Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<p>It was announced on 15 October that a consortium led by <a href="https://www.smartkarma.com/entities/krafton-inc" target="_blank" data-smartkarma-citation="entities:28956:1" rel="noopener"> Krafton Inc (259960 KS)</a> plans to purchase a large property in Seoul for more than<a href="https://moneys.mt.co.kr/news/mwView.php?no=2021101517518088669" target="_blank" rel="noopener"> 1 trillion won. </a>CBRE is the advisory firm in this sale. The Krafton-Mirae Asset Managment consortium has been selected as the preferred bidder for this property located in Seongsu-dong, Seoul (currently owned by <a href="https://www.smartkarma.com/entities/e-mart-inc" target="_blank" data-smartkarma-citation="entities:6993:1" rel="noopener">E Mart Inc (139480 KS).</a> Krafton and Emart are expected to sign a MOU for this deal next week.</p><div class="content-highlight"><p><strong>We believe that Krafton purchasing a large piece of property in Seoul is likely to have a negative impact on its share price.</strong> Although Krafton is a cash rich company with nearly 4.5 trillion won in net cash post the IPO, it may need to spend about 500 billion won to 750 billion won in investment in this large property in Seong-su dong, Seoul. Many investors will not like this deal as they would rather have Krafton invest in its core gaming business (internally or through acquisitions).</p></div>

It was announced on 15 October that a consortium led by  Krafton Inc (259960 KS) plans to purchase a large property in Seoul for more than 1 trillion won. CBRE is the advisory firm in this sale. The Krafton-Mirae Asset Managment consortium has been selected as the preferred bidder for this property located in Seongsu-dong, Seoul (currently owned by E Mart Inc (139480 KS). Krafton and Emart are expected to sign a MOU for this deal next week.We believe that Krafton purchasing a large piece of property in Seoul is likely to have a negative impact on its share price. Although Krafton is a cash rich company with nearly 4.5 trillion won in net cash post the IPO, it may need to spend about 500 billion won to 750 billion won in investment in this large property in Seong-su dong, Seoul. Many investors will not like this deal as they would rather have Krafton invest in its core gaming business (internally or through acquisitions).

Krafton Consortium Plans to Buy a Large Property in Seoul from Emart for More than 1 Trillion Won

Event-Driven

<p>On 27 July, <a href="https://www.smartkarma.com/entities/e-mart-inc" target="_blank" data-smartkarma-citation="entities:6993:1" rel="noopener">E Mart Inc (139480 KS)</a> announced that it will take over the control of Starbucks Korea. Prior to this announcement, Emart and <a href="https://www.smartkarma.com/entities/starbucks-corp" target="_blank" data-smartkarma-citation="entities:7641:1" rel="noopener">Starbucks Corp (SBUX US)</a> owned 50% of Starbucks Korea, respectively. In this transaction, Emart will purchase an additional 17.5% stake in Starbucks Korea for 474.3 billion won (US$421 million) and GIC (Singapore) will purchase the remaining 32.5% stake in Starbucks Korea.</p><div class="content-highlight">
<p>The implied valuation of 2.7 trillion won for Starbucks Korea in the acquisition of the additional 17.5% stake from <a href="https://www.smartkarma.com/entities/starbucks-corp" target="_blank" data-smartkarma-citation="entities:7641:1" rel="noopener">Starbucks Corp (SBUX US)</a> by Emart suggests a P/E of 23.5x, using the average annual net profit of Starbucks Korea in the past three years. Hence, this M&amp;A deal for Starbucks Korea was completed at nearly 50% discount to the valuation of <a href="https://www.smartkarma.com/entities/starbucks-corp" target="_blank" data-smartkarma-citation="entities:7641:1" rel="noopener">Starbucks Corp (SBUX US)</a>.</p>
<p><strong>IPO of Starbucks Korea &amp; SSG.com/Ebay Korea in the Next 3 Years - </strong>In the next three years, Emart is likely to IPO its key affiliates including Starbucks Korea (67.5% ownership) and SSG.com/Ebay Korea. Emart has agreed to acquire an 80% in Ebay Korea. We believe that these IPOs are likely to have a positive impact on the Emart shares as more investors try to value them on their potential market values, rather than book values. </p>
</div>

