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.

Event-Driven

<p>We know that the Korea National Pension Service (NPS) is the nation's largest institutional investor, responsible for about 7% of the local equity market. But we often overlook the fact that it is also one of the largest institutional investors in the global coal industry.</p><p>According to the joint report by several environmental organizations, including Urgewald and Reclaim France, the NPS is, in fact, the world's 11th-largest investor in the coal industry. The NPS currently invests ₩12.7T in total on the coal-related bonds and equity, of which ₩4T are invested in equity.</p><p>There is news that the NPS will introduce a negative screening on the coal investment as early as the second half of this year.</p><p>The upcoming Fund Management Committee meeting, chaired by the Minister of Health and Welfare of South Korea, is scheduled for April 30. It is the highest-level investment decision-making body within the NPS. The negative screening is officially one of the proposals to be discussed in the April 30 meeting.</p><p style="text-align: center;"><strong>The Korea NPS governance structure</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/203/038/original/1.png?1619531424" class="editor-image img-responsive" data-smartkarma-image-id="203038"></figure></section><div class="content-caption">(Courtesy Korea NPS)</div><p>The chances are pretty high, given the current political mood under the left-winged administration. Coal will be a starter, likely followed by tobacco and mass destruction weapons soon.</p>

We know that the Korea National Pension Service (NPS) is the nation's largest institutional investor, responsible for about 7% of the local equity market. But we often overlook the fact that it is also one of the largest institutional investors in the global coal industry.According to the joint report by several environmental organizations, including Urgewald and Reclaim France, the NPS is, in fact, the world's 11th-largest investor in the coal industry. The NPS currently invests ₩12.7T in total on the coal-related bonds and equity, of which ₩4T are invested in equity.There is news that the NPS will introduce a negative screening on the coal investment as early as the second half of this year.The upcoming Fund Management Committee meeting, chaired by the Minister of Health and Welfare of South Korea, is scheduled for April 30. It is the highest-level investment decision-making body within the NPS. The negative screening is officially one of the proposals to be discussed in the April 30 meeting.The Korea NPS governance structure(Courtesy Korea NPS)The chances are pretty high, given the current political mood under the left-winged administration. Coal will be a starter, likely followed by tobacco and mass destruction weapons soon.

Shorting Alert Amid Korea NPS Negative Screening on Coal: KEPCO, GS, OCI, Kumho P, LG Int, & POSCO

