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

A "Nearly" Pure Arb Opportunity: SK Holdings & SK Materials Stock Swap

SK Inc/SK Materials Merger: Approval Possibilities & Another Arb Opportunity with SK Inc Futures

SKC Is Down 5% Today: Why & What Impact on SK Holdings/SK Materials Arb Spread-Hunting

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>SKC is up close to 8% this morning. Today's share price rise is believed to be due to the ambitious plan to transform itself into a mobility material business by investing ₩5T by 2025. Through this, SKC plans to achieve a market cap of ₩30T by 2025.</p><p>Specifically, SKC announced plans to start various secondary battery material businesses, such as silicon anode materials and high nickel cathode materials, in addition to the expansion of its copper foil business.</p><div class="content-highlight"><p><strong>SKC has set a goal to increase the mobility material unit EBITDA from the current ₩380B to ₩2.5T by 2025, accounting for 80% of the total EBITDA.</strong></p></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/008/original/1.png?1632706939" class="editor-image img-responsive" data-smartkarma-image-id="232008"></figure></section><div class="content-caption">(Source: SKC)</div><p>There seems to be no disagreement as to the fact that these are new businesses that are essential for SKC's growth.</p><div class="content-highlight"><p><strong>However, what the market is really interested in is how SKC will raise this ₩5T.</strong></p></div><p>What SKC says on the surface is that it plans to secure it through strategic financing with financial partners, internal cash and asset optimization, etc. Well, isn't this wording too vague?</p><p>However, SKC presented three fairly specific guidelines along with such vague wording.</p><ol>
<li><strong>Debt ratio: 150~200%</strong></li>
<li><strong>Net Debt-to-EBITDA ratio: less than 4x</strong></li>
<li><strong>Protection of stakeholder interests (well, I do not fully understand what this means.)</strong></li>
</ol><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/009/original/2.png?1632707692" class="editor-image img-responsive" data-smartkarma-image-id="232009"></figure></section><div class="content-caption">(Source: SKC)</div><p>First, the current level meets the guideline of less than 200%. As of the first half of this year, SKC's debt-to-equity ratio was 182%. It is worse than the 130% debt ratio maintained before 2019, but considering the current cash flow level, it is difficult to see it as dangerous.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/010/original/3.png?1632708315" class="editor-image img-responsive" data-smartkarma-image-id="232010"></figure></section><div class="content-caption">(Source: FnGuide)</div><p>ND/EBITDA stood at 5.6x at the end of last year. However, by the end of this year, this ratio is expected to drop to less than 4x. It is because SKC's EBITDA is growing at a reasonably rapid pace. EBITDA increased from ₩300B in 2017 to ₩380B last year and is expected to reach more than ₩600B this year.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Consolidated"}'>Consolidated</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43070}' data-sheets-numberformat='{"1":5,"2":"yyyy/m","3":1}'>2017</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43435}' data-sheets-numberformat='{"1":5,"2":"yyyy/m","3":1}'>2018</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43800}' data-sheets-numberformat='{"1":5,"2":"yyyy/m","3":1}'>2019</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44166}' data-sheets-numberformat='{"1":5,"2":"yyyy/m","3":1}'>2020</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44348}' data-sheets-numberformat='{"1":5,"2":"yyyy/mm","3":1}'>2021E (annualized based on 1H21)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Net-debt"}'>Net-debt</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1238.4}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩1,238.4B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1295.3}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩1,295.3B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1595.6}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩1,595.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2149.7}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩2,149.7B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2410.1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩2,410.1B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"EBITDA"}'>EBITDA</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":298.1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩298.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":328}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩328.0B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":283.1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩283.1B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":386.6}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩386.6B</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":638.8}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩638.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"ND/EBITDA"}'><strong>ND/EBITDA</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.154310634015431}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>4.15x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3.949085365853658}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>3.95x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.63617096432356}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>5.64x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.560527677185721}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>5.56x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3.772855353788353}' data-sheets-numberformat='{"1":2,"2":"#,##0.00x","3":1}' data-sheets-formula="=R[-2]C[0]/R[-1]C[0]"><strong>3.77x</strong></td>
</tr>
<tr><td colspan="6" rowspan="1" data-sheets-value='{"1":2,"2":"Source: FnGuide"}'>Source: FnGuide</td></tr>
</tbody>
</table>

SKC is up close to 8% this morning. Today's share price rise is believed to be due to the ambitious plan to transform itself into a mobility material business by investing ₩5T by 2025. Through this, SKC plans to achieve a market cap of ₩30T by 2025.Specifically, SKC announced plans to start various secondary battery material businesses, such as silicon anode materials and high nickel cathode materials, in addition to the expansion of its copper foil business.SKC has set a goal to increase the mobility material unit EBITDA from the current ₩380B to ₩2.5T by 2025, accounting for 80% of the total EBITDA.(Source: SKC)There seems to be no disagreement as to the fact that these are new businesses that are essential for SKC's growth.However, what the market is really interested in is how SKC will raise this ₩5T.What SKC says on the surface is that it plans to secure it through strategic financing with financial partners, internal cash and asset optimization, etc. Well, isn't this wording too vague?However, SKC presented three fairly specific guidelines along with such vague wording.
Debt ratio: 150~200%
Net Debt-to-EBITDA ratio: less than 4x
Protection of stakeholder interests (well, I do not fully understand what this means.)
(Source: SKC)First, the current level meets the guideline of less than 200%. As of the first half of this year, SKC's debt-to-equity ratio was 182%. It is worse than the 130% debt ratio maintained before 2019, but considering the current cash flow level, it is difficult to see it as dangerous.(Source: FnGuide)ND/EBITDA stood at 5.6x at the end of last year. However, by the end of this year, this ratio is expected to drop to less than 4x. It is because SKC's EBITDA is growing at a reasonably rapid pace. EBITDA increased from ₩300B in 2017 to ₩380B last year and is expected to reach more than ₩600B this year.










Consolidated
2017
2018
2019
2020
2021E (annualized based on 1H21)


Net-debt
₩1,238.4B
₩1,295.3B
₩1,595.6B
₩2,149.7B
₩2,410.1B


EBITDA
₩298.1B
₩328.0B
₩283.1B
₩386.6B
₩638.8B


ND/EBITDA
4.15x
3.95x
5.64x
5.56x
3.77x

Source: FnGuide



SKC Is up 8% Today on a ₩30T Target Value by 2025, but How to Raise a ₩5T Investment?

SKC Co Ltd

SKC Is up 8% Today on a ₩30T Target Value by 2025, but How to Raise a ₩5T Investment?