Category

Korea

Brief Korea: Vietnam’s Big Investment Secret: Foreign Inflows Surge and more

By | Daily Briefs, Korea

In this briefing:

  1. Vietnam’s Big Investment Secret: Foreign Inflows Surge
  2. Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows

1. Vietnam’s Big Investment Secret: Foreign Inflows Surge

Smartk2

  • March saw another strong month of cross-border capital inflows into Vietnam financial assets
  • Underlying flow index shows strong momentum hits value 76.9 (range 0-100)
  • Vietnam flows are moving with similar cross-border flow cycle as China and Asian EM

2. Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows

Cbfgdp

  • World (gross) cross-border flows have rebounded strongly
  • Global Liquidity and World Business cycle are increasing driven by cross-border flows
  • Strong cross-border flows drive outperformance of cyclicals and non-US markets

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Korea: Vietnam’s Big Investment Secret: Foreign Inflows Surge and more

By | Daily Briefs, Korea

In this briefing:

  1. Vietnam’s Big Investment Secret: Foreign Inflows Surge
  2. Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows
  3. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

1. Vietnam’s Big Investment Secret: Foreign Inflows Surge

Smartk2

  • March saw another strong month of cross-border capital inflows into Vietnam financial assets
  • Underlying flow index shows strong momentum hits value 76.9 (range 0-100)
  • Vietnam flows are moving with similar cross-border flow cycle as China and Asian EM

2. Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows

Cbfgdp

  • World (gross) cross-border flows have rebounded strongly
  • Global Liquidity and World Business cycle are increasing driven by cross-border flows
  • Strong cross-border flows drive outperformance of cyclicals and non-US markets

3. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

Pos

  • KOSPI is up 7% YTD and Nikkei is up 11% YTD. 
  • South Korea reported horrible GDP data in 1Q19. It was reported in the past week that South Korea’s GDP declined 0.3% QoQ in 1Q19, which was the worst figure in nearly 11 years since 2008. What’s so bad about this is the fact that back in 2008, all the major economies were in the midst of the Great Recession whereas today, that is not the case with the US economy that is in much better shape as compared to other emerging countries such as South Korea.
  • Intel Corp (INTC US) and Texas Instruments (TXN US) made warnings on the semiconductor sector this week. Intel now expects revenue of $69 billion in 2019, down 3% YoY. This revenue guidance is 3.5% lower than its previous guidance given in January 2019.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Korea: WHO Officially Decides Gaming Addiction Disorder as A “Disease” – Impact on the Nexon Sale? and more

By | Daily Briefs, Korea

In this briefing:

  1. WHO Officially Decides Gaming Addiction Disorder as A “Disease” – Impact on the Nexon Sale?
  2. Huawei Investment & Holding– In the Eye of the Storm (Part I)
  3. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal
  4. Nexon: Continuing Question Marks
  5. The Global Recovery Narrative Crumbles

1. WHO Officially Decides Gaming Addiction Disorder as A “Disease” – Impact on the Nexon Sale?

The World Health Organization (WHO) finally made its long-awaited decision on officially classifying game addiction disorder as a disease on May 25th. In June 2018, the WHO already included gaming disorder on the “11th revision of its international classification of diseases.” The WHO has been reviewing this issue for nearly 11 months and it finally made its decision on classifying it as an official disease. 

Will this issue become a “deal breaker” for the Nexon sale? No, we do not believe that WHO finally deciding that gaming disorder is a disease will serve as a deal breaker. Nonetheless, we believe that it will have a negative impact on the game industry as a whole and will be an important factor that could bring down the potential purchase price. 

Three Key Issues of WHO’s decision to Classify Gaming Addiction as Disease to the Nexon Sale:

  • How much has the market already taken this into account? 
  • Gaming taxes? 
  • Greater negative perception of gaming

2. Huawei Investment & Holding– In the Eye of the Storm (Part I)

Huawei%20operations%20dec%202018

Huawei Investment and Holding Co. Ltd. (“Huawei”), a parent of Huawei Technology (40978Z CH) , has been in the news on the Sino-US trade war from the arrest of the group’s chairman’s daughter in Canada to the accusation of Huawei on spying and dealing with Iran. The recent ban on Google’s future business with Huawei is unfortunate, and we see Huawei as a tool used by the Trump Administration to muster over China on the trade war.

