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South Korea

South Korea: LG Energy Solution, LG Chem Ltd, SK Telecom Co Ltd (Adr) and more

By | Daily Briefs, South Korea

In today’s briefing:

  • FTSE All-World/​All-Cap Index Rebalance: Inclusions, Deletions & Other Changes
  • LG Chem & LG Energy LONG/SHORT Pair Trading on a Massive NAV Discount
  • SK Telecom Multi-Step Trading Scenario for Underlying & ADR Amid Zero Foreign Room

FTSE All-World/​All-Cap Index Rebalance: Inclusions, Deletions & Other Changes

By Brian Freitas

  • For Asia Pacific, there are 8 inclusions each to the All-World Index and the All-Cap Index at the June QIR. Quite a few have over 3 days ADV to buy.
  • There are also changes to the NOS and investability weights that will require passive funds to buy/sell a lot of stocks. Some have a reasonably large impact/flow.
  • A lot of the IPOs are trading below their offering prices and investors could be looking to sell into any rallies that take the stocks close to their IPO prices.

LG Chem & LG Energy LONG/SHORT Pair Trading on a Massive NAV Discount

By Sanghyun Park

  • The LG Chem/LG Energy pair has been getting much attention lately. Its stakeholding value in LG Energy amounts to ₩83.1T, more than twice its own market value.
  • Given LG Chem’s solid operating business value, only the likes of SK Square is worse in terms of NAV discount, as LG Chem’s NAV discount is nearing 70%.
  • With the LG Chem OUT/LG Energy IN passive play pretty much completed, we should aim at an entry point for LG Chem’s massive discount to its LG Energy shareholding value.

SK Telecom Multi-Step Trading Scenario for Underlying & ADR Amid Zero Foreign Room

By Sanghyun Park

  • We first consider a currency hedging setup to target an ADR premium surge before SKT reaches zero foreign room. We close this position as the MSCI special deletion is announced.
  • We then move onto an outright long position on the SKT underlying shares to capitalize on potential share recall.
  • Lastly, I would quickly jump onto a KT LONG/SKT SHORT position to target potential alternative trading flow.

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South Korea: KT Corp, Kakao Pay and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Price Comparisons of SK Telecom, KT, & LG Uplus When SK Telecom Reaches 99%+ Foreign Ownership
  • KOSPI 200 IT Sector Index Rebalancing Flow: Watch Kakao Pay & LG Corp

Price Comparisons of SK Telecom, KT, & LG Uplus When SK Telecom Reaches 99%+ Foreign Ownership

By Douglas Kim

  • We analyzed the different share price movements of SK Telecom relative to KT and LG Uplus from 2005 to 2022 when foreign ownership of SK Telecom remained above 99%.
  • From 2005 to 2022, KT and LG Uplus outperformed SKT in 7 and 6 out of 11 periods, respectively when the foreign ownership of SKT was above 99%.
  • Once KT’s foreign ownership rises to the 93-95% range, there will be more concerns about foreign ownership limit which means that LG Uplus could be in focus once again. 

KOSPI 200 IT Sector Index Rebalancing Flow: Watch Kakao Pay & LG Corp

By Sanghyun Park

  • We should focus on the weight changes of the existing constituents. For this, two names really stand out: Kakao Pay (+0.44x ADTV) and LG Corp (+0.37x ADTV).
  • It is because Kakao Pay and LG Corp will undergo an increase in their float rate in the KOSPI 200 rebalancing, and these up-weights will also affect this sector index.
  • Their combined inflow size (KOSPI 200 & KOSPI 200 IT) will be 1.41x and 1.16x ADTVs. This will be the most substantial, except for Kakao Bank and the new additions.

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South Korea: Celltrion Inc, SK Telecom, NCSOFT Corp and more

By | Daily Briefs, South Korea

In today’s briefing:

  • FnGuide Top 10 Rebalancing on June 10: More Substantial Flow Impact than Last Time
  • SK Telecom: Historical Price Analysis of Reaching 100% Foreign Ownership Limit
  • NCsoft: A Strong Turnaround Play in Korean Game Sector

FnGuide Top 10 Rebalancing on June 10: More Substantial Flow Impact than Last Time

By Sanghyun Park

  • Celltrion Inc (068270 KS)’s deletion seems pretty much a foregone conclusion as its average float-adjusted market cap on May 3-19 is way below the next one in line.
  • Shinhan Financial (055550 KS) is the one to replace Celltrion based on the numbers so far. There is close to a ₩1T gap with the next one, POSCO (005490 KS).
  • In this rebalancing, the flow impact of the addition/deletion is even more significant. So, their share price fluctuations on June 10 will likely be more substantial than last time.

