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 Spinoff Financials Confusions & Explanations

SKT Foreign Room Now at 6.77%: Potential Passive Flow Impact & Pair Position with LG U+

MSCI Std Korea QIR: SK Telecom Downweight, SK IE Tech, Ecopro BM, SK Bioscience, & Kakao Games

SK Telecom Foreign Room Momentum with Pre-Announced Spinoff Factor

SK Telecom Announcement: Split Ratio, Stock Split, Financials, Subsidiaries, & ADR Treatment

SK Telecom: Two Interpretations of Post-Spinoff Dividend Policy Creates a Huge Disparity

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>I talked to the SKT IR team this morning, and they confirmed that they would keep the same dividend amount as last year's ₩715.1B, meaning that we should expect a substantial increase in DPS from last year's ₩10,000.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Dividends"}'>Dividends</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44166}' data-sheets-numberformat='{"1":5,"2":"yyyy/m","3":1}'>2020 yearend</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total dividends"}'><strong>Total dividends</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":715.081}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'><strong>₩715.1B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dividend payout"}'>Dividend payout</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.4753}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>47.53%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"DPS"}'>DPS</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":10000}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}'>₩10,000</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dividend yield"}'>Dividend yield</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.042}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.20%</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KSD Seibro"}'>Source: KSD Seibro</td></tr>
</tbody>
</table><p><strong>How would this translate into SKT's post-spinoff combined valuation?</strong></p><p>Post-spinoff SKT (the surviving company) will retain 43,766,629 shares.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Shares outstanding"}'>Shares outstanding</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Pre-spinoff"}'>Pre-spinoff</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"SK Telecom"}'>Post-spinoff SK Telecom</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Split ratio"}'>Split ratio</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6073625}' data-sheets-formula="=R[-20]C[-1]">0.6073625</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SO"}'>SO</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":72060143}' data-sheets-numberformat='{"1":2,"2":"#,##0"}' data-sheets-formula='=googlefinance(R[-25]C[0], "shares")'>72,060,143</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":43766628.6028375}' data-sheets-numberformat='{"1":2,"2":"#,##0"}' data-sheets-formula="=R[0]C[-1]*R[-1]C[0]"><strong>43,766,629</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: DART</td></tr>
</tbody>
</table><p>₩715.1B over 43,766,629 shares gives us a DPS of ₩16,338, a whopping 63.38% increase. An expected yearly dividend yield of 4.00%, the 4-yr median, produces a market cap of ₩17.88T for post-spinoff SK Telecom (the surviving company). By the way, a 4.50% expected dividend yield lowers it to ₩15.89T.</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":"Expected dividend yield"}'>Expected dividend yield</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.04}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.00%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.0425}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.25%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.045}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.50%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total dividends"}'>Total dividends</td>
<td colspan="3" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":715.081}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R20C2">₩715.1B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"DPS"}'><strong>DPS</strong></td>
<td colspan="3" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":16338.498596477213}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-1]C[0]*1000000000/R[1]C[0]"><strong>₩16,338</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SO"}'>SO</td>
<td colspan="3" rowspan="1" style="text-align: center;" data-sheets-value='{"1":3,"3":43766628.6028375}' data-sheets-numberformat='{"1":2,"2":"#,##0"}' data-sheets-formula="=R28C3">43,766,629</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Share price based on the expected dividend yield"}'>Share price based on the expected dividend yield</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":408462.4649119303}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R[-2]C[0]/R[-4]C[0]">₩408,462</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":384435.26109358144}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R33C2/R[-4]C[0]">₩384,435</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":363077.7465883825}' data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-formula="=R33C2/R[-4]C[0]">₩363,078</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Implied market cap"}'><strong>Implied market cap</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":17877.025}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[-1]C[0]*R[-2]C[0]/1000000000"><strong>₩17,877.0B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":16825.435294117644}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[-1]C[0]*R34C2/1000000000"><strong>₩16,825.4B</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":15890.688888888888}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[-1]C[0]*R34C2/1000000000"><strong>₩15,890.7B</strong></td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; DART"}'>Source: KRX &amp; DART</td></tr>
