Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<p>Ecopro Co Ltd (086520 KS) announced after the market close on September 6th that it will conduct a rights offering worth 676 billion won, representing 37% of market cap. The company will issue 6.37 million new shares (representing 34% of its existing outstanding shares) and the rights offering price is 106,172 won per share, representing 9.1% premium to the current price.</p><p>The following are the key dates of the rights offering:</p><ul>
<li>Subscription expected dates - 13 October to 1 November</li>
<li>Rights offering subscription payments required - 4 November</li>
<li>Rights offering new shares listing - 19 November</li>
</ul><p>Ecopro Co will use the proceeds from the rights offering to purchase 6.12 million shares of Ecopro HN at 110,500 won (2% premium to current price) which total 676 billion won. Ecopro HN has 15.3 million shares outstanding so 6.12 million shares to be purchased in the tender offer would be 40% of outstanding shares. </p><div class="content-highlight"><p>Despite the opportunity to purchase an increasing stake in Ecopro HN, this will result in a significant shares dilution for the existing shareholders of Ecopro Co which is a big negative. Many investors will be concerned about Ecopro Co purchasing a large stake of Ecopro HN, especially after a steep increase in the latter company's stock price in the past three months. As a result, we have a Negative view of Ecopro Co at current levels. </p></div>

Ecopro Co Ltd (086520 KS) announced after the market close on September 6th that it will conduct a rights offering worth 676 billion won, representing 37% of market cap. The company will issue 6.37 million new shares (representing 34% of its existing outstanding shares) and the rights offering price is 106,172 won per share, representing 9.1% premium to the current price.The following are the key dates of the rights offering:
Subscription expected dates - 13 October to 1 November
Rights offering subscription payments required - 4 November
Rights offering new shares listing - 19 November
Ecopro Co will use the proceeds from the rights offering to purchase 6.12 million shares of Ecopro HN at 110,500 won (2% premium to current price) which total 676 billion won. Ecopro HN has 15.3 million shares outstanding so 6.12 million shares to be purchased in the tender offer would be 40% of outstanding shares. Despite the opportunity to purchase an increasing stake in Ecopro HN, this will result in a significant shares dilution for the existing shareholders of Ecopro Co which is a big negative. Many investors will be concerned about Ecopro Co purchasing a large stake of Ecopro HN, especially after a steep increase in the latter company's stock price in the past three months. As a result, we have a Negative view of Ecopro Co at current levels. 

Ecopro Co Announces A Rights Offering Worth 676 Billion Won (37% of Market Cap)

Equity Bottom-Up

<p>In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 40 pair trade set-ups of all the major Korean stubs related pairs (including regular and quasi holdcos and their respective opcos). We have provided YTD price chart comparisons of all the 40 pair trade set-ups below. </p><p>The <strong>top six best performing holdcos</strong> (among the companies listed below) YTD are as follows:</p><ul>
<li>
<a href="https://www.smartkarma.com/entities/doosan-co-ltd" target="_blank" data-smartkarma-citation="entities:7423:1" rel="noopener">Doosan Corp (000150 KS)</a> - up 86% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/hyosung-corporation" target="_blank" data-smartkarma-citation="entities:20712:1" rel="noopener">Hyosung Corporation (004800 KS)</a> - Up 62.5% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/poongsan-corp" target="_blank" data-smartkarma-citation="entities:16504:1" rel="noopener">Poongsan Corp (103140 KS)</a> - Up 50.3% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/samyang-holdings-corp" target="_blank" data-smartkarma-citation="entities:13761:1" rel="noopener">Samyang Holdings (000070 KS)</a> - Up 47.7% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> - Up 34.8% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/orion-corp" target="_blank" data-smartkarma-citation="entities:7615:1" rel="noopener">Orion Holdings (001800 KS)</a> - Up 30.2% YTD</li>
</ul><p>The <strong>top six best performing opcos</strong> (among the companies listed below) YTD are as follows:</p><ul>
<li>
<a href="https://www.smartkarma.com/entities/hanwha-aerospace-co-ltd" target="_blank" data-smartkarma-citation="entities:504:1" rel="noopener">Hanwha Aerospace (012450 KS)</a> - Up 73.8% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/doosan-heavy-industries-construction" target="_blank" data-smartkarma-citation="entities:7389:1" rel="noopener">Doosan Heavy Industries &amp; Construction (034020 KS)</a> - Up 56.5% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/ecopro-bm-co-ltd" target="_blank" data-smartkarma-citation="entities:27873:1" rel="noopener">Ecopro BM Co Ltd (247540 KS)</a> - 54.7% YTD</li>
<li>Aekyung Petrochem - Up 47.2% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/pan-ocean-co-ltd" target="_blank" data-smartkarma-citation="entities:5279:1" rel="noopener">Pan Ocean (028670 KS)</a> - Up 40.6% YTD</li>
<li>
<a href="https://www.smartkarma.com/entities/poongsan-corp" target="_blank" data-smartkarma-citation="entities:16504:1" rel="noopener">Poongsan Corp (103140 KS)</a> - Up 36.7% YTD</li>
</ul>