<p>Kumho PetroC AGM ended with Park Chul-wan's defeat last Friday. It was a well-expected result. What was surprising was a widened price gap between 1P and ord.</p><p>Ord gained 5.99%, whereas 1P stayed at +1.65%, resulting in a nearly 2σ move in favor of ord.</p><p>1P discount is now pretty much back to the 2-yr mean.</p><table class="table table-striped">
<colgroup>
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"% of sigma"}'>% of sigma</td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Today"}'>Today</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.3336713645431289}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Data!R[-26]C[7]">-33.37%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"T-1"}'>T-1</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.451024967930148}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Data!R[-26]C[7]">145.10%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"T-2"}'>T-2</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":1.383964419410094}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Data!R[-26]C[7]">138.40%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"T-3"}'>T-3</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.9156023106109108}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Data!R[-26]C[7]">91.56%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"T-4"}'>T-4</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.28025357401397377}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Data!R[-26]C[7]">-28.03%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"T-5"}'>T-5</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-1.0565298444071825}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Data!R[-26]C[7]">-105.65%</td>
</tr>
<tr><td colspan="2" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table><table class="table table-striped">
<colgroup>
<col width="70">
<col width="70">
<col width="70">
<col width="70">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Metric"}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>Metric</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Price ratio"}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>Price ratio</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Discount"}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>Discount</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Δ"}' data-sheets-numberformat='{"1":2,"2":"#,##0"}'>Δ</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Today"}'>Today</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3857740585774059}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=Data!R[-35]C[2]">0.38577</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6142259414225941}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=Data!R[-35]C[0]">61.42%</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"-"}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"120D mean"}'>120D mean</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3891208548753185}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=average(Data!R2C4:R100C4)">0.38912</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6108791451246814}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=average(Data!R2C3:R100C3)">61.09%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.008600917313940934}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">-0.86%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"120D median"}'>120D median</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.38634146341463416}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=MEDIAN(Data!R2C4:R100C4)">0.38634</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6136585365853658}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=MEDIAN(Data!R2C3:R100C3)">61.37%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.0014686615105024932}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">-0.15%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"120D high"}'>120D high</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5102040816326531}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=MAX(Data!R2C4:R100C4)">0.51020</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.4897959183673469}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=MIN(Data!R2C3:R100C3)">48.98%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.24388284518828449}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">-24.39%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"120D low"}'>120D low</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.35174418604651164}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=MIN(Data!R2C4:R100C4)">0.35174</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6482558139534884}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=MAX(Data!R2C3:R100C3)">64.83%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.09674608388948443}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">9.67%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1Y mean"}'>1Y mean</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.3910047941933641}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=average(Data!R2C4:R248C4)">0.39100</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6089952058066355}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=average(Data!R2C3:R248C3)">60.90%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.013377676421459561}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">-1.34%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1Y median"}'>1Y median</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.38873239436619716}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=MEDIAN(Data!R2C4:R248C4)">0.38873</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6112676056338028}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=MEDIAN(Data!R2C3:R248C3)">61.13%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.007610211630586287}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">-0.76%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1Y high"}'>1Y high</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5102040816326531}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=MAX(Data!R2C4:R248C4)">0.51020</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.4897959183673469}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=MIN(Data!R2C3:R248C3)">48.98%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.24388284518828449}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">-24.39%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"1Y low"}'>1Y low</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.35174418604651164}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=MIN(Data!R2C4:R248C4)">0.35174</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6482558139534884}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=MAX(Data!R2C3:R248C3)">64.83%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.09674608388948443}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">9.67%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"2Y mean"}'>2Y mean</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.40209958122007}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=average(Data!R2C4:R476C4)">0.40210</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5979004187799297}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=average(Data!R2C3:R476C3)">59.79%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.04060069546237386}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">-4.06%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"2Y median"}'>2Y median</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.39854545454545454}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=MEDIAN(Data!R2C4:R476C4)">0.39855</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6014545454545455}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=MEDIAN(Data!R2C3:R476C3)">60.15%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.032045017255596546}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">-3.20%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"2Y high"}'>2Y high</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5102040816326531}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=MAX(Data!R2C4:R476C4)">0.51020</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.4897959183673469}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=MIN(Data!R2C3:R476C3)">48.98%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.24388284518828449}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">-24.39%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"2Y low"}'>2Y low</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.35174418604651164}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=MIN(Data!R2C4:R476C4)">0.35174</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6482558139534884}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=MAX(Data!R2C3:R476C3)">64.83%</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.09674608388948443}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R37C[-2]-R[0]C[-2])/R[0]C[-2]">9.67%</td>
</tr>
<tr>
<td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td>
<td></td>
</tr>
</tbody>
</table><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/197/790/original/chart+%281%29.png?1616968456" class="editor-image img-responsive" data-smartkarma-image-id="197790"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/197/791/original/chart.png?1616968465" class="editor-image img-responsive" data-smartkarma-image-id="197791"></figure></section>

Kumho PetroC AGM ended with Park Chul-wan's defeat last Friday. It was a well-expected result. What was surprising was a widened price gap between 1P and ord.Ord gained 5.99%, whereas 1P stayed at +1.65%, resulting in a nearly 2σ move in favor of ord.1P discount is now pretty much back to the 2-yr mean.





