Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<ul>
<li>The equity linked securities (ELS) losses related to Hang Seng China Enterprises Index (HSCEI INDEX) could lower dividend expectations for Korean banks in 2024. </li>
<li>On average, if H-Index declines below 5,699, then the majority of the investors on these H-Index could start to incur major losses starting 1Q 2024. </li>
<li>Amid challenges of lower interest rates expectations and higher losses from ELS products, major Korean banks could be more hesitant on share buybacks and increasing their dividends in 1H 2024.</li>
</ul>


The equity linked securities (ELS) losses related to Hang Seng China Enterprises Index (HSCEI INDEX) could lower dividend expectations for Korean banks in 2024. 
On average, if H-Index declines below 5,699, then the majority of the investors on these H-Index could start to incur major losses starting 1Q 2024. 
Amid challenges of lower interest rates expectations and higher losses from ELS products, major Korean banks could be more hesitant on share buybacks and increasing their dividends in 1H 2024.


ELS Losses for HSCEI Index Could Result in Lowering Dividend Expectations for Korean Banks in 2024

<ul>
<li>The FSS has launched a formal investigation into KB Kookmin bank due to potentially massive losses related to the HSCEI linked ELS products. </li>
<li>The three major listed banking groups (KB Financial, Shinhan Financial, and Hana Financial) could be burdened with nearly 86% of the HSCEI linked ELS losses (close to 2.6 trillion won). </li>
<li>Major Korean banks may need a <em>"Hail Mary"</em> pass to avoid this disaster. Such positive outlook would include sharply rising HSCEI index in 2024, similar to what happened in 2016. </li>
</ul>


The FSS has launched a formal investigation into KB Kookmin bank due to potentially massive losses related to the HSCEI linked ELS products. 
The three major listed banking groups (KB Financial, Shinhan Financial, and Hana Financial) could be burdened with nearly 86% of the HSCEI linked ELS losses (close to 2.6 trillion won). 
Major Korean banks may need a "Hail Mary" pass to avoid this disaster. Such positive outlook would include sharply rising HSCEI index in 2024, similar to what happened in 2016. 


ELS Losses Related to Hong Kong H-Index Could Top Nearly 3 Trillion Won for Major Korean Banks in 2024

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>In our latest South Korean banks screener; we switch from Hana Financial to KB Financial as our preferred Korean banks pick</li>
<li>NPLs and precautionary quality credits continue on a rising trend, whilst KB has controlled its NPL ratio and precautionary ratio better than most to 3Q23</li>
<li>KB has a low PBV ratio relative to its ROE, rising post-provision returns, a healthy CET1 ratio and a healthy LDR; Kakaobank is one for the watchlist</li>
</ul>


In our latest South Korean banks screener; we switch from Hana Financial to KB Financial as our preferred Korean banks pick
NPLs and precautionary quality credits continue on a rising trend, whilst KB has controlled its NPL ratio and precautionary ratio better than most to 3Q23
KB has a low PBV ratio relative to its ROE, rising post-provision returns, a healthy CET1 ratio and a healthy LDR; Kakaobank is one for the watchlist


S Korean Banks Screen; KB Financial (105560 KS) Most Compelling on Valuations, Return Trends & PEG

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

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

Event-Driven

<ul>
<li>While Ecopro Co's stock has undergone significant corrections since August, KB Financial has sustained an upward trajectory, leading to a significant reversal in float-adjusted market cap.</li>
<li>The current disparity between the two exceeds ₩2T, making it challenging to anticipate another reversal until the screening period.</li>
<li>Ecopro Co and LG Energy Solution also warrant attention due to the narrow gap in their float-adjusted market capitalization. We should monitor any changes in their market capitalization moving forward.</li>
</ul>


While Ecopro Co's stock has undergone significant corrections since August, KB Financial has sustained an upward trajectory, leading to a significant reversal in float-adjusted market cap.
The current disparity between the two exceeds ₩2T, making it challenging to anticipate another reversal until the screening period.
Ecopro Co and LG Energy Solution also warrant attention due to the narrow gap in their float-adjusted market capitalization. We should monitor any changes in their market capitalization moving forward.


