Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Cross Asset Strategy

The Korea Exchange announced its KOSDAQ150 and KRX300 indices rebalances today. There were 17 new additions and 17 deletions for KOSDAQ150. Most of the stocks that were expected to be included in KOSDAQ 150 were officially included in the rebalance. However there were a few surprises. For example <a href="https://www.smartkarma.com/entities/nanos-co-ltd" target="_blank" data-smartkarma-citation="entities:16796:1" rel="noopener">Nanos Co Ltd (151910 KS),</a>which was one of the stocks that was expected to be included in KOSDAQ150, did not get included in this indext this time. On the other hand, the following stocks including <a href="https://www.smartkarma.com/entities/sang-a-frontec-co-ltd" target="_blank" data-smartkarma-citation="entities:20692:1" rel="noopener">Sang A Frontec (089980 KS)</a>, Novarex (194700 KS(, CIS (222080 KS), MedPacto (215980 KS), <a href="https://www.smartkarma.com/entities/koreacenter-com-co-ltd" target="_blank" data-smartkarma-citation="entities:28329:1" rel="noopener">Koreacenter.com Co Ltd (290510 KS)</a>, and Soulbrain (357780 KS) which were not on the top of the lists of getting selected into the KOSDAQ150 index by the locals, were formally selected be part of the new KOSDAQ150 inclusions.  The Korea Exchange also made changes to the KRX300 index. Although the KRX300 index is not currently as important as KOSPI200 and KOSDAQ150 indices, it is increasingly gaining in importance among the local institutional investors. The KRX300 had 33 new additions and 35 deletions.

The Korea Exchange announced its KOSDAQ150 and KRX300 indices rebalances today. There were 17 new additions and 17 deletions for KOSDAQ150. Most of the stocks that were expected to be included in KOSDAQ 150 were officially included in the rebalance. However there were a few surprises. For example Nanos Co Ltd (151910 KS),which was one of the stocks that was expected to be included in KOSDAQ150, did not get included in this indext this time. On the other hand, the following stocks including Sang A Frontec (089980 KS), Novarex (194700 KS(, CIS (222080 KS), MedPacto (215980 KS), Koreacenter.com Co Ltd (290510 KS), and Soulbrain (357780 KS) which were not on the top of the lists of getting selected into the KOSDAQ150 index by the locals, were formally selected be part of the new KOSDAQ150 inclusions.  The Korea Exchange also made changes to the KRX300 index. Although the KRX300 index is not currently as important as KOSPI200 and KOSDAQ150 indices, it is increasingly gaining in importance among the local institutional investors. The KRX300 had 33 new additions and 35 deletions. 

KOSDAQ150 and KRX300 Indices Rebalances (Overlapping Additions & Deletions)

Equity Capital Markets

In this insight, we provide a valuation analysis of <a href="https://www.smartkarma.com/entities/saltlux" target="_blank" data-smartkarma-citation="entities:29011:1" rel="noopener">Saltlux (SLTX KS)</a>. In addition, we provide additional fundamental details of the company, competitors, as well as the market outlook for AI &amp; Big Data services.In our view, Saltlux has one of the best technologies in the AI/Big Data sector in Korea. In terms of business model, it is closer to Mindslab and Daumsoft which are privately held. The fact that Saltlux has larger sales than these two competitors is impressive. We think there is likely to be a big acquisition premium on Saltlux going forward.<div class="content-highlight">In terms of valuation multiples, we think that a 10x P/S, using 2019 sales (which is 10% premium to Laon People) is reasonable for Saltlux, which would suggest an implied market cap of 184 billion won or 36,000 won, which is 20% above the high end of the IPO price of 30,000 won. As such, we have a positive view of the Saltlux IPO. We are also adding Saltlux to our model portfolio. </div>

In this insight, we provide a valuation analysis of Saltlux (SLTX KS). In addition, we provide additional fundamental details of the company, competitors, as well as the market outlook for AI &amp; Big Data services.In our view, Saltlux has one of the best technologies in the AI/Big Data sector in Korea. In terms of business model, it is closer to Mindslab and Daumsoft which are privately held. The fact that Saltlux has larger sales than these two competitors is impressive. We think there is likely to be a big acquisition premium on Saltlux going forward.In terms of valuation multiples, we think that a 10x P/S, using 2019 sales (which is 10% premium to Laon People) is reasonable for Saltlux, which would suggest an implied market cap of 184 billion won or 36,000 won, which is 20% above the high end of the IPO price of 30,000 won. As such, we have a positive view of the Saltlux IPO. We are also adding Saltlux to our model portfolio. 

