Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Korea Exchange (KRX) will announce the results of the June 2021 review of the <a href="https://www.smartkarma.com/entities/kosdaq-150-index" target="_blank" data-smartkarma-citation="entities:31077:1" rel="noopener">KOSDAQ 150 Index (KOSDQ150 INDEX)</a>  in May with the changes becoming effective after the close of trading on 10 June.We see 14 potential changes to the index in the June review and we are less than a third of the way through the review period. The end of the short sell ban in March could bring a lot more changes to the index.The potential inclusions are <a href="https://www.smartkarma.com/entities/tesna-inc" target="_blank" data-smartkarma-citation="entities:8792:1" rel="noopener">Tesna Inc (131970 KS)</a>, <a href="https://www.smartkarma.com/entities/unison-co-ltd-south-korea" target="_blank" data-smartkarma-citation="entities:18617:1" rel="noopener">Unison Co Ltd (018000 KS)</a>, <a href="https://www.smartkarma.com/entities/tse-co-ltd" target="_blank" data-smartkarma-citation="entities:17821:1" rel="noopener">Tse Co Ltd (131290 KS)</a>, ABPro Bio (195990 KS), <a href="https://www.smartkarma.com/entities/icure-pharm-inc" target="_blank" data-smartkarma-citation="entities:27142:1" rel="noopener">Icure Pharm Inc (175250 KS)</a>, <a href="https://www.smartkarma.com/entities/sam-kang-m-t-co-ltd" target="_blank" data-smartkarma-citation="entities:7263:1" rel="noopener">Sam Kang M&amp;T (100090 KS)</a>, <a href="https://www.smartkarma.com/entities/simmtech-co-ltd" target="_blank" data-smartkarma-citation="entities:28871:1" rel="noopener">SIMMTECH Co Ltd (222800 KS)</a>, <a href="https://www.smartkarma.com/entities/binex-co-ltd" target="_blank" data-smartkarma-citation="entities:1949:1" rel="noopener">Binex Co Ltd (053030 KS)</a>, Vaxcell Bio (323990 KS), <a href="https://www.smartkarma.com/entities/kmh-co-ltd" target="_blank" data-smartkarma-citation="entities:18525:1" rel="noopener">Kmh Co Ltd (122450 KS)</a>, <a href="https://www.smartkarma.com/entities/solid-inc" target="_blank" data-smartkarma-citation="entities:14701:1" rel="noopener">Solid Inc (050890 KS)</a>, PSK Inc (319660 KS), AJu IB Investment (027360 KS) and <a href="https://www.smartkarma.com/entities/kpm-tech-co-ltd" target="_blank" data-smartkarma-citation="entities:15948:1" rel="noopener">Kpm Tech Co Ltd (042040 KS)</a>. The potential exclusions are <a href="https://www.smartkarma.com/entities/stcube" target="_blank" data-smartkarma-citation="entities:4872:1" rel="noopener">Stcube (052020 KS)</a>, <a href="https://www.smartkarma.com/entities/daea-ti-co-ltd" target="_blank" data-smartkarma-citation="entities:1473:1" rel="noopener">Daea Ti Co Ltd (045390 KS)</a>, <a href="https://www.smartkarma.com/entities/spigen-korea-co-ltd" target="_blank" data-smartkarma-citation="entities:9852:1" rel="noopener">Spigen Korea (192440 KS)</a>, <a href="https://www.smartkarma.com/entities/jusung-engineering-co-ltd" target="_blank" data-smartkarma-citation="entities:12277:1" rel="noopener">Jusung Engineering (036930 KS)</a>, <a href="https://www.smartkarma.com/entities/advanced-process-systems-corporation" target="_blank" data-smartkarma-citation="entities:24087:1" rel="noopener">Advanced Process Systems (265520 KS)</a>, <a href="https://www.smartkarma.com/entities/saraminhr-co-ltd" target="_blank" data-smartkarma-citation="entities:8494:1" rel="noopener">Saraminhr (143240 KS)</a>, <a href="https://www.smartkarma.com/entities/vt-gmp-co-ltd" target="_blank" data-smartkarma-citation="entities:8056:1" rel="noopener">Gmp Co Ltd (018290 KS)</a>, <a href="https://www.smartkarma.com/entities/iriver-ltd" target="_blank" data-smartkarma-citation="entities:13005:1" rel="noopener">Iriver Ltd (060570 KS)</a>, <a href="https://www.smartkarma.com/entities/innox-advanced-materials-co-ltd" target="_blank" data-smartkarma-citation="entities:24223:1" rel="noopener">Innox Advanced Materials Co,Ltd. (272290 KS)</a>, <a href="https://www.smartkarma.com/entities/ebest-investment-securitie" target="_blank" data-smartkarma-citation="entities:18895:1" rel="noopener">Ebest Investment &amp; Securitie (078020 KS)</a>, <a href="https://www.smartkarma.com/entities/sangsangin-co-ltd" target="_blank" data-smartkarma-citation="entities:10494:1" rel="noopener">Sangsangin Co., Ltd. (038540 KS)</a>, <a href="https://www.smartkarma.com/entities/shinheung-sec" target="_blank" data-smartkarma-citation="entities:24426:1" rel="noopener">Shin Heung Energy &amp; Electronics Co (243840 KS)</a>, <a href="https://www.smartkarma.com/entities/neopharm-co-ltd" target="_blank" data-smartkarma-citation="entities:10273:1" rel="noopener">Neopharm Co Ltd (092730 KS)</a> and <a href="https://www.smartkarma.com/entities/hlscience-co-ltd" target="_blank" data-smartkarma-citation="entities:23629:1" rel="noopener">HLSCIENCE Co. (239610 KS)</a>.One-way turnover is estimated at 5.44%. While the impact of passive funds is not high on the expected inclusions, the impact on the expected exclusions is much higher.

