Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<ul>
<li>CJ Olive Young is the number one health and beauty (H&amp;B) store chain in Korea. CJ Olive Young is well positioned to complete its IPO in 2H 2022.</li>
<li>The local media have noted that CJ Olive Young's market value could reach 3.5 trillion won to 4.0 trillion won after the IPO.</li>
<li>If CJ Olive Young is valued at 3.5 trillion won, CJ Corp's 51.1% stake would be 1.8 trillion won, which would be worth 71% of CJ Corp's current market cap. </li>
</ul>


CJ Olive Young is the number one health and beauty (H&amp;B) store chain in Korea. CJ Olive Young is well positioned to complete its IPO in 2H 2022.
The local media have noted that CJ Olive Young's market value could reach 3.5 trillion won to 4.0 trillion won after the IPO.
If CJ Olive Young is valued at 3.5 trillion won, CJ Corp's 51.1% stake would be 1.8 trillion won, which would be worth 71% of CJ Corp's current market cap. 


CJ Olive Young: Well Positioned to Complete IPO in 2H 2022 After Solid Results in 2021

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

<ul>
<li>Another thing to consider in strategic trades aimed at the buying trend for yearend dividend hunting is the ₩1B majority shareholder transfer tax-triggered selling trend.</li>
<li>But the degree of direct conflict between the buying force targeting dividends and this factor at the point close to the ex-dividend date should not be as large as expected.</li>
<li>Considering a gradual preemptive sale of yearend tax evasion until the ex-dividend, we should consider shortening the trading time frame of the yearend dividend play close to the ex-dividend.</li>
</ul>


Another thing to consider in strategic trades aimed at the buying trend for yearend dividend hunting is the ₩1B majority shareholder transfer tax-triggered selling trend.
But the degree of direct conflict between the buying force targeting dividends and this factor at the point close to the ex-dividend date should not be as large as expected.
Considering a gradual preemptive sale of yearend tax evasion until the ex-dividend, we should consider shortening the trading time frame of the yearend dividend play close to the ex-dividend.


Yearend Dividend-Hunt Buying Vs. Majority Shareholder Transfer Tax-Triggered Selling

<ul>
<li>In Korea's local stock market, intense short-covering at the yearend dividend season has been consistently observed since mid-November. So, this post screens potential short-covering stocks.</li>
<li>KOSPI stocks meeting these screening factors include Kumho Petro Chemical, SK Inc, Lotte Shopping, Mirae Asset Securities, CJ Corp, and HiteJinro.</li>
<li>In the KOSDAQ, we can obtain the following results if the same screening factors are applied: LX Semicon, BH Co Ltd, and Seegene.</li>
</ul>


In Korea's local stock market, intense short-covering at the yearend dividend season has been consistently observed since mid-November. So, this post screens potential short-covering stocks.
KOSPI stocks meeting these screening factors include Kumho Petro Chemical, SK Inc, Lotte Shopping, Mirae Asset Securities, CJ Corp, and HiteJinro.
In the KOSDAQ, we can obtain the following results if the same screening factors are applied: LX Semicon, BH Co Ltd, and Seegene.


Potential Yearend Short-Covering Stocks in Korea

Starting this year, KRX will rebalance the KOSPI size index series (LargeCap, MidCap, and SmallCap) twice a year. Until last year, it was done once a year in March (the option expiration date). However, from this year, the rebalancing is done twice a year, in March and September.<div class="content-highlight"><ul>
<li>The screening method is simple and clear. It is based on the 3-month average daily market cap.</li>
<li>LargeCap includes 1st to 100th, and MidCap takes 101st to 300th.</li>
<li>The screening base date is the last trading day of February and August. So, this September rebalancing review period is June 1 to August 31.</li>
</ul></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/227/642/original/Screen+Shot+2021-09-02+at+10.06.47+PM.png?1630634901" class="editor-image img-responsive" data-smartkarma-image-id="227642"></figure></section>

Starting this year, KRX will rebalance the KOSPI size index series (LargeCap, MidCap, and SmallCap) twice a year. Until last year, it was done once a year in March (the option expiration date). However, from this year, the rebalancing is done twice a year, in March and September.
The screening method is simple and clear. It is based on the 3-month average daily market cap.
LargeCap includes 1st to 100th, and MidCap takes 101st to 300th.
The screening base date is the last trading day of February and August. So, this September rebalancing review period is June 1 to August 31.


