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

The Week That Was in North Asia @Smartkarma: Do Donkis Rohm the North Korean Shires?

The Week That Was in North Asia @Smartkarma:

Elliott Vs. Hyundai Battle with Korea FTC's Weird Refereering

Thematic (Sector/Industry)

South korea Consumer discretionary / Thematic (Sector/Industry)

Below is the full list of Japan/Korea related reports published last week on Smartkarma.DateInsight providerInsight titleJapan12-MayScott FosterHamamatsu Photonics (6965 JP): Strong 1H, Guidance Raised, Fully Valued12-MayTravis LundyGeo Holdings (2681 JP) Tender Buyback &amp; Squeeziness13-MayTravis LundyNTT Earnings - Stay Long Vs Docomo13-MayPelham Smithers AssociatesObservations from Three Weeks Marketing Japanese Equities in the US13-MayScott FosterShimadzu (7701 JP): Good Results, but Looking Overbought13-MayNoriaki HirakataSUBARU: Battle of the Research Platforms and FY17 Analyst Meeting Takeaways13-MayLightStream ResearchIs Suzuki in Trouble Next Year?14-MayNoriaki HirakataSuzuki: Focus on Home Market and Core Segments Continues to Pay off into FY1814-MayLightStream ResearchIntersil Integration Drives Renesas’ 1QFY12/18 Financial Performance14-MayCampbell GunnJapan Results Roundup: Market Composite + Sector Aggregate Results &amp; Forecasts - 6th Straight Up Q14-MaySC CapitalNissan Motor--Expect Weak FY3/19 Guidance Today &amp; A Possible End to Chasing Market Share14-MayLightStream ResearchInpex Guided to Lower Earnings Compared to Consensus Amidst Conservative Demand14-MayThomas SchroederTokyo Electron Bullish for a 30%+ Rise14-MayDr. Jim WalkerJapan’s Wages Conundrum - Not Going Up14-MayDion Stéfan Büchner M.D., FCAPTakeda FY17 Earnings - First Glance14-MayLightStream ResearchPanasonic: Tesla Fires Are a Concern14-MayScott FosterMonotaro (3064 JP): Strong April Data Drives Shares to New High14-MayLightStream ResearchKubota Starts FY12/18 with Promising Outlook14-MaySC CapitalNissan FY3/19 Guidance Below Consensus; Big Target Misses Very Likely This Year15-MayNoriaki HirakataYamaha Motor: ASEAN Play with the Platform Strategy15-MayNew Street ResearchSoftbank’s Pivot from Telecoms Gains Momentum15-MayPearl Hill AdvisorsNamura Shipbuilding (7014) After Write-Offs, Shares Still on a Negative EV. Buy into This Sell Off.15-MayEuromonitor International Ltd.Sector Capsule: Fast Food in Japan15-MayPearl Hill AdvisorsOpen House (3288) Great 1H Results, Full Year Upward to Profits.15-MayLightStream ResearchJDI: Long Awaited Big Bath Is Here, Now What?15-MayLightStream ResearchStrategic Partnership with FINsix for PCUs: A Super PCU with Reduced Size and Increased Efficiency15-MayLightStream ResearchKeihin Guides For 30% OP Decline Despite a 23% Rise This Year15-MayMorningstarTakeda FVE Reduction Leaves Shares Slightly Undervalued; Shire Acquisition Neutral to Valuation15-MayPearl Hill AdvisorsH2O (8242) Buy the Dip16-MayCustom Products GroupLow PE and High Dividend Yield Names in Japan....16-MayCustom Products GroupHated by the Street but Recently Upgraded. Nissan Motors Made the List....16-MayJulian Brian WaterhouseSuruga Bank (8358.JP):  Shattered Dreams16-MayCampbell GunnJapan Results - Final Tally: OP▲15% YoY but Net Income Forecast to Decline16-MayMorningstarNSSMC Will Acquire Remaining Stake in Nisshin Steel; FVE Raised to JPY 2,51016-MayMorningstarMUFG Remains Undervalued After in Line Fiscal 2017 Result16-MayLightStream ResearchRaksul IPO: Under the Radar, Shouldn’t Be, but Too Expensive to Get Excited Immediately16-MaySumeet SinghKenedix Office REIT Placement - Past Deals Have Done Well17-MayPearl Hill AdvisorsNGK Spark Plug (5334) Good Results, Shares Remain Cheap Despite Recent Run.17-MayTakuji OkuboA Wake-Up Call for Japanese Policymakers.17-MayDion Stéfan Büchner M.D., FCAPTaisho FY17 Earnings - First Glance17-MayDion Stéfan Büchner M.D., FCAPEisai FY17 Earnings - First Glance17-MayTravis LundyAltaba and Yahoo Japan - The Art of the Possible18-MayPearl