% of sigma

Today
-33.37%


T-1
145.10%


T-2
138.40%


T-3
91.56%


T-4
-28.03%


T-5
-105.65%

Source: KRX










Metric
Price ratio
Discount
Δ


Today
0.38577
61.42%
-


120D mean
0.38912
61.09%
-0.86%


120D median
0.38634
61.37%
-0.15%


120D high
0.51020
48.98%
-24.39%


120D low
0.35174
64.83%
9.67%


1Y mean
0.39100
60.90%
-1.34%


1Y median
0.38873
61.13%
-0.76%


1Y high
0.51020
48.98%
-24.39%


1Y low
0.35174
64.83%
9.67%


2Y mean
0.40210
59.79%
-4.06%


2Y median
0.39855
60.15%
-3.20%


2Y high
0.51020
48.98%
-24.39%


2Y low
0.35174
64.83%
9.67%


Source: KRX





Kumho PetroC Pref Arb Trade: Buy 1P Short Ord

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<p>As Kumho Petrochemical faces a showdown on Friday with corporate governance in focus, we examine merits of the proposals made by both Park Chul Whan and the company management. While we disagree with Park Chul Whan’s harsh criticism of operational performance over the last decade, corporate governance could definitely be improved with some changes.</p>

As Kumho Petrochemical faces a showdown on Friday with corporate governance in focus, we examine merits of the proposals made by both Park Chul Whan and the company management. While we disagree with Park Chul Whan’s harsh criticism of operational performance over the last decade, corporate governance could definitely be improved with some changes.

Kumho Petrochem – The Asian Governance Drive Continues

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

<p>The M&amp;A fight for <a href="https://www.smartkarma.com/entities/kumho-petro-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:2014:1" rel="noopener">Kumho Petro Chemical (011780 KS)</a> is one of the most interesting M&amp;A events in Korea in the past decade involving Park Chul Wan and his uncle Park Chan Koo. In this insight, we provide a detailed analysis of what may happen in the AGM on March 26th and beyond. </p><h2>Conclusion First</h2><ul>
<li>We like the proposals made by Park Chul Wan including much higher dividends, share buyback with cancellation, new business investments that may add additional long-term value, and the separation of ownership and management. In our view, Park Chul Wan's proposals are credible, make logical business sense, and are likely to add greater long-term value to the shareholders of Kumho Petrochem than the company's existing plans. </li>
<li>However, his uncle and Chairman Park Chan Koo may have the upper hand this time in terms of getting overall higher votes in the AGM on 26 March 2021. </li>
<li>The kicker to this story is the huge inheritance taxes in Korea. Over the next several years, there is a high likelihood that Kumho Petrochem's Chairman Park Chan Koo may transfer his ownership (6.7%) to his son which at that time, his family will be burdened with an enormous inheritance tax burden of 50%+. If and when Chairman Park Chan Koo transfers his ownership to his son and his family members pay for the fat inheritance taxes, the M&amp;A fight between the Chairman's son (Park Joon Kyung) and Park Chul Wan would likely to become a lot more intense.</li>
</ul><div class="content-highlight">
<p><strong>OVERALL, WE BELIEVE TIME IS ON THE SIDE OF PARK CHUL WAN.</strong> HE IS TRYING TO "DO THE RIGHT THING" IN IMPROVING SHAREHOLDER VALUE OF KUMHO PETROCHEM BY INTRODUCING HIGHER STANDARDS CORPORATE GOVERNANCE PRACTICES AS WELL AS ENHANCE VALUE OF EXISTING ASSETS.</p>
<p>Although Park Chul Wan may not win this time, we think that over time (in the next several years, especially if there is a transfer of ownership by Chairman Park Chan Koo to his son), more investors will understand the real value creation that Park Chul Wan is trying to make in the company, which is likely to lead to higher value creation. </p>
</div>

The M&amp;A fight for Kumho Petro Chemical (011780 KS) is one of the most interesting M&amp;A events in Korea in the past decade involving Park Chul Wan and his uncle Park Chan Koo. In this insight, we provide a detailed analysis of what may happen in the AGM on March 26th and beyond. Conclusion First
We like the proposals made by Park Chul Wan including much higher dividends, share buyback with cancellation, new business investments that may add additional long-term value, and the separation of ownership and management. In our view, Park Chul Wan's proposals are credible, make logical business sense, and are likely to add greater long-term value to the shareholders of Kumho Petrochem than the company's existing plans. 
However, his uncle and Chairman Park Chan Koo may have the upper hand this time in terms of getting overall higher votes in the AGM on 26 March 2021. 
The kicker to this story is the huge inheritance taxes in Korea. Over the next several years, there is a high likelihood that Kumho Petrochem's Chairman Park Chan Koo may transfer his ownership (6.7%) to his son which at that time, his family will be burdened with an enormous inheritance tax burden of 50%+. If and when Chairman Park Chan Koo transfers his ownership to his son and his family members pay for the fat inheritance taxes, the M&amp;A fight between the Chairman's son (Park Joon Kyung) and Park Chul Wan would likely to become a lot more intense.

