Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Thematic (Sector/Industry)

This is a follow-up report to our previous note <a href="https://www.smartkarma.com/insights/impact-of-the-new-8-2-real-estate-regulations-in-korea-watch-out-for-the-grey-rhino" target="_blank" data-smartkarma-citation="insights:12603">Impact of the New 8.2 Real Estate Regulations in Korea - Watch Out for the Grey Rhino!</a> The new real estate regulations announced on August 2nd such as the stricter mortgage lending requirements and higher capital gains taxes on multiple real estate owners were probably the most stringent regulations on the Korean housing construction sector in more than a decade. In addition to the tougher real estate regulations, the Bank of Korea is likely to raise its base interest rates starting 2018 which is also likely to dampen the overall housing sector.Of the 11 construction companies that we previously identified, we believe the following six companies, including <a href="https://www.smartkarma.com/entities/12333" target="_blank" data-smartkarma-citation="entities:12333:1">Daewoo Engineering &amp; Constr (047040 KS)</a>, <a href="https://www.smartkarma.com/entities/17985" target="_blank" data-smartkarma-citation="entities:17985:1">Kumho Industrial Co Ltd (002990 KS)</a>, <a href="https://www.smartkarma.com/entities/10935" target="_blank" data-smartkarma-citation="entities:10935:1">Kcc Engineering &amp; Constructi (021320 KS)</a>, <a href="https://www.smartkarma.com/entities/7699" target="_blank" data-smartkarma-citation="entities:7699:1">Hyundai Development Co Engg &amp; Cnstn (012630 KS)</a>, <a href="https://www.smartkarma.com/entities/12962" target="_blank" data-smartkarma-citation="entities:12962:1">Doosan Engineering &amp; Construction Co Ltd (011160 KS)</a>, and <a href="https://www.smartkarma.com/entities/19217" target="_blank" data-smartkarma-citation="entities:19217:1">Seohee Construction Co Ltd (035890 KS)</a> are better candidates for shorting positions.To narrow down the list of companies for shorting, we used the following seven fundamental factors:<ol><li>Market capitalization</li><li>Foreign ownership change</li><li>Balance sheet strength (Net debt(Cash)/Equity)</li><li>Cash flow valuation (EV/EBITDA)</li><li>Order backlog/Sales</li><li>Overseas Order Backlog/Total order Backlog </li><li>Sales Breakdown </li></ol>We then ranked them from 1 to 11 (1 = best; 11 = worst). The company that received the best overall ranking was Hyundai Engineering &amp; Const (000720 KS). On the other hand, Hyundai Development, Doosan E&amp;C, and Seohee Construction received the worst overall rankings among the 11 companies.

This is a follow-up report to our previous note Impact of the New 8.2 Real Estate Regulations in Korea - Watch Out for the Grey Rhino! The new real estate regulations announced on August 2nd such as the stricter mortgage lending requirements and higher capital gains taxes on multiple real estate owners were probably the most stringent regulations on the Korean housing construction sector in more than a decade. In addition to the tougher real estate regulations, the Bank of Korea is likely to raise its base interest rates starting 2018 which is also likely to dampen the overall housing sector.Of the 11 construction companies that we previously identified, we believe the following six companies, including Daewoo Engineering &amp; Constr (047040 KS), Kumho Industrial Co Ltd (002990 KS), Kcc Engineering &amp; Constructi (021320 KS), Hyundai Development Co Engg &amp; Cnstn (012630 KS), Doosan Engineering &amp; Construction Co Ltd (011160 KS), and Seohee Construction Co Ltd (035890 KS) are better candidates for shorting positions.To narrow down the list of companies for shorting, we used the following seven fundamental factors:Market capitalizationForeign ownership changeBalance sheet strength (Net debt(Cash)/Equity)Cash flow valuation (EV/EBITDA)Order backlog/SalesOverseas Order Backlog/Total order Backlog Sales Breakdown We then ranked them from 1 to 11 (1 = best; 11 = worst). The company that received the best overall ranking was Hyundai Engineering &amp; Const (000720 KS). On the other hand, Hyundai Development, Doosan E&amp;C, and Seohee Construction received the worst overall rankings among the 11 companies.

The Grey Rhinos Are Coming - Which Ones to Short in the Korean Construction Sector?

South Korea

KCC Engineering & Construction Co., Ltd. builds highways, roads, rail roads, seaports, and bridges through government contracting.  The Company also constructs apartment complexes and industrial parks.

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Kcc Engineering & Constructi (021320 KS)

The Grey Rhinos Are Coming - Which Ones to Short in the Korean Construction Sector?

This is a follow-up report to our previous note Impact of the New 8.2 Real Estate Regulations in Korea - Watch Out for the Grey Rhino! The new real...

Douglas Kim

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