Category

Korea

Brief Korea: Japan Restricts Visitors from South Korea & China, Olympics, and the Mask Fiasco and more

By | Daily Briefs, Korea

In this briefing:

  1. Japan Restricts Visitors from South Korea & China, Olympics, and the Mask Fiasco
  2. Orion Stub Trade for a Short-Term Reversion as the Current Level Should Be a Floor
  3. Covid-19 – We Identify Some Opportunities in Markets – Inteqres Review

1. Japan Restricts Visitors from South Korea & China, Olympics, and the Mask Fiasco

Japan 2

In this analysis, we discuss the Japanese government’s announcement to restrict visitors from South Korea and China due to the COVID-19 coronavirus concerns. Although the two-week quarantine for visitors from South Korea and China does not represent a complete ban from these countries, they will likely cause a drastic decline in visitors from these countries.

So it appears Prime Minister Abe is following Plan A right now, which is to undertake drastic actions to limit the further spread of the COVID-19 coronavirus. The end of May is a crucial period since this is when the Olympics Committee will sit down and make the final decision as to whether to hold this year’s Olympics as on schedule or to postpone it at a later date (Plan B). 

Wearing masks has been proven to be an effective means to reduce the chances of getting infected with COVID-19 virus. Unfortunately, there has been a severe shortage of masks in Korea causing all sorts of problems and inconvenience. Due to the shortage, millions of people in Korea have been waiting on long lines to get their limited number of masks, especially in the past two weeks. In the midst of the huge demand for masks in Korea, you would think that all mask companies would be producing masks 24/7 but that is not the case. We discuss why a Korean company called Edent has decided to stop mask production despite huge demand. 

2. Orion Stub Trade for a Short-Term Reversion as the Current Level Should Be a Floor

6

The Orion stub is again at below -2σ on a 20D MA. The price ratio is pretty much at the same level as the 2-yr low.

The warming Korea-China relation had led to a structural diversion in the second half of last year. Since then, the pair has settled and reliably moved together. The current level has resiliently served as a floor.

3. Covid-19 – We Identify Some Opportunities in Markets – Inteqres Review

Image 93651346841583428218450

We dissect the recent decline across Asia and emerging markets with the aim of identifying a few interesting areas for managers to utilise cash.   The suggestions are both short and long term.  This first note looks at the markets from a sectoral viewpoint.  We identify a few banks, healthcare and tech companies worthy of investor attention.

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief Korea: Japan Restricts Visitors from South Korea & China, Olympics, and the Mask Fiasco and more

By | Daily Briefs, Korea

In this briefing:

  1. Japan Restricts Visitors from South Korea & China, Olympics, and the Mask Fiasco
  2. Orion Stub Trade for a Short-Term Reversion as the Current Level Should Be a Floor
  3. Covid-19 – We Identify Some Opportunities in Markets – Inteqres Review
  4. Austrian Domestic Stress Indicators Explained

1. Japan Restricts Visitors from South Korea & China, Olympics, and the Mask Fiasco

Japan 2

In this analysis, we discuss the Japanese government’s announcement to restrict visitors from South Korea and China due to the COVID-19 coronavirus concerns. Although the two-week quarantine for visitors from South Korea and China does not represent a complete ban from these countries, they will likely cause a drastic decline in visitors from these countries.

So it appears Prime Minister Abe is following Plan A right now, which is to undertake drastic actions to limit the further spread of the COVID-19 coronavirus. The end of May is a crucial period since this is when the Olympics Committee will sit down and make the final decision as to whether to hold this year’s Olympics as on schedule or to postpone it at a later date (Plan B). 

Wearing masks has been proven to be an effective means to reduce the chances of getting infected with COVID-19 virus. Unfortunately, there has been a severe shortage of masks in Korea causing all sorts of problems and inconvenience. Due to the shortage, millions of people in Korea have been waiting on long lines to get their limited number of masks, especially in the past two weeks. In the midst of the huge demand for masks in Korea, you would think that all mask companies would be producing masks 24/7 but that is not the case. We discuss why a Korean company called Edent has decided to stop mask production despite huge demand. 

2. Orion Stub Trade for a Short-Term Reversion as the Current Level Should Be a Floor

6

The Orion stub is again at below -2σ on a 20D MA. The price ratio is pretty much at the same level as the 2-yr low.

The warming Korea-China relation had led to a structural diversion in the second half of last year. Since then, the pair has settled and reliably moved together. The current level has resiliently served as a floor.