We believe the trade war reflects a lack of trust between the US and China which, for sure, did not originate from Mr. Trump, but has been brewing for a long time. We expect the trade war to last a while at least until the next Presidential election in 2020. Huawei as a major competitor to Apple, and one of the forefront leaders in the 5G technology, will inevitably be in the eye of the storm. We advise bond investors to take a deep breath and look beyond this tit-for-tat war of rhetoric between the US and China, and focus on the long-term to determine Huawei’s ability to repay its bonds.

In a series of reports, we start by looking into the events that have led to the current situation, how the Huawei corporate body is structured, and how important Huawei is to China. Next, we look into how Huawei bonds have been trading versus peers, and how financial metrics determine Huawei’s debt repayment capability. Last, we conclude with our fair value of HUAWEI bonds. We expect declining profit margins in the near term but we believe the key to bondholders is the Chinese government support of the group.

The HUAWEI complex (HUAWEI 22s, 25s, 26s, and 27s), all guaranteed by Huawei, has dropped 2-3 points across the board to the mid 90 cents on a dollar since 17-May when the first news of Google’s ban broke. We expect more negative news on Huawei this year and expect asymmetric downside risk on the bonds. The fact that Google issued a statement on 20-May to continue its business with Huawei leads us to believe the dust has not settled. That said, we put our recommendation on all HUAWEI complex under “EVOLVING”. Any further sell-off on HUAWEI bonds will lead us to reconsider our recommendation.

3. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal

Highlights8

Copley Fund Research analyse the holdings of long-only equity funds.  This analysis is taken from our GEM research product, covering 189 global emerging market funds with a combined AUM of $350bn. 

In this month’s Positioning Monthly, we highlight an increasing exposure towards Indonesian Financial stocks, with Bank Rakyat Indonesia Perser (BBRI IJ) and Bank Central Asia (BBCA IJ) the key overweight positions.  We analyse holdings in the food and beverages industry groups as ownership reaches peak levels in both.  Finally, we explore the sharp reversal in Lenovo (992 HK) sentiment as more and more GEM funds buy into the stock.

4. Nexon: Continuing Question Marks

Screenshot%202019 05 24%20at%203.54.18%20am

The Nexon Co Ltd (3659 JP) control-change saga plods on. 

I continue to read all the news that’s fit to print in English, Japanese, and Korean if I can find some web service to translate the hangul. 

My continuing worry about the significant number of articles which get published is that the ‘updates’ provided are much more soap opera-esque than really significant news developments or even insightful commentary which could inform market observers and participants about the considerations which would influence a certain kind of pricing, or bidder strength, outcome, or even a decision by Mr Kim Jung-Ju to walk away from the current process and re-start it at some point in the future.

For this, I have a lower expectation of “certainty” on this situation than I expected I would have by now, and because of the passage of time, the NPV of the trade is slightly lower with a higher volatility of jump risk on eventual outcome than I expected it would have (I expected the components of the NPV to change – certainty would raise NPV while time-decay before announcement would drag on deal NPV, but the lack of certainty has added drag).

More comments about news evolution, content, and trading strategy are below.

