Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Nearly 30 years of experience in the Korean/Asian equity research. Major sectors coverage include the following:
- Technology 
- Consumer 
- Special Situations/Deep Value Plays
- Tender Offers/M&As
- Holdcos/Stubs
- Asian Unicorns/Private Companies

Korea/Asia, Events, IPOs

Equity Capital Markets

<div class="content-highlight"><p>Our base case valuation of SM Line Corp is implied market cap of 1.3 trillion won or 14,837 won per share. This represents 18% lower than the low end of the IPO price range level of 18,000 won. Given the lack of upside relative to the IPO price range, we would avoid this IPO. To value SM Line Corp, we used an EV/EBITDA multiple of 2.0x, which is the median valuation multiple of its peers in 2022. </p></div><p>Due to the sharp increase in container freight rates in the past year, there has also been a significant increase in new orders for these container ships, especially in 2021. In addition, there are increasing indications that suggest the container shipping industry may undergo a sharp contraction starting 2023, especially as these new container ships come to market.</p><div class="content-highlight">
<p>SM Group has a very complicated shareholding structure and this remains one of the key risks of SM Line Corp. Major shareholders of SM Line Corp include SM Samra Midas (41.4% stake), <a href="https://www.smartkarma.com/entities/tk-chemical-corp" target="_blank" data-smartkarma-citation="entities:13428:1" rel="noopener">Tk Chemical (104480 KS)</a> (29.55%), and Samra Corp (29.09%). Woo Oh-Hyun (born in 1953), the chairman of the SM Group, owns a 74% stake in Samra Midas. His first son Woo Ki-Won owns the remaining 26% stake in Samra Midas. Woo Oh-Hyun also owns a 68.8% stake in Samra Corp. Given that the chairman Woo O-Hyun is 69 years old, there may be some discussions of a transfer of the controlling ownership of SM Line Corp to his first son over the next 2-3 years.</p>
<p>This will remain a key stumbling block for the stock as many retail investors in Korea have concerns that the company could intentionally depress the company's share price in order to reduce the potential inheritance taxes associated with the share transfer from the father to his son.</p>
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Our base case valuation of SM Line Corp is implied market cap of 1.3 trillion won or 14,837 won per share. This represents 18% lower than the low end of the IPO price range level of 18,000 won. Given the lack of upside relative to the IPO price range, we would avoid this IPO. To value SM Line Corp, we used an EV/EBITDA multiple of 2.0x, which is the median valuation multiple of its peers in 2022. Due to the sharp increase in container freight rates in the past year, there has also been a significant increase in new orders for these container ships, especially in 2021. In addition, there are increasing indications that suggest the container shipping industry may undergo a sharp contraction starting 2023, especially as these new container ships come to market.
SM Group has a very complicated shareholding structure and this remains one of the key risks of SM Line Corp. Major shareholders of SM Line Corp include SM Samra Midas (41.4% stake), Tk Chemical (104480 KS) (29.55%), and Samra Corp (29.09%). Woo Oh-Hyun (born in 1953), the chairman of the SM Group, owns a 74% stake in Samra Midas. His first son Woo Ki-Won owns the remaining 26% stake in Samra Midas. Woo Oh-Hyun also owns a 68.8% stake in Samra Corp. Given that the chairman Woo O-Hyun is 69 years old, there may be some discussions of a transfer of the controlling ownership of SM Line Corp to his first son over the next 2-3 years.
This will remain a key stumbling block for the stock as many retail investors in Korea have concerns that the company could intentionally depress the company's share price in order to reduce the potential inheritance taxes associated with the share transfer from the father to his son.


SM Line Corp

SM Line Corp - IPO Valuation Analysis