OVERALL, WE BELIEVE TIME IS ON THE SIDE OF PARK CHUL WAN. HE IS TRYING TO "DO THE RIGHT THING" IN IMPROVING SHAREHOLDER VALUE OF KUMHO PETROCHEM BY INTRODUCING HIGHER STANDARDS CORPORATE GOVERNANCE PRACTICES AS WELL AS ENHANCE VALUE OF EXISTING ASSETS.
Although Park Chul Wan may not win this time, we think that over time (in the next several years, especially if there is a transfer of ownership by Chairman Park Chan Koo to his son), more investors will understand the real value creation that Park Chul Wan is trying to make in the company, which is likely to lead to higher value creation. 


The M&A Fight for Kumho Petrochem - Time Is On the Side of Park Chul Wan

Korea Event-Driven and Corporate Governance, DewPoint Research

Yeaseul Lim

Korea Event-Driven and Corporate Governance

Independent Equity Research Provider - South Korea

DewPoint Research

At DewPoint, we aim to convey a clear understanding of a company’s approach to capital allocation. As a matter of corporate governance, capital allocation reflects whose interests a company prioritizes when making management decisions. Given the Korean context, it comes down to a question of whether the company undermines the interests of minority shareholders for private benefits of controlling shareholders. This is what we focus on as a fundamental starting point in our research.
 
Capital allocation principles and practices provide the foundation for a company’s sustainable value creation. Thus, investors need to be alert to any possible distortions in capital allocation, especially when they take a long-term perspective. They also want to find safe stocks with committed management, no separation between ownership and control, and robust business models. We seek to fulfill such needs in a disciplined manner.
 
We also work as a representative of foreign investors who are willing to exercise active ownership in their investee companies. Our service may include identifying stocks that are fundamentally strong but vulnerable to activist attacks.

Korean companies have historically carried fairly low dividend yields, which is one of the key factors driving the so-called "Korea Discount". As we pointed out in our previous insights, Korean institutional investors are becoming more visible and vocal, especially after they adopted the Stewardship Code. The upcoming AGMs are worth paying attention to. In a series of insights, we want to update you on the progress that institutional investors are making. Here, we first look into companies being asked to raise dividends. 
We have earlier discussed the changing legal landscape of shareholder activism in Korea with a focus on the National Pension Service of Korea ("NPS"). You can refer to the following insights: 


Two Notable Changes in National Pension Service of Korea: Activism Guideline and Delegation of Votes 

Key Changes In South Korea's Beneficial Ownership Disclosure Rule: Legal Basis For Activism 

As a follow-up, we take a closer look at the companies where NPS and activist institutional investors hold a higher stake and/or have requested (or will likely request) the companies improve capital allocation. We build a watchlist based on the following rules and track them. We fist first focus on companies that have been blamed for low dividends. 
Some targeted companies are deeply undervalued stocks. They have a few catalysts (other than dividend increases) to watch for ahead. We will cover them later in separate insights.
Below are the steps we have taken to create the watchlist. 


Companies that had the board resolution approving dividends voted against by NPS

There are nine (9) companies that fall into this category. Among them, we saw improvements in a few stocks that were notorious for low dividends - Namyang Dairy Products Co (003920 KS), Daeyang Electric (108380 KS), and S&amp;T Corp (100840 KS).