KOSPI LargeCap & MidCap Rebalancing Preview on September 9

The Korea Fair Trade Commission (KFTC) annually designates local conglomerates having an aggregate asset value of more than ₩5T as a Business Group Subject to Disclosure. These are the largest industrial conglomerates designated as a Business Group Subject to Disclosure as of the last yearend.









Rank
Conglomerate
Aggregate asset value
Number of subsidiaries
Holdco type


1
Samsung
₩424.9T
59
De-facto operating holdco


2
Hyundai Motor
₩234.7T
54
-


3
SK
₩225.5T
125
Legitimate operating holdco


4
LG
₩137.0T
70
Legitimate pure holdco


5
Lotte
₩121.5T
86
Legitimate pure holdco


6
POSCO
₩80.3T
35
-


7
Hanwha
₩71.7T
86
De-facto pure holdco


8
GS
₩66.8T
69
Legitimate pure holdco


9
Hyundai Heavy Industries
₩62.9T
30
Legitimate pure holdco


10
Shinsegae
₩44.1T
41
-


11
KT
₩36.3T
44
-


12
CJ
₩34.5T
77
Legitimate pure holdco


13
Hanjin
₩33.6T
31
Legitimate pure holdco


14
Doosan
₩29.3T
25
De facto pure holdco


15
LS
₩23.7T
54
Legitimate operating holdco


16
Booyoung
₩23.3T
23
-


17
DL
₩18.7T
32
Legitimate operating holdco

Source: Kore Fair Trade Commission

Of these 17 largest industrial conglomerates having an aggregate asset value of more than ₩20T, 6 business groups are suitable for pair trading with a synthetic subsidiary.
Samsung Group
SK Group
LG Group
Lotte Group
Hanwha Group
CJ Group
Hyundai Motor Group is a circular shareholding structure, not suitable for pair trading. POSCO, Shinsegae, KT, LS, and DL have substantial operating operations outweighing their respective listed subsidiaries. GS and Hyundai Heavy Industries have a significant presence from the unlisted companies: GS Caltex and Hyundai Oilbank. Hanjin and Doosan are more of single-subsidiary holding companies. Lastly, Booyoung is a privately-held company.Discount to NAV Samsung C&amp;T has the highest discount to the NAV at 62.77%, followed by SK Inc with 52.14%. On the other hand, CJ Corp has the lowest discount at 34.19%. Hanwha Corp also has a lower discount than the others at 38.87%.











NAV
LG Corp
Samsung C&amp;T Corp
SK Inc
Lotte Corp
Hanwha Corp
CJ Corp


Value of listed holdings
₩41,080.4B
₩52,346.7B
₩24,237.4B
₩5,377.5B
₩4,501.4B
₩5,038.1B


- % of Holdco market cap
188.20%
201.51%
128.30%
139.29%
195.29%
158.42%


Value of unlisted holdings
₩2,631.7B
₩2,528.3B
₩9,890.5B
₩1,147.7B
₩1,657.0B
₩311.7B


Stub value
-₩21,883.7B
-₩28,897.7B
-₩15,236.2B
-₩2,664.6B
-₩3,853.5B
-₩2,169.5B


Stub value per share
-₩126,820
-₩154,626
-₩216,545
-₩25,399
-₩51,408
-₩74,357


Value of operating assets
₩0.0B
₩6,100.3B
₩2,235.2B
₩0.0B
₩0.0B
₩0.0B


GAV
₩43,712.1B
₩60,975.2B
₩36,363.1B
₩6,525.2B
₩6,158.4B
₩5,349.8B


GAV per share
₩253,320
₩373,019
₩695,187
₩92,157
₩89,623
₩197,713


Discount to GAV (excl. treasury shares)
50.06%
62.74%
61.38%
60.07%
65.69%
44.87%