SK Telecom: Historical Price Analysis of Reaching 100% Foreign Ownership Limit

By Douglas Kim

  • In this insight, we analyzed the different share price movements of SK Telecom relative to KOSPI from 2005 to 2022 when foreign ownership remained above 99%.
  • Once MSCI announces the potential deletion of SK Telecom from MSCI Korea Index in the next several weeks, there could be some short term temporary weakness on SK Telecom.
  • Over a longer period, SK Telecom is well poised to outperform the market amid the market’s rotation into value stocks and the company’s strong earnings and cash flow growth.

NCsoft: A Strong Turnaround Play in Korean Game Sector

By Douglas Kim

  • Amid recent market carnage, one of the strong turnaround stocks in Korea is NCSOFT Corp (036570 KS) which is down 54% from its highs in February 2021.
  • Three major reasons why NCsoft’s share price will turnaround include attractive valuations, better control of labor costs, and strong pipeline of new games. 
  • Short sale value/market cap ratio for NCsoft has declined materially in the past several weeks, reflecting increased optimism in the company’s future prospects. 

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South Korea: SK Telecom, Enchem and more

By | Daily Briefs, South Korea

In today’s briefing:

  • SK Telecom: MSCI Special Deletion & Immediate Price Spike on Share Recall
  • SK Telecom (017670 KS): Implications of Zero Foreign Room
  • KOSDAQ 150 Rebalancing: Complete List of Candidates, Including Enchem

SK Telecom: MSCI Special Deletion & Immediate Price Spike on Share Recall

By Sanghyun Park

  • Looking at these past similar cases, the MSCI will likely announce SKT’s special deletion within 2-3 days of reaching zero foreign room and rebalancing within 2-3 days after the announcement.
  • We will see a passive outflow of about 2M shares or about ₩115B, equivalent to 2.7x ADTV, which will likely lead to an immediate price spike.
  • ETF funds tracking the MSCI have a large proportion of loaning SKT shares. So, when an MSCI down-weight occurs to SKT, an immediate recall will push up the price.

SK Telecom (017670 KS): Implications of Zero Foreign Room

By Brian Freitas

  • Foreign investors hold 106.51m shares of SK Telecom (017670 KS) versus a limit of 107.23m shares. There are only 723k more shares (1 day of ADV) available for foreign buying.
  • MSCI will delete SK Telecom (017670 KS) from its indices once the foreign room reaches zero, while FTSE will likely reduce the investability weight in two tranches of 5% each.
  • SK Telecom (017670 KS) could continue underperforming KT Corp (030200 KS) in the short-term due to passive selling and inability of foreign investors to buy the stock.

KOSDAQ 150 Rebalancing: Complete List of Candidates, Including Enchem

By Sanghyun Park

  • Enchem (348370 KS) is in a bit tricky situation. Applying the KRX’s review period calculation criterion to Enchem satisfies the minimum listing requirement.
  • So, we should consider Enchem’s addition odds quite high. Enchem’s inclusion will pave the way for Sungwoo Hitech (015750 KS) to leave the Index.
  • We have ten adds/deletes, and WYSIWYG Studios (299900 KS) leads the adds for the passive impact, whereas JNTC Co Ltd (204270 KS) will suffer the most relative to ADTV.

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South Korea: Woori Financial Group , LG Energy Solution, Dongwon Industries and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Woori Financial Block Deals: Another Shares Let-Go Event for Passive Buying
  • A Pair Trade Between LG Chem & LG Energy Solution
  • Dongwon Industries Listens to Minority Shareholders and Changes Merger Ratio with Dongwon Enterprise

Woori Financial Block Deals: Another Shares Let-Go Event for Passive Buying

By Sanghyun Park

  • The KDIC sold a 2.33% stake in Woori Financial through an after-hours block sale. From a passive flow perspective, this is quite similar to KSOE’s HHI block deals yesterday.
  • Woori is likely to show a similar share price movement as HHI. Expectations for the passive inflow effect must have dissipated, and a short-term share price correction is now inevitable.
  • However, the passive inflow sizes are still too substantial. With this in mind, we need to consider a strategy that approaches this price correction as a re-entry opportunity.

A Pair Trade Between LG Chem & LG Energy Solution

By Douglas Kim

  • We believe there is an attractive pair trade of going long on LG Chem and going short on LG Energy Solution at current levels. 
  • Main reasons why we like this pair trade include large shares that could be sold after 6 months lockup for LGES, LG Chem’s attractive valuation, and shift to value stocks.
  • In the past one month, LG Energy Solution is down 5.3% whereas LG Chem is up 2.4%. We believe this gap could widen in the next several months. 