On 27 July, E Mart Inc (139480 KS) announced that it will take over the control of Starbucks Korea. Prior to this announcement, Emart and Starbucks Corp (SBUX US) owned 50% of Starbucks Korea, respectively. In this transaction, Emart will purchase an additional 17.5% stake in Starbucks Korea for 474.3 billion won (US$421 million) and GIC (Singapore) will purchase the remaining 32.5% stake in Starbucks Korea.
The implied valuation of 2.7 trillion won for Starbucks Korea in the acquisition of the additional 17.5% stake from Starbucks Corp (SBUX US) by Emart suggests a P/E of 23.5x, using the average annual net profit of Starbucks Korea in the past three years. Hence, this M&amp;A deal for Starbucks Korea was completed at nearly 50% discount to the valuation of Starbucks Corp (SBUX US).
IPO of Starbucks Korea &amp; SSG.com/Ebay Korea in the Next 3 Years - In the next three years, Emart is likely to IPO its key affiliates including Starbucks Korea (67.5% ownership) and SSG.com/Ebay Korea. Emart has agreed to acquire an 80% in Ebay Korea. We believe that these IPOs are likely to have a positive impact on the Emart shares as more investors try to value them on their potential market values, rather than book values. 


Starbucks Korea - Emart Takes Ownership Control & Prepares for an IPO

<p>This insight has two parts.</p><ul>
<li>First, we discuss about the deal involving Ebay Korea which is set to be sold to the <a href="https://www.smartkarma.com/entities/e-mart-inc" target="_blank" data-smartkarma-citation="entities:6993:1" rel="noopener">E Mart Inc (139480 KS)</a> consortium for $<a href="https://www.ft.com/content/4aef059c-d5dc-4d8f-86e0-afd9e09c3ccc" target="_blank" rel="noopener">3.1 billion,</a> according to Financial Times.</li>
<li>Second, we discuss about the recent decision by founder of <a href="https://www.smartkarma.com/entities/coupang" target="_blank" data-smartkarma-citation="entities:28425:1" rel="noopener">Coupang (CPNG US) </a>Bom Kim to resign from his positions as chairman of the board and as a registered director of Coupang Corp, the wholly-owned Korean subsidiary of Coupang Inc. (U.S.).   </li>
</ul><div class="content-highlight">
<p>Emart is a deep value stock as it is trading at 0.5x P/B whereas Coupang is a clear growth stock. Going forward, this trade of long Emart and short Coupang could be an interesting opportunity. With the potential closing of the Ebay Korea deal by the Emart consortium, Emart will aim to become the second largest e-commerce player in Korea and in terms of GMV, it could even be ahead of Coupang.</p>
<p>On the other hand, Coupang's market cap is $68.8 billion versus Emart's market cap of $4 billion. Many more value investors will spot this big discrepancy and they are likely to put a net long position on Emart versus Coupang in the coming months. </p>
</div>

This insight has two parts.
First, we discuss about the deal involving Ebay Korea which is set to be sold to the E Mart Inc (139480 KS) consortium for $3.1 billion, according to Financial Times.
Second, we discuss about the recent decision by founder of Coupang (CPNG US) Bom Kim to resign from his positions as chairman of the board and as a registered director of Coupang Corp, the wholly-owned Korean subsidiary of Coupang Inc. (U.S.).   

Emart is a deep value stock as it is trading at 0.5x P/B whereas Coupang is a clear growth stock. Going forward, this trade of long Emart and short Coupang could be an interesting opportunity. With the potential closing of the Ebay Korea deal by the Emart consortium, Emart will aim to become the second largest e-commerce player in Korea and in terms of GMV, it could even be ahead of Coupang.
On the other hand, Coupang's market cap is $68.8 billion versus Emart's market cap of $4 billion. Many more value investors will spot this big discrepancy and they are likely to put a net long position on Emart versus Coupang in the coming months. 


Ebay Korea To Be Sold to Emart Consortium & Why Did Bom Kim Resign as the Director of Coupang Corp?