Holdco net cash/debt (de-consolidated)
₩1,941.8B
₩268.6B
-₩6,879.4B
-₩1,764.4B
-₩2,330.8B
-₩357.6B


Value of pref shares
₩329.8B
₩219.7B
₩140.4B
₩63.2B
₩371.0B
₩510.3B


NAV
₩45,324.1B
₩61,024.1B
₩29,343.3B
₩4,697.6B
₩3,456.7B
₩4,481.9B


NAV per share (excl. treasury shares)
₩262,662
₩373,318
₩560,983
₩66,346
₩50,304
₩165,638


Discount to NAV
51.84%
62.77%
52.14%
44.53%
38.87%
34.19%

Source: KRX &amp; DART

Synthetic subsidiary weightThe number of subsidiaries in a synthetic varies from 2 to 4, representing 67.91% to 130.22% of the NAV. LG Corp has 4, the most, having a synthetic weight of 87.87% of the NAV. SK Inc has 3 subsidiaries in its synthetic, representing 67.91% of the NAV. 









Holdco pair
Number of subsidiaries in a synthetic
Synthetic subsidiary weight in NAV
Synthetic subsidiary weight in GAV


LG Corp
4
87.87%
91.11%


Samsung C&amp;T Corp
2
76.04%
76.10%


SK Inc
3
67.91%
54.80%


Lotte Corp
2
80.47%
57.93%


Hanwha Corp
3
130.22%
73.09%


CJ Corp
2
99.77%
83.58%

Source: KRX

Sigma on a 20-day moving averageWhen I'm writing this post (2 PM in Korea local time today), SK Inc and Hanwha Corp are in a diversion below -1.0σ on a 20-day moving average relative to their respective synthetic subsidiary. In contrast, CJ Corp is in a 2.0σ diversion, just the opposite way.











Sigma (σ) on a 20-day moving average
Today
T-1
T-2
T-3
T-4


LG Corp
0.87
1.02
1.26
1.39
1.56


Samsung C&amp;T Corp
-0.47
-0.55
0.30
-2.25
-2.53


SK Inc
-1.41
-1.64
-1.67
-1.74
-1.81


Lotte Corp
0.86
1.44
1.91
1.97
2.64


Hanwha Corp
-1.16
-0.77
-0.96
0.44
1.35


CJ Corp
1.92
1.03
0.54
0.82
1.83

Source: KRX



Korea Top Conglomerates Synthetic Pair Trading

South Korea

CJ Corp. is an investment holding company.  The Company, through its subsidiaries, manufactures processed food products.  The subsidiaries' products include refined sugar, monosodium glutamate (MSG), condiment, wheat powder, flour, cooking oil, processed meats, and animal feed.

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CJ Corp (001040 KS)

CJ Olive Young: Well Positioned to Complete IPO in 2H 2022 After Solid Results in 2021

CJ Olive Young is the number one health and beauty (H&B) store chain in Korea. After excellent results in 2021, CJ Olive Young is well positioned...

Douglas Kim

Yearend Dividend-Hunt Buying Vs. Majority Shareholder Transfer Tax-Triggered Selling

This post looks at the yearend dividend-hunt buying versus the ₩1B majority shareholder transfer tax-triggered selling trend.

Sanghyun Park

Potential Yearend Short-Covering Stocks in Korea

In Korea's local stock market, intense short-covering at the yearend dividend season has been consistently observed since mid-November. So, this...

Sanghyun Park

KOSPI LargeCap & MidCap Rebalancing Preview on September 9

This post previews KOSPI Size Index Series rebalancing that is again scheduled for September 9, the same day as the KRX BBIG index.

Sanghyun Park

Korea Top Conglomerates Synthetic Pair Trading

This post explores pair trading opportunities on Korea's top conglomerates using their major subsidiaries as a synthetic target for a hedge.

Sanghyun Park

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