Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul>
<li>In this insight, we discuss the major reasons why Coway Co Ltd (021240 KS) is a prime candidate for corporate activism in Korea.</li>
<li>Netmarble has done a poor job with Coway post its acquisition in 2019.</li>
<li>An action plan for Coway is to return at least half of its net profit through dividends and share buybacks/cancellations.</li>
</ul>


In this insight, we discuss the major reasons why Coway Co Ltd (021240 KS) is a prime candidate for corporate activism in Korea.
Netmarble has done a poor job with Coway post its acquisition in 2019.
An action plan for Coway is to return at least half of its net profit through dividends and share buybacks/cancellations.


Coway Is a Prime Candidate for Corporate Activism in Korea

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>S&amp;P DJI commenced a market consultation for the S&amp;P Global Water Index on 29 July and that could lead to quite a few changes to the index in October.</li>
<li>We currently see 14 deletions and 10 inclusions for the index in October. Most of the changes will have a high impact from passive fund trading.</li>
<li>There could be more changes in April 2023 once stocks listed in Emerging Markets are included in the index.</li>
</ul>


S&amp;P DJI commenced a market consultation for the S&amp;P Global Water Index on 29 July and that could lead to quite a few changes to the index in October.
We currently see 14 deletions and 10 inclusions for the index in October. Most of the changes will have a high impact from passive fund trading.
There could be more changes in April 2023 once stocks listed in Emerging Markets are included in the index.


S&P Global Water Index: Market Consultation Driven Potential Changes

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.

<ul>
<li>The local street hears KRX has bumped it up to 14.68%. With the 1% rounding applied, it becomes 15%.</li>
<li>It is extremely rare for a Fast Entry to come in with a float market cap of +₩10T. So, we will see significant weight adjustments for the other constituents.</li>
<li>As we move towards the implementation date, we can consider basket-shorting those high-impact names for LG Energy's long hedge.</li>
</ul>


The local street hears KRX has bumped it up to 14.68%. With the 1% rounding applied, it becomes 15%.
It is extremely rare for a Fast Entry to come in with a float market cap of +₩10T. So, we will see significant weight adjustments for the other constituents.
As we move towards the implementation date, we can consider basket-shorting those high-impact names for LG Energy's long hedge.


LG Energy's KOSPI 200 Float Is 15%: Weight Adjustment Trading for Other Constituents

<p>It is now clear that Netmarble sold part of its stake in Kakao Bank yesterday in the market to finance the acquisition of SpinX, a social casino company.</p><p>In other words, Netmarble sold its Kakao Bank stake because it needed immediate cash. <span>Earlier this month, Netmarble announced that it would purchase a 100% stake in Leonardo Interactive Holdings Limited, the parent company of SpinX.</span></p><div class="content-highlight"><p><strong>The 100% stake acquisition price is ₩2.513T.</strong></p></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/219/original/Screen+Shot+2021-08-11+at+1.48.24+AM.png?1628661029" class="editor-image img-responsive" data-smartkarma-image-id="223219"></figure></section><p>Netmarble said in a regulatory filing that it would pay 80% of the acquisition price at the time of contract termination and the remaining 20% ​​over the next four years.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/225/original/Screen+Shot+2021-08-11+at+1.51.07+AM.png?1628661602" class="editor-image img-responsive" data-smartkarma-image-id="223225"></figure></section><p><strong>It means that the total money Netmarble needs right now is ₩2.104T, which is 80% of the acquisition amount. Netmarble revealed that ₩1.779T of this ₩2.104T was covered by short-term borrowing. In other words, the immediate cash needed right now is ₩232B.</strong></p><p>However, Netmarble's cash assets at the end of this first quarter stood at ₩260B. Even ₩232B is a size that needs to use up all of its cash holdings, so it places a significant financial burden on Netmarble.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/223/228/original/Screen+Shot+2021-08-11+at+2.05.56+AM.png?1628662449" class="editor-image img-responsive" data-smartkarma-image-id="223228"></figure></section>

It is now clear that Netmarble sold part of its stake in Kakao Bank yesterday in the market to finance the acquisition of SpinX, a social casino company.In other words, Netmarble sold its Kakao Bank stake because it needed immediate cash. Earlier this month, Netmarble announced that it would purchase a 100% stake in Leonardo Interactive Holdings Limited, the parent company of SpinX.The 100% stake acquisition price is ₩2.513T.Netmarble said in a regulatory filing that it would pay 80% of the acquisition price at the time of contract termination and the remaining 20% ​​over the next four years.It means that the total money Netmarble needs right now is ₩2.104T, which is 80% of the acquisition amount. Netmarble revealed that ₩1.779T of this ₩2.104T was covered by short-term borrowing. In other words, the immediate cash needed right now is ₩232B.However, Netmarble's cash assets at the end of this first quarter stood at ₩260B. Even ₩232B is a size that needs to use up all of its cash holdings, so it places a significant financial burden on Netmarble.

