Brief Korea: 2019 Semiconductors: 5%+ Decline and more

In this briefing:

1. 2019 Semiconductors: 5%+ Decline
2. Korea Stock Market Monthly Recap #32 (January 2019)
3. Hyundai Heavy/DSME Event – Comprehensive Summary
4. Major Highlights of SK Telecom’s 4Q18 Earnings Conference Call

1. 2019 Semiconductors: 5%+ Decline

An earlier post outlined the general direction of the Objective Analysis 2019 forecast but didn’t provide any numbers.  In this post I explain the 5%+ decrease in revenues that the market will experience and how and why various elements play into that number.

2. Korea Stock Market Monthly Recap #32 (January 2019)

Korean stock market surged in January with KOSPI up 8% this past month. KOSPI was led by the market leaders including Samsung Electronics (005930 KS), SK Hynix Inc (000660 KS), and Hyundai Motor Co (005380 KS), whose share prices were up 19%, 22%, and 9%, respectively in January. There were several high-profile, M&A announcements including the potential sale of Nexon founder’s stake as well the consolidation of DSME with Hyundai Heavy Industries. The market also received strong additional boost from the dovish comments from the US Fed Chairman Jerome Powell. 

The top 10 events impacting the Korean stock market, economy, & politics in January were as follows:

• Consolidation of the Korean shipbuilding sector
• Nexon’s founder wants to sell 
• Strong rebound of KOSPI 
• More dovish statements from US Fed Chairman Jerome Powell
• The fight over Hanjin Kal/Korean Air with KCGI and potentially NPS 
• BGF & BGF Retail 
• UMC’s announcement that it will significantly scale down memory development partnership with China’s JHICC
• Amorepacific Group (002790 KS)/Amorepacific Corp (090430 KS) 
• Samsung C&T (028260 KS) likely to benefit from the restructuring of the fashion business unit
• Trump’s second meeting with KJU in late February 

The top three reports we wrote in January related to the Korean market were as follows (in terms of views & appreciates): 

• Korea M&A Spotlight: Nexon’s Founder Plans to Sell; Will Tencent Buy Nexon?
• Korea M&A Spotlight: Will the Nexon Group Sell the Korean or the Japanese Company?
• Korea M&A Spotlight: Saudi Aramco Plans to Buy Up To 19.9% Stake in Hyundai Oilbank

Also, please take a look at our in-depth analysis of TSMC: A Bear Investment Case for TSMC (In-Depth Version). 

3. Hyundai Heavy/DSME Event – Comprehensive Summary

• Below is a comprehensive summary of the Hyundai Heavy/DSME event that engulfed the Korean market yesterday. This is a multi step process. Details of most events will be determined after one month of holdback period.
• I will provide a trade approach on each name in a follow-up post.

4. Major Highlights of SK Telecom’s 4Q18 Earnings Conference Call

• SK Telecom (017670 KS) reported disappointing 4Q18 earnings results. SK Telecom’s revenue of 4,351.7 billion won was 0.2% lower than consensus and its operating profit of 225 billion won was 23% lower than the consensus in 4Q18. Despite the disappointing 4Q18 results (especially due to lower operating income and lack of flow through of SK Hynix dividends to SKT), we remain positive on SK Telecom.
• We believe that SK Telecom’s 10,000 won DPS in 2018 is a disappointment. However, we believe the stage has been set for higher DPS policy, linking SK Hynix’s dividends to SK Telecom and as mentioned in the conference call numerous times, this is likely to be announced in the AGM in March. In terms of amount, we believe 13,000 won to 15,000 won appears to be reasonable in 2019. 
• The company’s comment about its sales and profits improving starting in 2H 2019 is consistent with its previous statement in the third quarter conference call. However, the company’s statement about its revenue target of more than 1 trillion won growth YoY in 2019 is new and positive. In 2018, SK Telecom generated consolidated sales of 16.9 trillion won, down 3.7% YoY. If the company is able to generate revenue of 17.9 trillion won in 2019, this would represent a growth of 5.9% YoY. The current consensus estimate of the company’s sales is 17.47 trillion won in 2019. Thus, the company has basically guided the 2019 sales target by 2.5% higher than the current consensus estimate.