Hill AdvisorsLixil (5938) Shares Not Expensive but Now Overly Depressed. BUY Here18-MayTravis LundyNisshin Steel / NSSMC Merger - Whatcha Gonna Do?Korea12-MayPaul HollingworthIndustrial Bank of Korea: Value in Restraint12-MayDouglas KimNorth Korea’s Doi Moi &amp; Key Four Events To Look Out for in the Next Six Months13-MaySanghyun ParkMobis-Glovis Pair Trading Re/Preview13-MayBixmoorWho Does Not like the Talks over Korea?13-MaySanghyun ParkHyundai Mobis May 29 EGM Vote Counting Simulation14-MayNew Street ResearchSKT Underperforms in 1Q on Regulatory Pressure. But the Competitive Environment Is Easing.14-MayNew Street ResearchLG U+ Service Revenue Under Pressure but Profits Boosted by Strong Cost Control14-MayNew Street ResearchKT’s EBITDA Supported by Surprisingly Good Cost Control but Stock Lacks Catalysts.15-MayDouglas KimGenoray IPO Preview (Part 3): Book Building Results - A Major Beneficiary of KOSDAQ Venture Funds15-MaySanghyun ParkCJ O Shopping &amp; CJ E&amp;M Merger Status Update15-MayHenry KwonHyundai Mobis: One Possible Post Spinoff Earnings and ROE Scenario if the Proposal Passes16-MayDouglas KimHyundai Oilbank IPO Preview (Part 1)16-MayMorningstarSector Capsule: Fast Food in South Korea17-MaySanghyun ParkMobis-Glovis Pair Trading - Reverse Approach17-MayDouglas KimHyundai Heavy Industries Holdings - Update on Its Implied Valuation17-MaySustinvestSamsung Life Does Not Necessarily Need to Sell Off All Samsung Electronics Shares (Part 1 of 4)17-MayDouglas KimSejong Medical IPO Preview (Part 3): Book Building Results - Supply/Demand Overwhelming Fundamentals17-MaySanghyun ParkKakao-Kakao M Small Scale Merger Summary &amp; Arb Opportunity Checkup17-MayLightStream ResearchDoosan Infracore Results Positive in 1Q18, Strengthened Balance Sheet to Support Expansion Strategy18-MayKenneth WheeUNID: Bold Turnaround on the Horizon Following a Year of Restructuring18-MaySustinvestHyundai Mobis: The Spinoff/Merger Is Not an Integral Part of HMG Governance Reform18-MayToh Zhen ZhouSamsung Engineering Placement - Small Deal Size and Rising Oil Price HelpsAltaba and Yahoo JapanTravis Lundy discusses about possible selldown options for Altaba Inc (AABA US)'s Yahoo Japan Corp (4689 JP) stake. Below are the selldown options that Travis expects Altaba and Yahoo Japan to consider. There is a possibility of a mixed selldown whereby Altaba sells a large piece of its stake back to Yahoo Japan (perhaps half) and the rest is sold to the public. The public portion would be perhaps ¥300-400bn yen, with the medium-term required uptake by "real investors" of about 75% of the new float (the other 25% would be taken over time by passive investors as the share count entered index calculations). Softbank will not be a buyer of YJ shares. Travis says he does not see the need - not unless Softbank wants to take the rest of it out. He expects YJ has too much pride. Even though YJ could buy back all the shares, they would not. It would leave them with too little common equity. A summer deal would be appropriate. If not, early autumn perhaps, but that would run into the timing of the widely expected Softbank Mobile domestic mobile telephony business IPO.Doing hybrid securities would help, and would be an interesting way to broaden the base of capital available AND it would help smooth out the absorption of capital (because the Day 1 delta of the CBs or prefs would be lower than the stock).Observations from Three Weeks Marketing Japanese Equities in the USPelham Smithers Associates undertook a three week 12-city marketing trip of the US and Canada, based around twelve large cap recommendations (split into quality and speculative), twelve small-cap recommendations and six negative ones.QualitySpeculativeSmall Cap ($2~5bil)Small Cap (sub $2bil)NegativeSony (6758)SBI Holdings (8473)Capcom (9697)Nissha (7915)Ricoh (7752)CyberAgent (4751)NEC (6701)TIS (3626)iStyle (3660)Nissan Motor (7201)Bandai Namco (7832)Hitachi (6501)Universal Entermnt (6425)Dexerials (4980)Nikon (7731)TDK (6762)IHI (7013)NGK Spark Plug (5334)Ferrotec (6890)Rakuten (4755)Shin-etsu Chemical (4063)Mitsubishi Motors (7211)GMO Internet (9449)Sosei (4565)Sumco (3436)Canon (7751)Kansai EP (9503)NOK (7240)Aucnet (3964)Subaru (7270)Source: Pelham Smithers AssociatesBelow are what have been observed from this three week 12-city marketing trip:US PMs are nothing like as down on Apple Inc (AAPL US) as the financial or industrial media seems to be. Almost every fund manager they spoke to reckoned that Apple had been unfairly under the cosh recently.US PMs like the fact Japan offers the opportunity to play the eSport theme without falling victim to Fortnite.There's nothing worse than conservative guidance.SBI Holdings (8473 JP) is the new Softbank (9984 JP).Japan's great for alpha. Chinese tech (Tencent, Alibaba (BABA US)) is one source of that alpha, but the Japan small cap is another. Over the past three years, Jasdaq has outperformed the S&amp;P500 by 33% in US dollar terms and this hasn't gone unnoticed in the US, where there is now a large appetite for Japanese small and mid caps.North Korea’s Doi Moi &amp; Key Four EventsDouglas Kim attended the seminar on May 11th in Seoul presented by a North Korean defector named Kim Young-Hye about the North Korean economy.Seoul Money Show &amp; Kim Young-Hye (Seminar Presenter on North Korean economy): Source: Photos by Douglas KimThis report has two parts. In the first part, Douglas provides an overview of a seminar and in the second part he provides the upcoming timeline of the four major events related to the furthering of peace on the Korean peninsula.Part 1: Seminar overviewKim Young-Hye compared North Korea today to Vietnam prior to 1986, when it started its now famous Doi Moi (means "renovation") economic initiatives. Kim Jong-Un has mentioned that he would like to improve North Korea's economy and has been considering Vietnam as a major benchmark. In the coming months, there will likely be a lot more comparisons between North Korea's current situation and Vietnam in the early 1980s. Her overall message was that in general the North Korean people live in despicably low living standards. However, the elite in Pyeongyang enjoy a relatively better economic life. In the past several years, there have been more market oriented systems as well as adoption of technologies such as e-commerce, debit cards, and smart phones in North Korea. She compared North Korea now to Vietnam prior to its Doi Moi and that she believes that there is a good chance that North Korea could further open up its economy in order to prepare itself for its own Doi Moi-like economic development. Part 2: Upcoming timeline of the four major eventsOver the next six months, the following are the four major events to look out for with regards to the North and South Korea peace initiatives:Trump &amp; Kim Jong-Un meeting - This is expected to take place on June 12th in Singapore. There is likely to be a live footage of a real time destruction of North Korea's nuclear facilities (perhaps this summer or fall) with nuclear experts from the US present near the site.There is likely to be an official announcement of the end of the Korean War sometime this summer/fall.Moon Jae-In is expected to visit Kim Jong-Un in Pyeongyang this fall. Suzuki quarterly earnings reportLightStream Research and Noriaki Hirakata, CFA took a look at Suzuki's latest quarterly earnings. Actual vs Consensus (FY03/18)ActualYoY ChangeCompany GuidanceLSR EstimatesConsensusConsensus VarianceAutomobile Unit Sales (000)3,22410.5%3,1023,253N/AN/AMotorcycle Unit Sales (000)1,63019.0%1,5151,621N/AN/ARevenue (JPYbn)3,75718.5%3,6003,7613,7041.4%OP (JPYbn)37440.3%3003433555.4%OP Margin %  10.0%+160bps8.3%9.1%9.6%+40bpsEPS (JPY)48934.8%4084364713.8%Source: Company Disclosures, Capital IQ and LSR EstimatesLightStream: Slowdown in Indian and European sales next year could hurt top-line growth.Suzuki’s robust revenue