Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

I investigate special situations, pairs, and index rebalancing trades in Korea.

Korea / Special Sits, Pairs, Index Rebalancing

Time to Short Samsung SDI on Inevitable ECO of Battery Unit or Massive Rights Offer

Samsung SDI (006400KS): Controversy on Battery Fire Impacting Reputation and Financial Performance

Samsung SDI (006400): No Catalyst in Sight

LG Chem Pref Arb Trade: Capitalize on a Disparity Resulting from Index Rebalancing

Korea Sector Pair Trade: Financials, Retail, & Industrials

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

<p>Last Friday, Samsung SDI's share price rose 3.69% to ₩674,000. On the other hand, LG Chem fell 1.56% from the previous day, and SK Innovation fell 1.6%.</p><p>A report released by a local brokerage on Friday morning appears to have had an impact on Samsung SDI's Friday stock price. Kiwoom Securities said that Samsung SDI's EV battery business would turn to the black by expanding supply to major European automakers.</p><p>However, I believe that expectations for 2Q earnings have already been reflected in the price before Friday. After the stock price was corrected due to Morgan Stanley's sell-off report at the end of May, the stock rebounded sharply on the back of 2Q earnings improvement and the possibility of capacity expansion in the US.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/962/original/Screen+Shot+2021-06-19+at+1.01.28+AM.png?1624078954" class="editor-image img-responsive" data-smartkarma-image-id="213962"></figure></section><div class="content-caption">(Samsung SDI 3-month chart)</div><p>In fact, Kiwoom Securities' annual operating profit estimate of ₩1,095.5B is in line with the market consensus, compiled by FnGuide based on the 19 local brokerages covering Samsung SDI.</p><table class="table table-striped">
<colgroup>
<col width="70">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
<col width="70">
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<tbody>
<tr>
<td style="width: 128.608px;" data-sheets-value='{"1":2,"2":"Samsung SDI Co Ltd"}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=R[-53]C[-4]">Street consensus</td>
<td style="text-align: right; width: 97.4716px;" data-sheets-value='{"1":3,"3":44366}' data-sheets-numberformat='{"1":5,"2":"yyyy\". \"m\". \"d","3":1}' data-sheets-formula="=today()">2021. 6. 19</td>
<td style="text-align: right; width: 95.4688px;" data-sheets-value='{"1":2,"2":"T-1M"}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>T-1M</td>
<td style="text-align: right; width: 108.523px;" data-sheets-value='{"1":2,"2":"T-3M"}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>T-3M</td>
<td style="text-align: right; width: 106.506px;" data-sheets-value='{"1":2,"2":"T-6M"}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>T-6M</td>
<td style="text-align: right; width: 84.4602px;" data-sheets-value='{"1":2,"2":"T-1Y"}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>T-1Y</td>
</tr>
<tr>
<td style="width: 128.608px;" data-sheets-value='{"1":2,"2":"Sales"}'>Sales</td>
<td style="text-align: right; width: 97.4716px;" data-sheets-value='{"1":3,"3":13880}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10">₩13,880.0B</td>
<td style="text-align: right; width: 95.4688px;" data-sheets-value='{"1":3,"3":13864.2}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10">₩13,864.2B</td>
<td style="text-align: right; width: 108.523px;" data-sheets-value='{"1":3,"3":13813.5}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10">₩13,813.5B</td>
<td style="text-align: right; width: 106.506px;" data-sheets-value='{"1":3,"3":14205}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10">₩14,205.0B</td>
<td style="text-align: right; width: 84.4602px;" data-sheets-value='{"1":3,"3":13343.4}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10">₩13,343.4B</td>
</tr>
<tr>
<td style="width: 128.608px;" data-sheets-value='{"1":2,"2":"OP"}'><strong>OP</strong></td>
<td style="text-align: right; width: 97.4716px;" data-sheets-value='{"1":3,"3":1098.2}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10"><strong>₩1,098.2B</strong></td>
<td style="text-align: right; width: 95.4688px;" data-sheets-value='{"1":3,"3":1092.3}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10"><strong>₩1,092.3B</strong></td>
<td style="text-align: right; width: 108.523px;" data-sheets-value='{"1":3,"3":1127.2}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10"><strong>₩1,127.2B</strong></td>
<td style="text-align: right; width: 106.506px;" data-sheets-value='{"1":3,"3":1199.6}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10"><strong>₩1,199.6B</strong></td>
<td style="text-align: right; width: 84.4602px;" data-sheets-value='{"1":3,"3":1011.9}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10"><strong>₩1,011.9B</strong></td>
</tr>
<tr>
<td style="width: 128.608px;" data-sheets-value='{"1":2,"2":"NP to controlling stake"}'>NP to controlling stake</td>
<td style="text-align: right; width: 97.4716px;" data-sheets-value='{"1":3,"3":1020.3}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10">₩1,020.3B</td>
<td style="text-align: right; width: 95.4688px;" data-sheets-value='{"1":3,"3":994}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10">₩994.0B</td>
<td style="text-align: right; width: 108.523px;" data-sheets-value='{"1":3,"3":999.8}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10">₩999.8B</td>
<td style="text-align: right; width: 106.506px;" data-sheets-value='{"1":3,"3":991.6}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10">₩991.6B</td>
<td style="text-align: right; width: 84.4602px;" data-sheets-value='{"1":3,"3":886.3}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula="=R[34]C[0]/10">₩886.3B</td>
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<td style="width: 128.608px;" data-sheets-value='{"1":2,"2":"12M forward PER"}'>12M forward PER</td>
<td style="text-align: right; width: 97.4716px;" data-sheets-value='{"1":3,"3":41.06}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[34]C[0]">41.06x</td>
<td style="text-align: right; width: 95.4688px;" data-sheets-value='{"1":3,"3":40}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[34]C[0]">40.00x</td>
<td style="text-align: right; width: 108.523px;" data-sheets-value='{"1":3,"3":43.93}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[34]C[0]">43.93x</td>
<td style="text-align: right; width: 106.506px;" data-sheets-value='{"1":3,"3":40.32}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[34]C[0]">40.32x</td>
<td style="text-align: right; width: 84.4602px;" data-sheets-value='{"1":3,"3":38.34}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[34]C[0]">38.34x</td>
</tr>
<tr><td colspan="6" style="width: 726.008px;" data-sheets-value='{"1":2,"2":"Source: FnGuide"}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0"}'>Source: FnGuide</td></tr>
</tbody>
</table><p>Then, the reason why only Samsung SDI's share price rose on Friday must have been that the market saw a new momentum other than 2Q earnings or US investment. It is believed that it was a British media report that Samsung SDI could build a battery plant in the UK. According to British media, the British government discusses plans to build an electric vehicle battery plant with six companies, including Samsung SDI.</p><p>This British investment included not only Samsung SDI but also LG Energy Solutions. However, the reason why Samsung SDI's stock price has reacted more sensitively is that new investments in major markets such as the US have been delayed recently. In other words, the market came to think that Samsung SDI would be more active in new investment in the UK than other companies.</p><p>However, Samsung SDI denies the report regarding the UK investment. Samsung SDI is already operating a battery plant in Hungary. Samsung SDI is receiving enormous support from the Hungarian government, including corporate tax reductions. At the beginning of this year, Samsung SDI also invested close to ₩1T to expand its plant in Hungary. Unless the UK government provides as much tax support as the Hungarian government does, it is unreasonable to make additional investments in new countries like the UK.</p><p><strong>Therefore, Samsung SDI's investment in the UK should be viewed as temporary market noise.</strong></p>