5. The Global Recovery Narrative Crumbles

1%20 %20copy

The US equity market was running with an optimistic assessment that there is a Trump and Fed put, that a trade deal and Chinese policy stimulus would generate a recovery in the global economy and the US economy was largely immune to a slowdown in activity abroad. However, the tariffs have been increased, trade talks have stalled, and the US has rolled out bans on Chinese tech companies.  The evidence grows that there is a structural rift in US-China trade relations. The rebound in Chinese economic activity in March was not backed up by data in other Asian exporter nations or Europe through April.  Chinese activity data slumped again in April, and the latest PMI data in the Eurozone, Japan and the USA for May are weak. Oil and copper prices have turned lower, suggesting that industrial activity remains weak.  We continue to see downside risk for still elevated US equities.  The strength in the USD to date is contributing to downward pressure on US equities.  The gains in the USD may have become over-extended.  China may pursue a more stable CNY for a period and lower US yields should support safe haven currencies, JPY, CHF and gold.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Korea: Vietnam’s Big Investment Secret: Foreign Inflows Surge and more

By | Daily Briefs, Korea

In this briefing:

  1. Vietnam’s Big Investment Secret: Foreign Inflows Surge
  2. Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows
  3. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?
  4. LG Electronics’ Decision to Halt Smartphone Production in Korea – No Mas!

1. Vietnam’s Big Investment Secret: Foreign Inflows Surge

Smartk2

  • March saw another strong month of cross-border capital inflows into Vietnam financial assets
  • Underlying flow index shows strong momentum hits value 76.9 (range 0-100)
  • Vietnam flows are moving with similar cross-border flow cycle as China and Asian EM

2. Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows

Cbfgdp

  • World (gross) cross-border flows have rebounded strongly
  • Global Liquidity and World Business cycle are increasing driven by cross-border flows
  • Strong cross-border flows drive outperformance of cyclicals and non-US markets

3. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

Pos

  • KOSPI is up 7% YTD and Nikkei is up 11% YTD. 
  • South Korea reported horrible GDP data in 1Q19. It was reported in the past week that South Korea’s GDP declined 0.3% QoQ in 1Q19, which was the worst figure in nearly 11 years since 2008. What’s so bad about this is the fact that back in 2008, all the major economies were in the midst of the Great Recession whereas today, that is not the case with the US economy that is in much better shape as compared to other emerging countries such as South Korea.
  • Intel Corp (INTC US) and Texas Instruments (TXN US) made warnings on the semiconductor sector this week. Intel now expects revenue of $69 billion in 2019, down 3% YoY. This revenue guidance is 3.5% lower than its previous guidance given in January 2019.

4. LG Electronics’ Decision to Halt Smartphone Production in Korea – No Mas!

Lg%20mobile

Chairmain Koo wants to make some big changes to improve profitability of LG Electronics – The company’s decision to stop production of smartphones in Pyeongtaek, Korea by end of this year and move this operation to Hai Phong, Vietnam has been received with mixed reactions by the shareholders so far and its share price is up 2% after this announcement.

  • Workers’ pay in Vietnam is nearly 1/8 of the levels in Korea.
  • LG is now likely to focus on the low-to-mid end of the global smartphone segment.
  • Moon Jae-In administration’s socialist policies are not business friendly.
  • We think that the annual potential savings of shifting the manufacturing to Vietnam could be about 50 billion won or 2% of the company’s annual operating profit. 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Korea: Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows and more

By | Daily Briefs, Korea

In this briefing:

  1. Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows
  2. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?
  3. LG Electronics’ Decision to Halt Smartphone Production in Korea – No Mas!

1. Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows

Cbfgdp

  • World (gross) cross-border flows have rebounded strongly
  • Global Liquidity and World Business cycle are increasing driven by cross-border flows
  • Strong cross-border flows drive outperformance of cyclicals and non-US markets

2. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

Pos

  • KOSPI is up 7% YTD and Nikkei is up 11% YTD. 
  • South Korea reported horrible GDP data in 1Q19. It was reported in the past week that South Korea’s GDP declined 0.3% QoQ in 1Q19, which was the worst figure in nearly 11 years since 2008. What’s so bad about this is the fact that back in 2008, all the major economies were in the midst of the Great Recession whereas today, that is not the case with the US economy that is in much better shape as compared to other emerging countries such as South Korea.
  • Intel Corp (INTC US) and Texas Instruments (TXN US) made warnings on the semiconductor sector this week. Intel now expects revenue of $69 billion in 2019, down 3% YoY. This revenue guidance is 3.5% lower than its previous guidance given in January 2019.