3. Covid-19 – We Identify Some Opportunities in Markets – Inteqres Review

Image 93651346841583428218450

We dissect the recent decline across Asia and emerging markets with the aim of identifying a few interesting areas for managers to utilise cash.   The suggestions are both short and long term.  This first note looks at the markets from a sectoral viewpoint.  We identify a few banks, healthcare and tech companies worthy of investor attention.

4. Austrian Domestic Stress Indicators Explained

Image 583218900211582883271792

Over the years, we have developed seven indicators which, we believe, help us assess where countries are in the profit, credit and business cycles. They also tell us whether or not policy settings are appropriate and how vulnerable countries might be to external problems (two indicators). Below, we explain how we interpret each of the five domestic indicators, using a variety of Asian country’s in the region as an example. In following Insights, we will detail how Asian countries are faring in terms of our Austrian stress indicators.

While we use these indicators and how they are changing over time or their ‘momentum’ to inform our strategy call on equity market underweight and overweight recommendations, they were originally designed to provide us with an insight as to where each country was placed in its business cycle.

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Brief Korea: KOSPI200 Rebalance – What’s In Store for Bottom 10%? and more

By | Daily Briefs, Korea

In this briefing:

  1. KOSPI200 Rebalance – What’s In Store for Bottom 10%?

1. KOSPI200 Rebalance – What’s In Store for Bottom 10%?

Kospi200 criteria

This is a follow-up to Brian Freitas‘ insight KOSPI200 Rebalance Preview – The Early Bird Gets the Worm. In our analysis, we highlight 10 potential companies that could be included and 10 potential companies that could be excluded in the next round of KOSPI 200 rebalance in June. The tables below lists the 20 companies we believe could be excluded or included in the next round of KOSPI 200 rebalance in June. 

10 Companies for KOSPI 200 Exclusion (Table 1)
HYOSUNG HEAVY
SsangyongMtr
NamyangDairy
KISWire
HYUNDAILIVART
UNID
HankookShellOil
NamhaeChem
TONGYANG
AK Holdings
Source: Our Estimates
10 Companies for KOSPI 200 Inclusion (Table 5)
Hanjin Kal Corp
POSCO Chemtech
Duzon Bizon
F&F
NHN
Zinus
Kiwoom Securities
Hansol Chemical
Asiana Airlines
Hyundai Merchant Marine
Source: Our Estimates

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Brief Korea: Kurly – A Korean Online Grocery Receives $150 Million from DST, Hillhouse Capital, & Sequoia Capital and more

By | Daily Briefs, Korea

In this briefing:

  1. Kurly – A Korean Online Grocery Receives $150 Million from DST, Hillhouse Capital, & Sequoia Capital
  2. Celltrion Pairs Trading Dynamics Checkup: Healthcare at a 2-Yr High
  3. LG International – Announces Share Buyback of Nearly 28% of Market Cap
  4. Europe Covid 19 Update – More Positive Data – Focus on the Next Stage and EM
  5. This Month in Blockchain & Cryptos: Bitcoin Legalized in South Korea & Blockchain-As-A Service

1. Kurly – A Korean Online Grocery Receives $150 Million from DST, Hillhouse Capital, & Sequoia Capital

Kurly 01

Kurly is one of the fastest growing online grocery companies in Korea. On 3 April, it was reported that the company received $150 million (185 billion won) in investments from Digital Sky Technologies (DST), Hillhouse Capital, and Sequoia Capital.

This new round of investment values Kurly at about 950 billion won, which is close to unicorn status. Based on this round of investments, Kurly is valued at about 950 billion won, which would be 2.2x P/S using the company’s sales of 429 billion won in 2019.

Kurly provides organic and premium groceries, pastries, salads, and dietary supplements at reasonable prices. Kurly’s goal has been to become the Amazon Fresh of Korea. Kurly is clearly one of the leaders in this segment.

Kurly has done a fantastic job of gaining and retaining new customers in the past five years. The following are some of the key methods that the company has used to gain and retain customers.

  • Focus on food quality & freshness

  • Fast delivery

  • Hook to get the customer use it for the first time

2. Celltrion Pairs Trading Dynamics Checkup: Healthcare at a 2-Yr High

3

The Celltrion pair (Celltrion and Celltrion Healthcare) is another one ideally matched for pairs trading. As shown below, they are highly correlated and also closely cointegrated. No surprise here. Healthcare should be an internal sales unit of Celltrion. Their performance has to be fundamentally in synch as one integrated unit.

Now, what about their current price ratio? They are now at +2σ for Healthcare on a 20D MA. On a two year horizon, Healthcare’s price relative to that of Celltrion is currently at a new high. 

