Category

Korea

Brief Korea: The Nature Holdings IPO Preview and more

By | Daily Briefs, Korea

In this briefing:

  1. The Nature Holdings IPO Preview

1. The Nature Holdings IPO Preview

Natures 2

The Nature Holdings is getting ready for an IPO in the Korean stock market in July. Established in 2004, The Nature Holdings has been one of the most impressive rising stars in the Korean apparel sector in the past two years. This is the biggest IPO in the Korean apparel sector this year. The company has the rights to sell the National Geographic brand name apparel products in Korea. The National Geographic branded apparel products have been one of the best selling brands in Korea in the past two years.

The IPO price range is from 45,000 won to 50,000 won. The company expects to raise between 54 billion won to 60 billion won. The book-building for the institutional investors starts on July 8th. The lead underwriter on this deal is Korea Investment & Securities. According to the bankers’ valuation, this IPO is expected to have a market cap of 364 billion won (at the high end of the IPO price range). 

The company’s revenue surged from 40.1 billion won in 2016 to 235.3 billion won in 2019, a CAGR of 80.3% during this period. Its operating profit also surged nearly 14x from 2.8 billion won in 2016 to 39.8 billion won in 2019. The company’s revenue and operating profit increased by 66.7% and 96.7% YoY in 2019.

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Brief Korea: Koramco Energy Plus REIT IPO and more

By | Daily Briefs, Korea

In this briefing:

  1. Koramco Energy Plus REIT IPO
  2. ME2ZEN IPO: Absence of Local Pension Funds Vs. Market Friendly Pricing
  3. Double Bubble, Double Trouble?
  4. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius
  5. ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range

1. Koramco Energy Plus REIT IPO

Gas 2

We have a Bullish view on this IPO mainly because this REIT has a stable structure with solid gas station assets that has a good probability of being able to generate 6% + annual dividends. Plus, the recent big property hikes in Korea is likely to lead to more investors who will be attracted to the stable REIT structure of this deal. We would take this deal. 

Koramco Energy Plus REIT IPO is expected to be completed in Korea in the next few weeks. The expected IPO price per share is 5,000 won and there are 21.3 million shares offered in the IPO. The bookbuilding for the institutional investors starts on July 28th. 

This is an interesting IPO where the 187 gas stations acquired from SK Networks are used as the base assets for this REIT. This is the first major gas station related REIT in Korea. This REIT has established a stable profit structure by signing a long-term lease contract of at least 10 years (which can be extended another five years) with Hyundai Oilbank as the main tenant.

2. ME2ZEN IPO: Absence of Local Pension Funds Vs. Market Friendly Pricing

5

First, here is an overview of ME2ZEN’s second IPO attempt.

It plans to offer 3.2M shares (52% primary and 48% secondary). The total offering represents 28.74% of the total shares at a 14.94% capital increase rate.

Mirae is working as a sole banker with a firm commitment.

The indicative price band is at ₩21,000~27,000, which gives an implied market cap of ₩289.9~372.7bil.

July 30~31 will be for book-building, followed by the allotment on August 4. The following day will be a subscription. The payment date is August 7.

Once again, the float will be tight on this one. A total of 72.48% shares will be in a lock-up for one month to three years. Of those, 65.26% is for more than six months.

3. Double Bubble, Double Trouble?

Image 46719834551594500095933

A review of U.S. and global markets reveals that market leadership has narrowed to NASDAQ and Chinese stocks. If this is the start of a new bull, or a continuation of the old bull, can it rest on the narrow leadership of a handful of NASDAQ stocks and the Chinese market?

Is this just a double bubble, and does that imply double trouble ahead?

We are not sure. We are torn between Bob Farrell’s Rule No. 4:

Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

And Rule No. 7.

Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.

Investors need to be aware of the tension between Rule No. 4, which raises the possibility of a stock bubble, and the risks posed by the narrow leadership warned by Rule No. 7. Tail-risk is high in both directions. In this environment, it is worthwhile to return to basics and re-visit investment objectives and risk tolerances in order to balance risk and reward. There are no perfect answers and each will be different.

Regardless of what direction the market takes, investors can count on a climate of high volatility in the near future.

4. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius

Image 80041895121594440865675

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on Ping An Insurance (H) (2318 HK), Wuxi Biologics (Cayman) Inc (2269 HK), China Mobile (941 HK) and Shandong Weigao Group Medical Polymer Co (1066 HK) while there was short covering on Meituan Dianping (3690 HK), Semiconductor Manufacturing (981 HK), AIA Group Ltd (1299 HK) and Tencent Holdings (700 HK). Shorts increased in Financials, Consumer Staples, and Materials, and were covered in Consumer Discretionary and Information Technology.