<div class="content-highlight">
<p>In this insight, we update on the progress of the M&amp;A of<a href="https://biz.chosun.com/distribution/channel/2021/06/07/PIS7RH6QEZHHPP7AT5BQPVIJKE/" target="_blank" rel="noopener"> Ebay Korea. I</a>n the past several weeks, there have been four parties that have showed interest in acquiring Ebay Korea, including Shinsegae/Naver consortium, Lotte Group, MBK Partners, and SK Telecom. Only the Shinsege/Naver consortium and the Lotte Group have put in preliminary bids for Ebay Korea.</p>
<p>The overall price of Ebay Korea (3rd largest e-commerce player in Korea) has recently come down from 5 trillion won or more to about 3 to 4 trillion won. However, apparently Ebay Korea is still seeking a valuation close to 5 trillion won. </p>
</div>


In this insight, we update on the progress of the M&amp;A of Ebay Korea. In the past several weeks, there have been four parties that have showed interest in acquiring Ebay Korea, including Shinsegae/Naver consortium, Lotte Group, MBK Partners, and SK Telecom. Only the Shinsege/Naver consortium and the Lotte Group have put in preliminary bids for Ebay Korea.
The overall price of Ebay Korea (3rd largest e-commerce player in Korea) has recently come down from 5 trillion won or more to about 3 to 4 trillion won. However, apparently Ebay Korea is still seeking a valuation close to 5 trillion won. 


Who Will Acquire Ebay Korea -  Shinsegae/Naver Consortium or Lotte Group?

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.

Strong earnings stocks can protect investors against inflation risk.So, I examined the first-quarter operating profits of all the KOSPI stocks and by how far they beat the local street consensus (compiled by FnGuide).For this, I used the following filters:
1Q21 operating profit beat the local market consensus by 10% or higher.
1Q21 operating profit exceeded ₩50B.
1Q21 operating profit increased year over year.
A total of 59 KOSPI stocks satisfy these filters, as shown below, which potentially serve as an inflation-hedged stock for a basket trade.









Name
Ticker
1Q21 operating profit
1Q21 consensus operating profit
Earnings surprise as a % of consensus


