Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul>
<li>Korea Investment &amp; Securities announced the final competition rate for the tender offer of SM Entertainment by Kakao Group (8,333,641 shares of SM Entertainment at 150,000 won per share).</li>
<li>The competition ratio of the tender offer was 2.2655436 to 1. Accordingly, the allocation ratio was set at 44.1395170%. </li>
<li>At the current price of 95,100 won, SM Entertainment's shares are undervalued by about 25% to 45% over the next 6-12 months, in our view. </li>
</ul>


Korea Investment &amp; Securities announced the final competition rate for the tender offer of SM Entertainment by Kakao Group (8,333,641 shares of SM Entertainment at 150,000 won per share).
The competition ratio of the tender offer was 2.2655436 to 1. Accordingly, the allocation ratio was set at 44.1395170%. 
At the current price of 95,100 won, SM Entertainment's shares are undervalued by about 25% to 45% over the next 6-12 months, in our view. 


SM Entertainment: Tender Offer Allocation Ratios Announced

<ul>
<li>On 12 March, HYBE (352820 KS) announced that it is no longer pursuing S.M.Entertainment Co (041510 KS) in an M&amp;A battle with Kakao Corp (035720 KS).</li>
<li>This will result in a very high probability of Kakao winning the M&amp;A battle of SM Entertainment.</li>
<li>Many institutional investors are likely to have pushed back on HYBE's capital raising efforts, which seems to have been the clincher of HYBE backing out of this M&amp;A for SM. </li>
</ul>


On 12 March, HYBE (352820 KS) announced that it is no longer pursuing S.M.Entertainment Co (041510 KS) in an M&amp;A battle with Kakao Corp (035720 KS).
This will result in a very high probability of Kakao winning the M&amp;A battle of SM Entertainment.
Many institutional investors are likely to have pushed back on HYBE's capital raising efforts, which seems to have been the clincher of HYBE backing out of this M&amp;A for SM. 


HYBE Gives Up the M&A Fight for SM Entertainment: Impact on Kakao's Tender Offer

<ul>
<li>Today (22 February), S.M.Entertainment Co (041510 KS) provided a detailed analysis of the strategic partnership with Kakao from shareholders and fans perspectives.</li>
<li>The timing of this detailed strategic partnership announcement is a bit unusual since it comes <strong>BEFORE</strong> the actual tender offer announcement and potential capital injection into SM Entertainment by Kakao.</li>
<li>Our call on this M&amp;A remains consistent. In the last week of February/early March, Kakao could make a tender offer at prices of at least 140,000/150,000 won, in our view.</li>
</ul>


Today (22 February), S.M.Entertainment Co (041510 KS) provided a detailed analysis of the strategic partnership with Kakao from shareholders and fans perspectives.
The timing of this detailed strategic partnership announcement is a bit unusual since it comes BEFORE the actual tender offer announcement and potential capital injection into SM Entertainment by Kakao.
Our call on this M&amp;A remains consistent. In the last week of February/early March, Kakao could make a tender offer at prices of at least 140,000/150,000 won, in our view.


SM Entertainment: Provides a Detailed Analysis of a Strategic Partnership with Kakao

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>The MSCI EM vs.EAFE ratio (local currency) shows EM has outperformed relative to EAFE since the DXY peaked in November 2022, and also shows signs of reversing the 2-year downtrend.</li>
<li>As long as the DXY remains below $103.50-$106, we expect outperformance from EM to continue.</li>
<li>China/Hong Kong, Greece, South Africa, and Mexico stand out as attractive countries. Our top actionable Sectors include Communications, Consumer Discretionary, and Technology. We highlight 76 attractive EM stocks.</li>
</ul>


The MSCI EM vs.EAFE ratio (local currency) shows EM has outperformed relative to EAFE since the DXY peaked in November 2022, and also shows signs of reversing the 2-year downtrend.
As long as the DXY remains below $103.50-$106, we expect outperformance from EM to continue.
China/Hong Kong, Greece, South Africa, and Mexico stand out as attractive countries. Our top actionable Sectors include Communications, Consumer Discretionary, and Technology. We highlight 76 attractive EM stocks.


EM Outperformance to Continue (Vs. EAFE) -- Add on a Pullback; DXY Needs to Hold Below $106

<ul>
<li>On 20 January, SM Entertainment announced that Lee Chang-Hwan, the CEO of Align Partners Capital will join the company as a board member. </li>
<li>This will mark one of the first cases of an activist investor becoming a board member of a Korean company which already has a major shareholder.</li>
<li>We believe that Lee Chang-Hwan (CEO of APCM) joining SM Entertainment as a board member will have a positive impact on the company to meaningfully improve its corporate governance.</li>
</ul>


On 20 January, SM Entertainment announced that Lee Chang-Hwan, the CEO of Align Partners Capital will join the company as a board member. 
This will mark one of the first cases of an activist investor becoming a board member of a Korean company which already has a major shareholder.
We believe that Lee Chang-Hwan (CEO of APCM) joining SM Entertainment as a board member will have a positive impact on the company to meaningfully improve its corporate governance.


Align Partners' Lee Chang-Hwan Joins SM Entertainment as a Board Member

South Korea

JYP Entertainment Corp plans, produces, promotes, and markets Korean singers both in Korean and overseas market. The Company's also engages in licensing, merchandizing, and artist management business including the commercial flim contracts of the artists.

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Jyp Entertainment (035900 KS)

SM Entertainment: Tender Offer Allocation Ratios Announced

The allocation ratio of SM Entertainment tender offer was 44.1%, which was relatively close to our estimate of 49%. We believe SM's shares are...

Douglas Kim

HYBE Gives Up the M&A Fight for SM Entertainment: Impact on Kakao's Tender Offer

HYBE announced that it is no longer pursuing an M&A of SM Entertainment. This will result in a very high probability of Kakao winning the M&A...

Douglas Kim

SM Entertainment: Provides a Detailed Analysis of a Strategic Partnership with Kakao

Today SM Entertainment provided a detailed analysis of the strategic partnership with Kakao. The timing of this announcement is unusual since it...

Douglas Kim

EM Outperformance to Continue (Vs. EAFE) -- Add on a Pullback; DXY Needs to Hold Below $106

EM vs. EAFE ratio (local currency) shows EM has outperformed relative to EAFE since the $DXY peaked in November 2022. If the DXY remains below...

Vermilion Research

Align Partners' Lee Chang-Hwan Joins SM Entertainment as a Board Member

We believe that Lee Chang-Hwan (CEO of APCM) joining SM Entertainment as a board member will have a positive impact on the company to meaningfully...

Douglas Kim

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