Japan saw an increase in shorts on Tokio Marine Holdings (8766 JP), Fast Retailing (9983 JP), Canon Inc (7751 JP) and Yamato Holdings (9064 JP) and a reduction in shorts on Mitsubishi Electric (6503 JP), Shiseido Company (4911 JP), Sumitomo Corp (8053 JP) and Sumitomo Mitsui Financial Group (8316 JP). Sectorally, shorts increased on Consumer Discretionary, Information Technology, and Financials, and reduced on Consumer Staples and Industrials.

Short Interest in Korea decreased in almost all industry groups led by Media & Entertainment, Pharmaceuticals, Technology Hardware and Materials.

Short Interest in Taiwan decreased in almost all industry groups led by Technology Hardware, Semiconductors, Capital Goods and Telecommunication Services while shorts increased in Banks and Automobiles.

5. ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range

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ME2ZEN (951211 KS) is getting ready to complete it IPO in the KOSDAQ exchange in August. ME2ZEN is a Hong Kong based company that makes casual and social casino games. This is a second time that ME2ZEN is trying to complete an IPO in Korea after a failed attempt in 4Q 2019.

Overall, applying a 9.5x P/E multiple to our estimated net profit of 43 billion won for the company in 2020 suggests an implied market cap of 409.9 billion won or implied price of 29,700 won per share, which represents a 24% upside to the mid-point (24,000 won) of the IPO price range. Given the relatively attractive upside, we would take this deal but if the IPO is priced at the high end, it would become less attractive.

There are three main reasons why ME2ZEN IPO is more attractive this time as compared to November 2019.

  • First, COVID-19 has resulted in a big capital inflow into the global games sector as millions of people around the world spend more time at home and play games. This has been a favorable trend for the global game industry.
  • Second, the IPO price range has been lowered.
  • Third, the company’s financials have gotten better with the company posting strong results in 2019 as well as in 1Q 2020. 

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Brief Korea: Asia Short Interest Weekly – Shorts Covered as Markets Melted Up and more

By | Daily Briefs, Korea

In this briefing:

  1. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

1. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

Image 932239868271592015510046

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on WuXi AppTec Co. Ltd. (2359 HK), China Vanke Co Ltd (H) (2202 HK)Budweiser Brewing Company APAC (1876 HK) and Greentown Service Group (2869 HK) while there was short covering on Meituan Dianping (3690 HK), Alibaba Group (9988 HK), Tencent Holdings (700 HK) and Ping An Insurance (H) (2318 HK). Shorts covered as the market melted up led by Consumer Discretionary, Financial and Communication Services. Short interest dropped on Meituan Dianping (3690 HK) following the huge increase the prior week.

Japan saw an increase in shorts on Takara Bio Inc (4974 JP), FamilyMart Co Ltd (8028 JP), Daito Trust Construct (1878 JP) and Mitsubishi Electric (6503 JP) and a reduction in shorts on Fast Retailing (9983 JP), Tokyo Gas (9531 JP), Sumitomo Corp (8053 JP) and Softbank Corp (9434 JP). Sectorally, shorts increased in Real Estate and Financials, while shorts covered their positions in Consumer Discretionary, Consumer Staples, Information Technology and Industrials.

Short Interest in Korea decreased led by Information Technology and Health Care.

Shorts in Taiwan were covered in almost all industry groups led by Technology Hardware, Semiconductors and Consumer Durables.

Short Interest decreased in all four markets covered as markets continued to run up. This has likely left investors underhedged in the market drop and we could see increased short activity over the next week.

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Brief Korea: ME2ZEN IPO: Absence of Local Pension Funds Vs. Market Friendly Pricing and more

By | Daily Briefs, Korea

In this briefing:

  1. ME2ZEN IPO: Absence of Local Pension Funds Vs. Market Friendly Pricing
  2. Double Bubble, Double Trouble?
  3. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius
  4. ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range
  5. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment

1. ME2ZEN IPO: Absence of Local Pension Funds Vs. Market Friendly Pricing

6

First, here is an overview of ME2ZEN’s second IPO attempt.

It plans to offer 3.2M shares (52% primary and 48% secondary). The total offering represents 28.74% of the total shares at a 14.94% capital increase rate.

Mirae is working as a sole banker with a firm commitment.

The indicative price band is at ₩21,000~27,000, which gives an implied market cap of ₩289.9~372.7bil.

July 30~31 will be for book-building, followed by the allotment on August 4. The following day will be a subscription. The payment date is August 7.

Once again, the float will be tight on this one. A total of 72.48% shares will be in a lock-up for one month to three years. Of those, 65.26% is for more than six months.

2. Double Bubble, Double Trouble?

Image 722452908101594500095935

A review of U.S. and global markets reveals that market leadership has narrowed to NASDAQ and Chinese stocks. If this is the start of a new bull, or a continuation of the old bull, can it rest on the narrow leadership of a handful of NASDAQ stocks and the Chinese market?

