considerations for Won Appreciation & Korean ADR Premium Volatility

Increased exchange rate volatility affects the ADR premium, but past patterns show that exchange rate and ADR premium directions may not always align, requiring consideration of specific contextual factors.
If the won appreciates below the 1,300s range, overseas institutions may shift to asymmetric selling of underlying shares for foreign exchange profit, as shown by rising ADR premiums.
We should watch for peak conditions to capture significant ADR premiums. Trading options include borrowing underlying shares for ADR conversion, even under the current short-selling ban.

I-Scream Media IPO Book Building Results Analysis

I-Scream Media reported its IPO book building results. The IPO price has been determined at 32,000 won, which is at the low end of the IPO price range.
A total of 561 institutional investors participated in the IPO survey. The final demand ratio was 31.3 to 1.
Our valuation analysis suggests an implied price per share of 41,450 won, which represent a 29.5% upside from the IPO price.

FnGuide Semiconductor Top10 Index Rebalance Preview: Two Changes Likely in October

With the start of the review period around the corner, there could be two changes for the FnGuide Semiconductor Top10 Index at the October rebalance.
Wonik Ips (240810 KS) and Techwing Inc (089030 KS) are potential adds while ISC Co Ltd (095340 KS) and Dongjin Semichem (005290 KS) are potential deletes.
Passives will need to trade more than 2x ADV on two potential changes and more than 1x ADV on another potential change.

Hyosung Siblings’ Cross-Transfers Are Done: The 10%+ Hyosung Corp Stake Block Deal Remains

The Hyosung siblings swapped ₩60B in shares over August 13-14, raising the elder brother’s Hyosung Corp stake to 40.9% and lowering HS Hyosung below 3%.
The younger brother must sell additionally at least 11.2% of his 14.2% Hyosung Corp stake. The elder brother may buy, but his cash position and 40% stake limit his need.
This block deal will be the first to apply the new pre-disclosure rule. So, we should use it to test how the rule affects price movements for better entry timing.

EQD | KOSPI 200 Rising With Room to Go Higher (This Week Only)

By Nico Rosti

After a large sell-off, similar to other major global markets, the KOSPI 200 INDEX last week rebounded and closed strongly up. In this insight we want to evaluate what’s next.
According to our pattern models, at the moment the index is not overbought yet, so in theory the index could rise higher, this week.
Pay attention when the index reaches the 385 price area, from there the index could start to encounter some resistance.

Lumir IPO Valuation Analysis

Base case valuation of Lumir is target price of 18,542 won per share. Given the low upside relative to IPO price range, we have a Negative view of this IPO.
Our net profit estimates in 2025 and 2026 are 38% and 63.3% lower than the company’s estimates.
Lumir provides key technologies for satellite systems, including small synthetic aperture radar (SAR) satellite systems and payloads.

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Aug 20

Daily Brief South Korea: Peptron, Lumir, Jeisys Medical, VIOL and more

By Smartkarma Daily Briefs | Daily Briefs, South Korea

In today’s briefing:

Peptron Rights Issue: The 25% Discount Is an Attractive Outright Position Opportunity
Lumir IPO Preview
Archimed Group Seeks Delisting of Jeisys Medical Through Stock Exchange
KOSDAQ150 Index Adhoc Rebalance Preview: Replacements for Jeisys Medical

Peptron Rights Issue: The 25% Discount Is an Attractive Outright Position Opportunity

Peptron’s lack of single-stock futures means no risk-free arbitrage but also less speculative selling, making the 25% discount an attractive outright position opportunity.
The low capital increase rate may stabilize the stock price, and more forfeited shares could lower the cost of securing subscription rights during the trading window.
Consider buying rights during the trading period or targeting forfeited shares. Conservatively estimate the final offering price range to set a profitable cost for securing rights.

Lumir IPO Preview

Lumir is getting ready to complete its IPO on KOSDAQ in September. The IPO which is expected to raise between 49.5 billion won to 61.5 billion won.
Lumir specializes in the development of observation satellite technology including image data processing devices and onboard computers for a number of government satellite series.
Lumir had sales of 12.1 billion won (up 90.5% YoY) in 2023. Its sales surged by 477% YoY to reach 8.2 billion won in 1H24.

Archimed Group Seeks Delisting of Jeisys Medical Through Stock Exchange

Jeisys Medical announced that it has decided to exchange shares with Syracus Subco, its largest shareholder. The stock exchange ratio between Syracus Subco and Jeisys Medical is 1 to 1.3575606.
The exchange date is 23 October. Through this stock exchange, Archimed Group (owner of Syracus Subco) seeks to delist Jeisys Medical (287410 KS).
Jeisys Medical also announced that it plans to cancel 1,075,838 common shares, representing 1.4% of its outstanding shares.

KOSDAQ150 Index Adhoc Rebalance Preview: Replacements for Jeisys Medical