In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 40 pair trade set-ups of all the major Korean stubs related pairs (including regular and quasi holdcos and their respective opcos). We have provided YTD price chart comparisons of all the 40 pair trade set-ups below. The top six best performing holdcos (among the companies listed below) YTD are as follows:

Doosan Corp (000150 KS) - up 86% YTD

Hyosung Corporation (004800 KS) - Up 62.5% YTD

Poongsan Corp (103140 KS) - Up 50.3% YTD

Samyang Holdings (000070 KS) - Up 47.7% YTD

Ecopro Co Ltd (086520 KS) - Up 34.8% YTD

Orion Holdings (001800 KS) - Up 30.2% YTD
The top six best performing opcos (among the companies listed below) YTD are as follows:

Hanwha Aerospace (012450 KS) - Up 73.8% YTD

Doosan Heavy Industries &amp; Construction (034020 KS) - Up 56.5% YTD

Ecopro BM Co Ltd (247540 KS) - 54.7% YTD
Aekyung Petrochem - Up 47.2% YTD

Pan Ocean (028670 KS) - Up 40.6% YTD

Poongsan Corp (103140 KS) - Up 36.7% YTD


Pair Trade Setups of Korean Holdcos & Opcos

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<div>
<p>This week in StubWorld ...</p>
</div>
<div>
<div class="content-highlight">
<p>When a company spins off a business, wherein shares are distributed to existing shareholders on pro-rata basis, the parent company typically declines. But <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a>'s 40% decline upon relisting defies logic, even for extreme Korean Holdco structures.</p>
</div>
</div>
<div>
<p>Preceding my comments on Ecopro are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
</div>
<div><hr></div>
<div>
<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
</div>


This week in StubWorld ...



When a company spins off a business, wherein shares are distributed to existing shareholders on pro-rata basis, the parent company typically declines. But Ecopro Co Ltd (086520 KS)'s 40% decline upon relisting defies logic, even for extreme Korean Holdco structures.



Preceding my comments on Ecopro are the weekly setup/unwind tables for Asia-Pacific Holdcos.



These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


StubWorld: What Is Up (Or Down) With Ecopro Co?

<p>In this insight, we discuss the trading opportunities involving <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> and Ecopro HN (383310 KS) post their split. These two stocks started trading again on 28 May. Our NAV analysis of <strong>Ecopro Co</strong> suggests an implied value of 1.1 trillion won or NAV per share of 59,528 won, representing a 25% upside from the current price.</p><p><strong>Ecopro HN</strong> is a leading, pure-play environmental service provider in Korea. At the current price of 148,700 won, this stock looks undervalued. It is currently trading at EV/EBITDA multiples of 15.5x in 2021 and 10.9x in 2022. If we apply the same EV/EBITDA multiple of 15.5x to 2022 estimates, this would represent an upside of 42% from current levels (target price of 211.451 won). </p><p>In conclusion, we believe that Ecopro HN provides higher upside than Ecopro Co at current levels. We would not necessarily go long Ecopro HN and short Ecopro Co at current levels. In addition, we believe that Ecopro HN has the potential to reach nearly 1 trillion won in market cap over the next 2-3 years which is likely to be an attractive candidate for numerous indices, especially those that like to include stocks that rank high on ESG ratings (especially for the Environment).</p>