The Korea Exchange (KRX) will announce the results of the June 2021 review of the KOSDAQ 150 Index (KOSDQ150 INDEX)  in May with the changes becoming effective after the close of trading on 10 June.We see 14 potential changes to the index in the June review and we are less than a third of the way through the review period. The end of the short sell ban in March could bring a lot more changes to the index.The potential inclusions are Tesna Inc (131970 KS), Unison Co Ltd (018000 KS), Tse Co Ltd (131290 KS), ABPro Bio (195990 KS), Icure Pharm Inc (175250 KS), Sam Kang M&amp;T (100090 KS), SIMMTECH Co Ltd (222800 KS), Binex Co Ltd (053030 KS), Vaxcell Bio (323990 KS), Kmh Co Ltd (122450 KS), Solid Inc (050890 KS), PSK Inc (319660 KS), AJu IB Investment (027360 KS) and Kpm Tech Co Ltd (042040 KS). The potential exclusions are Stcube (052020 KS), Daea Ti Co Ltd (045390 KS), Spigen Korea (192440 KS), Jusung Engineering (036930 KS), Advanced Process Systems (265520 KS), Saraminhr (143240 KS), Gmp Co Ltd (018290 KS), Iriver Ltd (060570 KS), Innox Advanced Materials Co,Ltd. (272290 KS), Ebest Investment &amp; Securitie (078020 KS), Sangsangin Co., Ltd. (038540 KS), Shin Heung Energy &amp; Electronics Co (243840 KS), Neopharm Co Ltd (092730 KS) and HLSCIENCE Co. (239610 KS).One-way turnover is estimated at 5.44%. While the impact of passive funds is not high on the expected inclusions, the impact on the expected exclusions is much higher.

KOSDAQ150 Index Rebalance Preview: Lots of Changes Expected Already; More to Come

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

In this report, we discuss a shorting opportunity of a Korean telecom equipment maker called <a href="https://www.smartkarma.com/entities/kmw-co-ltd" target="_blank" data-smartkarma-citation="entities:2834:1" rel="noopener">Kmw Co Ltd (032500 KS)</a> whose share price has surged 213% YTD. KMW currently has a market cap of 2.7 trillion won ($2.3 billion). The company has never generated positive operating profit from 2015 to 2018. However, the consensus expects the company to generate sales of 809 billion won (up 173% YoY) and an operating profit of 161 billion won in 2019 (from operating loss of 31 billion won in 2018). The key driver of the company's sales and profits has been the explosive demand for its 5G equipment products.<div class="content-highlight">The average product prices of the company's RF System products soared by 200% from 2.4 million won in 2018 to 7.2 million won in 1H19 and we do not believe this kind of pricing leverage is sustainable in a highly cut-throat global telecom equipment industry. In addition, the global telcos (including the ones in Korea) are notorious for cutting telecom equipment prices as much as possible and they make a lot of effort at diversifying their supplier base. </div>So we think that the 25%+ operating margin assumption for KMW in 2020 and 2021 are probably too high and the sell-side analysts may be too optimistic in their earnings forecasts. In our view, about a 15% average operating margin assumption for the company is more reasonable in 2020 and 2021 for KMW, which means that the consensus operating profit estimates in 2020 and 2021 are probably overstated by about 40% in our view. All in all, we believe that shares of KMW are overvalued by about 40% and we believe the company's intrinsic value is closer to 1.6 trillion won (market cap) or 41,000 won per share (versus the current price of 69,000 won) over a one year view.

In this report, we discuss a shorting opportunity of a Korean telecom equipment maker called Kmw Co Ltd (032500 KS) whose share price has surged 213% YTD. KMW currently has a market cap of 2.7 trillion won ($2.3 billion). The company has never generated positive operating profit from 2015 to 2018. However, the consensus expects the company to generate sales of 809 billion won (up 173% YoY) and an operating profit of 161 billion won in 2019 (from operating loss of 31 billion won in 2018). The key driver of the company's sales and profits has been the explosive demand for its 5G equipment products.The average product prices of the company's RF System products soared by 200% from 2.4 million won in 2018 to 7.2 million won in 1H19 and we do not believe this kind of pricing leverage is sustainable in a highly cut-throat global telecom equipment industry. In addition, the global telcos (including the ones in Korea) are notorious for cutting telecom equipment prices as much as possible and they make a lot of effort at diversifying their supplier base. So we think that the 25%+ operating margin assumption for KMW in 2020 and 2021 are probably too high and the sell-side analysts may be too optimistic in their earnings forecasts. In our view, about a 15% average operating margin assumption for the company is more reasonable in 2020 and 2021 for KMW, which means that the consensus operating profit estimates in 2020 and 2021 are probably overstated by about 40% in our view. All in all, we believe that shares of KMW are overvalued by about 40% and we believe the company's intrinsic value is closer to 1.6 trillion won (market cap) or 41,000 won per share (versus the current price of 69,000 won) over a one year view. 

South Korea

Solid Inc. manufactures networking equipment.  The Company's products include in building hybrid fiber coax systems, tunnel optic repeaters, high power hybrid fiber coax systems, and gap fillers for digital multimedia broadcasting (DMB). Solid Technologies provides its products to KT Freetel and SK Telecom.

Solid Inc (050890 KS)

KOSDAQ150 Index Rebalance Preview: Lots of Changes Expected Already; More to Come

Less than a third of the way through the review period, we see 14 potential inclusions and exclusions from the KOSDAQ150 index. The resumption of...

Brian Freitas

KMW - A Shorting Opportunity

In this report, we discuss a shorting opportunity of a Korean telecom equipment maker called Kmw Co Ltd (032500 KS) whose share price has surged...

Douglas Kim