Companies publicly targeted by value-based institutional investors due to their unreasonable capital allocation and weak shareholder returns

Other than NPS, we monitor seven (7) key institutional investors in Korea, which mostly use the value investing strategy, such as KB Asset Management, Korea Investment Value Asset Management ("Korea Value"), Shinyoung Asset Management, VIP Research &amp; Management, Value Partners, Value Investing Advisors, and Must Asset Management.
Those institutional investors seek to address different problems related to capital allocation. In this insight, we focus on stocks with low dividends. We see that Hyosung TNC Co Ltd (298020 KS) and S.M.Entertainment Co (041510 KS) will likely respond to investors' demand for dividends for the upcoming years. 



Companies for which NPS has made disclosure of changes in investment intentions from "simple portfolio investment" to "limited stewardship activities"

There are 56 companies that fall into this category. The list is presented in Key Changes In South Korea's Beneficial Ownership Disclosure Rule: Legal Basis For Activism. 
NPS announced that it would focus on three agendas - dividends, executive pay, and BoD qualifications. It is not yet sure which companies NPS will target in regard to dividends. 
NPS has not taken any public actions and appears to engage with companies privately. We included the top 20 companies with the lowest payout ratios in our watchlist. 




     


Company
Mkt. Cap (billion KRW)
PBR
Controlling Stake
NPS
Other Institutional Investors (active)
DPS (KRW)
Dividend Yield (%)


FY18
FY19
FY18
FY19


1. Companies that had the board resolution approving dividends voted against by NPS 



S&amp;T Corp (100840 KS) 
124
0.35
55.9%
5.1%
　-
0
800
0.0
4.1



Gwangjushinsegae (037710 KS) 
246
0.46
　62.5%
N/A
KB 7.5%*
3,000
3,500
1.7
2.1



Namyang Dairy Products Co (003920 KS) 
292
0.61
53.9%
6.6%*
Shinyoung 4.4%
1,000
N/A
0.2
N/A



Daeyang Electric (108380 KS) 
115
0.58
59.9%
7.2%
　-
0
200
0.0
1.5



Netmarble Corporation (251270 KS) 
7,932
2.10
24.2%
N/A
　-
0
N/A
0.0
N/A



Eo Technics (039030 KS) 
1,154
1.59
31.7%
5.5%
Mirae 5.0%
100
150
0.2
0.2



Cs Holdings (000590 KS) 
62
0.34
73.4%
0.0%
Shinyoung 10.0%
500
N/A
0.8
N/A



Sbs Media Holdings (101060 KS) 
277
0.40
61.4%
4.8%
Must 15.2% Korea Investment 6.4%
0
0
0.0
0.0



Simpac Inc (009160 KS) 
186
0.35
　60.0%
0.0%
Fidelity 6.7%
60
60
2.5
2.1


2. Companies publicly targeted by value-based institutional investors due to their weak shareholder returns 


Golfzon (215000 KS)
282
1.08
53.7%
5.7%
KB 24.9%*
1,850
N/A
5.5
N/A



Kmh Co Ltd (122450 KS) 
127
0.81
34.0%
0.0%
KB 16.2%*
120
70
1.6
1.3



Hyosung TNC Co Ltd (298020 KS) 
643
1.97
43.9%
12.3%
KB 15.6%*
1,000
2,000
0.5
1.3



Com2us Corp (078340 KS) 
1,287
1.86
26.4%
0.0%
KB 9.5%*
1,400
1,400
1.1
1.3



S.M.Entertainment Co (041510 KS) 
664
2.83
19.2%
9.3%

KB 6.8%*
Korea Investment 7.6% Korea Value 5.1%

0
N/A
0.0
N/A



Kisco Holdings (001940 KS) 
198
0.32
45.5%
0.0%
Korea Value 12.8%*
280
280
2.0
2.2



Kisco Corp (104700 KS) 
183
0.35
52.7%
9.3%
Shinyoung 9.5% Hermes 3.9%
200
200
3.6
4.1



Sebang Co Ltd (004360 KS) 
204
0.34
44.6%
0.0%
Korea Value 14.4%*
175
175
1.5
1.6



