Daily Industrials: CJ Corp Share Class: Huge Net Gain Difference Between Common & Pref from Stock Dividend and more

In this briefing:

1. CJ Corp Share Class: Huge Net Gain Difference Between Common & Pref from Stock Dividend
2. Company Visits: The Best of November/December 2018
3. Korean Government and Hyundai Motor Group’s Grand Ambitions to Expand Hydrogen Fuel Cell Vehicles
4. LG Holdings Stub Trade: Current Status & Trade Approach

1. CJ Corp Share Class: Huge Net Gain Difference Between Common & Pref from Stock Dividend

• CJ Corp (001040 KS) announced a 0.15 stock dividend. CJ will issue a new class B pref. Both Common and Pref will get 0.15 class B pref shares for each share they already own. This new class B pref is convertible to Common with a 10 year duration. It gives an extra 2% of the face value to what Common gets. A total 4,226,513 new class B prefs will be issued.
• CJ previously had two class B prefs. Based on the historic discount % of these two, 2P’s discount to Common on the listing day is estimated at 33%. There will be nearly 10% price dilution in both Common and 1P. There will be a 10+%p difference in gain per share. 1P’s dilution-adjusted net gain per share stands at 13.61%, whereas Common is only 0.66%.
• Price ratio wise, 1P is in an undervalued territory. On a longer horizon, it is currently close to the 2Y mean. This stock dividend should push 1P further upward above the 2Y mean. CJ also said that it would give cash dividend. Current div yield difference is a historic high at 1.53%p. This should be another reason to push up 1P. I’d go long 1P and short Common at this point.

2. Company Visits: The Best of November/December 2018

During this quarter, we visited 13 companies and have to admit the average quality has improved. Amongst these, there were four stocks that impressed us the most, and the Oscars go to…

• SSP acheiving profit growth in excess of 20% in the backdrop of Thai economic headwinds and Trumpian trade wars by expanding into countries unaffected by both issues.
• Amata VN capitalizing on the shift from locations with rising labor costs (eg Thailand, China) to Vietnam, which has more than a few geographic and demographic advantages.
• Gunkul, arguably Thailand’s hottest renewable play at the moment delivering outsized long-term growth in solar/wind space as well as a promising solar roof game plan.
• TIGER, an aggressive and small construction company that has only IPO’d for less than a quarter and is already highlighting aggressive growth plans.

3. Korean Government and Hyundai Motor Group’s Grand Ambitions to Expand Hydrogen Fuel Cell Vehicles

• On December 18th, the Korean government announced numerous measures to reduce fine dust levels, including a significant increase in the number of hydrogen powered vehicles, including expanding hydrogen vehicles to 65,000 units by 2022 (cumulative). 
• The Korean government wants to encourage the growth of hydrogen powered economy and position the country as one of the global leaders in this segment. The Korean government plans to spend about 3.5 trillion won to support the Korean auto industry. The Korean government’s new plan is to expand the hydrogen vehicles to 65,000 units by 2022, which is a big increase from the previous plan of expanding the hydrogen vehicles to 15,000 units by 2022.
• The Hyundai Motor Group also recently announced a grand plan to expand its fuel cell vehicles with the announcement of its ‘FCEV Vision 2030.’ The Hyundai Motor Group plans to increase its annual production capacity for fuel cell systems to 0.7 million units by 2030, with plans to invest about $7 billion in the next 10 years to develop hydrogen fuel cell systems. 

4. LG Holdings Stub Trade: Current Status & Trade Approach

• LG Holdings (003550 KS) is mainly made up of LG Group’s 4 major listed subsidiaries. The four account for 76.85% of NAV, and 90.18% of holdings assets. The MC scatter chart shows that Holdings and the four are integrated.
• I initiated a stub trade on Sep 26, LG Group Restructuring: Holdings a CLEAR ‘LONG’ & LGE ‘Short’ in Market Neutral Setup. I went long Holdings and short Elec. This trade is delivering a 8.40% yield. Short-term wise on a 20D MA, a reverse stub trade seems to make sense. Holdings is now at +1 σ.
• I’d rather hunt for mean reversion on a longer horizon. Holdings breakup is now a distant possibility. Yearend dividend factor should be another plus. As a hedge, I’d go short Chem. It has fallen relatively less. Struggle in the Chinese battery market will be getting more attention.