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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

The review period for the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> June review ends on 30 April. The Korea Exchange (KRX) will announce the results of the June 2021 review of the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> in May with the changes becoming effective after the close of trading on 10 June.There are currently 201 index constituents following the spin off of <a href="https://www.smartkarma.com/entities/daelim-industrial-co-ltd" target="_blank" data-smartkarma-citation="entities:18095:1" rel="noopener">DL Co Ltd (000210 KS)</a> and the inclusion of <a href="https://www.smartkarma.com/entities/dl-e-c-co-ltd" target="_blank" data-smartkarma-citation="entities:31375:1" rel="noopener">DL E&amp;C Co Ltd (375500 KS)</a> in the index. There will be 202 index constituents following the spin off of <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> and the inclusion of LX Holdings in the index.We currently see 3 inclusions and 5 exclusions from the index. The potential inclusions are <a href="https://www.smartkarma.com/entities/hyosung-tnc-co-ltd" target="_blank" data-smartkarma-citation="entities:27749:1" rel="noopener">Hyosung TNC Co Ltd (298020 KS)</a>, <a href="https://www.smartkarma.com/entities/hyosung-advanced-materials-corporation" target="_blank" data-smartkarma-citation="entities:27751:1" rel="noopener">Hyosung Advanced Materials (298050 KS)</a> and <a href="https://www.smartkarma.com/entities/dongwon-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:1783:1" rel="noopener">Dongwon Industries (006040 KS)</a>, while the potential deletions are <a href="https://www.smartkarma.com/entities/taeyoung-engineering-construction-co-ltd" target="_blank" data-smartkarma-citation="entities:18740:1" rel="noopener">Taeyoung Engineering &amp; Construction (009410 KS)</a>, <a href="https://www.smartkarma.com/entities/namsun-aluminum-co-ltd" target="_blank" data-smartkarma-citation="entities:17514:1" rel="noopener">Namsun Aluminum (008350 KS)</a>, <a href="https://www.smartkarma.com/entities/binggrae-co-ltd" target="_blank" data-smartkarma-citation="entities:16424:1" rel="noopener">Binggrae Co Ltd (005180 KS)</a>, <a href="https://www.smartkarma.com/entities/hanil-hyundai-cement-co-ltd" target="_blank" data-smartkarma-citation="entities:14406:1" rel="noopener">Hanil Hyundai Cement (006390 KS)</a> and <a href="https://www.smartkarma.com/entities/samyang-corp" target="_blank" data-smartkarma-citation="entities:16321:1" rel="noopener">Samyang Corp (145990 KS)</a>. The expected Fast Entry of <a href="https://www.smartkarma.com/entities/sk-bioscience-co-ltd" target="_blank" data-smartkarma-citation="entities:31484:1" rel="noopener">SK Bioscience (302440 KS)</a> could result in <a href="https://www.smartkarma.com/entities/spc-samlip" target="_blank" data-smartkarma-citation="entities:6007:1" rel="noopener">SPC Samlip (005610 KS)</a> being deleted from the index.The potential Fast Entry of <a href="https://www.smartkarma.com/entities/sk-ie-technology" target="_blank" data-smartkarma-citation="entities:29207:1" rel="noopener">SK IE Technology (SKIET KS)</a> could result in <a href="https://www.smartkarma.com/entities/aekyung-industrial-co-ltd" target="_blank" data-smartkarma-citation="entities:27129:1" rel="noopener">Aekyung Industrial Co Ltd (018250 KS)</a> being deleted from the index.<a href="https://www.smartkarma.com/entities/taihan-electric-wire-co-ltd" target="_blank" data-smartkarma-citation="entities:11551:1" rel="noopener">Taihan Electric Wire (001440 KS)</a> is a very close add - the next 5 trading days will decide if the stock is added to the index or not.Short selling in Korea is scheduled to resume on 3 May and there could be a fair amount of movement in the stocks ahead of the index review announcement and implementation date.