Dongwon Industries Listens to Minority Shareholders and Changes Merger Ratio with Dongwon Enterprise

By Douglas Kim

  • In a surprising move, Dongwon Industries announced that it will listen to the demands of the minority shareholders and change the merger ratio with Dongwon Enterprise.
  • This is likely to have a positive impact on Dongwon Industries since it boosts the value of Dongwon Industries’ minority shareholders at the expense of controlling shareholders of Dongwon Enterprise.
  • The merger price of Dongwon Industries will be raised from 248,961 won to 384,140 won (reflecting net asset value). The merger ratio will be adjusted from 1:3.8385530 to 1:2.7023475.

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South Korea: Woori Financial Group , SAMPYO Cement and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Woori Financials Placement – Almost a Clean-Up Although past Deals Haven’t Done Much
  • Block Deal Sale of Woori Financial Group
  • Sampyo Cement: Likely Exit from KOSDAQ150 & Move to KOSPI

Woori Financials Placement – Almost a Clean-Up Although past Deals Haven’t Done Much

By Sumeet Singh

  • KDIC is looking to sell around half of its remaining stake in Woori Financial Group (WFG).
  • This is almost a clean-up trade considering that KDIC had a stake of nearly 18% at the start of 2021 and will now be reduced to a less than 2%.
  • In this note, we will run the deal through our ECM framework.

Block Deal Sale of Woori Financial Group

By Douglas Kim

  • After the market close today, it was announced that KDIC will sell its 1.81% stake of Woori Financial Group. 
  • The block deal price will range from 15,229 won to 15,700 won (0 to 3% discount) and we would take the deal even at little discount.
  • Woori Financial Group’s share price continues to trade at deep valuation multiples as it is trading at P/B of 0.4x and P/E of 3.9x (using 2022 consensus earnings estimates).

Sampyo Cement: Likely Exit from KOSDAQ150 & Move to KOSPI

By Douglas Kim

  • Sampyo Cement which is currently included in KOSDAQ150 is likely to be removed from this index in the coming months as the company wants to move to KOSPI.
  • If Sampyo Cement is excluded from KOSDAQ150, we estimate there could be about 9 billion won worth of passive funds which could exit the stock. ADTV is 1.6 billion won.
  • Therefore, we believe Sampyo Cement’s shares could face further weakness in the next several months. It will hold an EGM to vote on the move to KOSPI on 4 July.

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South Korea: Hyundai Heavy Industries, KT Corp, KMW Co Ltd, Hyundai Motor Co and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Block Deal Sale of Hyundai Heavy Industries
  • SK Telecom Nearing Zero Foreign Room &  May Spark Alternative Trading for KT Corp
  • Hyundai Heavy Liquidation by KSOE & Passive Flow Tightening Recalculations
  • KRX New Deal Index Rebalance Preview: Buying on KMW; Selling on AfreecaTV
  • Joe Biden’s Visit to South Korea: Hyundai Motor Ready to Announce $7 Billion Investment in EVs in US

Block Deal Sale of Hyundai Heavy Industries

By Douglas Kim

  • After the market close today, Korea Shipbuilding & Offshore Engineering announced that will sell 1.7% of its shares (1.5 million shares) in Hyundai Heavy Industries in a block deal.
  • The block deal sale is expected to take place on the morning of 17 May. The block deal price is expected to be 120,650 won.
  • We would take this deal as we believe this sale is likely to have a short term positive impact on HHI and increase the free float of HHI.

SK Telecom Nearing Zero Foreign Room &  May Spark Alternative Trading for KT Corp

By Sanghyun Park

  • What immediate impact will SKT’s zero foreign room have? The recent trading theme that the local market is paying attention to is the alternative purchase of KT instead of SKT.
  • The recent driving force behind SKT’s foreign buying is the growing market preference for defensive stocks with high dividend yields. And KT also meets this condition.
  • However, SKT’s foreign room may turn around temporarily: 1. SKT’s deletion possibility from the MSCI through a special change and 2. the FTSE investability down-weight at the June QIR.

Hyundai Heavy Liquidation by KSOE & Passive Flow Tightening Recalculations

By Sanghyun Park

  • KSOE will sell 1.5M shares, equivalent to 1.70% of SO, at an expected discount rate of 5%. After the disposal, KSOE’s stake will fall to 78.02%.
  • The need to increase float shares (and loan balance) due to the MSCI inclusion and the KOSPI 200 up-weight should be considered as the company’s pre-emptive response to the market.
  • But even with today’s disposal, the MAXIMUM real-world float will be 11.29%. An additional passive inflow equivalent to 1.73% of SO will occur until June 9th, 5.13x ADTV. 