</tbody>
</table><p>A ₩17.88T valuation for post-spinoff SKT pushes up the combined valuation to ₩30.44T, assuming SKT Investment's value at ₩12.56T based on the NAV at a 50% discount.</p><p><strong>This combined valuation suggests a 25.90% upside potential from the current price.</strong></p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td style="width: 332.287px;" data-sheets-value='{"1":2,"2":"Valuation"}'>Combined valuation</td>
<td style="text-align: right; width: 372.727px;" data-sheets-value='{"1":2,"2":"Total dividends at ₩715.1B"}'>Total dividends at ₩715.1B</td>
</tr>
<tr>
<td style="width: 332.287px;" data-sheets-value='{"1":2,"2":"SK Telecom"}'><strong>Post-spinoff SK Telecom</strong></td>
<td style="text-align: right; width: 372.727px;" data-sheets-value='{"1":3,"3":17877.025}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[-20]C[0]"><strong>₩17,877.0B</strong></td>
</tr>
<tr>
<td style="width: 332.287px;" data-sheets-value='{"1":2,"2":"SK Investment"}'><strong>SKT Investment based on the NAV at a 50% discount</strong></td>
<td style="text-align: right; width: 372.727px;" data-sheets-value='{"1":3,"3":12560.864587413918}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R52C4"><strong>₩12,560.9B</strong></td>
</tr>
<tr>
<td style="width: 332.287px;" data-sheets-value='{"1":2,"2":"Total"}'>Total</td>
<td style="text-align: right; width: 372.727px;" data-sheets-value='{"1":3,"3":30437.88958741392}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=sum(R[-2]C[0]:R[-1]C[0])">₩30,437.9B</td>
</tr>
<tr>
<td style="width: 332.287px;" data-sheets-value='{"1":2,"2":"Upside/downside from the current market cap"}'><strong>Upside/downside from the current market cap</strong></td>
<td style="text-align: right; width: 372.727px;" data-sheets-value='{"1":3,"3":0.2590033717074924}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[-1]C[0]-R59C5)/R59C5"><strong>25.90%</strong></td>
</tr>
<tr><td colspan="2" rowspan="1" style="width: 726.008px;" data-sheets-value='{"1":2,"2":"Source: KRX &amp; DART"}'>Source: KRX &amp; DART</td></tr>
</tbody>
</table><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"SKT Investment NAV"}'>SKT Investment NAV</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"SK Hynix Inc"}' data-sheets-formula='=googlefinance(R[0]C[6], "name")'>SK Hynix Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":18876.373322085}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula='=googlefinance(R[0]C[5], "shares")*googlefinance(R[0]C[5], "price")/1000000000*R[0]C[6]'>₩18,876.4B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"NanoenTek Inc"}' data-sheets-formula='=googlefinance(R[0]C[6], "name")'>NanoenTek Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":60.42464553192}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula='=googlefinance(R[0]C[5], "shares")*googlefinance(R[0]C[5], "price")/1000000000*R[0]C[6]'>₩60.4B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Dream Us Co"}' data-sheets-formula='=googlefinance(R[0]C[6], "name")'>Dream Us Co</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":147.83332780612}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula='=googlefinance(R[0]C[5], "shares")*googlefinance(R[0]C[5], "price")/1000000000*R[0]C[6]'>₩147.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Incross Co Ltd"}' data-sheets-formula='=googlefinance(R[0]C[6], "name")'>Incross Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":151.6478794048}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula='=googlefinance(R[0]C[5], "shares")*googlefinance(R[0]C[5], "price")/1000000000*R[0]C[6]'>₩151.6B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"11st Street"}'>11st Street</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":2208.25}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[0]C[4]*R[0]C[6]">₩2,208.3B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"T-Map Mobility"}'>T-Map Mobility</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":928.2}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[0]C[4]*R[0]C[6]">₩928.2B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"ADT Caps"}'>ADT Caps</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":813.8}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[0]C[4]*R[0]C[6]">₩813.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Contents Wavve"}'>Contents Wavve</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":436.8}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[0]C[4]*R[0]C[6]">₩436.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"One Store"}'>One Store</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":427.5}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[0]C[4]*R[0]C[6]">₩427.5B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Others, including SK Planet"}'>Others, including SK Planet</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":683.1}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=60.3+100.5+94.1+5.6+17.8+404.8">₩683.1B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Net cash"}'>Net cash</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":387.8}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}'>₩387.8B</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Total"}'><strong>Total</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":25121.729174827837}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=sum(R[-11]C[0]:R[-1]C[0])"><strong>₩25,121.7B</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - At a 50% discount to NAV"}'><strong>- At a 50% discount to NAV</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":12560.864587413918}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B","3":1}' data-sheets-formula="=R[-1]C[0]*0.5"><strong>₩12,560.9B</strong></td>
</tr>
<tr><td colspan="2" data-sheets-value='{"1":2,"2":"Source: SK Telecom &amp; KRX"}'>Source: SK Telecom &amp; KRX</td></tr>
</tbody>
</table>