The review period for the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) June review ends on 30 April. The Korea Exchange (KRX) will announce the results of the June 2021 review of the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) in May with the changes becoming effective after the close of trading on 10 June.There are currently 201 index constituents following the spin off of DL Co Ltd (000210 KS) and the inclusion of DL E&amp;C Co Ltd (375500 KS) in the index. There will be 202 index constituents following the spin off of LG Corp (003550 KS) and the inclusion of LX Holdings in the index.We currently see 3 inclusions and 5 exclusions from the index. The potential inclusions are Hyosung TNC Co Ltd (298020 KS), Hyosung Advanced Materials (298050 KS) and Dongwon Industries (006040 KS), while the potential deletions are Taeyoung Engineering &amp; Construction (009410 KS), Namsun Aluminum (008350 KS), Binggrae Co Ltd (005180 KS), Hanil Hyundai Cement (006390 KS) and Samyang Corp (145990 KS). The expected Fast Entry of SK Bioscience (302440 KS) could result in SPC Samlip (005610 KS) being deleted from the index.The potential Fast Entry of SK IE Technology (SKIET KS) could result in Aekyung Industrial Co Ltd (018250 KS) being deleted from the index.Taihan Electric Wire (001440 KS) is a very close add - the next 5 trading days will decide if the stock is added to the index or not.Short selling in Korea is scheduled to resume on 3 May and there could be a fair amount of movement in the stocks ahead of the index review announcement and implementation date.

KOSPI200 Index Rebalance Preview: Review Period Almost Complete; Short Selling Commences in a Week

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

In the past few days, <a href="https://www.smartkarma.com/entities/cj-corp" target="_blank" data-smartkarma-citation="entities:13964:1" rel="noopener">CJ Corp (001040 KS)</a> finally admitted that it is putting the Tous Les Jours (2nd largest bakery franchise in Korea) up for sale. Tous Les Jours is owned by CJ Foodville, which is 96% owned by CJ Corp. Tous Les Jours was apparently put up for sale early on this year. However, CJ Corp denied that it was selling Tous Les Jours in the early part of this year. Now, in the past few days, CJ Corp reneged on its previous denials and has finally decided to formally sell this<a href="https://finance.naver.com/item/news_read.nhn?article_id=0004715955&amp;office_id=018&amp;code=001040&amp;page=&amp;sm=title_entity_id.basic" target="_blank" rel="noopener"> bakery business. </a>CJ Group wants to focus on making various foodstuffs and divest unprofitable food retail (cafes &amp; bakery businesses). In April 2019, CJ Foodville sold a 45% stake in Twosome Place (leading coffee franchise in Korea) to Anchor Equity Partners for 202.5 billion won. CJ Foodville sold the remaining stake in Twosome Place to Anchor Equity Partners in 2020. Therefore, CJ's plans to sell the Tous Les Jours bakery franchise business would be another example of the CJ Group's strategy to focus on making foodstuffs and divest money-losing food retail business.According to our analysis, the NAV of CJ Corp is 134,725 won per share, which is 51.9% higher than current prices. The value of the public companies owned by CJ Corp (including CJ Cheiljedang, CJ ENM, and CJ CGV) is 4.3 trillion won. This has increased by nearly 1 trillion won since September 2019. We applied a 25% holdco discount in the NAV analysis. The implied market cap of CJ Corp is 3.9 trillion won.

In the past few days, CJ Corp (001040 KS) finally admitted that it is putting the Tous Les Jours (2nd largest bakery franchise in Korea) up for sale. Tous Les Jours is owned by CJ Foodville, which is 96% owned by CJ Corp. Tous Les Jours was apparently put up for sale early on this year. However, CJ Corp denied that it was selling Tous Les Jours in the early part of this year. Now, in the past few days, CJ Corp reneged on its previous denials and has finally decided to formally sell this bakery business. CJ Group wants to focus on making various foodstuffs and divest unprofitable food retail (cafes &amp; bakery businesses). In April 2019, CJ Foodville sold a 45% stake in Twosome Place (leading coffee franchise in Korea) to Anchor Equity Partners for 202.5 billion won. CJ Foodville sold the remaining stake in Twosome Place to Anchor Equity Partners in 2020. Therefore, CJ's plans to sell the Tous Les Jours bakery franchise business would be another example of the CJ Group's strategy to focus on making foodstuffs and divest money-losing food retail business.According to our analysis, the NAV of CJ Corp is 134,725 won per share, which is 51.9% higher than current prices. The value of the public companies owned by CJ Corp (including CJ Cheiljedang, CJ ENM, and CJ CGV) is 4.3 trillion won. This has increased by nearly 1 trillion won since September 2019. We applied a 25% holdco discount in the NAV analysis. The implied market cap of CJ Corp is 3.9 trillion won. 