3. LG Electronics’ Decision to Halt Smartphone Production in Korea – No Mas!

Lg%20mobile

Chairmain Koo wants to make some big changes to improve profitability of LG Electronics – The company’s decision to stop production of smartphones in Pyeongtaek, Korea by end of this year and move this operation to Hai Phong, Vietnam has been received with mixed reactions by the shareholders so far and its share price is up 2% after this announcement.

  • Workers’ pay in Vietnam is nearly 1/8 of the levels in Korea.
  • LG is now likely to focus on the low-to-mid end of the global smartphone segment.
  • Moon Jae-In administration’s socialist policies are not business friendly.
  • We think that the annual potential savings of shifting the manufacturing to Vietnam could be about 50 billion won or 2% of the company’s annual operating profit. 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Korea: Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows and more

By | Daily Briefs, Korea

In this briefing:

  1. Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows
  2. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?
  3. LG Electronics’ Decision to Halt Smartphone Production in Korea – No Mas!
  4. Cafe24: A Compelling E-Commerce Growth Story at Attractive Prices

1. Buy Cyclicals? US Fed Hijacked By Big Jump In Global Capital Flows

Cbfgdp

  • World (gross) cross-border flows have rebounded strongly
  • Global Liquidity and World Business cycle are increasing driven by cross-border flows
  • Strong cross-border flows drive outperformance of cyclicals and non-US markets

2. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

Pos

  • KOSPI is up 7% YTD and Nikkei is up 11% YTD. 
  • South Korea reported horrible GDP data in 1Q19. It was reported in the past week that South Korea’s GDP declined 0.3% QoQ in 1Q19, which was the worst figure in nearly 11 years since 2008. What’s so bad about this is the fact that back in 2008, all the major economies were in the midst of the Great Recession whereas today, that is not the case with the US economy that is in much better shape as compared to other emerging countries such as South Korea.
  • Intel Corp (INTC US) and Texas Instruments (TXN US) made warnings on the semiconductor sector this week. Intel now expects revenue of $69 billion in 2019, down 3% YoY. This revenue guidance is 3.5% lower than its previous guidance given in January 2019.

3. LG Electronics’ Decision to Halt Smartphone Production in Korea – No Mas!

Lg%20mobile

Chairmain Koo wants to make some big changes to improve profitability of LG Electronics – The company’s decision to stop production of smartphones in Pyeongtaek, Korea by end of this year and move this operation to Hai Phong, Vietnam has been received with mixed reactions by the shareholders so far and its share price is up 2% after this announcement.

  • Workers’ pay in Vietnam is nearly 1/8 of the levels in Korea.
  • LG is now likely to focus on the low-to-mid end of the global smartphone segment.
  • Moon Jae-In administration’s socialist policies are not business friendly.
  • We think that the annual potential savings of shifting the manufacturing to Vietnam could be about 50 billion won or 2% of the company’s annual operating profit. 

4. Cafe24: A Compelling E-Commerce Growth Story at Attractive Prices

Cafe24 2

  • This report provides an update on Cafe24 Corp (042000 KS), which is the Korean version of Shopify Inc (SHOP US)
  • The total e-commerce transaction market in Korea increased 29.3% CAGR in the past two years to 82.8 trillion won in 2018. Cafe24’s GMV grew 24.3% CAGR in the past two years to reach 8.0 trillion won in 2018. Despite the stiff competition, the fact that Cafe24 has been able to maintain its market share of about 10% in the past two years suggests strong loyalty of its existing customers as well as the company’s ability to attract new customers.  
  • At current prices, Cafe24 trades at 42x P/E (2019E) and 29x P/E (2020E), using the consensus earnings estimates. If we apply the current P/E multiple (42x) to next year’s consensus earnings, it would suggest an implied market cap of 1.47 trillion won for Cafe24 (up 47% from current levels). 
  • Koreacenter.com is one the key competitors to Cafe24. Koreacenter.com is expected to complete its IPO in the next few weeks. Local media have mentioned that Koreacenter.com’s value could be about 650 billion won to 700 billion won. The upcoming IPO of Koreacenter.com is likely to put some renewed spotlight on Cafe24 as well.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Korea: Huawei Investment & Holding– In the Eye of the Storm (Part I) and more

