Daily Brief South Korea: Samyang Foods, Orion Corp, SK Square and more

In today’s briefing:

KOSPI200 Index Rebalance Preview: Potential Changes, Excess Volumes & Pre-Positioning
A Pair Trade Between Orion Holdings and Orion Corp
Sweden’s EQT Partners to Invest Big in SK Shieldus: Impact on SK Square

KOSPI200 Index Rebalance Preview: Potential Changes, Excess Volumes & Pre-Positioning

With the review period complete, we see 1 high probability change and 1 lower probability change for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in December.
We estimate passive trackers will need to trade over 10 days of ADV on the high probability names. There are indications that there are pre-positions built on the stocks.
With short-sell eligibility flipping post implementation of the changes, a lot of pre-positions will be unwound prior to implementation and there will be trading opportunities on the reverse side.

In this insight, we discuss a pair trade between Orion Holdings (001800 KS) (go long) and Orion Corp (271560 KS) (go short).
Orion Holdings has a dividend yield of 4.6% versus 0.7% for Orion Corp. For the value investors that seek higher dividends, Orion Holdings is more attractive versus Orion Corp.
We believe the price gap between these two stocks have widened too much in the past several months and this gap is likely to decrease again.

On 2 November, it was reported that Sweden’s EQT Partners is to acquire a 36.87% stake in SK Shieldus.
EQT Partners is expected to invest more than 2 trillion won in SK Shieldus which is expected to be valued at about 4.5 trillion won to 5.2 trillion won.
Our base case valuation of SK Square is NAV per share of 59,272, which is 59% higher than current price.

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