3. LG International – Announces Share Buyback of Nearly 28% of Market Cap

Lginter c

After the market close today, Lg International (001120 KS) announced that it will buy back 100 billion won worth of its shares, representing nearly 28% of its shares outstanding.

LG International’s share price is down 40% YTD and the senior management believes that its share price is excessively undervalued right now and this is a key reason for the share buyback. 

Given the very high share buyback, we think that the stock could recoup most of its losses this year. LG International’s share price was trading in the 15,000 won in late 2019 and we think it is very possible for the share price to shoot up to this level next week. 

4. Europe Covid 19 Update – More Positive Data – Focus on the Next Stage and EM

Image 47709074531585833140852

Most countries in Europe are tracking below our worst-case scenarios, suggesting more widespread testing. The data is conforming to our expected peak in both Italy and Spain.

The UK is a true outlier, and we are concerned that early testing was substandard and there may be more ‘catching up’ for the UK to do.

We still believe that the peak in daily deaths in Europe will be within the next 4 to 6 days.

Markets are obviously obsessed with the US outcome, but Europe is still exceptionally important.  As pressures ease on medical systems more talk will turn to the economies and easing of restrictions.  Whilst the near term imperative of protecting health systems appears to have worked, the economic costs are very high.  We continue to believe that a different policy mix could have saved lives and caused less damaged to the economy.  However, on a positive note, we believe that there is still room for policymakers in Europe to make up for their past mistakes.

If our forecast of declining Italian fatalities and the implementation of a policy where data privacy is traded for the ability to travel and work is correct then we believe markets will be well supported, even as the US goes through its acceleration phase.

5. This Month in Blockchain & Cryptos: Bitcoin Legalized in South Korea & Blockchain-As-A Service

Bitcoin marketcap

Bitcoin outperformed the major global equity indices in 1Q 2020. The U.S. Fed’s QE Unlimited is positive on Bitcoin. One of the key reasons why people own Bitcoin is because many owners believe that the U.S. Fed could print an unlimited amount of money, unlike Bitcoin which has a fixed maximum supply.

Some of the other major headlines impacting the blockchain and cryptocurrencies sectors globally that we discuss in this insight include the following:

  • India lifts ban on Bitcoin trading
  • China to launch a blockchain-based service network in April
  • Launch of a blockchain-based platform called PIER in Brazil
  • Seven of World’s Largest Blockchain as a Service Enterprises
  • Bitcoin’s market cap dominance
  • South Korea legalizes Bitcoin trading
  • Samsung is Becoming a Major Player in the Global Blockchain & Crypto Industry

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Brief Korea: Celltrion Pairs Trading Dynamics Checkup: Healthcare at a 2-Yr High and more

By | Daily Briefs, Korea

In this briefing:

  1. Celltrion Pairs Trading Dynamics Checkup: Healthcare at a 2-Yr High
  2. LG International – Announces Share Buyback of Nearly 28% of Market Cap
  3. Europe Covid 19 Update – More Positive Data – Focus on the Next Stage and EM
  4. This Month in Blockchain & Cryptos: Bitcoin Legalized in South Korea & Blockchain-As-A Service
  5. More Celltrion Block Deals from Temasek Soon? It Seems So

1. Celltrion Pairs Trading Dynamics Checkup: Healthcare at a 2-Yr High

2

The Celltrion pair (Celltrion and Celltrion Healthcare) is another one ideally matched for pairs trading. As shown below, they are highly correlated and also closely cointegrated. No surprise here. Healthcare should be an internal sales unit of Celltrion. Their performance has to be fundamentally in synch as one integrated unit.

Now, what about their current price ratio? They are now at +2σ for Healthcare on a 20D MA. On a two year horizon, Healthcare’s price relative to that of Celltrion is currently at a new high. 

2. LG International – Announces Share Buyback of Nearly 28% of Market Cap

Lginternational b

After the market close today, Lg International (001120 KS) announced that it will buy back 100 billion won worth of its shares, representing nearly 28% of its shares outstanding.

LG International’s share price is down 40% YTD and the senior management believes that its share price is excessively undervalued right now and this is a key reason for the share buyback. 

Given the very high share buyback, we think that the stock could recoup most of its losses this year. LG International’s share price was trading in the 15,000 won in late 2019 and we think it is very possible for the share price to shoot up to this level next week. 

3. Europe Covid 19 Update – More Positive Data – Focus on the Next Stage and EM

Image 77055901351585848145400

Most countries in Europe are tracking below our worst-case scenarios, suggesting more widespread testing. The data is conforming to our expected peak in both Italy and Spain.