In this insight, we discuss the trading opportunities involving Ecopro Co Ltd (086520 KS) and Ecopro HN (383310 KS) post their split. These two stocks started trading again on 28 May. Our NAV analysis of Ecopro Co suggests an implied value of 1.1 trillion won or NAV per share of 59,528 won, representing a 25% upside from the current price.Ecopro HN is a leading, pure-play environmental service provider in Korea. At the current price of 148,700 won, this stock looks undervalued. It is currently trading at EV/EBITDA multiples of 15.5x in 2021 and 10.9x in 2022. If we apply the same EV/EBITDA multiple of 15.5x to 2022 estimates, this would represent an upside of 42% from current levels (target price of 211.451 won). In conclusion, we believe that Ecopro HN provides higher upside than Ecopro Co at current levels. We would not necessarily go long Ecopro HN and short Ecopro Co at current levels. In addition, we believe that Ecopro HN has the potential to reach nearly 1 trillion won in market cap over the next 2-3 years which is likely to be an attractive candidate for numerous indices, especially those that like to include stocks that rank high on ESG ratings (especially for the Environment).

Trading Strategies for Ecopro Co & Ecopro HN Post Split

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.

<div>
<p>Korea has three spinoff stocks entering trading suspension on April 29. The corporate action of these spinoffs are as follows:</p>
<ul>
<li>The market cap on the last trading day before the suspension will be applied in the index calculation during the trading suspension and the re-listing day.</li>
<li>The market cap on the re-listing day will be applied in the index calculation on the following trading day.</li>
</ul>
</div><div>
<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td style="width: 153.636px;" data-sheets-value='{"1":2,"2":"Schedule"}'>Corporate action schedule</td>
<td style="text-align: right; width: 110px;">LG Corp (003550)</td>
<td style="text-align: right; width: 80px;">F&amp;F (007700)</td>
<td style="text-align: right; width: 100.909px;">ECOPRO (086520)</td>
<td style="text-align: left; width: 195.455px;">Action</td>
</tr>
<tr>
<td style="width: 153.636px;" data-sheets-value='{"1":2,"2":"Trade suspension begins"}'>Trade suspension begins</td>
<td style="text-align: right; width: 110px;" data-sheets-value='{"1":3,"3":44315}' data-sheets-numberformat='{"1":5,"2":"m\"/\"d\"/\"yy"}'>4/29/21</td>
<td style="text-align: right; width: 80px;">4/29/21</td>
<td style="text-align: right; width: 100.909px;">4/29/21</td>
<td rowspan="3" style="text-align: left; width: 195.455px;"><strong>The market cap on the last trading day before the suspension</strong></td>
</tr>
<tr>
<td style="width: 153.636px;" data-sheets-value='{"1":2,"2":"Trade suspensino ends"}'>Trade suspensino ends</td>
<td style="text-align: right; width: 110px;" data-sheets-value='{"1":3,"3":44342}' data-sheets-numberformat='{"1":5,"2":"m\"/\"d\"/\"yy"}'>5/26/21</td>
<td style="text-align: right; width: 80px;">5/20/21</td>
<td style="text-align: right; width: 100.909px;">5/27/21</td>
</tr>
<tr>
<td style="width: 153.636px;" data-sheets-value='{"1":2,"2":"Relistnig"}'>Re-listing</td>
<td style="text-align: right; width: 110px;" data-sheets-value='{"1":3,"3":44343}' data-sheets-numberformat='{"1":5,"2":"m\"/\"d\"/\"yy"}'>5/27/21</td>
<td style="text-align: right; width: 80px;">5/21/21</td>
<td style="text-align: right; width: 100.909px;">5/28/21</td>
</tr>
<tr>
<td style="width: 153.636px;">Following trading day</td>
<td style="text-align: right; width: 110px;">5/28/21</td>
<td style="text-align: right; width: 80px;">5/24/21</td>
<td style="text-align: right; width: 100.909px;">5/31/21</td>
<td style="text-align: left; width: 195.455px;"><strong>The market cap on the re-listing day</strong></td>
</tr>
<tr>
<td colspan="4" style="width: 507.273px;" data-sheets-value='{"1":2,"2":"Source: DART"}'>Source: KRX</td>
<td style="width: 195.455px;"></td>
</tr>
</tbody>
</table>
<p>To minimize the tracking error, passive funds generally sell spinoff shares at the close price on the last trading day before the suspension and repurchase them at the close price on the re-listing day. </p>
<p>Of course, active funds do the opposite. Their rule of thumb is buying spinoff shares before the trade suspension.</p>
<p>But these aren't definite rules. More and more local passive funds have been flexible in the recent spinoffs. Similarly, local active funds do not seem to be blindly following this rule anymore.</p>
<p>So, here are three possible approaches that local <strong>passive</strong> funds may consider for spinoffs:</p>
<ol>
<li><strong>Sell all on the last trading day and repurchase the portion of an index-included company on the re-listing day.</strong></li>
<li><strong>Sell only the portion of an index-excluded company on the last trading day.</strong></li>
<li><strong>Sell only the portion of an index-excluded company on the re-listing day.</strong></li>
</ol>
<p>The local spinoffs in recent years show that the public offering funds, managing mostly ETFs, still stick to the first approach. On the other hand, the NPS index funds and the variable insurance index funds lean towards the third approach.</p>
</div>