KB Financial Group Inc
105560
₩1,747.2B
₩1,450.5B
20.46%


Shinhan Financial Group Co., Ltd.
055550
₩1,682.4B
₩1,477.7B
13.85%


POSCO
005490
₩1,552.4B
₩1,286.8B
20.64%


LG Electronics Inc.
066570
₩1,516.6B
₩1,202.6B
26.11%


LG Chem Ltd
051910
₩1,408.1B
₩1,009.6B
39.47%


Samsung Life Insurance co., Ltd
032830
₩1,334.4B
₩858.8B
55.38%


Hana Financial Group Inc
086790
₩1,075.8B
₩967.3B
11.21%


LG Corp
003550
₩1,000.9B
₩704.0B
42.17%


Woori Financial Group Inc
316140
₩933.3B
₩803.4B
16.17%


Hanwha Corp
000880
₩848.5B
₩365.7B
131.99%


Industrial Bank of Korea
024110
₩780.3B
₩636.7B
22.56%


GS Holdings Corp
078930
₩706.4B
₩483.3B
46.17%


S Oil Corp
010950
₩629.2B
₩340.9B
84.60%


Lotte Chemical Corp
011170
₩623.8B
₩494.7B
26.10%


Kumho Petro Chemical Co Ltd
011780
₩612.5B
₩445.3B
37.56%


Hyundai Heavy Industries Holdings Co Ltd
267250
₩534.3B
₩300.7B
77.69%


SK Innovation Co Ltd
096770
₩502.5B
₩378.2B
32.87%


KT Corp
030200
₩444.2B
₩386.9B
14.80%


Samsung Securities Co Ltd
016360
₩399.4B
₩338.8B
17.87%


SK Telecom Co Ltd
017670
₩388.8B
₩345.8B
12.44%


CJ Cheiljedang Corp
097950
₩385.1B
₩327.5B
17.58%


NH Investment &amp; Securities Co Ltd
005940
₩374.4B
₩300.0B
24.82%


Hyundai Steel Co
004020
₩303.9B
₩174.8B
73.88%


Samsung C&amp;T Corp
028260
₩302.6B
₩231.6B
30.67%


Doosan Infracore Co Ltd
042670
₩295.4B
₩242.0B
22.04%


MERITZ SECURITIES CO LTD
008560
₩284.7B
₩221.0B
28.80%


LG Uplus Corp
032640
₩275.6B
₩237.5B
16.05%


Hanwha Solutions Corp
009830
₩254.6B
₩229.1B
11.12%


Hyosung TNC Corp
298020
₩246.8B
₩185.5B
33.05%


Daewoo Engineering &amp; Construction Co Ltd
047040
₩229.4B
₩150.1B
52.79%


Samsung SDS Co Ltd
018260
₩217.1B
₩194.7B
11.50%


Hyundai Engineering &amp; Construction Co.
000720
₩200.9B
₩171.3B
17.30%


DL E&amp;C Ord Shs
375500
₩199.8B
₩154.5B
29.29%


Amorepacific Group
002790
₩197.7B
₩146.3B
35.10%


Hankook Tire &amp; Technology Co Ltd
161390
₩186.0B
₩166.4B
11.82%


Samsung Card Co Ltd
029780
₩185.3B
₩149.9B
23.60%


DGB Financial Group Co Ltd
139130
₩178.4B
₩159.9B
11.58%


JB Financial Group Co Ltd
175330
₩177.8B
₩151.6B
17.35%


Amorepacific Corp
090430
₩176.2B
₩146.6B
20.20%


Doosan Bobcat Inc
241560
₩171.3B
₩120.3B
42.42%


Coway Co Ltd
021240
₩170.7B
₩150.0B
13.82%


Shinsegae Inc
004170
₩123.6B
₩89.2B
38.53%


E-Mart Inc
139480
₩123.2B
₩111.7B
10.30%


LG International Corp
001120
₩113.3B
₩69.7B
62.60%


Samsung Engineering Co Ltd
028050
₩107.3B
₩92.8B
15.62%


Hyosung Corp
004800
₩100.6B
₩70.0B
43.76%


Hyosung Advanced Materials Corp
298050
₩83.4B
₩62.6B
33.17%


Hyundai Construction Equipment Co Ltd
267270
₩79.7B
₩52.2B
52.83%


KCC Corp
002380
₩77.4B
₩53.0B
45.94%


SK Biopharmaceuticals Co Ltd
326030
₩75.9B
₩56.3B
34.87%


Mando Corp
204320
₩71.9B
₩63.4B
13.29%


F&amp;F Co., Ltd
007700
₩70.0B
₩33.7B
107.99%


Kolon Industries Inc
120110
₩69.1B
₩55.1B
25.40%


Dongwon Industries Co., Ltd
006040
₩68.1B
₩59.3B
14.91%


Hanwha Aerospace Co Ltd
012450
₩65.9B
₩34.4B
91.40%


Hyundai Department Store Co Ltd
069960
₩65.0B
₩57.9B
12.28%


POONGSAN CORPORATION
103140
₩62.4B
₩44.8B
39.35%


Hyosung Chemical Corp
298000
₩61.1B
₩48.9B
24.92%


KEPCO Plant Service &amp; Engineering Co Ltd
051600
₩56.4B
₩30.2B
86.94%

Source: KRX &amp; FnGuide



Earnings Surprise KOSPI Stocks Potentially Hedging Against Inflation for Basket & Pairs Trades

South Korea

E-MART Inc. operates E-Mart discount stores. The Company retails food, clothing, household goods, electronics, and other items through several branch stores.

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E Mart Inc (139480 KS)

Krafton Consortium Plans to Buy a Large Property in Seoul from Emart for More than 1 Trillion Won

We believe that Krafton purchasing a large piece of property in Seoul is likely to have a negative impact on its share price.

Douglas Kim

Starbucks Korea - Emart Takes Ownership Control & Prepares for an IPO

Emart announced that it will take over the control of Starbucks Korea. In the next three years, Emart is likely to IPO its key affiliates including...

Douglas Kim

Ebay Korea To Be Sold to Emart Consortium & Why Did Bom Kim Resign as the Director of Coupang Corp?

We discuss about the deal involving Ebay Korea which is set to be sold to the E Mart Inc consortium for $3.1 billion. Coupang founder Bom Kim also...

Douglas Kim

Who Will Acquire Ebay Korea - Shinsegae/Naver Consortium or Lotte Group?

In this insight, we update on the progress of the M&A of Ebay Korea. Only the Shinsege/Naver consortium and the Lotte Group have put in preliminary...

Douglas Kim

Earnings Surprise KOSPI Stocks Potentially Hedging Against Inflation for Basket & Pairs Trades

This post finds the first-quarter earnings surprise stocks in KOSPI that potentially hedge against inflation for basket and pairs trades.

Sanghyun Park

Price Gauge

52-week Range

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