Global &amp; Yuasa Battery Co (004490 KS) 
452
0.51
41.5%
5.0%
Korea Value &lt; 5%*
500
500
1.4
1.4



Nexen Corp (005720 KS) 
287
0.33
59.4%
0.0%
Korea Value 14.2%*
75
80
1.4
1.3



Youngone Holdings (009970 KS) 
556
0.74
46.2%
5.6%

Korea Value &lt; 5%*
Fidelity 10.0%

800
1,000
1.3
2.0



Taeyoung Engineering&amp;Cons-Pf (009415 KS) 
1,020
0.86
38.3%
9.7%
Must 15.9%** Korea Investment 5.2%
125
150
1.1
1.3


3. Companies for which NPS changed investment intentions - Top 20 with the lowest payout ratios



Celltrion Inc (068270 KS) 
23,910
10.29
22.7%
8.2%*
　-
0
0
0.0
0.0



SK Hynix (000660 KS) 
67,413
0.89
20.1%
10.2%*
　-
1,500
1,000
2.5
1.1



Naver Corp (035420 KS) 
29,584
3.08
11.8%*
　-
314
376
0.3
0.2



Kumho Petro Chemical (011780 KS) 
2,050
1.22
24.7%
7.9%*
　-
1,350
1,500
1.6
1.9



Hyundai Dept Store Co (069960 KS) 
1,657
0.50
36.1%
12.5%*
　-
900
1,000
1.0
1.2



Samsung Sdi (006400 KS) 
22,032
1.26
20.6%
11.0%*
-
1,000
1,000
0.5
0.4



Korea Petrochemical Ind (006650 KS) 
578
0.59
40.2%
7.6%*
　-
4,000
2,500
2.6
2.1



Daelim Industrial (000210 KS) 
2,673
0.73
23.1%
12.3%*
　-
1,700
N/A
1.7
N/A



Hankook Tire &amp; Technology (161390 KS) 
3,159
0.74
43.2%
8.1%*
　-
450
550
1.1
1.6



LG Electronics (066570 KS) 
10,270
0.79
33.7%
9.5%*
　-
750
750
1.2
1.0



Samsung Electro Mechanics Co, Ltd. (009150 KS) 
9,990
1.62
24.0%
11.6%*
　-
1,000
1,100
1.0
0.9


Hwaseung Enterprise Co (241590 KS)
905
2.30
72.0%
7.3%*
　-
35
N/A
0.3
N/A



E Mart Inc (139480 KS) 
3,234
0.62
28.6%
12.7%*
　-
2,000
2,000
1.1
1.5



SK Holdings (034730 KS) 
13,780
1.05
29.7%
7.5%*
　-
5,000
4,000
1.9
1.5



Hanwha Corporation (000880 KS) 
1,825
0.73
38.1%
9.3%*
　-
700
700
2.2
2.8



Hankook Technology Group (000240 KS) 
1,070
0.49
73.9%
7.7%*
　-
300
350
1.8
2.4



Sk Discovery (006120 KS) 
439
0.37
45.1%
7.0%*
　-
600
700
2.3
2.8



Korea Kolmar (161890 KS) 
968
3.59
30.3%
9.9%*
　-
330
N/A
0.5
N/A



Hanwha Chemical (009830 KS) 
2,952
0.54
37.6%
10.2%*
　-
200
200
1.0
1.1



LG Corp (003550 KS) 
11,961
0.68
46.6%
7.6%*
　-
2,000
2,200
2.9
2.9



Source: Dart (http://dart.fss.or.kr), DewPoint Research 




*Investment intentions of "limited stewardship activities"
**Investment intentions of "influencing management"





Korea's Low Dividend Stocks Facing Pressure From Institutional Investors

South Korea

Kumho Petrochemical Co., Ltd. manufactures synthetic rubbers, synthetic resins, and rubber chemicals.  The Company's products include styrene butadiene, acrylonitrile butadiene, polystyrene, expandable polystyrene, and antioxidant.  Kumho Petrochemical provides construction, transportation, and financial services through its subsidiaries.

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Kumho Petro Chemical (011780 KS)

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