growth of 18.5% YoY in FY03/18 was driven by record-high Indian auto sales, which contributed to over 46% of the overall revenue growth. Suzuki’s Japanese, European and ASEAN auto sales also remained strong as Suzuki surpassed 3m auto sales for the first time in FY03/18. However, note that most of this growth came from a handful of new models that were introduced during last year (XBEE in Japan – Dec 2017; Baleno in Indonesia – Aug 2017; Dzire in India – May 2017; Ignis in Europe – Sep 2016). Hence, this robust growth is less likely to be sustained once the penetration stage of these models has passed. This is reflected in Suzuki’s rather miserly guidance of 2.3% YoY growth in automobile sales for FY03/19E.Hirakata-san has a little different view.This excellent performance was a result of its “home market” (Japan and India) and “home segment” focus (Minis to A/B segment). He is quite bullish about Suzuki and expects the market to recognize further benefits of this strategy in FY18 while others who keep their focus on “Non-Home” and bigger markets like Europe, US and RPC will likely face headwinds. Even regarding concerns over capacity constraints at Suzuki, he argues that this will not limit future growth potential.New Street Research on Korean/Japanese telcosNew Street Research reviewed the latest quarterly earnings of Korea's three major telcos along with Japan's Softbank.What New Street Research is saying about themSK TelecomSK Telecom (017670 KS) reported a slightly weak set of 1Q18 results (vs its peers), as tariff discounts hurt the top-line. As with its peers, revenue pressure was largely offset by strong cost control as sales and marketing costs fell sharply (all three reported lower marketing costs) as competitive pressures seem to have eased. Operators are looking to limit earnings pressure from regulatory developments by reducing expenses.KTThe perennial under-performer, KT (030200 KS) recently reported a reasonable set of results with good cost control offsetting revenue pressure. The revenue line was weak (as with its peers) due to regulatory intervention in mobile. Parent mobile service revenue fell from +1.4% growth in 4Q17 to -0.4% in 1Q18.  Encouragingly, churn declined to 1.4% from previously stable levels of 1.7%, with LTE penetration reaching 77.9%.  LG UplusLG U+' 1Q18 results look reasonably solid. The impact of regulatory pressure on profits has been offset by lower costs, although LG U+ did see overall revenue rise 6% YoY due to a sharp increase in handset revenue. Mobile service revenue (MSR) growth continued to deteriorate as customers increasingly take the higher discount tariffs as regulated by the government. MSR fell 1.5%, from flat in 4Q17 as &gt;60% of gross adds took up the tariff discount plan. ARPUs fell nearly 7% despite good take-up of higher priced plans.SoftbankThe recently released 4Q 17/18 results were largely in line with expectations, with the highlight being a meaningful improvement in the domestic telecom business. Softbank also announced that it had obtained consent from Softbank KK lenders on debt guarantees which, combined with improving financial performance, makes an IPO for domestic telecoms more likely. With the domestic telecom IPO and the announced merger of Sprint (S US) and T Mobile (TMUS US) in the US. Softbank's transformation from telecoms to technology is accelerating. We remain at Buy.Source: New Street ResearchHyundai Oilbank IPO previewDouglas introduces the biggest IPO in Korea. Hyundai Oilbank is getting ready for an IPO in 2H18 (targeting October) and this could be the biggest IPOs in Korea in 2018. The deal size is expected to range between US$1-2 billion. The local media have been mentioning the value of Hyundai Oilbank could be about 8-10 trillion won based on a 6-8x EV/EBITDA multiple. Unlike SK Lubricants which was not able to complete its IPO, Hyundai Oilbank is likely to push its more diversified business mix in marketing its