Hanwha Systems Co Ltd / Equity Capital Markets

The Hanwha System IPO is one of the largest IPOs in Korea in 2019.Our base case valuation of Hanwha Systems is 16,322 won per share or 1.8 trillion won in market cap. This represents a 24% upside from the mid-point of the IPO price range of 12,250 won to 14,000 won. Because of the excellent solid upside potential compared to the IPO price range, we have a positive view of the Hanwha Systems IPO.Our base case valuation is based on a 9.3x EV/EBITDA multiple using our estimated EBITDA of 138.5 billion won in 2020. The 9.3x EV/EBITDA multiple is based on a 10% premium to the comps' average valuation multiple in 2020. Because Hanwha Systems has better metrics than the comps in four out of five fundamental factors, we believe Hanwha Systems should trade at premium valuation multiples versus its peers.Finally, one of the clear positive signals that this Hanwha Systems IPO will become a success is the performance of its parent company <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> whose stock price is up 27% YTD. In the midst of a weak stock market for KOSPI this year, this excellent stock price performance of Hanwha Aerospace could be a leading indicator of an excellent demand for the Hanwha Systems IPO.

The Hanwha System IPO is one of the largest IPOs in Korea in 2019.Our base case valuation of Hanwha Systems is 16,322 won per share or 1.8 trillion won in market cap. This represents a 24% upside from the mid-point of the IPO price range of 12,250 won to 14,000 won. Because of the excellent solid upside potential compared to the IPO price range, we have a positive view of the Hanwha Systems IPO.Our base case valuation is based on a 9.3x EV/EBITDA multiple using our estimated EBITDA of 138.5 billion won in 2020. The 9.3x EV/EBITDA multiple is based on a 10% premium to the comps' average valuation multiple in 2020. Because Hanwha Systems has better metrics than the comps in four out of five fundamental factors, we believe Hanwha Systems should trade at premium valuation multiples versus its peers.Finally, one of the clear positive signals that this Hanwha Systems IPO will become a success is the performance of its parent company Hanwha Aerospace (012450 KS) whose stock price is up 27% YTD. In the midst of a weak stock market for KOSPI this year, this excellent stock price performance of Hanwha Aerospace could be a leading indicator of an excellent demand for the Hanwha Systems IPO. 

Hanwha Systems is getting ready to complete its IPO in 4Q19.<a href="https://pulsenews.co.kr/view.php?year=2019&amp;no=667362" target="_blank" rel="noopener"> Hanwha Systems</a> is expected to be the largest IPO in Korea this year. Established in 2000, Hanwha Systems currently has two main business units including the defense/aerospace unit and ICT (information, communication, &amp; technology) unit.Hanwha Aerospace (012450 KS) is the largest shareholder of Hanwha Systems with a 52.9% stake in the company. Hanwha Aerospace currently has a market cap of 2.2 trillion won. Bolstered by the expectation of a strong IPO for Hanwha Systems, Hanwha Aerospace's stock price has increased 29% this year.The comps on average are up 11.5% YTD, outperforming KOSPI which is up only 2.2% YTD. Among the comps, <a href="https://www.smartkarma.com/entities/korea-aerospace-industries" target="_blank" data-smartkarma-citation="entities:9033:1" rel="noopener">Korea Aerospace Industries (047810 KS) and</a> Hanwha Aerospace (012450 KS) have had the best share price performance YTD.

