Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Nearly 25 years of experience in analyzing hundreds of companies, especially in Asia. Deep expertise in the following sectors:
- Technology (E-commerce, SaaS, Internet)
- Consumer 
- Special Situations/Deep Value Plays
- Holdcos/Stubs
- Asian Unicorns/Private Companies

Korea/Asia, Events, IPOs

Thoughts on Amazon –What Does Its Valuation Tells Us?

Netflix & Amazon Expand in Korea – Not a Coincidence

Okja: The Fight Between Netflix Vs. CJ CGV

Thematic (Sector/Industry)

This is the inaugural edition of the Korean Stubs Biweekly Sigma σ. The Korean stubs market is big. In our Korean stubs comprehensive list, it included 30 holdcos (regular &amp; quasi) whose combined market cap was 143 trillion won ($127 billion), representing 9.2% of the total Korean stock market (in terms of market cap). The 30 holdcos in this list include regular holdcos such as <a href="https://www.smartkarma.com/entities/6653" target="_blank" data-smartkarma-citation="entities:6653:1">LG Corp (003550 KS)</a> and quasi holdcos such as <a href="https://www.smartkarma.com/entities/481" target="_blank" data-smartkarma-citation="entities:481:1">Samsung C&amp;T (028260 KS)</a>. In the past three years, we admit that although we have written at various times about the Korean stubs market, they have mostly been sporadic and not consistent enough. In our new Korean Stubs Biweekly Sigma σ, we will try to provide more rigorous, data-driven analysis of the Korean stubs market which we hope our clients will come to appreciate.In addition, we think that the relatively low volatility environment which lasted a long time from 2010 to 2017 will likely become a thing of the past in the coming years. The global equity market volatility (including Korea) started to pick up in 2018, which we think will accelerate in 2019. In a higher volatility environment, more institutional investors may seek higher returns from active trading of stubs related stocks. <div class="content-highlight">
<h2>Our Strategy for Korean Stubs (Win/Loss Ratio &amp; Risk Control)</h2>
Our strategy for the Korean stubs is to be our wins to be at least twice as high as our losses. Our base case strategy is to achieve wins of 8-10% per pair trade (for example, long holdco/short opco). Our risk control is to close the trade if it generates 4-5% in combined losses. Hence, our expected win/loss ratio would be about 2 to 1. Over a set of many trades, we are aiming to minimize our losses with a solid win/loss ratio. 
</div>We have also provided charts and major statistics of some of the top companies listed below with the highest stub values/EV ratios. Many of them, including BGF/BGF Retail, Young Poong/Korea Zinc, and Orion Holdings/Orion Corp currently have ratios that are below 1 sigma. There are exceptions such as Amore Pacific Group/Amore Pacific Corp whose ratio have fallen below 2 sigmas. Of the ten charts with the holdcos/opcos price ratios, seven of them have declining ratio trend in the past year and three of them have rising ratio trend.

This is the inaugural edition of the Korean Stubs Biweekly Sigma σ. The Korean stubs market is big. In our Korean stubs comprehensive list, it included 30 holdcos (regular &amp; quasi) whose combined market cap was 143 trillion won ($127 billion), representing 9.2% of the total Korean stock market (in terms of market cap). The 30 holdcos in this list include regular holdcos such as LG Corp (003550 KS) and quasi holdcos such as Samsung C&amp;T (028260 KS). In the past three years, we admit that although we have written at various times about the Korean stubs market, they have mostly been sporadic and not consistent enough. In our new Korean Stubs Biweekly Sigma σ, we will try to provide more rigorous, data-driven analysis of the Korean stubs market which we hope our clients will come to appreciate.In addition, we think that the relatively low volatility environment which lasted a long time from 2010 to 2017 will likely become a thing of the past in the coming years. The global equity market volatility (including Korea) started to pick up in 2018, which we think will accelerate in 2019. In a higher volatility environment, more institutional investors may seek higher returns from active trading of stubs related stocks. 
Our Strategy for Korean Stubs (Win/Loss Ratio &amp; Risk Control)
Our strategy for the Korean stubs is to be our wins to be at least twice as high as our losses. Our base case strategy is to achieve wins of 8-10% per pair trade (for example, long holdco/short opco). Our risk control is to close the trade if it generates 4-5% in combined losses. Hence, our expected win/loss ratio would be about 2 to 1. Over a set of many trades, we are aiming to minimize our losses with a solid win/loss ratio. 
We have also provided charts and major statistics of some of the top companies listed below with the highest stub values/EV ratios. Many of them, including BGF/BGF Retail, Young Poong/Korea Zinc, and Orion Holdings/Orion Corp currently have ratios that are below 1 sigma. There are exceptions such as Amore Pacific Group/Amore Pacific Corp whose ratio have fallen below 2 sigmas. Of the ten charts with the holdcos/opcos price ratios, seven of them have declining ratio trend in the past year and three of them have rising ratio trend. 

Korean Stubs Biweekly Sigma σ (#1): The Inaugural Edition