The UK is a true outlier, and we are concerned that early testing was substandard and there may be more ‘catching up’ for the UK to do.

We still believe that the peak in daily deaths in Europe will be within the next 4 to 6 days.

Markets are obviously obsessed with the US outcome, but Europe is still exceptionally important.  As pressures ease on medical systems more talk will turn to the economies and easing of restrictions.  Whilst the near term imperative of protecting health systems appears to have worked, the economic costs are very high.  We continue to believe that a different policy mix could have saved lives and caused less damaged to the economy.  However, on a positive note, we believe that there is still room for policymakers in Europe to make up for their past mistakes.

If our forecast of declining Italian fatalities and the implementation of a policy where data privacy is traded for the ability to travel and work is correct then we believe markets will be well supported, even as the US goes through its acceleration phase.

4. This Month in Blockchain & Cryptos: Bitcoin Legalized in South Korea & Blockchain-As-A Service

Bitcoin marketcap

Bitcoin outperformed the major global equity indices in 1Q 2020. The U.S. Fed’s QE Unlimited is positive on Bitcoin. One of the key reasons why people own Bitcoin is because many owners believe that the U.S. Fed could print an unlimited amount of money, unlike Bitcoin which has a fixed maximum supply.

Some of the other major headlines impacting the blockchain and cryptocurrencies sectors globally that we discuss in this insight include the following:

  • India lifts ban on Bitcoin trading
  • China to launch a blockchain-based service network in April
  • Launch of a blockchain-based platform called PIER in Brazil
  • Seven of World’s Largest Blockchain as a Service Enterprises
  • Bitcoin’s market cap dominance
  • South Korea legalizes Bitcoin trading
  • Samsung is Becoming a Major Player in the Global Blockchain & Crypto Industry

5. More Celltrion Block Deals from Temasek Soon? It Seems So

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Should we expect more block deals from Temasek? It seems that we should. It seems more evident now that Temasek isn’t planning to stay at Celltrion as a long-term investor. So far, Temasek had done three block deals. All of them have a similar pattern. Each was shortly after the price peaked. It suggests that Temasek has been waiting for the right timing to sell.

The company management doesn’t appear to be content with these block deals. The company has reportedly asked OEP and Temasek to hold off on future block deals, but this friendly request doesn’t seem to be working now. In particular, they do not seem to be receptive to new situations. Founder and CEO Seo Jung-jin is going to leave the company next year. Also, we will likely see a merger attempt between Celltrion and Healthcare. What we are hearing on the local street is that OEP and Temasek see these as an unpleasant uncertainty instead of a long-term positive.

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Brief Korea: Covid-19 – We Identify Some Opportunities in Markets – Inteqres Review and more

By | Daily Briefs, Korea

In this briefing:

  1. Covid-19 – We Identify Some Opportunities in Markets – Inteqres Review
  2. Austrian Domestic Stress Indicators Explained
  3. Screening the Silk Road: Q1 2020 Small-Mid Cap High Risk Names to Avoid
  4. KOSPI200 Rebalance – What’s In Store for Bottom 10%?

1. Covid-19 – We Identify Some Opportunities in Markets – Inteqres Review

Image 93651346841583428218450

We dissect the recent decline across Asia and emerging markets with the aim of identifying a few interesting areas for managers to utilise cash.   The suggestions are both short and long term.  This first note looks at the markets from a sectoral viewpoint.  We identify a few banks, healthcare and tech companies worthy of investor attention.

2. Austrian Domestic Stress Indicators Explained

Image 583218900211582883271792

Over the years, we have developed seven indicators which, we believe, help us assess where countries are in the profit, credit and business cycles. They also tell us whether or not policy settings are appropriate and how vulnerable countries might be to external problems (two indicators). Below, we explain how we interpret each of the five domestic indicators, using a variety of Asian country’s in the region as an example. In following Insights, we will detail how Asian countries are faring in terms of our Austrian stress indicators.

While we use these indicators and how they are changing over time or their ‘momentum’ to inform our strategy call on equity market underweight and overweight recommendations, they were originally designed to provide us with an insight as to where each country was placed in its business cycle.

