Daily Brief South Korea: Kum Yang Co Ltd, SK Innovation, Hanmi Science and more

In today’s briefing:

KOSPI 200 Rebalancing Early Preview: Few Names Stand Out
Korea FSC: Official Mandate of Appraisal Rights in Split-Offs & Trading Ramifications
Korea Biotech & Healthcare: A Pair Trade Between Hanmi Science and Hanmi Pharm

KOSPI 200 Rebalancing Early Preview: Few Names Stand Out

One name is screened to newly join the index. That is Kum Yang (001570 KS). With a YTD performance of over 400%, it is currently in very safe territory.
Two constituents stand out as likely deletes at this point: Zinus (013890 KS) and Hwaseung Enterprise (241590 KS). The market cap gap with the next ones in line isn’t small.
Kum Yang’s passive impact is substantially low due to the recent surge in TV. But if it moves sideways and TV stabilizes downward, we should build preemptive flow trade setups.

The exercise price is the arithmetic average of weighted average prices for the past two months, the past month, and the past week from the day before the board resolution.
Considering the governance structure of most local companies, a split-off will still be more likely to be preferred than a spin-off. Split-offs will emerge despite the mandate of appraisal rights.
We should look into staggering spread openings, with the pricing done on a two-month window, as a downward price revision will likely intensify toward the announcement with mandatory appraisal rights.

In this insight, we discuss a pair trade between Hanmi Science (long) and Hanmi Pharm (short). There are three major reasons we like this pair trade.
First, the gap between these two stocks have widened too much in the past year. Second, Hanmi Science may pay higher cash dividends due to inheritance tax issue.
Third, Hanmi Pharm’s valuations remain lofty and Hanmi Science’s valuation discount relative to its historical valuation has become more compelling.

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