Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<div class="content-highlight"><p>The US Presidential election is not over. At this point, it appears that Biden will win but it will go down to the wire and the final ruling is likely to be contested by either side and this case will likely go to the Supreme Court. At this point, we would put an 80-90%+ probability that Biden wins this US Presidential Election and a very long shot that Trump wins. In a scenario of a Biden win, the <strong>Korean rechargeable battery value chain</strong> remains one of the most attractive near-term candidates for market outperformance, in particular <strong><a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a>,</strong> which has been beaten down recently.  </p></div>

The US Presidential election is not over. At this point, it appears that Biden will win but it will go down to the wire and the final ruling is likely to be contested by either side and this case will likely go to the Supreme Court. At this point, we would put an 80-90%+ probability that Biden wins this US Presidential Election and a very long shot that Trump wins. In a scenario of a Biden win, the Korean rechargeable battery value chain remains one of the most attractive near-term candidates for market outperformance, in particular LG Chem Ltd (051910 KS), which has been beaten down recently.  

Korean Rechargeable Batteries Value Chain: A Big Winner on a Biden Win & Global Climate Change Plans

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Event-Driven

<p>The Korea NPS has a long history of siding with the major shareholders.</p><p>But the recent actions seen lately were quite different, of course, probably influenced by the current left-winged administration's political position.</p><p>So, voting against the LG Chem battery unit demerger shouldn't be a total surprise.</p>

The Korea NPS has a long history of siding with the major shareholders.But the recent actions seen lately were quite different, of course, probably influenced by the current left-winged administration's political position.So, voting against the LG Chem battery unit demerger shouldn't be a total surprise.

NPS Says No to LG Chem Split: October 30 Voting Race Update

<p>After the market close on 27 October, the Korea National Pension Fund Service (NPS) announced that it will likely to vote against LG Chem's plan to separate the rechargeable battery business. On 16 September, LG Chem announced its plan to separate the rechargeable battery business and since then its share price has declined 13% (15 September to 27 October). In our view, this is perhaps the biggest activist move by the NPS this year on a Korean large-cap company in 2020. </p><div class="content-highlight"><p>Overall, we believe there is a slightly higher chance of winning for NPS and other investors that are voting against the demerger plan, although it will be a close call. In addition, in the case that the company fails to get enough votes for the demerger, we believe this will have a favorable impact on LG Chem's share price. In addition, the company may try to find other ways to realize higher value for the entire LG Chem shareholders but at the same time conduct a different way to spin-off the battery business.</p></div>

After the market close on 27 October, the Korea National Pension Fund Service (NPS) announced that it will likely to vote against LG Chem's plan to separate the rechargeable battery business. On 16 September, LG Chem announced its plan to separate the rechargeable battery business and since then its share price has declined 13% (15 September to 27 October). In our view, this is perhaps the biggest activist move by the NPS this year on a Korean large-cap company in 2020. Overall, we believe there is a slightly higher chance of winning for NPS and other investors that are voting against the demerger plan, although it will be a close call. In addition, in the case that the company fails to get enough votes for the demerger, we believe this will have a favorable impact on LG Chem's share price. In addition, the company may try to find other ways to realize higher value for the entire LG Chem shareholders but at the same time conduct a different way to spin-off the battery business.

NPS Takes a Stand Against LG Chem's Plan to Separate the Battery Business

LG Chem's latest shareholder return plan is as follows.
At least 30% payout on consolidated earnings (including the battery unit)
A minimum yearly dividend of ₩10,000 per share for 2020~2022 (starting this year)
(Source: DART)The announcement was made on October 14 after the market closed. As a result, we began to see a widening in the 1P/ordinary price ratio.The 20MA sigma peaked at +2.5 (favoring 1P) on October 19. It now settles back at +0.34σ as the price ratio almost got back to the pre-announcement level.









Date
Price ratio
% of σ
1P
Ordinary


10/23/20
0.49769
34.11%
₩323,500
₩650,000


10/22/20
0.50391
75.70%
₩322,000
₩639,000


10/21/20
0.52512
202.03%
₩324,000
₩617,000


10/20/20
0.52174
220.57%
₩324,000
₩621,000


10/19/20
0.52033
245.22%
₩320,000
₩615,000


10/16/20
0.50547
167.36%
₩323,500
₩640,000


10/15/20
0.50549
179.89%
₩322,000
₩637,000


10/14/20
0.49045
54.32%
₩308,000
₩628,000

Source: KRX

1P's immediate surge relative to the ordinary share should have been no surprise as the year-end dividend yield difference was the highest since 2015.