Korea M&A Spotlight: CJ Corp Selling Tous Les Jours (#2 Bakery Franchise in Korea)

Equity Bottom-Up

<div class="content-highlight"><a href="https://www.smartkarma.com/entities/spc-samlip" target="_blank" data-smartkarma-citation="entities:6007:1" rel="noopener">SPC Samlip (005610 KS)</a> operates the largest bread bakery franchise in Korea. The stock price has now declined nearly 80% from its highs four years ago and we believe there are signs that the stock price is finally bottoming out and we believe that SPC Samlip is likely to outperform the market in the coming months. </div>SPC Samlip has been one of many companies in Korea that have been negatively impacted by several major policy changes including the significant increase in minimum wages, the start of the 52 hours work restriction and the conversion of employees to full-time employees from previous subcontract basis workers. These changes played key roles in reducing the overall profitability of the company in the past several years as evidenced by the reduction in the company's operating margin from 4.1% in 2015 to 2.7% in 2018. While the total number of employees increased by 107% from 2016 to 2018, the company's sales grew by only 18% during this period.Despite the higher labor cost burden associated with the change into full-time employees, it appears that most of this change has been made. Plus, the company is benefiting from a nice earnings rebound. The company recently announced its 2Q19 results which showed solid improvement. In 2Q19, the company posted sales of 608.2 billion won (up 6% YoY), operating profit of 16.6 billion won (up 73.4% YoY), and net profit of 11.4 billion won (up 96.5% YoY).

SPC Samlip (005610 KS) operates the largest bread bakery franchise in Korea. The stock price has now declined nearly 80% from its highs four years ago and we believe there are signs that the stock price is finally bottoming out and we believe that SPC Samlip is likely to outperform the market in the coming months. SPC Samlip has been one of many companies in Korea that have been negatively impacted by several major policy changes including the significant increase in minimum wages, the start of the 52 hours work restriction and the conversion of employees to full-time employees from previous subcontract basis workers. These changes played key roles in reducing the overall profitability of the company in the past several years as evidenced by the reduction in the company's operating margin from 4.1% in 2015 to 2.7% in 2018. While the total number of employees increased by 107% from 2016 to 2018, the company's sales grew by only 18% during this period.Despite the higher labor cost burden associated with the change into full-time employees, it appears that most of this change has been made. Plus, the company is benefiting from a nice earnings rebound. The company recently announced its 2Q19 results which showed solid improvement. In 2Q19, the company posted sales of 608.2 billion won (up 6% YoY), operating profit of 16.6 billion won (up 73.4% YoY), and net profit of 11.4 billion won (up 96.5% YoY). 

SPC Samlip: Bottoming Out After Four Years of Decline?

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last September, <a href="https://www.smartkarma.com/companies/636" target="_blank" data-smartkarma-citation="companies:636">Sustinvest</a> discussed in its insight <a href="https://www.smartkarma.com/insights/bgf-retail-spin-off-for-whom-the-bell-tolls" target="_blank">BGF Retail Spin-Off: For Whom the Bell Tolls</a>, the creation of the BGF Holdco/Opco, and concluded the spin-off did not i) improve corporate governance; ii) maximise management efficiency and transparency, and (iii) enhance the company and shareholder value.Subsequent to the spin-off, a tender offer/share swap will be implemented, with the tender offer commencing on the 14 February. With BGF Chairman Hong Suk-jo's seeking to further solidify his stake in the Holdco, <a href="https://www.smartkarma.com/entities/26731" target="_blank" data-smartkarma-citation="entities:26731:1">BGF Retail Co Ltd (282330 KS)</a> (Opco)'s share price has not wholly unexpectedly increased, whereas <a href="https://www.smartkarma.com/entities/5876" target="_blank" data-smartkarma-citation="entities:5876:1">BGF Co Ltd (027410 KS)</a>  (Holdco) has declined since the 8 December 2017 listing/relisting.A recap of the spin-off, a read through of the "partial scrip offer" and possible trade ideas, all below the fold.(In the past month, the liquidity for BGF and BGF Retail was US$8.1mn &amp; US$5.8mn)