3. Screening the Silk Road: Q1 2020 Small-Mid Cap High Risk Names to Avoid

Trinity%20 %20mar%2020%20chart%204

  • Our Q4-2019 Small-Mid Cap High-Risk list of stocks produced an average price decline of 6.1% and on a market cap weighted basis a decline of 8.6%. In comparison, the MSCI Asia Pacific Index posted a decline of 4.1% over the same period. The stock rank quality of the Q4 2019 list increased mere1.5 points or 0.46% for the period. Refer: Screening the Silk Road: Small-Mid Cap High Risk Names to Avoid: Q4 2019 
  • 17 stocks appear in our Q1 2020 screen, compared to 16, 14, 19 and 26 in Q4, Q3, Q2 and Q1 2019 respectively. The average stock rank in our list has decreased 2.8 to 72.1 points since December 2019. The reduction reflects some of the decisive bearish moves in recent weeks within the Asian Universe. This has seen the market making a more defined separation of Quality, Value and relative Momentum, which we had felt was overdue in Q4 2019.
  • Deteriorating credit metrics support our view that the level of risk appears is increasing within the small-mid cap universe. 

4. KOSPI200 Rebalance – What’s In Store for Bottom 10%?

Kospi200 criteria

This is a follow-up to Brian Freitas‘ insight KOSPI200 Rebalance Preview – The Early Bird Gets the Worm. In our analysis, we highlight 10 potential companies that could be included and 10 potential companies that could be excluded in the next round of KOSPI 200 rebalance in June. The tables below lists the 20 companies we believe could be excluded or included in the next round of KOSPI 200 rebalance in June. 

10 Companies for KOSPI 200 Exclusion (Table 1)
HYOSUNG HEAVY
SsangyongMtr
NamyangDairy
KISWire
HYUNDAILIVART
UNID
HankookShellOil
NamhaeChem
TONGYANG
AK Holdings
Source: Our Estimates
10 Companies for KOSPI 200 Inclusion (Table 5)
Hanjin Kal Corp
POSCO Chemtech
Duzon Bizon
F&F
NHN
Zinus
Kiwoom Securities
Hansol Chemical
Asiana Airlines
Hyundai Merchant Marine
Source: Our Estimates

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Brief Korea: Confusions & Clarifications About the Scrapping of the 30% Cap in KOSPI 200 and more

By | Daily Briefs, Korea

In this briefing:

  1. Confusions & Clarifications About the Scrapping of the 30% Cap in KOSPI 200
  2. CrossASEAN Strategy – Indonesia in a COVID-19 World
  3. Banks – Bad Loan Delta
  4. Trade like Michael Burry on Korean Small-Caps? Here Are Candidate Names
  5. Celltrion Block Deals: Weirdest One to Date

1. Confusions & Clarifications About the Scrapping of the 30% Cap in KOSPI 200

1

It is virtually official now that the KRX scrapped the 30% cap rule in KOSPI 200. Well, no one other than Samsung ever needs to bother about the 30% cap rule. So, it is like the local regulators do not want to cap Samsung at 30% in KOSPI 200.

FYI, below is the top 10 components of KOSPI 200 as of today. Samsung’s index MC weight is 33.19%, distantly followed by Hynix (6.75%).

2. CrossASEAN Strategy – Indonesia in a COVID-19 World

Screenshot%202020 04 01%20at%205.29.43%20pm

Grasping the nettle at last?

After a period of living in misguided denial on COVID-19, Indonesia has finally admitted its fallibility and grasped the nettle on trying to bring the spread of COVID19 under control. This will not be an easy task given the sheer size of the Indonesian population, as well as its densely populated cities. 

President Jokowi is now taking firm action and has started to put through firm measures to contain the virus declaring a state of emergency. He also just announced a ban on foreign arrivals which will stem imported cases. It will be nigh impossible to orchestrate a complete lockdown in a country like Indonesia and the situation could be made worse with the upcoming Lebaran celebrations,

As to the economic impact, it is difficult to make any meaningful estimates but we can probably assume very slow if any growth this year, with domestic consumption subdued at best, not helped by the collapse in commodity prices. The World Bank is projecting +2.1% GDP growth as a baseline forecast presuming the situation starts to normalise by June.

The only hope to underpin growth to some extent will come from government spending and the recent lifting of the cap on the budget deficit to 5% will give the government more firepower.

President Jokowi has just announced a Presidential Decree (PERPPU) with a total of US$24.6bn earmarked to stimulate the economy, provide support for the financial sector and extend the social security net, as well as support for healthcare.

In this environment, we would look to buy Indonesian domestic plays including consumer staples, healthcare, pharma, telecoms, media and selective banks. More detail on all of this and our top picks below the fold. 