By | Daily Briefs, Korea

In this briefing:

  1. Huawei Investment & Holding– In the Eye of the Storm (Part I)
  2. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal
  3. Nexon: Continuing Question Marks
  4. The Global Recovery Narrative Crumbles
  5. Bitcoin, Revisited

1. Huawei Investment & Holding– In the Eye of the Storm (Part I)

Huawei%20operations%20dec%202018

Huawei Investment and Holding Co. Ltd. (“Huawei”), a parent of Huawei Technology (40978Z CH) , has been in the news on the Sino-US trade war from the arrest of the group’s chairman’s daughter in Canada to the accusation of Huawei on spying and dealing with Iran. The recent ban on Google’s future business with Huawei is unfortunate, and we see Huawei as a tool used by the Trump Administration to muster over China on the trade war.

We believe the trade war reflects a lack of trust between the US and China which, for sure, did not originate from Mr. Trump, but has been brewing for a long time. We expect the trade war to last a while at least until the next Presidential election in 2020. Huawei as a major competitor to Apple, and one of the forefront leaders in the 5G technology, will inevitably be in the eye of the storm. We advise bond investors to take a deep breath and look beyond this tit-for-tat war of rhetoric between the US and China, and focus on the long-term to determine Huawei’s ability to repay its bonds.

In a series of reports, we start by looking into the events that have led to the current situation, how the Huawei corporate body is structured, and how important Huawei is to China. Next, we look into how Huawei bonds have been trading versus peers, and how financial metrics determine Huawei’s debt repayment capability. Last, we conclude with our fair value of HUAWEI bonds. We expect declining profit margins in the near term but we believe the key to bondholders is the Chinese government support of the group.

The HUAWEI complex (HUAWEI 22s, 25s, 26s, and 27s), all guaranteed by Huawei, has dropped 2-3 points across the board to the mid 90 cents on a dollar since 17-May when the first news of Google’s ban broke. We expect more negative news on Huawei this year and expect asymmetric downside risk on the bonds. The fact that Google issued a statement on 20-May to continue its business with Huawei leads us to believe the dust has not settled. That said, we put our recommendation on all HUAWEI complex under “EVOLVING”. Any further sell-off on HUAWEI bonds will lead us to reconsider our recommendation.

2. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal

Highlights11

Copley Fund Research analyse the holdings of long-only equity funds.  This analysis is taken from our GEM research product, covering 189 global emerging market funds with a combined AUM of $350bn. 

In this month’s Positioning Monthly, we highlight an increasing exposure towards Indonesian Financial stocks, with Bank Rakyat Indonesia Perser (BBRI IJ) and Bank Central Asia (BBCA IJ) the key overweight positions.  We analyse holdings in the food and beverages industry groups as ownership reaches peak levels in both.  Finally, we explore the sharp reversal in Lenovo (992 HK) sentiment as more and more GEM funds buy into the stock.

3. Nexon: Continuing Question Marks

Screenshot%202019 05 24%20at%203.54.18%20am

The Nexon Co Ltd (3659 JP) control-change saga plods on. 

I continue to read all the news that’s fit to print in English, Japanese, and Korean if I can find some web service to translate the hangul. 

My continuing worry about the significant number of articles which get published is that the ‘updates’ provided are much more soap opera-esque than really significant news developments or even insightful commentary which could inform market observers and participants about the considerations which would influence a certain kind of pricing, or bidder strength, outcome, or even a decision by Mr Kim Jung-Ju to walk away from the current process and re-start it at some point in the future.