KRX New Deal Index Rebalance Preview: Buying on KMW; Selling on AfreecaTV

By Brian Freitas


Joe Biden’s Visit to South Korea: Hyundai Motor Ready to Announce $7 Billion Investment in EVs in US

By Douglas Kim

  • The US President Joe Biden is planning to visit South Korea on 20 to 22 May to meet the new South Korean President Yoon Suk-Yeol.
  • Hyundai Motor is likely to announce investments of nearly $7 billion for building a mega EV facility in Georgia which was leaked in the media in the last few days.
  • Hyundai Motor is aggressively penetrating the global EV markets and it is becoming an increasing threat against Tesla. Hyundai Motor has outperformed Tesla in the past 6 months.

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South Korea: Woori Financial Group and more

By | Daily Briefs, South Korea

In today’s briefing:

  • MSCI Korea Standard: Constituents with Index Up/Down-Weight in May SAIR

MSCI Korea Standard: Constituents with Index Up/Down-Weight in May SAIR

By Sanghyun Park

  • Woori Financial has a 15%p upward adjustment in its float rate. The other 15 constituents will get a 5%p upward adjustment. We then have nine constituents suffering a 5%p drop.
  • We need to approach them with LONG/SHORT basket trading. However, some have recently shown excessive price volatility, so we should consider setting a basket excluding those with relatively large fluctuations
  • Another thing to consider is the coupling effect with the KOSPI 200 inflow. Since the lag gap between the two is not large, we expect a substantial coupling effect.

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South Korea: NCSOFT Corp, Celltrion Inc and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Top 20 Best Performers in the Korean Stock Market (Week of 13 May)
  • Celltrion (068270 KS): Muted Q1 2022 Performance Reflects Continuing Biosimilars Pricing Pressure

Top 20 Best Performers in the Korean Stock Market (Week of 13 May)

By Douglas Kim

  • This is the second weekly series on the “Top 20 Best Performers in the Korean Stock Market Adjusted for Trading Value & Mkt Cap.” 
  • Starting this weekly, we include stocks in both KOSPI and KOSDAQ. All the stocks in KOSPI and KOSDAQ are ranked, adjusted for market cap and trading value. 
  • Among the top 20 performers, NCSoft, Hyundai Motor, Kia Motors, Dohwa Engineering, DB Hitek, SK Telecom, and KT Corp were included. 

Celltrion (068270 KS): Muted Q1 2022 Performance Reflects Continuing Biosimilars Pricing Pressure

By Tina Banerjee

  • Celltrion Inc (068270 KS) reported muted Q1 results, with revenue, operating profit, and net profit declining quarter-over-quarter. Its biosimilar products in the EU are facing price competition.
  • Celltrion has recalled its COVID-19 rapid antigen test kits in the U.S. in April, which marks its third such recall in less than two months.
  • Celltrion shares plunged 15% since I published bearish insight on the company on March 8. Bear thesis of biosimilar competition still holds good for the company.

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South Korea: SK Telecom, Voronoi and more

By | Daily Briefs, South Korea

In today’s briefing:

  • Short-Term Reverse Flow Trading on SK Telecom
  • MSCI May 2022 Rebalance: South Korea
  • Voronoi: Reduces IPO Price Range by 25%

Short-Term Reverse Flow Trading on SK Telecom

By Sanghyun Park

  • Heavy shorts came out in a short trading window. Usually, this is likely to be strategic trading by a few institutional investors, which causes PBS to set up loan transactions.
  • We should then consider the possibility that short positions betting on MSCI deletion will be sold back to the market by PBS who set up loan transactions after short-covering
  • SKT is likely to undergo a share price correction due to a short-term overhang, and we need to consider setting up a position aimed at this.

MSCI May 2022 Rebalance: South Korea

By Douglas Kim

  • MSCI announced its May 2022 rebalance results today. Hyundai Heavy Industries was the only new addition, which was mostly expected.
  • Despite continued concerns about SK Telecom being excluded in the next round of MSCI rebalancing, its improving fundamentals and shift to more value stocks are more important factors.  
  • There are 18 additions and 17 deletions for the MSCI Korea small cap index. Among the additions, 6 of them are also potential inclusions in the KOSDAQ150 rebalance in June. 

Voronoi: Reduces IPO Price Range by 25%

By Douglas Kim

  • Voronoi is trying again to complete its IPO in Korea after lowering its IPO price range by 25% to 40,000 won to 46,000 won.
  • The IPO base deal size is from $41 million to $47 million. Expected market cap is from 536 billion won to 616 billion won.
  • Voronoi is developing treatments for tumors, degenerative brain diseases, and autoimmune diseases. The total amount of accumulated milestones for three global technology exports is $1.79 billion.

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