IPO. Crude oil refining represents about 60% of Hyundai Oilbank's consolidated operating profit. Hyundai Oilbank also has other major businesses including Hyundai Chemical, lubricants, and carbon black.Hyundai Oilbank has higher ROE and ROA versus its peers. For example, Hyundai Oilbank averaged an ROE of 11.5% per year from 2013 to 2017, which was higher than its peers including S-Oil, SK Innovation, and GS Corp. Hyundai Oilbank also generated a higher ROA than its peers over the past five years. In terms of EBITDA and operating margins, Hyundai Oilbank has higher profit ratios compared to S-Oil and SK Innovation, but lower than those of GS Corp. Using 2018 consensus EBITDA estimates, S-Oil is currently trading at 8.0x EV/EBITDA and SK Innovation is trading at 5.0x EV/EBITDA. Hyundai Oilbank &amp; Comps' Profit Margins and ROE, ROAEBITDA Margins (%)20132014201520162017Avg ('13-'17)Hyundai Oilbank2.9%2.1%7.0%10.6%9.8%6.5%S-Oil2.4%0.2%6.1%11.7%8.0%5.7%SK Innovation3.1%0.9%6.1%10.5%8.9%5.9%GS Corp8.4%2.8%15.9%16.1%16.1%11.9%Average　　　　　7.5%Operating Margins (%)20132014201520162017Avg ('13-'17)Hyundai Oilbank1.8%1.1%4.8%8.1%7.7%4.7%S-Oil1.2%-1.0%4.6%9.9%6.6%4.2%SK Innovation2.1%-0.3%4.1%8.2%7.0%4.2%GS Corp5.8%-0.3%12.9%13.0%12.8%8.8%Average　　　　　5.5%Net Margins (%)20132014201520162017Avg ('13-'17)Hyundai Oilbank0.7%0.0%3.5%6.2%6.0%3.3%S-Oil0.9%-1.0%3.5%7.4%6.0%3.4%SK Innovation1.2%-0.8%1.8%4.4%4.6%2.2%GS Corp4.5%-3.0%4.1%6.9%6.7%3.9%Average　　　　　3.2%ROE (%)20132014201520162017Avg ('13-'17)Hyundai Oilbank5.5%0.1%13.4%17.9%20.3%11.5%S-Oil5.4%-5.6%12.3%20.5%18.8%10.3%SK Innovation4.7%-3.3%5.2%9.7%11.4%5.6%GS Corp6.0%-4.4%6.7%10.9%11.8%6.2%Average　　　　　8.4%ROA (%)20132014201520162017Avg ('13-'17)Hyundai Oilbank1.8%0.0%5.7%8.5%9.3%5.1%S-Oil2.4%-2.6%6.0%9.7%8.6%4.8%SK Innovation2.3%-1.5%2.6%5.4%6.4%3.0%GS Corp3.4%-2.3%3.0%4.7%5.2%2.8%Average　　　　　3.9%Source: Companies data, Naver FinanceSamsung Life's SamE stake sale issueSustinvest discusses the Samsung Life's SamE stake sale issue in great detail.What is unique about Samsung's ownership structure is that the Lee family retains control of Samsung Electronics through a stake held by Samsung Life. Thus, Samsung Life’s potential disposal of SamE shares has always garnered attention.- SustinvestAccording to Sustinvest, the recent move by Korean regulators has put pressure on Samsung Life to sell off its stake in Samsung Electronics. This move is well aligned with the Moon administration’s pledges to enhance financial and industrial capital. Several regulations are to be revised or newly implemented, which will accelerate Samsung Life’s disposal of SamE shares, thereby pushing Samsung to simplify its ownership structure. It has often been said that Samsung Life should sell off all its SamE shares and Samsung C&amp;T should raise a tremendous amount of money to buy those shares as the proposed regulations are implemented. However, it is not really true.Three key regulations include (1) Act on the Structural Improvement of the Financial Industry, (2) Revision of the Insurance Business Act, and (3) Comprehensive Supervision System on the Financial Groups. To briefly summarize the conclusion, the maximum size of the required disposal of SamE shares by Samsung Life will be set based on the (3) Comprehensive Supervision System, which will be no more than 2.66% of SamE shares (₩9.07tril)RegulationsPossibility to be implementedThe amount of Samsung Electronics shares to be sold by Samsung Life and Samsung FireThe value of the shares to be sold10% Restrictions (Act on the Structural Improvement of the Financial Industry)100% sure0.43%~1%₩1.46tril ~ ₩3.40trilRevision of the Insurance Business ActHighly unlikely7%~₩23.82tril ~Comprehensive Supervision System on the Financial GroupsVery likely0.53%~2.66%(approximately estimated)₩1.80tril ~ ₩9.07tril(approximately estimated)Source: Sustinvest

The Week That Was in NorthAsia@Smartkarma: Yahoo Japan, NK's Doi Moi, Suzuki, & SamE Stake