For this, I have a lower expectation of “certainty” on this situation than I expected I would have by now, and because of the passage of time, the NPV of the trade is slightly lower with a higher volatility of jump risk on eventual outcome than I expected it would have (I expected the components of the NPV to change – certainty would raise NPV while time-decay before announcement would drag on deal NPV, but the lack of certainty has added drag).

More comments about news evolution, content, and trading strategy are below.

4. The Global Recovery Narrative Crumbles

1

The US equity market was running with an optimistic assessment that there is a Trump and Fed put, that a trade deal and Chinese policy stimulus would generate a recovery in the global economy and the US economy was largely immune to a slowdown in activity abroad. However, the tariffs have been increased, trade talks have stalled, and the US has rolled out bans on Chinese tech companies.  The evidence grows that there is a structural rift in US-China trade relations. The rebound in Chinese economic activity in March was not backed up by data in other Asian exporter nations or Europe through April.  Chinese activity data slumped again in April, and the latest PMI data in the Eurozone, Japan and the USA for May are weak. Oil and copper prices have turned lower, suggesting that industrial activity remains weak.  We continue to see downside risk for still elevated US equities.  The strength in the USD to date is contributing to downward pressure on US equities.  The gains in the USD may have become over-extended.  China may pursue a more stable CNY for a period and lower US yields should support safe haven currencies, JPY, CHF and gold.

5. Bitcoin, Revisited

Screenshot%202019 05 23%20at%2020.26.51

Bitcoin and the block chain were created just over ten years ago, as a means to create peer to peer transactions without the need to use financial institutions to process the payments. 

However, frequent hacks of Bitcoin exchanges, in addition to the significant past fluctuations of Bitcoin prices, have put mainstream usage off and slowed the adoption of the cryptocurrency.

Is this about to change now?

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Korea: Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker? and more

By | Daily Briefs, Korea

In this briefing:

  1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?
  2. LG Electronics’ Decision to Halt Smartphone Production in Korea – No Mas!
  3. Cafe24: A Compelling E-Commerce Growth Story at Attractive Prices

1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

Pos

  • KOSPI is up 7% YTD and Nikkei is up 11% YTD. 
  • South Korea reported horrible GDP data in 1Q19. It was reported in the past week that South Korea’s GDP declined 0.3% QoQ in 1Q19, which was the worst figure in nearly 11 years since 2008. What’s so bad about this is the fact that back in 2008, all the major economies were in the midst of the Great Recession whereas today, that is not the case with the US economy that is in much better shape as compared to other emerging countries such as South Korea.
  • Intel Corp (INTC US) and Texas Instruments (TXN US) made warnings on the semiconductor sector this week. Intel now expects revenue of $69 billion in 2019, down 3% YoY. This revenue guidance is 3.5% lower than its previous guidance given in January 2019.

2. LG Electronics’ Decision to Halt Smartphone Production in Korea – No Mas!

Lg%20mobile

Chairmain Koo wants to make some big changes to improve profitability of LG Electronics – The company’s decision to stop production of smartphones in Pyeongtaek, Korea by end of this year and move this operation to Hai Phong, Vietnam has been received with mixed reactions by the shareholders so far and its share price is up 2% after this announcement.

  • Workers’ pay in Vietnam is nearly 1/8 of the levels in Korea.
  • LG is now likely to focus on the low-to-mid end of the global smartphone segment.
  • Moon Jae-In administration’s socialist policies are not business friendly.
  • We think that the annual potential savings of shifting the manufacturing to Vietnam could be about 50 billion won or 2% of the company’s annual operating profit. 

