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

SK Telecom & SK Square Relisting Walkthrough on November 29

SK Telecom Spinoff Relisting Step-By-Step Walkthrough

SKT Demerger Got Shareholder Approval & SK Square NAV Analysis

SKT Split: Daily Trading Flow Before/After Trading Suspension

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>Post-split valuation will be an essential factor in determining whether to invest after SK Telecom's relisting. From a short-term point of view, event trading will have the most significant impact on the share price, but whether the spin-off will unlock valuation soon after relisting is bound to emerge as the most crucial factor.</p><hr><p>So, let's take a look at each valuation of SK Telecom and SK Square. As shown below, each post-split company takes the following subsidiaries.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"SK Telecom"}'>SK Telecom</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"SK Investment"}'>SK Square</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"SK Broadband"}'><strong>SK Broadband</strong></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"SK Hynix"}'>SK Hynix</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"SK Telink"}'><strong>SK Telink</strong></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":" ADT Caps"}'>ADT Caps</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"PS&amp;Marketing"}'>PS&amp;Marketing</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"11st Street"}'>11st Street</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"F&amp;S Credit Info"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>F&amp;S Credit Info</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"T Map Mobility"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>T Map Mobility</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Servie Top"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>Service Top</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"One Store"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>One Store</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Service Ace"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>Service Ace</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":" Contents Wavve"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>Contents Wavve</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"SK O&amp;S"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>SK O&amp;S</td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Dream Us Company"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>Dream Us Company</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-numberformat='{"1":3,"2":"0.00000%"}'></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"SK Planet"}'>SK Planet</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"FSK L&amp;S"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>FSK L&amp;S</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Incross"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>Incross</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"NanoNtech"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>Nano N Tech</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Spark Plus"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>Spark Plus</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"SK Telecom CST1"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'><div>SK Telecom CST1</div></td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"SK Telecom TMT Investment"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'><div>SK Telecom TMT Investment</div></td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"ID Quantique"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>ID Quantique</td>
</tr>
<tr>
<td style="text-align: center;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'></td>
<td style="text-align: center;" data-sheets-value='{"1":2,"2":"Techmaker"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>Techmaker</td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: SED"}' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}'>Source: SK Telecom</td></tr>
</tbody>
</table><p>Assuming the company's equity-based split ratio (60.74% for SK Telecom and 39.26% for SK Square) reflects the fair value of both companies, post-split SK Telecom currently has a valuation of ₩13.61T and SK Square is valued at ₩8.80T.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Valuation"}'>Valuation</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Telecom"}'>SK Telecom</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Telecom, post-split"}'>SK Telecom, post-split</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Square, post-split"}'>SK Square, post-split</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Split ratio"}'>Split ratio</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>100.00%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6074}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Valuation!R[43]C[-1]">60.74%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3926}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Valuation!R[43]C[-1]">39.26%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Current market cap"}'><strong>Current market cap</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":22.410704473}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00T","3":1}' data-sheets-formula='=googlefinance("017670", "price")*googlefinance("017670", "shares")/1000000000000'><strong>₩22.41T</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":13.6122618969002}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00T","3":1}' data-sheets-formula="=R[0]C[-1]*R[-1]C[0]"><strong>₩13.61T</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":8.7984425760998}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.00T","3":1}' data-sheets-formula="=R[0]C[-2]*R[-1]C[0]"><strong>₩8.80T</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: SK Telecom &amp; KRX"}'>Source: SK Telecom &amp; KRX</td></tr>
</tbody>
</table><hr><p>Then, let's examine whether these valuations properly reflect the intrinsic value of both companies. </p><div class="content-highlight"><p><strong>Yes, as you can imagine, SK Square is relatively much easier to value, given that it is essentially a holding company. Then, the key thing should be how we value the traditional telecom business (network operation + media) that will remain in SK Telecom.</strong></p></div>

Post-split valuation will be an essential factor in determining whether to invest after SK Telecom's relisting. From a short-term point of view, event trading will have the most significant impact on the share price, but whether the spin-off will unlock valuation soon after relisting is bound to emerge as the most crucial factor.So, let's take a look at each valuation of SK Telecom and SK Square. As shown below, each post-split company takes the following subsidiaries.






SK Telecom
SK Square


SK Broadband
SK Hynix


SK Telink
ADT Caps


PS&amp;Marketing
11st Street


F&amp;S Credit Info
T Map Mobility


Service Top
One Store


Service Ace
Contents Wavve


SK O&amp;S
Dream Us Company



SK Planet



FSK L&amp;S



Incross



Nano N Tech



Spark Plus



SK Telecom CST1



SK Telecom TMT Investment



ID Quantique



Techmaker

Source: SK Telecom

Assuming the company's equity-based split ratio (60.74% for SK Telecom and 39.26% for SK Square) reflects the fair value of both companies, post-split SK Telecom currently has a valuation of ₩13.61T and SK Square is valued at ₩8.80T.








Valuation
SK Telecom
SK Telecom, post-split
SK Square, post-split


Split ratio
100.00%
60.74%
39.26%


Current market cap
₩22.41T
₩13.61T
₩8.80T

Source: SK Telecom &amp; KRX

Then, let's examine whether these valuations properly reflect the intrinsic value of both companies. Yes, as you can imagine, SK Square is relatively much easier to value, given that it is essentially a holding company. Then, the key thing should be how we value the traditional telecom business (network operation + media) that will remain in SK Telecom.

SK Telecom

SK Telecom Post-Split Valuation Studies