Is this just a double bubble, and does that imply double trouble ahead?

We are not sure. We are torn between Bob Farrell’s Rule No. 4:

Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

And Rule No. 7.

Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.

Investors need to be aware of the tension between Rule No. 4, which raises the possibility of a stock bubble, and the risks posed by the narrow leadership warned by Rule No. 7. Tail-risk is high in both directions. In this environment, it is worthwhile to return to basics and re-visit investment objectives and risk tolerances in order to balance risk and reward. There are no perfect answers and each will be different.

Regardless of what direction the market takes, investors can count on a climate of high volatility in the near future.

3. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius

Image 80041895121594440865675

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on Ping An Insurance (H) (2318 HK), Wuxi Biologics (Cayman) Inc (2269 HK), China Mobile (941 HK) and Shandong Weigao Group Medical Polymer Co (1066 HK) while there was short covering on Meituan Dianping (3690 HK), Semiconductor Manufacturing (981 HK), AIA Group Ltd (1299 HK) and Tencent Holdings (700 HK). Shorts increased in Financials, Consumer Staples, and Materials, and were covered in Consumer Discretionary and Information Technology.

Japan saw an increase in shorts on Tokio Marine Holdings (8766 JP), Fast Retailing (9983 JP), Canon Inc (7751 JP) and Yamato Holdings (9064 JP) and a reduction in shorts on Mitsubishi Electric (6503 JP), Shiseido Company (4911 JP), Sumitomo Corp (8053 JP) and Sumitomo Mitsui Financial Group (8316 JP). Sectorally, shorts increased on Consumer Discretionary, Information Technology, and Financials, and reduced on Consumer Staples and Industrials.

Short Interest in Korea decreased in almost all industry groups led by Media & Entertainment, Pharmaceuticals, Technology Hardware and Materials.

Short Interest in Taiwan decreased in almost all industry groups led by Technology Hardware, Semiconductors, Capital Goods and Telecommunication Services while shorts increased in Banks and Automobiles.

4. ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range

Me a

ME2ZEN (951211 KS) is getting ready to complete it IPO in the KOSDAQ exchange in August. ME2ZEN is a Hong Kong based company that makes casual and social casino games. This is a second time that ME2ZEN is trying to complete an IPO in Korea after a failed attempt in 4Q 2019.

Overall, applying a 9.5x P/E multiple to our estimated net profit of 43 billion won for the company in 2020 suggests an implied market cap of 409.9 billion won or implied price of 29,700 won per share, which represents a 24% upside to the mid-point (24,000 won) of the IPO price range. Given the relatively attractive upside, we would take this deal but if the IPO is priced at the high end, it would become less attractive.

There are three main reasons why ME2ZEN IPO is more attractive this time as compared to November 2019.

  • First, COVID-19 has resulted in a big capital inflow into the global games sector as millions of people around the world spend more time at home and play games. This has been a favorable trend for the global game industry.
  • Second, the IPO price range has been lowered.
  • Third, the company’s financials have gotten better with the company posting strong results in 2019 as well as in 1Q 2020. 

5. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment

Image 71063129331594361508270

In our previous insight, we spoke about 5G being a disappointment, a possible delay in 5G adoption, and how WiFi-6 could take its place. In this insight, we look at 6G, which is still a developing technology. 6G is the sixth generation of wireless technologies, with extreme coverage and capacity. 6G network systems are expected to support data rates at a speed of 1 terabit per second (Tbps), 8000 times faster than 5G, with an end-to-end latency of one microsecond. The increase in IoT applications triggered the expansion of 5G, and it is now stimulating the demand for the 6G networks as well. Our key points based on the first look at 6G, are:

  • 6G is still a remote concept and will take another 15 years to be fully deployed (i.e. by 2035) since there are many necessary technological and technical advancements to be made before a 6G product is introduced to the market.
  • Most developments and the initiation of projects come from the South Korean and Chinese players. In our opinion, South Korea could take the lead, as China is currently focusing on developing its 5G networks, and China’s Huawei is also having issues with the expansion of its 5G networks.
  • South Korean mobile manufacturers like Samsung and LG are likely to benefit due to their increased initial commitments focusing on 6G, and this might give them an edge over Chinese and U.S. manufacturers like Apple or Huawei.
  • The U.S. manufacturers have a head start in 6G semiconductor technology. However, given the reduced size requirement for base stations and, eventually, for mobile phones, we believe that Japanese MLCC players could closely compete with the U.S. chip manufacturers.

Previous related insights:

5G for the Next Big Turn of a New Decade 

Will 2020 See Successful Deployment of 5G? 

Lockdown To Accelerate WiFi 6: A Threat to Anticipated 5G Deployment? 

5G Delay and Disappointment – Will Murata Suffer? 