3. Cafe24: A Compelling E-Commerce Growth Story at Attractive Prices

Cafe24 2

  • This report provides an update on Cafe24 Corp (042000 KS), which is the Korean version of Shopify Inc (SHOP US)
  • The total e-commerce transaction market in Korea increased 29.3% CAGR in the past two years to 82.8 trillion won in 2018. Cafe24’s GMV grew 24.3% CAGR in the past two years to reach 8.0 trillion won in 2018. Despite the stiff competition, the fact that Cafe24 has been able to maintain its market share of about 10% in the past two years suggests strong loyalty of its existing customers as well as the company’s ability to attract new customers.  
  • At current prices, Cafe24 trades at 42x P/E (2019E) and 29x P/E (2020E), using the consensus earnings estimates. If we apply the current P/E multiple (42x) to next year’s consensus earnings, it would suggest an implied market cap of 1.47 trillion won for Cafe24 (up 47% from current levels). 
  • Koreacenter.com is one the key competitors to Cafe24. Koreacenter.com is expected to complete its IPO in the next few weeks. Local media have mentioned that Koreacenter.com’s value could be about 650 billion won to 700 billion won. The upcoming IPO of Koreacenter.com is likely to put some renewed spotlight on Cafe24 as well.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Korea: GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal and more

By | Daily Briefs, Korea

In this briefing:

  1. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal
  2. Nexon: Continuing Question Marks
  3. The Global Recovery Narrative Crumbles
  4. Bitcoin, Revisited
  5. Nexon Sale: Market Talkings Update, Incl. Bid Schedule Extension

1. GEM Positioning Monthly:  Indonesian Financials, Food & Beverages, Lenovo Sentiment Reversal

Highlights15

Copley Fund Research analyse the holdings of long-only equity funds.  This analysis is taken from our GEM research product, covering 189 global emerging market funds with a combined AUM of $350bn. 

In this month’s Positioning Monthly, we highlight an increasing exposure towards Indonesian Financial stocks, with Bank Rakyat Indonesia Perser (BBRI IJ) and Bank Central Asia (BBCA IJ) the key overweight positions.  We analyse holdings in the food and beverages industry groups as ownership reaches peak levels in both.  Finally, we explore the sharp reversal in Lenovo (992 HK) sentiment as more and more GEM funds buy into the stock.

2. Nexon: Continuing Question Marks

Screenshot%202019 05 24%20at%203.54.18%20am

The Nexon Co Ltd (3659 JP) control-change saga plods on. 

I continue to read all the news that’s fit to print in English, Japanese, and Korean if I can find some web service to translate the hangul. 

My continuing worry about the significant number of articles which get published is that the ‘updates’ provided are much more soap opera-esque than really significant news developments or even insightful commentary which could inform market observers and participants about the considerations which would influence a certain kind of pricing, or bidder strength, outcome, or even a decision by Mr Kim Jung-Ju to walk away from the current process and re-start it at some point in the future.

For this, I have a lower expectation of “certainty” on this situation than I expected I would have by now, and because of the passage of time, the NPV of the trade is slightly lower with a higher volatility of jump risk on eventual outcome than I expected it would have (I expected the components of the NPV to change – certainty would raise NPV while time-decay before announcement would drag on deal NPV, but the lack of certainty has added drag).

More comments about news evolution, content, and trading strategy are below.

3. The Global Recovery Narrative Crumbles

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The US equity market was running with an optimistic assessment that there is a Trump and Fed put, that a trade deal and Chinese policy stimulus would generate a recovery in the global economy and the US economy was largely immune to a slowdown in activity abroad. However, the tariffs have been increased, trade talks have stalled, and the US has rolled out bans on Chinese tech companies.  The evidence grows that there is a structural rift in US-China trade relations. The rebound in Chinese economic activity in March was not backed up by data in other Asian exporter nations or Europe through April.  Chinese activity data slumped again in April, and the latest PMI data in the Eurozone, Japan and the USA for May are weak. Oil and copper prices have turned lower, suggesting that industrial activity remains weak.  We continue to see downside risk for still elevated US equities.  The strength in the USD to date is contributing to downward pressure on US equities.  The gains in the USD may have become over-extended.  China may pursue a more stable CNY for a period and lower US yields should support safe haven currencies, JPY, CHF and gold.

4. Bitcoin, Revisited

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Bitcoin and the block chain were created just over ten years ago, as a means to create peer to peer transactions without the need to use financial institutions to process the payments. 

