Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul>
<li>We discuss the surging share cancellations in Korea in 2024. As of 8 February 2024, Korean companies have announced 3.3 trillion won worth of shares to be completed this year. </li>
<li>At current blistering pace, it is likely that the share cancellations in Korea could jump at least 100% YoY to jump more than 10 trillion won in 2024. </li>
<li>Some of the leading Korean companies including Samsung C&amp;T and KT&amp;G that have announced share cancellations this year continue to outperform the market on average. </li>
</ul>


We discuss the surging share cancellations in Korea in 2024. As of 8 February 2024, Korean companies have announced 3.3 trillion won worth of shares to be completed this year. 
At current blistering pace, it is likely that the share cancellations in Korea could jump at least 100% YoY to jump more than 10 trillion won in 2024. 
Some of the leading Korean companies including Samsung C&amp;T and KT&amp;G that have announced share cancellations this year continue to outperform the market on average. 


Korea: Surging Share Cancellations in 2024

<ul>
<li>One of the biggest news facing KT&amp;G this year as been a class action lawsuit against KT&amp;G's directors by Flashlight Capital Partners.</li>
<li>KT&amp;G announced that it will cancel 3.5 million shares (about 315 billion won) on 16 February, which represent 2.6% of its outstanding shares and 16.7% of treasury shares.</li>
<li>One of the major reasons why we remain positive on KT&amp;G is that there is a relatively high probability of the company announcing cigarette price hikes in 2H 2024.</li>
</ul>


One of the biggest news facing KT&amp;G this year as been a class action lawsuit against KT&amp;G's directors by Flashlight Capital Partners.
KT&amp;G announced that it will cancel 3.5 million shares (about 315 billion won) on 16 February, which represent 2.6% of its outstanding shares and 16.7% of treasury shares.
One of the major reasons why we remain positive on KT&amp;G is that there is a relatively high probability of the company announcing cigarette price hikes in 2H 2024.


A First Major Class Action Lawsuit Against KT&G's Directors by FCP + KT&G's Results Analysis in 2023

Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Quantitative Analysis

<ul>
<li>During 4Q2023, the 200 largest weighted companies in the GEM index reported average EPS growth of +10.1%y/y, significantly up from the +3.5% reported during 3Q2023.</li>
<li>63% of companies delivered positive EPS surprises, and only 55% delivered positive Sales surprises, continuing the reacceleration trend witnessed during 2023.</li>
<li>Historically, there has been a significant difference in relative share price performance between the largest positive versus negative surprise generators, for 3 months after the reporting date.</li>
</ul>


During 4Q2023, the 200 largest weighted companies in the GEM index reported average EPS growth of +10.1%y/y, significantly up from the +3.5% reported during 3Q2023.
63% of companies delivered positive EPS surprises, and only 55% delivered positive Sales surprises, continuing the reacceleration trend witnessed during 2023.
Historically, there has been a significant difference in relative share price performance between the largest positive versus negative surprise generators, for 3 months after the reporting date.


Global Emerging Markets: Reporting Season Summary, 4Q2023

<ul>
<li>The total amount of share cancellations by Korean companies increased sharply in the past three years. Share cancellations of 6.1 trillion won in 2023 represented a 140% increase from 2021.</li>
<li>Although the total amount of share cancellations of 6.1 trillion won in 2023 seems fairly large, this represented only 0.24% of total market caps of Korean companies. </li>
<li>We also provide a list of seven Korean companies that have been targeted by activist investors  to cancel more shares and improve corporate governance. </li>
</ul>


The total amount of share cancellations by Korean companies increased sharply in the past three years. Share cancellations of 6.1 trillion won in 2023 represented a 140% increase from 2021.
Although the total amount of share cancellations of 6.1 trillion won in 2023 seems fairly large, this represented only 0.24% of total market caps of Korean companies. 
We also provide a list of seven Korean companies that have been targeted by activist investors  to cancel more shares and improve corporate governance. 


A 140% Increase in Share Cancellations by Korean Companies from 2021 to 2023

Equity Bottom-Up

<ul>
<li>
<strong>KT&amp;G is a high conviction pick in 2024.</strong><strong>We believe KT&amp;G Corporation (033780 KS) is likely to announce cigarette price hikes in 2H 2024.</strong>
</li>
<li>Three major reasons include a) no cigarette price hikes in nearly 9 years, b) Korean legislative election will be in April 2024, and c) reduce government tax revenue shortfall.</li>
<li>We believe that the Korean government could raise cigarette prices to about 7,000 won to 8,000 won per pack from current price of 4,500 won. </li>
</ul>



KT&amp;G is a high conviction pick in 2024.We believe KT&amp;G Corporation (033780 KS) is likely to announce cigarette price hikes in 2H 2024.

Three major reasons include a) no cigarette price hikes in nearly 9 years, b) Korean legislative election will be in April 2024, and c) reduce government tax revenue shortfall.
We believe that the Korean government could raise cigarette prices to about 7,000 won to 8,000 won per pack from current price of 4,500 won. 


2024 High Conviction: [KT&G - Likely To Announce Cigarette Price Hikes in 2H24]

South Korea

KT&G Corporation processes, produces, and sells cigarettes and other tobacco products.  The Company, through its subsidiaries, manufactures ginseng products such as red ginseng tea and herbal medicines.  KT&G is also involved in real estate development of its former factory sites.

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KT&G Corporation (033780 KS)

A First Major Class Action Lawsuit Against KT&G's Directors by FCP + KT&G's Results Analysis in 2023

One of the biggest news facing KT&G this year has been a class action lawsuit against KT&G's directors by Flashlight Capital Partners.

Douglas Kim

Global Emerging Markets: Reporting Season Summary, 4Q2023

In this quarterly insight, we analyse recent GEM reporting trends with reference to Sales and EPS growth, size and percentage of positive...

Wium Malan, CFA

2024 High Conviction: [KT&G - Likely To Announce Cigarette Price Hikes in 2H24]

KT&G is a high conviction pick in 2024. We believe KT&G is likely to announce cigarette price hikes in 2H 2024. The company has not raised...

Douglas Kim

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Korea: Surging Share Cancellations in 2024

We discuss the surging share cancellations in Korea in 2024. As of 8 February 2024, Korean companies have announced 3.3 trillion won worth of...

Douglas Kim

A First Major Class Action Lawsuit Against KT&G's Directors by FCP + KT&G's Results Analysis in 2023

One of the biggest news facing KT&G this year has been a class action lawsuit against KT&G's directors by Flashlight Capital Partners.

Douglas Kim

Global Emerging Markets: Reporting Season Summary, 4Q2023

In this quarterly insight, we analyse recent GEM reporting trends with reference to Sales and EPS growth, size and percentage of positive...

Wium Malan, CFA

A 140% Increase in Share Cancellations by Korean Companies from 2021 to 2023

The total amount of share cancellations by Korean companies increased sharply in the past three years. Share cancellations of 6.1 trillion won in...

Douglas Kim

2024 High Conviction: [KT&G - Likely To Announce Cigarette Price Hikes in 2H24]

KT&G is a high conviction pick in 2024. We believe KT&G is likely to announce cigarette price hikes in 2H 2024. The company has not raised...

Douglas Kim