Last September, Sustinvest discussed in its insight BGF Retail Spin-Off: For Whom the Bell Tolls, the creation of the BGF Holdco/Opco, and concluded the spin-off did not i) improve corporate governance; ii) maximise management efficiency and transparency, and (iii) enhance the company and shareholder value.Subsequent to the spin-off, a tender offer/share swap will be implemented, with the tender offer commencing on the 14 February. With BGF Chairman Hong Suk-jo's seeking to further solidify his stake in the Holdco, BGF Retail Co Ltd (282330 KS) (Opco)'s share price has not wholly unexpectedly increased, whereas BGF Co Ltd (027410 KS)  (Holdco) has declined since the 8 December 2017 listing/relisting.A recap of the spin-off, a read through of the "partial scrip offer" and possible trade ideas, all below the fold.(In the past month, the liquidity for BGF and BGF Retail was US$8.1mn &amp; US$5.8mn)

Maeil Holdings Co., Ltd. / Equity Bottom-Up

According to the Korea Dairy Association, milk demand (volume) rose to 1.38m tons in 2016, up 2.8% YoY. This was the first time that milk demand rose on a YoY basis since 2012 when milk demand was 1.4m tons. In terms of value, the Korean milk market was 2.06 trillion won in 2016, up 5.9% YoY, according to AC Nielson Research.The declining domestic milk demand from 2012 to 2015 was one of the risk factors for the major domestic dairy producers including <a href="https://www.smartkarma.com/entities/6420" target="_blank" data-smartkarma-citation="entities:6420:1">Maeil Dairy Industry (005990 KS)</a> (up 35%…

According to the Korea Dairy Association, milk demand (volume) rose to 1.38m tons in 2016, up 2.8% YoY. This was the first time that milk demand rose on a YoY basis since 2012 when milk demand was 1.4m tons. In terms of value, the Korean milk market was 2.06 trillion won in 2016, up 5.9% YoY, according to AC Nielson Research.The declining domestic milk demand from 2012 to 2015 was one of the risk factors for the major domestic dairy producers including Maeil Dairy Industry (005990 KS) (up 35%…

Higher Milk Demand in Korea, Lots of Lattes, & John Robbins of Baskin Robbins

South Korea

SPC Samlip Ltd. manufactures variety of breads, snacks, frozen sweets, and noodles.

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SPC Samlip (005610 KS)

KOSPI200 Index Rebalance Preview: Review Period Almost Complete; Short Selling Commences in a Week

There could be up to 6 inclusions and 8 exclusions at the KOSPI200 index review in June. The inclusions could outperform the exclusions as short...

Brian Freitas

Korea M&A Spotlight: CJ Corp Selling Tous Les Jours (#2 Bakery Franchise in Korea)

In the past few days, CJ Corp (001040 KS) finally admitted that it is putting the Tous Les Jours (2nd largest bakery franchise in Korea) up for...

Douglas Kim

SPC Samlip: Bottoming Out After Four Years of Decline?

SPC Samlip (005610 KS) operates the largest bread bakery franchise in Korea. The stock price has now declined nearly 80% from its highs four years...

Douglas Kim

The BGF Retail Swap Shop

Last September, Sustinvest discussed in its insight BGF Retail Spin-Off: For Whom the Bell Tolls, the creation of the BGF Holdco/Opco, and...

David Blennerhassett

Higher Milk Demand in Korea, Lots of Lattes, & John Robbins of Baskin Robbins

According to the Korea Dairy Association, milk demand (volume) rose to 1.38m tons in 2016, up 2.8% YoY. This was the first time that milk demand...

Douglas Kim

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