However, frequent hacks of Bitcoin exchanges, in addition to the significant past fluctuations of Bitcoin prices, have put mainstream usage off and slowed the adoption of the cryptocurrency.

Is this about to change now?

5. Nexon Sale: Market Talkings Update, Incl. Bid Schedule Extension

This is the latest update on Nexon. We had two Nexon related news reports, put out by Seoul Economic Daily and Invest Chosun, in the past two days, especially in relation to the bid schedule. We also had some market speculations. This post is my summary of these report and market speculations.

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Brief Korea: Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker? and more

By | Daily Briefs, Korea

In this briefing:

  1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?
  2. LG Electronics’ Decision to Halt Smartphone Production in Korea – No Mas!
  3. Cafe24: A Compelling E-Commerce Growth Story at Attractive Prices
  4. DHICO Rights Offer: Arb Trade Situation Update

1. Smartkarma’s Week That Was in JP/​​​​​​​​​KR: -0.3% GDP Growth, Intel’s Warnings, & The Next Joker?

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  • KOSPI is up 7% YTD and Nikkei is up 11% YTD. 
  • South Korea reported horrible GDP data in 1Q19. It was reported in the past week that South Korea’s GDP declined 0.3% QoQ in 1Q19, which was the worst figure in nearly 11 years since 2008. What’s so bad about this is the fact that back in 2008, all the major economies were in the midst of the Great Recession whereas today, that is not the case with the US economy that is in much better shape as compared to other emerging countries such as South Korea.
  • Intel Corp (INTC US) and Texas Instruments (TXN US) made warnings on the semiconductor sector this week. Intel now expects revenue of $69 billion in 2019, down 3% YoY. This revenue guidance is 3.5% lower than its previous guidance given in January 2019.

2. LG Electronics’ Decision to Halt Smartphone Production in Korea – No Mas!

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Chairmain Koo wants to make some big changes to improve profitability of LG Electronics – The company’s decision to stop production of smartphones in Pyeongtaek, Korea by end of this year and move this operation to Hai Phong, Vietnam has been received with mixed reactions by the shareholders so far and its share price is up 2% after this announcement.

  • Workers’ pay in Vietnam is nearly 1/8 of the levels in Korea.
  • LG is now likely to focus on the low-to-mid end of the global smartphone segment.
  • Moon Jae-In administration’s socialist policies are not business friendly.
  • We think that the annual potential savings of shifting the manufacturing to Vietnam could be about 50 billion won or 2% of the company’s annual operating profit. 

3. Cafe24: A Compelling E-Commerce Growth Story at Attractive Prices

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  • This report provides an update on Cafe24 Corp (042000 KS), which is the Korean version of Shopify Inc (SHOP US)
  • The total e-commerce transaction market in Korea increased 29.3% CAGR in the past two years to 82.8 trillion won in 2018. Cafe24’s GMV grew 24.3% CAGR in the past two years to reach 8.0 trillion won in 2018. Despite the stiff competition, the fact that Cafe24 has been able to maintain its market share of about 10% in the past two years suggests strong loyalty of its existing customers as well as the company’s ability to attract new customers.  
  • At current prices, Cafe24 trades at 42x P/E (2019E) and 29x P/E (2020E), using the consensus earnings estimates. If we apply the current P/E multiple (42x) to next year’s consensus earnings, it would suggest an implied market cap of 1.47 trillion won for Cafe24 (up 47% from current levels). 
  • Koreacenter.com is one the key competitors to Cafe24. Koreacenter.com is expected to complete its IPO in the next few weeks. Local media have mentioned that Koreacenter.com’s value could be about 650 billion won to 700 billion won. The upcoming IPO of Koreacenter.com is likely to put some renewed spotlight on Cafe24 as well.

4. DHICO Rights Offer: Arb Trade Situation Update

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We are now on the last trading day of subscription rights. In the last 4 trading days, we have seen extremely high level of arb trades. Both approaches, arb trade and outright shorting, still seem to be working even at this point. More details are as follows.

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