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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>The Korea Exchange (KRX) launched 5 indices last year following the New Deal initiative that the Government launched to digitalise social infrastructure and jumpstart the transition to green energy.</p><p>The KRX created 4 indices tracking the Secondary Battery, Biotech, Internet and Gaming sectors that are expected to benefit from the New Deal initiative plus an additional index (BBIG) that includes the top 3 stocks from each sector.</p><p>All indices have performed well since then. The KRX announced changes to the 5 indices late last week and the changes become effective post the close of trading on 25 February.</p><div><p><a href="https://www.smartkarma.com/entities/kakao-games-corp" target="_blank" data-smartkarma-citation="entities:26730:1" rel="noopener">Kakao Games Corp (293490 KS)</a> replaces <a href="https://www.smartkarma.com/entities/pearl-abyss-corp" target="_blank" data-smartkarma-citation="entities:24391:1" rel="noopener">Pearl Abyss (263750 KS)</a> in the BBIG Index.</p></div><div><p>In the Secondary Battery index, <a href="https://www.smartkarma.com/entities/soulbrain-co-ltd" target="_blank" data-smartkarma-citation="entities:16883:1" rel="noopener">Soulbrain (036830 KS)</a> and <a href="https://www.smartkarma.com/entities/l-f-co-ltd" target="_blank" data-smartkarma-citation="entities:14300:1" rel="noopener">L&amp;F Co Ltd (066970 KS)</a> replace <a href="https://www.smartkarma.com/entities/doosan-solus-co-ltd" target="_blank" data-smartkarma-citation="entities:28947:1" rel="noopener">Doosan Solus Co Ltd (336370 KS)</a> and <a href="https://www.smartkarma.com/entities/foosung-co-ltd" target="_blank" data-smartkarma-citation="entities:16811:1" rel="noopener">Foosung Co Ltd (093370 KS)</a>.</p></div><div><p>In the Biotech index, <a href="https://www.smartkarma.com/entities/shinpoong-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:7296:1" rel="noopener">Shinpoong Pharmaceutical (019170 KS)</a> and <a href="https://www.smartkarma.com/entities/green-cross-corp" target="_blank" data-smartkarma-citation="entities:2969:1" rel="noopener">Green Cross (006280 KS)</a> replace <a href="https://www.smartkarma.com/entities/alteogen-inc" target="_blank" data-smartkarma-citation="entities:15886:1" rel="noopener">Alteogen Inc (196170 KS)</a> and <a href="https://www.smartkarma.com/entities/hanmi-pharm-co-ltd" target="_blank" data-smartkarma-citation="entities:12476:1" rel="noopener">Hanmi Pharm (128940 KS)</a>.</p></div><div><p>In the Internet index, <a href="https://www.smartkarma.com/entities/ace-technologies-corp" target="_blank" data-smartkarma-citation="entities:7868:1" rel="noopener">Ace Technologies (088800 KS)</a> and <a href="https://www.smartkarma.com/entities/rsupport-co-ltd" target="_blank" data-smartkarma-citation="entities:14783:1" rel="noopener">Rsupport Co Ltd (131370 KS)</a> replace <a href="https://www.smartkarma.com/entities/kg-inicis-co-ltd" target="_blank" data-smartkarma-citation="entities:5234:1" rel="noopener">KG Inicis Co Ltd (035600 KS)</a> and <a href="https://www.smartkarma.com/entities/ubiquoss-inc" target="_blank" data-smartkarma-citation="entities:14341:1" rel="noopener">Ubiquoss Holding (078070 KS)</a>.</p></div><div><p>In the Gaming index, <a href="https://www.smartkarma.com/entities/kakao-games-corp" target="_blank" data-smartkarma-citation="entities:26730:1" rel="noopener">Kakao Games Corp (293490 KS)</a> and <a href="https://www.smartkarma.com/entities/neptune-company" target="_blank" data-smartkarma-citation="entities:28826:1" rel="noopener">Neptune Company (217270 KS)</a> replace <a href="https://www.smartkarma.com/entities/neowiz-games-corp" target="_blank" data-smartkarma-citation="entities:12425:1" rel="noopener">Neowiz Games (095660 KS)</a> and Golfzon (215000 KS).</p></div>