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Brief Korea: Double Bubble, Double Trouble? and more

By | Daily Briefs, Korea

In this briefing:

  1. Double Bubble, Double Trouble?
  2. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius
  3. ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range
  4. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment
  5. New Rules on Prefs Trading, Listing, & Delisting in Korea

1. Double Bubble, Double Trouble?

Image 604597554131594500095937

A review of U.S. and global markets reveals that market leadership has narrowed to NASDAQ and Chinese stocks. If this is the start of a new bull, or a continuation of the old bull, can it rest on the narrow leadership of a handful of NASDAQ stocks and the Chinese market?

Is this just a double bubble, and does that imply double trouble ahead?

We are not sure. We are torn between Bob Farrell’s Rule No. 4:

Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

And Rule No. 7.

Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.

Investors need to be aware of the tension between Rule No. 4, which raises the possibility of a stock bubble, and the risks posed by the narrow leadership warned by Rule No. 7. Tail-risk is high in both directions. In this environment, it is worthwhile to return to basics and re-visit investment objectives and risk tolerances in order to balance risk and reward. There are no perfect answers and each will be different.

Regardless of what direction the market takes, investors can count on a climate of high volatility in the near future.

2. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius

Image 356844492101594441442236

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on Ping An Insurance (H) (2318 HK), Wuxi Biologics (Cayman) Inc (2269 HK), China Mobile (941 HK) and Shandong Weigao Group Medical Polymer Co (1066 HK) while there was short covering on Meituan Dianping (3690 HK), Semiconductor Manufacturing (981 HK), AIA Group Ltd (1299 HK) and Tencent Holdings (700 HK). Shorts increased in Financials, Consumer Staples, and Materials, and were covered in Consumer Discretionary and Information Technology.

Japan saw an increase in shorts on Tokio Marine Holdings (8766 JP), Fast Retailing (9983 JP), Canon Inc (7751 JP) and Yamato Holdings (9064 JP) and a reduction in shorts on Mitsubishi Electric (6503 JP), Shiseido Company (4911 JP), Sumitomo Corp (8053 JP) and Sumitomo Mitsui Financial Group (8316 JP). Sectorally, shorts increased on Consumer Discretionary, Information Technology, and Financials, and reduced on Consumer Staples and Industrials.

Short Interest in Korea decreased in almost all industry groups led by Media & Entertainment, Pharmaceuticals, Technology Hardware and Materials.

Short Interest in Taiwan decreased in almost all industry groups led by Technology Hardware, Semiconductors, Capital Goods and Telecommunication Services while shorts increased in Banks and Automobiles.

3. ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range

Me a

ME2ZEN (951211 KS) is getting ready to complete it IPO in the KOSDAQ exchange in August. ME2ZEN is a Hong Kong based company that makes casual and social casino games. This is a second time that ME2ZEN is trying to complete an IPO in Korea after a failed attempt in 4Q 2019.

Overall, applying a 9.5x P/E multiple to our estimated net profit of 43 billion won for the company in 2020 suggests an implied market cap of 409.9 billion won or implied price of 29,700 won per share, which represents a 24% upside to the mid-point (24,000 won) of the IPO price range. Given the relatively attractive upside, we would take this deal but if the IPO is priced at the high end, it would become less attractive.

There are three main reasons why ME2ZEN IPO is more attractive this time as compared to November 2019.

  • First, COVID-19 has resulted in a big capital inflow into the global games sector as millions of people around the world spend more time at home and play games. This has been a favorable trend for the global game industry.
  • Second, the IPO price range has been lowered.
  • Third, the company’s financials have gotten better with the company posting strong results in 2019 as well as in 1Q 2020. 

4. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment

Image 71063129331594361508270

In our previous insight, we spoke about 5G being a disappointment, a possible delay in 5G adoption, and how WiFi-6 could take its place. In this insight, we look at 6G, which is still a developing technology. 6G is the sixth generation of wireless technologies, with extreme coverage and capacity. 6G network systems are expected to support data rates at a speed of 1 terabit per second (Tbps), 8000 times faster than 5G, with an end-to-end latency of one microsecond. The increase in IoT applications triggered the expansion of 5G, and it is now stimulating the demand for the 6G networks as well. Our key points based on the first look at 6G, are:

  • 6G is still a remote concept and will take another 15 years to be fully deployed (i.e. by 2035) since there are many necessary technological and technical advancements to be made before a 6G product is introduced to the market.
  • Most developments and the initiation of projects come from the South Korean and Chinese players. In our opinion, South Korea could take the lead, as China is currently focusing on developing its 5G networks, and China’s Huawei is also having issues with the expansion of its 5G networks.
  • South Korean mobile manufacturers like Samsung and LG are likely to benefit due to their increased initial commitments focusing on 6G, and this might give them an edge over Chinese and U.S. manufacturers like Apple or Huawei.
  • The U.S. manufacturers have a head start in 6G semiconductor technology. However, given the reduced size requirement for base stations and, eventually, for mobile phones, we believe that Japanese MLCC players could closely compete with the U.S. chip manufacturers.