3. Banks – Bad Loan Delta

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During 2020 there will be dramatically higher bad loans for global banks. This is despite less strict NPL recognition, interest payment holidays, and general forbearance. It is not operational that banks do not report major deterioration in credit metrics. The greatest risk in NPL delta is for banks with essentially no bad loans at present, holding all else equal. The delta can be exponential, and can be mirrored by credit costs as well as other impairment costs. This may be the only time where India’s banks stand out relatively well compared with Asian and global peers. Hong Kong is where we are most concerned, but also Korea, Australia and UK.  

4. Trade like Michael Burry on Korean Small-Caps? Here Are Candidate Names

3

Michael Burry, does he still have the magic in him? I don’t know about that. But at least in Korea, he always seems to be drawing a lot of public attention for what he trades. Yesterday again, the article about his recent trades was the most read news article on Naver Finance.

On March 18, Burry made the first regulatory filing about his recent 5+% stake purchase in the two stocks: Vitzrocell (082920 KS) and Chosun Steel Wire (120030 KS). He now has 5.14% in Vitzrocell and 5.32% in Chosun SW. Last month on April 26, he submitted a regulatory filing saying that his shareholding in Ezwelfare (090850 KS) rose from 5.64% to 7.16%.

Any common link between these three names? First, they are small-caps. The largest one is Vitzrocell, which has a market cap of a little more than ₩300bil. The other two are measly ₩100bil stocks. Any particular sector? Well, I don’t find any commonality. Then, style? Umm, there is one thing in common between the three. All of them are extremely low in debt. It seems that Burry is sticking to the most fundamental principle that low-debt companies thrive in a market downturn.

5. Celltrion Block Deals: Weirdest One to Date

6

Let’s first recap on how the bankers structured these block deals. The discount is quite generous: 8~9.8% for Celltrion and 7~8.8% for Healthcare. Of course, these are the usual level for Celltrion. Thanks to the recent surge in the prices, the discount may look attractive. But on a longer horizon (6M), you would be pretty much at break-even for Celltrion and a 13~15% premium for Healthcare. Overhang wouldn’t be insignificant either. It is twice the 3M ADV for Celltrion. For Healthcare, it is almost the same volume as the 3M ADV.

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Brief Korea: SK Networks – A Major Share Buyback & Big Asset Sale and more

By | Daily Briefs, Korea

In this briefing:

  1. SK Networks – A Major Share Buyback & Big Asset Sale

1. SK Networks – A Major Share Buyback & Big Asset Sale

Sknetworks

SK Networks (001740 KS) (market cap of 1.2 trillion won or $1 billion) announced a major share buyback program after the market close today. SK Networks will buyback 22 million common shares and 10,500 preferred shares, representing 99.2 billion won (common shares) and 0.8 billion won (preferred shares), for a total share buyback amount of about 100 billion won. The share buyback period is from March 5th to June 4th. 

The share buyback program represents 8.9% and 9.2% of the company’s common and preferred shares, respectively. SK Networks’ share price is down 20% YTD and this huge share buyback should help to boost the share price and SK Networks’ share price is likely to outperform the market in the next several weeks. 

Typically, share buybacks in Korea involve about 1-3% of shares outstanding. Sometimes, companies in Korea conduct share buybacks of about 3-5% of shares outstanding which are considered very large. All in all, it is very rare for companies to conduct share buyback that represents nearly 9% of shares outstanding (as in the case of SK Networks). 

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Brief Korea: LG International – Announces Share Buyback of Nearly 28% of Market Cap and more

By | Daily Briefs, Korea

In this briefing:

  1. LG International – Announces Share Buyback of Nearly 28% of Market Cap
  2. Europe Covid 19 Update – More Positive Data – Focus on the Next Stage and EM
  3. This Month in Blockchain & Cryptos: Bitcoin Legalized in South Korea & Blockchain-As-A Service
  4. More Celltrion Block Deals from Temasek Soon? It Seems So
  5. Duzonbizon: Cloud-Based Software Providing an Edge Amidst COVID-19 Carnage

1. LG International – Announces Share Buyback of Nearly 28% of Market Cap

Lginternational b

After the market close today, Lg International (001120 KS) announced that it will buy back 100 billion won worth of its shares, representing nearly 28% of its shares outstanding.

LG International’s share price is down 40% YTD and the senior management believes that its share price is excessively undervalued right now and this is a key reason for the share buyback. 

Given the very high share buyback, we think that the stock could recoup most of its losses this year. LG International’s share price was trading in the 15,000 won in late 2019 and we think it is very possible for the share price to shoot up to this level next week. 