The Korea Exchange (KRX) launched 5 indices last year following the New Deal initiative that the Government launched to digitalise social infrastructure and jumpstart the transition to green energy.The KRX created 4 indices tracking the Secondary Battery, Biotech, Internet and Gaming sectors that are expected to benefit from the New Deal initiative plus an additional index (BBIG) that includes the top 3 stocks from each sector.All indices have performed well since then. The KRX announced changes to the 5 indices late last week and the changes become effective post the close of trading on 25 February.Kakao Games Corp (293490 KS) replaces Pearl Abyss (263750 KS) in the BBIG Index.In the Secondary Battery index, Soulbrain (036830 KS) and L&amp;F Co Ltd (066970 KS) replace Doosan Solus Co Ltd (336370 KS) and Foosung Co Ltd (093370 KS).In the Biotech index, Shinpoong Pharmaceutical (019170 KS) and Green Cross (006280 KS) replace Alteogen Inc (196170 KS) and Hanmi Pharm (128940 KS).In the Internet index, Ace Technologies (088800 KS) and Rsupport Co Ltd (131370 KS) replace KG Inicis Co Ltd (035600 KS) and Ubiquoss Holding (078070 KS).In the Gaming index, Kakao Games Corp (293490 KS) and Neptune Company (217270 KS) replace Neowiz Games (095660 KS) and Golfzon (215000 KS).

KRX BBIG K-NewDeal Index Rebalance: First Set of Changes Announced

Founder/CEO of ROK Advisory, ROK Advisory LLC

Ken S. Kim

Founder/CEO of ROK Advisory

ROK Advisory LLC

ROK is an independent research advisory firm. We guide you to minimize the information gap between foreign and local investors in Northeast Asia with a focus in Korea, Taiwan and Japan.

Independent Research Advisory Firm

Equity Bottom-Up

<div>One of expected beneficiaries of the COVID pandemic has been the 5G supply chain in Korea with government increasing their 5G spend as well as the New Deal that included a sleeve for data that included AI, 5G and big data spend. </div>
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<div>As investors clamored to these names, everyone forgot one thing - the actual fundamentals of these names.  <a href="https://www.smartkarma.com/entities/kmw-co-ltd" target="_blank" data-smartkarma-citation="entities:2834:1" rel="noopener">KMW Co Ltd (032500 KS)</a> , <a href="https://www.smartkarma.com/entities/ace-technologies-corp" target="_blank" data-smartkarma-citation="entities:7868:1" rel="noopener">Ace Technologies (088800 KS),</a><a href="https://www.smartkarma.com/entities/rftech-co-ltd" target="_blank" data-smartkarma-citation="entities:8820:1" rel="noopener">Rftech Co Ltd (061040 KS)</a> and <a href="https://www.smartkarma.com/entities/rfhic-corp" target="_blank" data-smartkarma-citation="entities:29206:1" rel="noopener">RFHIC Corp (218410 KS)</a> all rode the 5G wave as share price ran and turnover went beyond historical norms. </div>

One of expected beneficiaries of the COVID pandemic has been the 5G supply chain in Korea with government increasing their 5G spend as well as the New Deal that included a sleeve for data that included AI, 5G and big data spend. 

As investors clamored to these names, everyone forgot one thing - the actual fundamentals of these names.  KMW Co Ltd (032500 KS) , Ace Technologies (088800 KS),Rftech Co Ltd (061040 KS) and RFHIC Corp (218410 KS) all rode the 5G wave as share price ran and turnover went beyond historical norms. 

Event-Driven

<p>A few minutes ago, the KRX announced a special change in the KOSDAQ150 index due to <a href="https://www.smartkarma.com/entities/gemvax-kael-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:17026:1">Gemvax &amp; Kael (082270 KS)</a> being designated as an 'under supervision issue' and an 'investment precaution issue'. The stock is being deleted from the index and being replaced by <a href="https://www.smartkarma.com/entities/ace-technologies-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:7868:1">Ace Technologies (088800 KS)</a>. The changes are effective 25 March, so all passive funds will need to trade at the close of trading tomorrow, 24 March.</p><p>We estimate 1.6 days of average volume to sell on <a href="https://www.smartkarma.com/entities/gemvax-kael-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:17026:1">Gemvax &amp; Kael (082270 KS)</a> and 1.4 days of average volume to buy on <a href="https://www.smartkarma.com/entities/ace-technologies-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:7868:1">Ace Technologies (088800 KS)</a>. </p>

A few minutes ago, the KRX announced a special change in the KOSDAQ150 index due to Gemvax &amp; Kael (082270 KS) being designated as an 'under supervision issue' and an 'investment precaution issue'. The stock is being deleted from the index and being replaced by Ace Technologies (088800 KS). The changes are effective 25 March, so all passive funds will need to trade at the close of trading tomorrow, 24 March.We estimate 1.6 days of average volume to sell on Gemvax &amp; Kael (082270 KS) and 1.4 days of average volume to buy on Ace Technologies (088800 KS). 