Previous related insights:

5G for the Next Big Turn of a New Decade 

Will 2020 See Successful Deployment of 5G? 

Lockdown To Accelerate WiFi 6: A Threat to Anticipated 5G Deployment? 

5G Delay and Disappointment – Will Murata Suffer? 

5. New Rules on Prefs Trading, Listing, & Delisting in Korea

3

The Korea FSC announced the new rules for the trading, listing, and delisting of the local preferred shares.

The minimum SO and MC for new listings are now 1M shares and ₩5bil, effective October this year.

As for delisting, those prefs below 0.2M shares or ₩2bil MC will lose their spot, starting October next year with a grace period of one year. 

For those whose SO < 500,000 shares, they will be trading on a single-price with a 30-minute cycle. Similarly, those with a P/C price disparity > 50% will face the same trading rule for three days.

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Brief Korea: Korea Preferred Shares – An Eventful Week & Trade Ideas and more

By | Daily Briefs, Korea

In this briefing:

  1. Korea Preferred Shares – An Eventful Week & Trade Ideas
  2. Korea Sector Pairs: Glovis/Mobis At -2σ, Two Reasons for Quick Reversion
  3. The Nature Holdings IPO Preview
  4. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

1. Korea Preferred Shares – An Eventful Week & Trade Ideas

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Over the last week, Korean preferred shares have outperformed the ordinary shares by a huge margin. On most stocks, the narrowing discount was accompanied by a huge jump in volume on the preferred shares.

Is this the beginning of a trend where the discount on the preferred shares continues to narrow, or does this present an opportunity to sell out of the preferred shares and buy the ordinary shares? We recommend buying preferred shares that are trading at discounts of greater than 40% and near the wider end of their 2 year range, while switching out of preferred shares that are trading at discounts of less than 20% and are nearer to their tightest discounts over the last 2 years.

With the ban on short selling, implementation of a pure arbitrage strategy is difficult and would depend on long sell availability. However, the strategy can be implemented in names that have relatively liquid single stock futures.

2. Korea Sector Pairs: Glovis/Mobis At -2σ, Two Reasons for Quick Reversion

37

We currently have two sector pairs in diversion out of the seven tightly-moving together sector pairs in Korea.

They are Celltrion Healthcare/Celltrion and Hyundai Glovis/Mobis.

The Celltrion pair is now at -1.8σ on a 20D MA. It is a bit settled down from a nearly -3σ a week ago. Still, it is in a substantial diversion.

The other is Glovis/Mobis, which is at -2σ. The duo made a 2σ move in a single day (Friday). 

3. The Nature Holdings IPO Preview

Natures 2

The Nature Holdings is getting ready for an IPO in the Korean stock market in July. Established in 2004, The Nature Holdings has been one of the most impressive rising stars in the Korean apparel sector in the past two years. This is the biggest IPO in the Korean apparel sector this year. The company has the rights to sell the National Geographic brand name apparel products in Korea. The National Geographic branded apparel products have been one of the best selling brands in Korea in the past two years.

The IPO price range is from 45,000 won to 50,000 won. The company expects to raise between 54 billion won to 60 billion won. The book-building for the institutional investors starts on July 8th. The lead underwriter on this deal is Korea Investment & Securities. According to the bankers’ valuation, this IPO is expected to have a market cap of 364 billion won (at the high end of the IPO price range). 

The company’s revenue surged from 40.1 billion won in 2016 to 235.3 billion won in 2019, a CAGR of 80.3% during this period. Its operating profit also surged nearly 14x from 2.8 billion won in 2016 to 39.8 billion won in 2019. The company’s revenue and operating profit increased by 66.7% and 96.7% YoY in 2019.

4. Asia Short Interest Weekly – Shorts Covered as Markets Melted Up

Image 932239868271592015510046

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on WuXi AppTec Co. Ltd. (2359 HK), China Vanke Co Ltd (H) (2202 HK)Budweiser Brewing Company APAC (1876 HK) and Greentown Service Group (2869 HK) while there was short covering on Meituan Dianping (3690 HK), Alibaba Group (9988 HK), Tencent Holdings (700 HK) and Ping An Insurance (H) (2318 HK). Shorts covered as the market melted up led by Consumer Discretionary, Financial and Communication Services. Short interest dropped on Meituan Dianping (3690 HK) following the huge increase the prior week.

