In today’s briefing:
- Korea Spin-Offs: Details and KOSPI200 Index Impact
- Discussing the Timing of the Samsung SDS Block Deal by Lee Seo-Hyun
- HYBE to Acquire a 39.8% Stake in SM Entertainment
- Oasis Corp IPO Preliminary Book Building Results
- Krafton: Improving Corporate Governance Through Shares Cancellation & Stock Based Compensation
- Critical Details of Regulatory Filing for the SM Ent Tender Event
Korea Spin-Offs: Details and KOSPI200 Index Impact
- Hyundai Dept Store Co (069960 KS), Hyundai Greenfood (005440 KS) and Oci Co Ltd (010060 KS) will spin-off divisions and list them prior to the next rebalance in June.
- The equity spin-offs will result in passive flows prior to the trading suspension as well as on relisting of the stocks post the spin-off.
- We expect one change to the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in April as one stock will be deleted due to low market cap following the spin-off.
Discussing the Timing of the Samsung SDS Block Deal by Lee Seo-Hyun
- The term of Lee’s trust contract with Hana Bank is from February 2nd to April 28th, and the volume is 1.95% of SO, the total remaining quantity owned by Lee.
- The price movement on the day the previous block deals by the Lee family were executed was substantial. Of particular note is that SDS showed the most significant price impact.
- We should focus on the possibility that a block deal will come to the market much earlier, as SDS is in short-term overbought territory from a valuation perspective.
HYBE to Acquire a 39.8% Stake in SM Entertainment
- On 10 February (prior to market open), Seoul Economic Daily reported that HYBE will conduct a tender offer of SM Entertainment shares taking over the controlling ownership of the company.
- HYBE agreed to acquire a 14.8% stake from SM Entertainment’s founder Lee Soo-Man at 120,000 won per share, which represents a 21.8% premium to the closing price on 9 February.
- HYBE is also conducting a tender offer to minority shareholders and it plans to acquire up to 25% additional shares at 120,000 won per share, representing 717 billion won.
Oasis Corp IPO Preliminary Book Building Results
- The local media mentioned that the preliminary book building results of the Oasis IPO were terrible.
- Therefore, the company is likely to either materially lower the IPO price range or postpone the IPO altogether.
- Our base case valuation of Oasis Corp is target price of 24,847 won per share, which is 18.5% lower than the low end of the IPO price range.
Krafton: Improving Corporate Governance Through Shares Cancellation & Stock Based Compensation
- Krafton has announced a meaningful shareholder return policy including shares buyback, cancellation, and share based compensation in the next three years.
- The combination of improving shareholder return policy along with new games development and China’s opening up of its game industry to overseas game makers are likely to positively impact Krafton.
- Given Krafton’s current market cap of 8.9 trillion won, the estimated share buybacks of 713 billion won would represent 8% of market cap over three years.
Critical Details of Regulatory Filing for the SM Ent Tender Event
- There is no cancellation risk, regardless of where and how the ongoing proxy battle will be heading and unfolding. But there is a pro rata allocation risk, though.
- Regarding tax, a tender event in Korea is treated as an over-the-counter trade. So transfer income tax is imposed.
- SM provides shorting instruments necessary for arb trade, and the possibility of an arb opening coming out during tendering isn’t completely dead, given the uncertainties surrounding the current proxy battle.
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