KOSDAQ150: Special Change To Be Implemented Tomorrow

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<p>In this report, we discuss a shorting opportunity of a Korean telecom equipment maker called <a href="https://www.smartkarma.com/entities/kmw-co-ltd" target="_blank" data-smartkarma-citation="entities:2834:1" rel="noopener">Kmw Co Ltd (032500 KS)</a> whose share price has surged 213% YTD. KMW currently has a market cap of 2.7 trillion won ($2.3 billion). The company has never generated positive operating profit from 2015 to 2018. However, the consensus expects the company to generate sales of 809 billion won (up 173% YoY) and an operating profit of 161 billion won in 2019 (from operating loss of 31 billion won in 2018). The key driver of the company's sales and profits has been the explosive demand for its 5G equipment products.</p><div class="content-highlight"><p>The average product prices of the company's RF System products soared by 200% from 2.4 million won in 2018 to 7.2 million won in 1H19 and we do not believe this kind of pricing leverage is sustainable in a highly cut-throat global telecom equipment industry. In addition, the global telcos (including the ones in Korea) are notorious for cutting telecom equipment prices as much as possible and they make a lot of effort at diversifying their supplier base. </p></div><p>So we think that the 25%+ operating margin assumption for KMW in 2020 and 2021 are probably too high and the sell-side analysts may be too optimistic in their earnings forecasts. In our view, about a 15% average operating margin assumption for the company is more reasonable in 2020 and 2021 for KMW, which means that the consensus operating profit estimates in 2020 and 2021 are probably overstated by about 40% in our view.<strong> All in all, we believe that shares of KMW are overvalued by about 40% and we believe the company's intrinsic value is closer to 1.6 trillion won (market cap) or 41,000 won per share (versus the current price of 69,000 won) over a one year view. </strong></p>

In this report, we discuss a shorting opportunity of a Korean telecom equipment maker called Kmw Co Ltd (032500 KS) whose share price has surged 213% YTD. KMW currently has a market cap of 2.7 trillion won ($2.3 billion). The company has never generated positive operating profit from 2015 to 2018. However, the consensus expects the company to generate sales of 809 billion won (up 173% YoY) and an operating profit of 161 billion won in 2019 (from operating loss of 31 billion won in 2018). The key driver of the company's sales and profits has been the explosive demand for its 5G equipment products.The average product prices of the company's RF System products soared by 200% from 2.4 million won in 2018 to 7.2 million won in 1H19 and we do not believe this kind of pricing leverage is sustainable in a highly cut-throat global telecom equipment industry. In addition, the global telcos (including the ones in Korea) are notorious for cutting telecom equipment prices as much as possible and they make a lot of effort at diversifying their supplier base. So we think that the 25%+ operating margin assumption for KMW in 2020 and 2021 are probably too high and the sell-side analysts may be too optimistic in their earnings forecasts. In our view, about a 15% average operating margin assumption for the company is more reasonable in 2020 and 2021 for KMW, which means that the consensus operating profit estimates in 2020 and 2021 are probably overstated by about 40% in our view. All in all, we believe that shares of KMW are overvalued by about 40% and we believe the company's intrinsic value is closer to 1.6 trillion won (market cap) or 41,000 won per share (versus the current price of 69,000 won) over a one year view. 

South Korea

Ace Technologies Corp. develops and produces various communication equipment parts such as antennas for mobile and base station use.

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Ace Technologies (088800 KS)

KRX BBIG K-NewDeal Index Rebalance: First Set of Changes Announced

The KRX has announced changes to the KRX New Deal indices that will be effective after the close of trading on 25 February. Pearl Abyss is...

Brian Freitas

The 5G Problem - SELL Theme Themes

One of expected beneficiaries of the COVID pandemic has been the 5G supply chain in Korea with government increasing their 5G spend as well as the...

Ken S. Kim

KOSDAQ150: Special Change To Be Implemented Tomorrow

A few minutes ago, the KRX announced a special change in the KOSDAQ150 index due to Gemvax & Kael (082270 KS) being designated as an 'under...

Brian Freitas

KMW - A Shorting Opportunity

In this report, we discuss a shorting opportunity of a Korean telecom equipment maker called Kmw Co Ltd (032500 KS) whose share price has surged...

Douglas Kim

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