In today’s briefing:
- Spread Trade Opportunities Arising from KQ150/KS200 Passive Flows in the Celltrion Merger
- SK Square: Drag Along Rights To Be Exercised to Sell 11 Street + Merger of TVing and Wavve
- ELS Losses for HSCEI Index Could Result in Lowering Dividend Expectations for Korean Banks in 2024
- Korean Air (003490 KS): Cheap, but a Value Trap
- CJ Cheiljedang Pref: Profits to Turn Around with Moderating Inflation + Big Discount to Common
Spread Trade Opportunities Arising from KQ150/KS200 Passive Flows in the Celltrion Merger
- KOSDAQ 150’s passive outflow occurs on December 14th for Celltrion Healthcare, whereas it would be January 11th for Celltrion with KOSPI 200.
- The estimated passive flow size (x ADTV) on their respective rebalancing trading days is anticipated to be approximately -2.79x (Celltrion Healthcare) and +1.76x (Celltrion).
- We should monitor the potential expansion of the swap spread on December 14th. Additionally, contemplating an outright approach for Celltrion, akin to the Hanwha Ocean scenario, could be worth considering.
SK Square: Drag Along Rights To Be Exercised to Sell 11 Street + Merger of TVing and Wavve
- SK Square announced it will not exercise the call option to repurchase minority stake in 11 Street. This is likely to have a positive impact on the company.
- SK Square does not need to pay 500 billion won plus 3.5% annualized interest to the financial investors of 11 Street. This will also accelerate sale of 11 Street.
- In addition, SK Square announced the merger of TVing and Wavve OTT services.
ELS Losses for HSCEI Index Could Result in Lowering Dividend Expectations for Korean Banks in 2024
- The equity linked securities (ELS) losses related to Hang Seng China Enterprises Index (HSCEI INDEX) could lower dividend expectations for Korean banks in 2024.
- On average, if H-Index declines below 5,699, then the majority of the investors on these H-Index could start to incur major losses starting 1Q 2024.
- Amid challenges of lower interest rates expectations and higher losses from ELS products, major Korean banks could be more hesitant on share buybacks and increasing their dividends in 1H 2024.
Korean Air (003490 KS): Cheap, but a Value Trap
- Korean Air Lines (003490 KS) is cheap, against peers and its own history. The impending merger with Asiana Airline is a major overhang
- Business is good, with steady passenger loads and yields, and cargo showing decent signs of recovery. Lower fuel prices could surprise on the upside
- Target Price KRW23,868 based on FY24 P/BV of 0.81x (1SD below mean). Too little upside for the level of uncertainty. PASS
CJ Cheiljedang Pref: Profits to Turn Around with Moderating Inflation + Big Discount to Common
- We have a positive view of both CJ Cheiljedang (097950 KS) and CJ Cheiljedang Pref (097955 KS).
- We think that the company’s business is likely to turn around in 2024, with more moderate inflation rates and raw material costs leading to improving earnings next year.
- CJ Cheiljedang Pref is trading at a 58% discount to CJ Cheiljedang common shares, which we believe to be excessive. CJ Cheiljedang Pref also has higher dividend yield (4.2%).
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