I talked to the SKT IR team this morning, and they confirmed that they would keep the same dividend amount as last year's ₩715.1B, meaning that we should expect a substantial increase in DPS from last year's ₩10,000.






Dividends
2020 yearend


Total dividends
₩715.1B


Dividend payout
47.53%


DPS
₩10,000


Dividend yield
4.20%

Source: KSD Seibro

How would this translate into SKT's post-spinoff combined valuation?Post-spinoff SKT (the surviving company) will retain 43,766,629 shares.







Shares outstanding
Pre-spinoff
Post-spinoff SK Telecom


Split ratio
-
0.6073625


SO
72,060,143
43,766,629

Source: DART

₩715.1B over 43,766,629 shares gives us a DPS of ₩16,338, a whopping 63.38% increase. An expected yearly dividend yield of 4.00%, the 4-yr median, produces a market cap of ₩17.88T for post-spinoff SK Telecom (the surviving company). By the way, a 4.50% expected dividend yield lowers it to ₩15.89T.








Expected dividend yield
4.00%
4.25%
4.50%


Total dividends
₩715.1B


DPS
₩16,338


SO
43,766,629


Share price based on the expected dividend yield
₩408,462
₩384,435
₩363,078


Implied market cap
₩17,877.0B
₩16,825.4B
₩15,890.7B

Source: KRX &amp; DART

A ₩17.88T valuation for post-spinoff SKT pushes up the combined valuation to ₩30.44T, assuming SKT Investment's value at ₩12.56T based on the NAV at a 50% discount.This combined valuation suggests a 25.90% upside potential from the current price.






Combined valuation
Total dividends at ₩715.1B


Post-spinoff SK Telecom
₩17,877.0B


SKT Investment based on the NAV at a 50% discount
₩12,560.9B


Total
₩30,437.9B


Upside/downside from the current market cap
25.90%

Source: KRX &amp; DART







SKT Investment NAV

SK Hynix Inc
₩18,876.4B


NanoenTek Inc
₩60.4B


Dream Us Co
₩147.8B


Incross Co Ltd
₩151.6B


11st Street
₩2,208.3B


T-Map Mobility
₩928.2B


ADT Caps
₩813.8B


Contents Wavve
₩436.8B


One Store
₩427.5B


Others, including SK Planet
₩683.1B


Net cash
₩387.8B


Total
₩25,121.7B


- At a 50% discount to NAV
₩12,560.9B

Source: SK Telecom &amp; KRX



SKT IR Confirmation of Post-Spinoff Dividend Policy & Capability of Doing It Based on FCF