Last Friday, Samsung SDI's share price rose 3.69% to ₩674,000. On the other hand, LG Chem fell 1.56% from the previous day, and SK Innovation fell 1.6%.A report released by a local brokerage on Friday morning appears to have had an impact on Samsung SDI's Friday stock price. Kiwoom Securities said that Samsung SDI's EV battery business would turn to the black by expanding supply to major European automakers.However, I believe that expectations for 2Q earnings have already been reflected in the price before Friday. After the stock price was corrected due to Morgan Stanley's sell-off report at the end of May, the stock rebounded sharply on the back of 2Q earnings improvement and the possibility of capacity expansion in the US.(Samsung SDI 3-month chart)In fact, Kiwoom Securities' annual operating profit estimate of ₩1,095.5B is in line with the market consensus, compiled by FnGuide based on the 19 local brokerages covering Samsung SDI.










Street consensus
2021. 6. 19
T-1M
T-3M
T-6M
T-1Y


Sales
₩13,880.0B
₩13,864.2B
₩13,813.5B
₩14,205.0B
₩13,343.4B


OP
₩1,098.2B
₩1,092.3B
₩1,127.2B
₩1,199.6B
₩1,011.9B


NP to controlling stake
₩1,020.3B
₩994.0B
₩999.8B
₩991.6B
₩886.3B


12M forward PER
41.06x
40.00x
43.93x
40.32x
38.34x

Source: FnGuide

Then, the reason why only Samsung SDI's share price rose on Friday must have been that the market saw a new momentum other than 2Q earnings or US investment. It is believed that it was a British media report that Samsung SDI could build a battery plant in the UK. According to British media, the British government discusses plans to build an electric vehicle battery plant with six companies, including Samsung SDI.This British investment included not only Samsung SDI but also LG Energy Solutions. However, the reason why Samsung SDI's stock price has reacted more sensitively is that new investments in major markets such as the US have been delayed recently. In other words, the market came to think that Samsung SDI would be more active in new investment in the UK than other companies.However, Samsung SDI denies the report regarding the UK investment. Samsung SDI is already operating a battery plant in Hungary. Samsung SDI is receiving enormous support from the Hungarian government, including corporate tax reductions. At the beginning of this year, Samsung SDI also invested close to ₩1T to expand its plant in Hungary. Unless the UK government provides as much tax support as the Hungarian government does, it is unreasonable to make additional investments in new countries like the UK.Therefore, Samsung SDI's investment in the UK should be viewed as temporary market noise.

Samsung SDI Ord's Price Gain on a Market Noise Last Friday: Two Pair Trades Worth Considering