A Shift in TIGER Top 10 ETF December Rebalancing: KB Financial Newly In But Not Ecopro Co

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

<ul>
<li>The <a href="https://www.smartkarma.com/entities/mirae-asset-tiger-top-10-etf" target="_blank" data-smartkarma-citation="entities:36042:1" rel="noopener">Mirae Asset Tiger Top 10 ETF (292150 KS)</a> tracks the FnGuide Top 10 Index and has an AUM of over US$1bn.</li>
<li>We currently forecast one potential change at the next rebalance in December. There is another set of changes that could also take place.</li>
<li>There has been a big increase in short interest on a couple of stocks while the rise has been more gradual on the other stocks.</li>
</ul>


The Mirae Asset Tiger Top 10 ETF (292150 KS) tracks the FnGuide Top 10 Index and has an AUM of over US$1bn.
We currently forecast one potential change at the next rebalance in December. There is another set of changes that could also take place.
There has been a big increase in short interest on a couple of stocks while the rise has been more gradual on the other stocks.


FnGuide Top10 Index Rebalance Preview: Good Historical Performance; One Potential Change in December

South Korea

KB Financial Group Inc. (the "Company"), in accordance with Financial Holding Companies Act, was established on September 29, 2008, through stock transfer with the former shareholders of its subsidiaries including Kookmin Bank in order to provide management services and financing to associated companies. The headquarters are located at Seoul, Korea

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KB Financial (105560 KS)

ELS Losses for HSCEI Index Could Result in Lowering Dividend Expectations for Korean Banks in 2024

The equity linked securities (ELS) losses related to Hang Seng China Enterprises Index (HSCEI INDEX) could lower dividend expectations for Korean...

Douglas Kim

S Korean Banks Screen; KB Financial (105560 KS) Most Compelling on Valuations, Return Trends & PEG

KB Financial is our preferred pick for S Korean banks due to good control of NPL & precautionary ratios, low PBV ratio, rising returns, and strong...

Victor Galliano

A Shift in TIGER Top 10 ETF December Rebalancing: KB Financial Newly In But Not Ecopro Co

This article examines a significant change observed in the TIGER Top 10 ETF December rebalancing, with KB Financial replacing Celltrion, as opposed...

Sanghyun Park

FnGuide Top10 Index Rebalance Preview: Good Historical Performance; One Potential Change in December

A long add/short delete trade has performed well historically. Currently, there is one add/delete pair in Dec; that could increase to two. Short...

Brian Freitas

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

ELS Losses for HSCEI Index Could Result in Lowering Dividend Expectations for Korean Banks in 2024

The equity linked securities (ELS) losses related to Hang Seng China Enterprises Index (HSCEI INDEX) could lower dividend expectations for Korean...

Douglas Kim

ELS Losses Related to Hong Kong H-Index Could Top Nearly 3 Trillion Won for Major Korean Banks in 2024

The FSS has launched a formal investigation into KB Kookmin bank due to potentially massive losses related to the HSCEI linked ELS products.

Douglas Kim

S Korean Banks Screen; KB Financial (105560 KS) Most Compelling on Valuations, Return Trends & PEG

​KB Financial is our preferred pick for S Korean banks due to good control of NPL & precautionary ratios, low PBV ratio, rising returns, and strong...

Victor Galliano

A Shift in TIGER Top 10 ETF December Rebalancing: KB Financial Newly In But Not Ecopro Co

This article examines a significant change observed in the TIGER Top 10 ETF December rebalancing, with KB Financial replacing Celltrion, as opposed...

Sanghyun Park

FnGuide Top10 Index Rebalance Preview: Good Historical Performance; One Potential Change in December

A long add/short delete trade has performed well historically. Currently, there is one add/delete pair in Dec; that could increase to two. Short...

Brian Freitas

KB Financial is our preferred pick for S Korean banks due to good control of NPL & precautionary ratios, low PBV ratio, rising returns, and strong...