Three Local Stocks Exposed to Netmarble's Stake Sale Risk: NCsoft, HYBE, & Kakao Games

<p><a href="https://www.smartkarma.com/entities/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS) </a>announced today after the market close that it has agreed to purchase a 100% stake of a Hong-Kong based game company <a href="https://financialpost.com/pmn/business-pmn/s-koreans-netmarble-buys-hong-kong-based-casino-game-app-co-spinx-for-2-19-bln" target="_blank" rel="noopener">SpinX for $2.19 billion</a> (2.5 trillion won). This is the biggest ever overseas M&amp;A deal by a Korean game company. According to Netmarble, it has agreed purchased SpinX in order to diversify its game portfolios and strengthen its global business competitiveness. </p><p data-dvp_reel_position="top" data-dvp_title_trim="90" data-dvp_desc_trim="40" data-dvp_zindex_base="1" data-dvp_reel_thumbs="4" data-dvp_reel_clickout="1" data-dvp_dockspec="br/400/225" data-dvp_docktrigger="oov" data-dvp_closescope="pageview" data-dvp_closedelay="15">We believe that the acquisition of SpinX is an excellent deal for Netmarble and this deal is likely to have a positive impact on Netmarble's share price in the coming weeks. Netmarble is leveraging up to acquire SpinX, which is experiencing very fast sales growth with solid profit margins. Netmarble is raising 1.8 trillion won in debt.</p><div class="content-highlight"><p><strong>SpinX's ROE in 2020 was super high at about 90%. So if the company can raise debt at 3-4% and acquire a company that has 90% ROE would be spending capital wisely.</strong></p></div>

Netmarble Corporation (251270 KS) announced today after the market close that it has agreed to purchase a 100% stake of a Hong-Kong based game company SpinX for $2.19 billion (2.5 trillion won). This is the biggest ever overseas M&amp;A deal by a Korean game company. According to Netmarble, it has agreed purchased SpinX in order to diversify its game portfolios and strengthen its global business competitiveness. We believe that the acquisition of SpinX is an excellent deal for Netmarble and this deal is likely to have a positive impact on Netmarble's share price in the coming weeks. Netmarble is leveraging up to acquire SpinX, which is experiencing very fast sales growth with solid profit margins. Netmarble is raising 1.8 trillion won in debt.SpinX's ROE in 2020 was super high at about 90%. So if the company can raise debt at 3-4% and acquire a company that has 90% ROE would be spending capital wisely.

Netmarble Buys SpinX for $2.2 Billion: Biggest Ever Overseas M&A Deal by a Korean Game Company

South Korea

Coway Co Ltd develops, manufactures, maintains, and markets environment-related products, such as water purifiers, air cleaners, and water softeners.The Company also provides water testing service.

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Coway Co Ltd (021240 KS)

Coway Is a Prime Candidate for Corporate Activism in Korea

In this insight, we discuss the major reasons why Coway Co Ltd (021240 KS) is a prime candidate for corporate activism in Korea.

Douglas Kim

S&P Global Water Index: Market Consultation Driven Potential Changes

S&P DJI's market consultation for the S&P Global Water Index could lead to quite a few changes to the index in October. There are a few potential...

Brian Freitas

LG Energy's KOSPI 200 Float Is 15%: Weight Adjustment Trading for Other Constituents

KRX has bumped up LG Energy's float to 15%. As a result, we will see a more substantial passive impact on LG Energy. Also, we should see...

Sanghyun Park

Three Local Stocks Exposed to Netmarble's Stake Sale Risk: NCsoft, HYBE, & Kakao Games

Netmarble will continue to need short-term cash. Perhaps, for this reason, the stock prices of all three stocks exposed to this risk have undergone...

Sanghyun Park

Netmarble Buys SpinX for $2.2 Billion: Biggest Ever Overseas M&A Deal by a Korean Game Company

Netmarble Corporation (251270 KS) announced today after the market close that it has agreed to purchase a 100% stake of a Hong-Kong based game...

Douglas Kim

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