Korea has three spinoff stocks entering trading suspension on April 29. The corporate action of these spinoffs are as follows:

The market cap on the last trading day before the suspension will be applied in the index calculation during the trading suspension and the re-listing day.
The market cap on the re-listing day will be applied in the index calculation on the following trading day.









Corporate action schedule
LG Corp (003550)
F&amp;F (007700)
ECOPRO (086520)
Action


Trade suspension begins
4/29/21
4/29/21
4/29/21
The market cap on the last trading day before the suspension


Trade suspensino ends
5/26/21
5/20/21
5/27/21


Re-listing
5/27/21
5/21/21
5/28/21


Following trading day
5/28/21
5/24/21
5/31/21
The market cap on the re-listing day


Source: KRX




To minimize the tracking error, passive funds generally sell spinoff shares at the close price on the last trading day before the suspension and repurchase them at the close price on the re-listing day. 
Of course, active funds do the opposite. Their rule of thumb is buying spinoff shares before the trade suspension.
But these aren't definite rules. More and more local passive funds have been flexible in the recent spinoffs. Similarly, local active funds do not seem to be blindly following this rule anymore.
So, here are three possible approaches that local passive funds may consider for spinoffs:

Sell all on the last trading day and repurchase the portion of an index-included company on the re-listing day.
Sell only the portion of an index-excluded company on the last trading day.
Sell only the portion of an index-excluded company on the re-listing day.

The local spinoffs in recent years show that the public offering funds, managing mostly ETFs, still stick to the first approach. On the other hand, the NPS index funds and the variable insurance index funds lean towards the third approach.


Korean Spinoffs Trade Ideas Amid Trade Suspension on April 29

South Korea

Ecopro Co., Ltd. specializes in developing chemical absorbent and NDC (Nano Carbon Ball) in the field of environmental materials for the prevention of air pollution.  The Company's products include environment-related chemical filters, second battery materials, and CO catalyst.

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Ecopro Co Ltd (086520 KS)

Ecopro Co Announces A Rights Offering Worth 676 Billion Won (37% of Market Cap)

Ecopro Co announced on September 6th that it will conduct a rights offering worth 676 billion won, representing 37% of market cap. We believe this...

Douglas Kim

Pair Trade Setups of Korean Holdcos & Opcos

In this insight, we provide visual set-ups of the Korean stubs related pair-trades. We have included 40 pair trade set-ups of all the major Korean...

Douglas Kim

StubWorld: What Is Up (Or Down) With Ecopro Co?

The current share price of Ecopro Co appears unsubstantiated here. I would set up a Long Ecopro Co versus Short Ecopro BM.

David Blennerhassett

Trading Strategies for Ecopro Co & Ecopro HN Post Split

In this insight, we discuss the trading opportunities involving Ecopro Co Ltd (086520 KS) and Ecopro HN (383310 KS) post their split.

Douglas Kim

Korean Spinoffs Trade Ideas Amid Trade Suspension on April 29

This post is intended to help formulate trade ideas on the three spinoff stocks in Korea before the trade suspension begins on April 29.

Sanghyun Park

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