Japan saw an increase in shorts on Takara Bio Inc (4974 JP), FamilyMart Co Ltd (8028 JP), Daito Trust Construct (1878 JP) and Mitsubishi Electric (6503 JP) and a reduction in shorts on Fast Retailing (9983 JP), Tokyo Gas (9531 JP), Sumitomo Corp (8053 JP) and Softbank Corp (9434 JP). Sectorally, shorts increased in Real Estate and Financials, while shorts covered their positions in Consumer Discretionary, Consumer Staples, Information Technology and Industrials.

Short Interest in Korea decreased led by Information Technology and Health Care.

Shorts in Taiwan were covered in almost all industry groups led by Technology Hardware, Semiconductors and Consumer Durables.

Short Interest decreased in all four markets covered as markets continued to run up. This has likely left investors underhedged in the market drop and we could see increased short activity over the next week.

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Brief Korea: Saltlux IPO Valuation Analysis and more

By | Daily Briefs, Korea

In this briefing:

  1. Saltlux IPO Valuation Analysis

1. Saltlux IPO Valuation Analysis

In this insight, we provide a valuation analysis of Saltlux (SLTX KS). In addition, we provide additional fundamental details of the company, competitors, as well as the market outlook for AI & Big Data services.

In our view, Saltlux has one of the best technologies in the AI/Big Data sector in Korea. In terms of business model, it is closer to Mindslab and Daumsoft which are privately held. The fact that Saltlux has larger sales than these two competitors is impressive. We think there is likely to be a big acquisition premium on Saltlux going forward.

In terms of valuation multiples, we think that a 10x P/S, using 2019 sales (which is 10% premium to Laon People) is reasonable for Saltlux, which would suggest an implied market cap of 184 billion won or 36,000 won, which is 20% above the high end of the IPO price of 30,000 won. As such, we have a positive view of the Saltlux IPO. We are also adding Saltlux to our model portfolio. 

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Brief Korea: Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius and more

By | Daily Briefs, Korea

In this briefing:

  1. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius
  2. ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range
  3. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment
  4. New Rules on Prefs Trading, Listing, & Delisting in Korea
  5. BrandX Corporation IPO Preview

1. Asia Short Interest Weekly – PingAn, WuXi Bio, Meituan, SMIC, Fast Retail, Sumitomo, Yageo, Genius

Image 806357272161594446197068

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on Ping An Insurance (H) (2318 HK), Wuxi Biologics (Cayman) Inc (2269 HK), China Mobile (941 HK) and Shandong Weigao Group Medical Polymer Co (1066 HK) while there was short covering on Meituan Dianping (3690 HK), Semiconductor Manufacturing (981 HK), AIA Group Ltd (1299 HK) and Tencent Holdings (700 HK). Shorts increased in Financials, Consumer Staples, and Materials, and were covered in Consumer Discretionary and Information Technology.

Japan saw an increase in shorts on Tokio Marine Holdings (8766 JP), Fast Retailing (9983 JP), Canon Inc (7751 JP) and Yamato Holdings (9064 JP) and a reduction in shorts on Mitsubishi Electric (6503 JP), Shiseido Company (4911 JP), Sumitomo Corp (8053 JP) and Sumitomo Mitsui Financial Group (8316 JP). Sectorally, shorts increased on Consumer Discretionary, Information Technology, and Financials, and reduced on Consumer Staples and Industrials.

Short Interest in Korea decreased in almost all industry groups led by Media & Entertainment, Pharmaceuticals, Technology Hardware and Materials.

Short Interest in Taiwan decreased in almost all industry groups led by Technology Hardware, Semiconductors, Capital Goods and Telecommunication Services while shorts increased in Banks and Automobiles.

2. ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range

Me3

ME2ZEN (951211 KS) is getting ready to complete it IPO in the KOSDAQ exchange in August. ME2ZEN is a Hong Kong based company that makes casual and social casino games. This is a second time that ME2ZEN is trying to complete an IPO in Korea after a failed attempt in 4Q 2019.

Overall, applying a 9.5x P/E multiple to our estimated net profit of 43 billion won for the company in 2020 suggests an implied market cap of 409.9 billion won or implied price of 29,700 won per share, which represents a 24% upside to the mid-point (24,000 won) of the IPO price range. Given the relatively attractive upside, we would take this deal but if the IPO is priced at the high end, it would become less attractive.

There are three main reasons why ME2ZEN IPO is more attractive this time as compared to November 2019.

  • First, COVID-19 has resulted in a big capital inflow into the global games sector as millions of people around the world spend more time at home and play games. This has been a favorable trend for the global game industry.
  • Second, the IPO price range has been lowered.
  • Third, the company’s financials have gotten better with the company posting strong results in 2019 as well as in 1Q 2020. 

3. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment

Image 63147589661594361508272

In our previous insight, we spoke about 5G being a disappointment, a possible delay in 5G adoption, and how WiFi-6 could take its place. In this insight, we look at 6G, which is still a developing technology. 6G is the sixth generation of wireless technologies, with extreme coverage and capacity. 6G network systems are expected to support data rates at a speed of 1 terabit per second (Tbps), 8000 times faster than 5G, with an end-to-end latency of one microsecond. The increase in IoT applications triggered the expansion of 5G, and it is now stimulating the demand for the 6G networks as well. Our key points based on the first look at 6G, are:

  • 6G is still a remote concept and will take another 15 years to be fully deployed (i.e. by 2035) since there are many necessary technological and technical advancements to be made before a 6G product is introduced to the market.
  • Most developments and the initiation of projects come from the South Korean and Chinese players. In our opinion, South Korea could take the lead, as China is currently focusing on developing its 5G networks, and China’s Huawei is also having issues with the expansion of its 5G networks.
  • South Korean mobile manufacturers like Samsung and LG are likely to benefit due to their increased initial commitments focusing on 6G, and this might give them an edge over Chinese and U.S. manufacturers like Apple or Huawei.
  • The U.S. manufacturers have a head start in 6G semiconductor technology. However, given the reduced size requirement for base stations and, eventually, for mobile phones, we believe that Japanese MLCC players could closely compete with the U.S. chip manufacturers.

Previous related insights:

5G for the Next Big Turn of a New Decade 

Will 2020 See Successful Deployment of 5G? 

Lockdown To Accelerate WiFi 6: A Threat to Anticipated 5G Deployment? 

5G Delay and Disappointment – Will Murata Suffer? 

4. New Rules on Prefs Trading, Listing, & Delisting in Korea

1

The Korea FSC announced the new rules for the trading, listing, and delisting of the local preferred shares.

The minimum SO and MC for new listings are now 1M shares and ₩5bil, effective October this year.

As for delisting, those prefs below 0.2M shares or ₩2bil MC will lose their spot, starting October next year with a grace period of one year. 

For those whose SO < 500,000 shares, they will be trading on a single-price with a 30-minute cycle. Similarly, those with a P/C price disparity > 50% will face the same trading rule for three days.

5. BrandX Corporation IPO Preview

Brandx 1

Established in August 2017, BrandX Corporation is a Korean company that is getting ready for an IPO in August. The IPO deal base size is from $39 million to $48 million. The IPO price range is from 12,400 won to 15,300 won. 

Although BrandX Corporation is best known for its Xexymix women’s apparel brand, it initially started its business from a foundation in social network marketing know-how. The founders capitalized on its strengths to become a bigger media commerce company. 

Since the establishment of the company in 2017, the company has achieved the biggest success with its Xexymix brand (focus on athleisure, swimwear, and leggings). Xexymix accounted for 87% of the company’s consolidated sales and 98% of its non-consolidated sales in 2019. Xexymix specializes in the leggings and athleisure apparel products. In the leggings and athleisure category, the company faces competition from numerous players including Lululemon Korea, Fila Korea, Andar, and Mulawear. 

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Brief Korea: Aproele IPO Preview and more

By | Daily Briefs, Korea

In this briefing:

  1. Aproele IPO Preview

1. Aproele IPO Preview

A 1

Established in 2000, Aproele is a rechargeable battery equipment maker in Korea which is getting ready to complete its IPO in the next few weeks. The IPO price range is from 19,000 won to 21,600 won. The IPO deal size is from $22 million to $25 million. According to the bankers’ valuation, the expected market cap of the company after the IPO is from 140 billion won to 159 billion won.

Aproele has focused on the power conversion and circuit technologies for the rechargeable battery equipment. The company’s main product is the high-temperature pressurized charger, which is a device that can improve the performance of the battery produced by maximizing the charging/discharging efficiency of the EV batteries. The company’s main customers include lithium ion based rechargeable battery makers such as LG Chem Ltd (051910 KS).

The company generated sales of 67.4 billion won (up 11.1% YoY) and an operating profit of 10.4 billion won (up 44.1% YoY) in 2019.

The EV related stocks have been some of the best-performing ones in the Korean stock market this year. In the table below, we provide a list of the 21 top EV related stocks in Korea, which are up 36.2% on average YTD compared to KOSPI which is flat YTD.

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Brief Korea: ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range and more

By | Daily Briefs, Korea

In this briefing:

  1. ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range
  2. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment
  3. New Rules on Prefs Trading, Listing, & Delisting in Korea
  4. BrandX Corporation IPO Preview
  5. Core Correlations Weekly – July 6th, 2020

1. ME2ZEN IPO – Trying for an IPO Again at a Lower IPO Price Range

Me a

ME2ZEN (951211 KS) is getting ready to complete it IPO in the KOSDAQ exchange in August. ME2ZEN is a Hong Kong based company that makes casual and social casino games. This is a second time that ME2ZEN is trying to complete an IPO in Korea after a failed attempt in 4Q 2019.

