Daily Brief South Korea: Meritz Financial Group, Kakao Corp, Lotte Shopping Co and more

In today’s briefing:

Discussing Why Meritz Swap Spread Not Being Narrowed & When to Enter

The swap arb spread has been consistently within the 3% to 5% band since November 23, when arb trading should have actually started.
Meritz Financial’s buyback seems to be making it difficult to build positions on expectations that the price gap relative to Fire and Securities will converge quickly with the swap ratio.
As the actual risk of repaying financial borrows is small, we should start building up positions two weeks before the end of January, aiming to exit in early or mid-February.

On 15 December, it was announced that Korea’s FTC decided to refer K Cube Holdings (KCH) to the prosecution over alleged illegal execution of voting rights to Kakao companies.
This could signal that the financial regulators may become more forceful in enforcing numerous other regulatory pressures on Kakao Corp and its affiliated companies to reduce their monopolistic business practices
Our NAV valuation of Kakao Corp suggests NAV per share of 45,942 won, which is 17% lower than current price.

Lotte Shopping is a deep value stock poised for a turnaround.
Lotte Shopping has clear turnaround catalysts, cheap valuations, and a solid technical setup.
Perhaps the most important catalysts for Lotte Shopping include getting rid of the most restrictions/social distancing measures related to COVID-19 which have been in place in the past three years.

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