2. Europe Covid 19 Update – More Positive Data – Focus on the Next Stage and EM

Image 47709074531585833140852

Most countries in Europe are tracking below our worst-case scenarios, suggesting more widespread testing. The data is conforming to our expected peak in both Italy and Spain.

The UK is a true outlier, and we are concerned that early testing was substandard and there may be more ‘catching up’ for the UK to do.

We still believe that the peak in daily deaths in Europe will be within the next 4 to 6 days.

Markets are obviously obsessed with the US outcome, but Europe is still exceptionally important.  As pressures ease on medical systems more talk will turn to the economies and easing of restrictions.  Whilst the near term imperative of protecting health systems appears to have worked, the economic costs are very high.  We continue to believe that a different policy mix could have saved lives and caused less damaged to the economy.  However, on a positive note, we believe that there is still room for policymakers in Europe to make up for their past mistakes.

If our forecast of declining Italian fatalities and the implementation of a policy where data privacy is traded for the ability to travel and work is correct then we believe markets will be well supported, even as the US goes through its acceleration phase.

3. This Month in Blockchain & Cryptos: Bitcoin Legalized in South Korea & Blockchain-As-A Service

Bitcoin marketcap

Bitcoin outperformed the major global equity indices in 1Q 2020. The U.S. Fed’s QE Unlimited is positive on Bitcoin. One of the key reasons why people own Bitcoin is because many owners believe that the U.S. Fed could print an unlimited amount of money, unlike Bitcoin which has a fixed maximum supply.

Some of the other major headlines impacting the blockchain and cryptocurrencies sectors globally that we discuss in this insight include the following:

  • India lifts ban on Bitcoin trading
  • China to launch a blockchain-based service network in April
  • Launch of a blockchain-based platform called PIER in Brazil
  • Seven of World’s Largest Blockchain as a Service Enterprises
  • Bitcoin’s market cap dominance
  • South Korea legalizes Bitcoin trading
  • Samsung is Becoming a Major Player in the Global Blockchain & Crypto Industry

4. More Celltrion Block Deals from Temasek Soon? It Seems So

Chart%20%281%29

Should we expect more block deals from Temasek? It seems that we should. It seems more evident now that Temasek isn’t planning to stay at Celltrion as a long-term investor. So far, Temasek had done three block deals. All of them have a similar pattern. Each was shortly after the price peaked. It suggests that Temasek has been waiting for the right timing to sell.

The company management doesn’t appear to be content with these block deals. The company has reportedly asked OEP and Temasek to hold off on future block deals, but this friendly request doesn’t seem to be working now. In particular, they do not seem to be receptive to new situations. Founder and CEO Seo Jung-jin is going to leave the company next year. Also, we will likely see a merger attempt between Celltrion and Healthcare. What we are hearing on the local street is that OEP and Temasek see these as an unpleasant uncertainty instead of a long-term positive.

5. Duzonbizon: Cloud-Based Software Providing an Edge Amidst COVID-19 Carnage

Duzonbizon 2

Duzonbizon (012510 KS) is one of the gems in the Korean software industry. In the midst of the COVID-19 fears and panic selling, Duzonbizon has outperformed the market this year and we believe it will continue to outperform KOSPI over the next 12 months.

The company has three important catalysts right now including 1) Greater adoption of cloud-based software due to coronavirus, 2) Change in Korea’s data privacy laws, paving the way for Big Data services, and 3) A strong, loyal customer base who are likely to stick with the company’s products in an economic recession, rather than switch to competitors’ products.

Duzonbizon is currently trading at 39x P/E (2020E) and 32x P/E (2021E), using consensus earnings estimates, which is within valuation multiples which have ranged in the 22-49x in the past few years. The company’s valuations are not overly aggressive but at the same time not super cheap either.

All in all, perhaps the most important trend impacting this company is the greater adoption of cloud-based software – this is a trend that is benefiting many software companies all around the world right now in the midst of the COVID-19 frenzy and in Korea, this company is a key beneficiary of this trend. 

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Brief Korea: Europe Covid 19 Update – More Positive Data – Focus on the Next Stage and EM and more

By | Daily Briefs, Korea

In this briefing:

  1. Europe Covid 19 Update – More Positive Data – Focus on the Next Stage and EM
  2. This Month in Blockchain & Cryptos: Bitcoin Legalized in South Korea & Blockchain-As-A Service
  3. More Celltrion Block Deals from Temasek Soon? It Seems So
  4. Duzonbizon: Cloud-Based Software Providing an Edge Amidst COVID-19 Carnage
  5. Confusions & Clarifications About the Scrapping of the 30% Cap in KOSPI 200

1. Europe Covid 19 Update – More Positive Data – Focus on the Next Stage and EM

Image 47709074531585833140852

Most countries in Europe are tracking below our worst-case scenarios, suggesting more widespread testing. The data is conforming to our expected peak in both Italy and Spain.