Hanwha Systems is getting ready to complete its IPO in 4Q19. Hanwha Systems is expected to be the largest IPO in Korea this year. Established in 2000, Hanwha Systems currently has two main business units including the defense/aerospace unit and ICT (information, communication, &amp; technology) unit.Hanwha Aerospace (012450 KS) is the largest shareholder of Hanwha Systems with a 52.9% stake in the company. Hanwha Aerospace currently has a market cap of 2.2 trillion won. Bolstered by the expectation of a strong IPO for Hanwha Systems, Hanwha Aerospace's stock price has increased 29% this year.The comps on average are up 11.5% YTD, outperforming KOSPI which is up only 2.2% YTD. Among the comps, Korea Aerospace Industries (047810 KS) and Hanwha Aerospace (012450 KS) have had the best share price performance YTD. 

Initial Thoughts on the Hanwha Systems IPO (The Largest Korean IPO in 2019)

Equity Bottom-Up

<ul>
<li>We believe that <a href="https://www.smartkarma.com/entities/hyundai-autoever-corp" target="_blank" data-smartkarma-citation="entities:27945:1" rel="noopener">Hyundai Autoever Corp (0978519D KS)</a> is a strong turnaround play following a block sale. Currently, Hyundai Autoever shares are trading at 51,500 won, only 7% higher than the IPO price, but down 46% from its 52-week high price in March 2019. There are strong indications that the shares of Hyundai Autoever have bottomed, especially after the company's strong earnings in 2Q19. </li>
<li>Unlike the company's poor earnings results in 1Q19, the company's earnings turned around in 2Q19. The company generated sales of 408.4 billion won (up 15% YoY) and operating profit of 22.8 billion won (up 49.6% YoY) in 2Q19.</li>
<li>Hyundai Autoever's valuations have become a lot more attractive mainly due to improving earnings and a significant decline in share price since its highs right after the IPO. Hyundai Autoever currently has a market cap of 1.08 trillion won. It is trading at 20x P/E using 2018 earnings, down from nearly 40x in March/April 2019. </li>
</ul>


We believe that Hyundai Autoever Corp (0978519D KS) is a strong turnaround play following a block sale. Currently, Hyundai Autoever shares are trading at 51,500 won, only 7% higher than the IPO price, but down 46% from its 52-week high price in March 2019. There are strong indications that the shares of Hyundai Autoever have bottomed, especially after the company's strong earnings in 2Q19. 
Unlike the company's poor earnings results in 1Q19, the company's earnings turned around in 2Q19. The company generated sales of 408.4 billion won (up 15% YoY) and operating profit of 22.8 billion won (up 49.6% YoY) in 2Q19.
Hyundai Autoever's valuations have become a lot more attractive mainly due to improving earnings and a significant decline in share price since its highs right after the IPO. Hyundai Autoever currently has a market cap of 1.08 trillion won. It is trading at 20x P/E using 2018 earnings, down from nearly 40x in March/April 2019. 


Hyundai Autoever - A Strong Turnaround Play Following a Block Sale

South Korea

Hyundai Autoever Corp. provides information technology services. The Company offers system integration, system management, information system development, and other services. Hyundai Autoever offers services worldwide.

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Hyundai Autoever (307950 KS)

KOSDAQ150 and KRX300 Indices Rebalances (Overlapping Additions & Deletions)

We highlight the KOSDAQ150 and KRX300 indices rebalances. There are some interesting new names, especially among those that are over lapping in...

Douglas Kim

Saltlux IPO Valuation Analysis

In this insight, we provide a valuation analysis of Saltlux (SLTX KS). In addition, we provide additional fundamental details of the company,...

Douglas Kim

Hanwha Systems IPO Valuation Analysis

The Hanwha System IPO is one of the largest IPOs in Korea in 2019.Our base case valuation of Hanwha Systems is 16,322 won per share or 1.8 trillion...

Douglas Kim

Initial Thoughts on the Hanwha Systems IPO (The Largest Korean IPO in 2019)

Hanwha Systems is getting ready to complete its IPO in 4Q19. Hanwha Systems is expected to be the largest IPO in Korea this year. Established in...

Douglas Kim

Hyundai Autoever - A Strong Turnaround Play Following a Block Sale

We believe that Hyundai Autoever Corp (0978519D KS) is a strong turnaround play following a block sale. Currently, Hyundai Autoever shares are...

Douglas Kim

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