Yield
2015
2016
2017
2018
2019
2020E


1P - DPS
₩4,550
₩5,050
₩6,050
₩6,050
₩2,050
₩10,050


1P - price
₩247,000
₩179,500
₩249,000
₩195,500
₩173,000
₩323,500


1P - dividend yield
1.84%
2.81%
2.43%
3.09%
1.18%
3.11%


Common - DPS
₩4,500
₩5,000
₩6,000
₩6,000
₩2,000
₩10,000


Common - price
₩328,500
₩261,000
₩405,000
₩347,000
₩317,500
₩650,000


Common - dividend yield
1.37%
1.92%
1.48%
1.73%
0.63%
1.54%


Difference
0.47%p
0.89%p
0.94%p
1.36%p
0.55%p
1.56%p


Difference/1P div yield
25.64%
31.91%
39.03%
44.13%
46.84%
50.48%

Source: SEIBro &amp; FnGuide

Any chance of seeing a dividend of more than the minimum guaranteed ₩10,000 this year?The local street consensus earnings (compiled by FnGuide) is ₩1.43T, which delivers a 53.7% payout ratio, well above the 30% threshold. So, this year? We should be complacent with ₩10,000.











Payout (₩B)
2015
2016
2017
2018
2019
2020E


NP to controlling interests
1,153.0
1,281.1
1,945.3
1,472.6
313.4
1,426.3


Dividends
331.3
368.1
460.1
460.1
153.6
766.5


- 1P
34.7
38.5
46.4
46.4
15.7
77.1


- Common
296.6
329.6
413.6
413.6
137.9
689.4


Payout
28.73%
28.73%
23.65%
31.24%
49.01%
53.74%

Source: SEIBro &amp; FnGuide



LG Chem Dividend Situation: 1P/C Trade, Div Play, & Hybrid of Combining Two

<p>It was announced this morning that <a href="https://www.smartkarma.com/entities/sk-telecom-co-ltd-bbccd86c-474d-4a4d-946d-10e911a225a2" target="_blank" data-smartkarma-citation="entities:395:1" rel="noopener">SK Telecom (017670 KS)</a> plans to spin-off its mobility business and potentially partner with <a href="https://www.smartkarma.com/entities/uber-technologies-inc" target="_blank" data-smartkarma-citation="entities:430:1" rel="noopener">Uber (UBER US)</a> to launch a multi-service mobility platform. Following this news, shares of SK Telecom declined 4.7% to 231,000 won. This move follows the recent funding received by Socar last month which put Socar as the next Unicorn in South Korea. For further details, see our recent insight <a href="https://www.smartkarma.com/insights/socar-the-biggest-car-sharing-platform-in-korea-becomes-the-next-unicorn" target="_blank" data-smartkarma-citation="insights:44064" rel="noopener">Socar: The Biggest Car-Sharing Platform in Korea Becomes the Next Unicorn</a>. </p>

It was announced this morning that SK Telecom (017670 KS) plans to spin-off its mobility business and potentially partner with Uber (UBER US) to launch a multi-service mobility platform. Following this news, shares of SK Telecom declined 4.7% to 231,000 won. This move follows the recent funding received by Socar last month which put Socar as the next Unicorn in South Korea. For further details, see our recent insight Socar: The Biggest Car-Sharing Platform in Korea Becomes the Next Unicorn. 

SK Telecom Plans to Spin Off Mobility Business & Partner with Uber

South Korea

LG Chem Ltd. is a chemical manufacturer.  The Company's products include petrochemicals, plastic resins, and engineering plastics.  LG Chem also produces industrial and electronic materials.

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LG Chem Ltd (051910 KS)

Korean Rechargeable Batteries Value Chain: A Big Winner on a Biden Win & Global Climate Change Plans

In a scenario of a Biden win, the Korean rechargeable battery value chain remains one of the most attractive near-term candidates for market...

Douglas Kim

NPS Says No to LG Chem Split: October 30 Voting Race Update

The second-largest shareholder, Korea NPS, decided not to vote for the LG Chem battery unit split in the EGM scheduled for October 30. This insight...

Sanghyun Park

NPS Takes a Stand Against LG Chem's Plan to Separate the Battery Business

After the market close on 27 October, the Korea National Pension Fund Service (NPS) announced that it will likely to vote against LG Chem's plan to...

Douglas Kim

LG Chem Dividend Situation: 1P/C Trade, Div Play, & Hybrid of Combining Two

LG Chem's new 3-yr shareholder return plan opens up an entry point of several trades at this point. The hybrid of combining 1P/C pair trade and...

Sanghyun Park

SK Telecom Plans to Spin Off Mobility Business & Partner with Uber

It was announced this morning that SK Telecom (017670 KS) plans to spin-off its mobility business and potentially partner with Uber (UBER US) to...

Douglas Kim

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