Overall, applying a 9.5x P/E multiple to our estimated net profit of 43 billion won for the company in 2020 suggests an implied market cap of 409.9 billion won or implied price of 29,700 won per share, which represents a 24% upside to the mid-point (24,000 won) of the IPO price range. Given the relatively attractive upside, we would take this deal but if the IPO is priced at the high end, it would become less attractive.

There are three main reasons why ME2ZEN IPO is more attractive this time as compared to November 2019.

  • First, COVID-19 has resulted in a big capital inflow into the global games sector as millions of people around the world spend more time at home and play games. This has been a favorable trend for the global game industry.
  • Second, the IPO price range has been lowered.
  • Third, the company’s financials have gotten better with the company posting strong results in 2019 as well as in 1Q 2020. 

2. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment

Image 71063129331594361508270

In our previous insight, we spoke about 5G being a disappointment, a possible delay in 5G adoption, and how WiFi-6 could take its place. In this insight, we look at 6G, which is still a developing technology. 6G is the sixth generation of wireless technologies, with extreme coverage and capacity. 6G network systems are expected to support data rates at a speed of 1 terabit per second (Tbps), 8000 times faster than 5G, with an end-to-end latency of one microsecond. The increase in IoT applications triggered the expansion of 5G, and it is now stimulating the demand for the 6G networks as well. Our key points based on the first look at 6G, are:

  • 6G is still a remote concept and will take another 15 years to be fully deployed (i.e. by 2035) since there are many necessary technological and technical advancements to be made before a 6G product is introduced to the market.
  • Most developments and the initiation of projects come from the South Korean and Chinese players. In our opinion, South Korea could take the lead, as China is currently focusing on developing its 5G networks, and China’s Huawei is also having issues with the expansion of its 5G networks.
  • South Korean mobile manufacturers like Samsung and LG are likely to benefit due to their increased initial commitments focusing on 6G, and this might give them an edge over Chinese and U.S. manufacturers like Apple or Huawei.
  • The U.S. manufacturers have a head start in 6G semiconductor technology. However, given the reduced size requirement for base stations and, eventually, for mobile phones, we believe that Japanese MLCC players could closely compete with the U.S. chip manufacturers.

Previous related insights:

5G for the Next Big Turn of a New Decade 

Will 2020 See Successful Deployment of 5G? 

Lockdown To Accelerate WiFi 6: A Threat to Anticipated 5G Deployment? 

5G Delay and Disappointment – Will Murata Suffer? 

3. New Rules on Prefs Trading, Listing, & Delisting in Korea

2

The Korea FSC announced the new rules for the trading, listing, and delisting of the local preferred shares.

The minimum SO and MC for new listings are now 1M shares and ₩5bil, effective October this year.

As for delisting, those prefs below 0.2M shares or ₩2bil MC will lose their spot, starting October next year with a grace period of one year. 

For those whose SO < 500,000 shares, they will be trading on a single-price with a 30-minute cycle. Similarly, those with a P/C price disparity > 50% will face the same trading rule for three days.

4. BrandX Corporation IPO Preview

Brandx 1

Established in August 2017, BrandX Corporation is a Korean company that is getting ready for an IPO in August. The IPO deal base size is from $39 million to $48 million. The IPO price range is from 12,400 won to 15,300 won. 

Although BrandX Corporation is best known for its Xexymix women’s apparel brand, it initially started its business from a foundation in social network marketing know-how. The founders capitalized on its strengths to become a bigger media commerce company. 

Since the establishment of the company in 2017, the company has achieved the biggest success with its Xexymix brand (focus on athleisure, swimwear, and leggings). Xexymix accounted for 87% of the company’s consolidated sales and 98% of its non-consolidated sales in 2019. Xexymix specializes in the leggings and athleisure apparel products. In the leggings and athleisure category, the company faces competition from numerous players including Lululemon Korea, Fila Korea, Andar, and Mulawear. 

5. Core Correlations Weekly – July 6th, 2020

Image 838743361594274027652

Demand

  1. China Manufacturing PMI: Manufacturing PMI data from China continues to be healthy after posting a dip in February due to COVID. June data came in at 50.9 and showed sequential improvement over May’s 50.6.
  2. Fundamental data points from China continue to show strength. Auto demand is likely to be up 4-5% YoY in June, and CRIC (China Real Estate Information Corporation) data shows property sales are up 14% YoY in June for the top 200 developers. Data for Jan-June FY20 has inflected into positive territory at 1% YTD.

Supply

  1. Supply issues from Brazil in June were not as bad as initially feared. Brazil shipped out 30 million tons in June, recording a 1% YoY growth.

  2. Inventory at the ports in China rose for the first time in three months.

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