Equity Long-Short

Mo Aziz

Equity Bottom-Up

<ul>
<li>29 July packs three events into one session: Q2 results, KOSPI listing of the 17.79mn new shares (~US$2.6bn passive demand), and the opening of two-way ADR conversion.</li>
<li>Consensus Q2 operating profit of ~KRW 64tn implies 77% OPM. The feared KIS “miss” is margins flat at 73%. Our model sits at KRW 58tn. Fair Value needs no beat.</li>
<li>The ADR premium 51% but halved within two sessions, with no conversion channel yet open. We believe Korean shares are more attractive building up to the results on 29 July. </li>
</ul>


29 July packs three events into one session: Q2 results, KOSPI listing of the 17.79mn new shares (~US$2.6bn passive demand), and the opening of two-way ADR conversion.
Consensus Q2 operating profit of ~KRW 64tn implies 77% OPM. The feared KIS “miss” is margins flat at 73%. Our model sits at KRW 58tn. Fair Value needs no beat.
The ADR premium 51% but halved within two sessions, with no conversion channel yet open. We believe Korean shares are more attractive building up to the results on 29 July. 


SK Hynix (000660KS, SKHY US) — 29 July Judgment Day: Q2 Preview and the Premium's Date with Gravity

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>Hynix’s FSS engagement strongly signals a potential treasury buyback into ADR conversion.</li>
<li>Tight early conversion quotas could let Hynix capture capacity upfront, pressuring local shares and forcing ADR premium assumptions above TSMC’s 30% historical peak.</li>
<li>Need to price in upside beyond TSMC’s 30% peak, as Hynix could capture premium expansion early, creating a key risk for ADR premium trading setup.</li>
</ul>


Hynix’s FSS engagement strongly signals a potential treasury buyback into ADR conversion.
Tight early conversion quotas could let Hynix capture capacity upfront, pressuring local shares and forcing ADR premium assumptions above TSMC’s 30% historical peak.
Need to price in upside beyond TSMC’s 30% peak, as Hynix could capture premium expansion early, creating a key risk for ADR premium trading setup.


Newly Surfaced Risk to Hynix ADR Premium Trade

Chief Executive Officer, Emmer Capital Partners Limited

Manishi Raychaudhuri

Chief Executive Officer

Emmer Capital Partners Limited

Emmer Capital Partners is an Asia Pacific focused financial advisory firm engaging in strategic financial asset allocation advice, bespoke thematic research and advising early-stage companies and connecting them to investors. Emmer Capital provides macro-economic and multi-asset investment strategy inputs to institutions, family offices, private wealth managers, private equity, and corporate boards directly and through independent research platforms. Emmer Capital also advises a wide range of startup companies on fund raising and business strategy. Emmer Capital's active engagement with the print and electronic media reaches a broad spectrum of investors across the globe.

Cross Asset Strategy

<ul>
<li>Sharp dislocations in Asian markets have opened up relative value trade opportunities. Many Asian markets' valuations are near long-term averages, but some are far more expensive, and some far cheaper.</li>
<li>Going by likely mean reversion, we conclude that Taiwan should correct more while Korea should rerate. The other markets are close to their long-term means, and hence, difficult to call.</li>
<li>In ASEAN, going long Indonesia and Philippines and shorting Singapore could be profitable. Shorting Thailand could be an option too, from the perspective of earnings pressure due to tourism slowdown.</li>
</ul>


Sharp dislocations in Asian markets have opened up relative value trade opportunities. Many Asian markets' valuations are near long-term averages, but some are far more expensive, and some far cheaper.
Going by likely mean reversion, we conclude that Taiwan should correct more while Korea should rerate. The other markets are close to their long-term means, and hence, difficult to call.
In ASEAN, going long Indonesia and Philippines and shorting Singapore could be profitable. Shorting Thailand could be an option too, from the perspective of earnings pressure due to tourism slowdown.


Asian Equities: Relative Value Trades After This Dislocation

<ul>
<li>Anecdotally, fund flows from foreign institutions are important drivers for Asian equity markets. But considering annual FII flows into Asian markets, and their performance tells a different story.</li>
<li>Taiwan and Korea's performances are the most uncorrelated with foreign flows. India's is the most correlated, despite the sharp spike in India's domestic flows. Thailand and Philippines are reasonably correlated.</li>
<li>Considering fundamentals (earnings growth forecasts and direction of estimates) and the extent of overbuying/overselling in a market, we think Korea, Taiwan should see buying. India, Indonesia, Philippines could be sold.</li>
</ul>


Anecdotally, fund flows from foreign institutions are important drivers for Asian equity markets. But considering annual FII flows into Asian markets, and their performance tells a different story.
Taiwan and Korea's performances are the most uncorrelated with foreign flows. India's is the most correlated, despite the sharp spike in India's domestic flows. Thailand and Philippines are reasonably correlated.
Considering fundamentals (earnings growth forecasts and direction of estimates) and the extent of overbuying/overselling in a market, we think Korea, Taiwan should see buying. India, Indonesia, Philippines could be sold.


Asian Equities: How Critical Are FII Flows for Asia, and in Which Markets Are They Likely to Revive?

<ul>
<li>2Q price reset was inevitable, but Hynix’s early leak three weeks before earnings raises questions. The timing matters given significant memory multiple compression and potential strategic positioning.</li>
<li>Need a precise Hynix playbook as memory multiple compression persists. Focus on capturing ADR conversion headroom as a micro catalyst and assessing its role as a relative buffer versus peers.</li>
<li>KSD guidelines could come earlier than expected. Medium term, combine US passive flows with memory hedges. Watch Samsung utilization ramp and potential preferred discount compression.</li>
</ul>


2Q price reset was inevitable, but Hynix’s early leak three weeks before earnings raises questions. The timing matters given significant memory multiple compression and potential strategic positioning.
Need a precise Hynix playbook as memory multiple compression persists. Focus on capturing ADR conversion headroom as a micro catalyst and assessing its role as a relative buffer versus peers.
KSD guidelines could come earlier than expected. Medium term, combine US passive flows with memory hedges. Watch Samsung utilization ramp and potential preferred discount compression.


Story Behind Hynix 2Q Earnings Reset Leak

South Korea

SK Hynix Inc. provides products and services for the electronic components industry. The Company manufactures semiconductors, such as dynamic random access memory (DRAM), NAND flash memory, and static random access memory (SRAM) chips.

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SK Hynix (000660 KS)