Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

<ul>
<li>In this insight, we provide an early look at the potential deletions and additions to KOSPI200 rebalance. </li>
<li>We provide the top 10 potential deletions including Cosmax Inc (192820 KS), Hyundai Home Shopping Network (057050 KS), and Samyang Holdings (000070 KS) to KOSPI200 (announcement in November 2022).</li>
<li>Our trading strategy for the KOSPI200 index would be to go short on a basket of the potential deletions and to go long on a basket of the potential additions.</li>
</ul>


In this insight, we provide an early look at the potential deletions and additions to KOSPI200 rebalance. 
We provide the top 10 potential deletions including Cosmax Inc (192820 KS), Hyundai Home Shopping Network (057050 KS), and Samyang Holdings (000070 KS) to KOSPI200 (announcement in November 2022).
Our trading strategy for the KOSPI200 index would be to go short on a basket of the potential deletions and to go long on a basket of the potential additions.


An Early Look at Potential Deletions and Additions to KOSPI200

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.

Equity Capital Markets

<ul>
<li>In SOCAR's IPO, the early investors' post-listing flow direction draws the market's attention as much as the valuation issue.</li>
<li>Even this pricing level is high enough to infer that these VCs will be tempted to consider exiting after listing. A significant level of short-term overhang risk is inevitable.</li>
<li>Then, we need to factor in the Lotte factor, which will likely expand its stake after listing to secure management rights for Socar.</li>
</ul>


In SOCAR's IPO, the early investors' post-listing flow direction draws the market's attention as much as the valuation issue.
Even this pricing level is high enough to infer that these VCs will be tempted to consider exiting after listing. A significant level of short-term overhang risk is inevitable.
Then, we need to factor in the Lotte factor, which will likely expand its stake after listing to secure management rights for Socar.


SOCAR IPO Post-Listing Flow: VC-Triggered Overhang Vs. Lotte's Counter Move

<ul>
<li>Our base case valuation of Socar is target price of 27,967 won, which is 18% lower than the low end of the IPO price range of 34,000 won.</li>
<li>Given the lack of upside, we would Pass on this IPO. Our valuation is also 23% lower than the valuation that Lotte Rental paid for its 13.9% stake in Socar.</li>
<li>We estimate Socar to generate sales of 396.4 billion won (up 37.2% YoY) and EBITDA margins of 12.6% in 2022. </li>
</ul>


Our base case valuation of Socar is target price of 27,967 won, which is 18% lower than the low end of the IPO price range of 34,000 won.
Given the lack of upside, we would Pass on this IPO. Our valuation is also 23% lower than the valuation that Lotte Rental paid for its 13.9% stake in Socar.
We estimate Socar to generate sales of 396.4 billion won (up 37.2% YoY) and EBITDA margins of 12.6% in 2022. 


<ul>
<li>This IPO's valuation is the trickiest among Korea's recent IPOs. Whether all of these ten valuation peers have high enough business relevance to SOCAR is highly doubtful.</li>
<li>Whether SOCAR can evolve from a simple car sharing (or rental) operator to an in-vehicle software platform provider actually determines the success or failure of this IPO.</li>
<li>However, the IPO prospectus available to us lacks the evidence to favorably judge SOCAR's growth potential. So, I will consider taking this IPO as conservatively as possible.</li>
</ul>


This IPO's valuation is the trickiest among Korea's recent IPOs. Whether all of these ten valuation peers have high enough business relevance to SOCAR is highly doubtful.
Whether SOCAR can evolve from a simple car sharing (or rental) operator to an in-vehicle software platform provider actually determines the success or failure of this IPO.
However, the IPO prospectus available to us lacks the evidence to favorably judge SOCAR's growth potential. So, I will consider taking this IPO as conservatively as possible.


<ul>
<li>We discuss the potential additions and deletions in the upcoming June 2022 KOSPI200 rebalance. The outbreak of war in Ukraine has impacted the potential additions/deletion candidates. </li>
<li>These top 10 potential inclusions are up on average 10.8% YTD, outperforming KOSPI which is down 9.1% YTD.</li>
<li>Among the potential inclusions, Ildong Pharm, Meritz F&amp;M Insurance, Hana Tour, Dongwon Systems, and Lotte Rental have been materially outperforming the market in the past three months. </li>
</ul>


We discuss the potential additions and deletions in the upcoming June 2022 KOSPI200 rebalance. The outbreak of war in Ukraine has impacted the potential additions/deletion candidates. 
These top 10 potential inclusions are up on average 10.8% YTD, outperforming KOSPI which is down 9.1% YTD.
Among the potential inclusions, Ildong Pharm, Meritz F&amp;M Insurance, Hana Tour, Dongwon Systems, and Lotte Rental have been materially outperforming the market in the past three months. 


KOSPI 200 Rebalance in June 2022 Amid Portfolio Changes Post Outbreak of War in Ukraine

South Korea

Lotte Rental Co.,Ltd. provides car rental services. The Company offers passenger car rental, commercial car rental, used vehicle rental, and other related services. Lotte Rental offers services worldwide.

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Lotte Rental (089860 KS)

An Early Look at Potential Deletions and Additions to KOSPI200

We provide an early look at the potential deletions and additions to KOSPI200 rebalance. We provide the top 10 potential deletions including...

Douglas Kim

SOCAR IPO Post-Listing Flow: VC-Triggered Overhang Vs. Lotte's Counter Move

This post investigates the most significant hidden issue of the SOCAR IPO: the post-listing flow dynamics between the VCs and Lotte Rental.

Sanghyun Park

Socar IPO Valuation Analysis

Our base case valuation of Socar is target price of 27,967 won, which is 18% lower than the low end of the IPO price range of 34,000 won. Given the...

Douglas Kim

SOCAR IPO: Another Absurd Valuation

This post details the terms of the SOCAR IPO and discusses the irrational valuation done by the bankers, considering that the IPO prospectus...

Sanghyun Park

KOSPI 200 Rebalance in June 2022 Amid Portfolio Changes Post Outbreak of War in Ukraine

We discuss the potential additions and deletions in the upcoming June 2022 KOSPI200 rebalance. The outbreak of war in Ukraine has impacted the...

Douglas Kim

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