The UK is a true outlier, and we are concerned that early testing was substandard and there may be more ‘catching up’ for the UK to do.

We still believe that the peak in daily deaths in Europe will be within the next 4 to 6 days.

Markets are obviously obsessed with the US outcome, but Europe is still exceptionally important.  As pressures ease on medical systems more talk will turn to the economies and easing of restrictions.  Whilst the near term imperative of protecting health systems appears to have worked, the economic costs are very high.  We continue to believe that a different policy mix could have saved lives and caused less damaged to the economy.  However, on a positive note, we believe that there is still room for policymakers in Europe to make up for their past mistakes.

If our forecast of declining Italian fatalities and the implementation of a policy where data privacy is traded for the ability to travel and work is correct then we believe markets will be well supported, even as the US goes through its acceleration phase.

2. This Month in Blockchain & Cryptos: Bitcoin Legalized in South Korea & Blockchain-As-A Service

Bitcoin marketcap

Bitcoin outperformed the major global equity indices in 1Q 2020. The U.S. Fed’s QE Unlimited is positive on Bitcoin. One of the key reasons why people own Bitcoin is because many owners believe that the U.S. Fed could print an unlimited amount of money, unlike Bitcoin which has a fixed maximum supply.

Some of the other major headlines impacting the blockchain and cryptocurrencies sectors globally that we discuss in this insight include the following:

  • India lifts ban on Bitcoin trading
  • China to launch a blockchain-based service network in April
  • Launch of a blockchain-based platform called PIER in Brazil
  • Seven of World’s Largest Blockchain as a Service Enterprises
  • Bitcoin’s market cap dominance
  • South Korea legalizes Bitcoin trading
  • Samsung is Becoming a Major Player in the Global Blockchain & Crypto Industry

3. More Celltrion Block Deals from Temasek Soon? It Seems So

Chart%20%281%29

Should we expect more block deals from Temasek? It seems that we should. It seems more evident now that Temasek isn’t planning to stay at Celltrion as a long-term investor. So far, Temasek had done three block deals. All of them have a similar pattern. Each was shortly after the price peaked. It suggests that Temasek has been waiting for the right timing to sell.

The company management doesn’t appear to be content with these block deals. The company has reportedly asked OEP and Temasek to hold off on future block deals, but this friendly request doesn’t seem to be working now. In particular, they do not seem to be receptive to new situations. Founder and CEO Seo Jung-jin is going to leave the company next year. Also, we will likely see a merger attempt between Celltrion and Healthcare. What we are hearing on the local street is that OEP and Temasek see these as an unpleasant uncertainty instead of a long-term positive.

4. Duzonbizon: Cloud-Based Software Providing an Edge Amidst COVID-19 Carnage

Duzonbizon 2

Duzonbizon (012510 KS) is one of the gems in the Korean software industry. In the midst of the COVID-19 fears and panic selling, Duzonbizon has outperformed the market this year and we believe it will continue to outperform KOSPI over the next 12 months.

The company has three important catalysts right now including 1) Greater adoption of cloud-based software due to coronavirus, 2) Change in Korea’s data privacy laws, paving the way for Big Data services, and 3) A strong, loyal customer base who are likely to stick with the company’s products in an economic recession, rather than switch to competitors’ products.

Duzonbizon is currently trading at 39x P/E (2020E) and 32x P/E (2021E), using consensus earnings estimates, which is within valuation multiples which have ranged in the 22-49x in the past few years. The company’s valuations are not overly aggressive but at the same time not super cheap either.

All in all, perhaps the most important trend impacting this company is the greater adoption of cloud-based software – this is a trend that is benefiting many software companies all around the world right now in the midst of the COVID-19 frenzy and in Korea, this company is a key beneficiary of this trend. 

5. Confusions & Clarifications About the Scrapping of the 30% Cap in KOSPI 200

1

It is virtually official now that the KRX scrapped the 30% cap rule in KOSPI 200. Well, no one other than Samsung ever needs to bother about the 30% cap rule. So, it is like the local regulators do not want to cap Samsung at 30% in KOSPI 200.

FYI, below is the top 10 components of KOSPI 200 as of today. Samsung’s index MC weight is 33.19%, distantly followed by Hynix (6.75%).

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