Brief Korea: A Surprising Finding of Stock Outperformance & Quarterly Earnings Conference Call Recording in Korea and more

By February 14, 2019Korea

In this briefing:

  1. A Surprising Finding of Stock Outperformance & Quarterly Earnings Conference Call Recording in Korea
  2. BGF Holdco/Sub Trade: Sub Overbuying Wouldn’t Last Another Day
  3. Hana Financial: Hand It to Hana

1. A Surprising Finding of Stock Outperformance & Quarterly Earnings Conference Call Recording in Korea

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In this report, we provide a finding which may surprise some of the readers. We have checked homepages of the top 100 companies in KOSPI by market cap to see which companies have recordings of their quarterly earnings conference calls (including the Q&A session) available. We have found that out of these 100 companies, only 14 companies have their quarterly earnings conference calls (including the Q&A session) available in English. 

We then tallied their share price performances since a) end of 2016 to present, b) end of 2017 to present, and c) YTD. We have found that their average share price performance crushed the market from end of 2016 to present (these 14 stocks were up on average 39% versus KOSPI which was up only 8.6% during this period).

The main reason why stock prices go up is because of the companies’ improving cash flow and earnings with improved investor capital inflow. Having an excellent investor relations (with quarterly earnings announcements conference call recording) IS NOT the leading cause of why stock prices go up. 

We believe the following are the two main reasons why these 14 companies choose to have their quarterly conference call recordings available:

  • Strong investors’ demands
  • Benchmarking the global best practices of investor relations vs. saving face

2. BGF Holdco/Sub Trade: Sub Overbuying Wouldn’t Last Another Day

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  • BGF Sub had a 5.39% gain on better-than-expected 4Q18 results. Holdco stayed flat. As a result, we had a 2+σ jump from 95% of σ to -133% of σ. This is the widest jump in 120D. Holdco discount is currently at 47% to NAV.
  • On a 120D horizon, price ratio is still well below 120D mean. Despite recent gains, Holdco price relative to Sub is nearly 20+%p down since 120D ago. 4Q results seem to be encouraging. But local sentiments are still heavily divided on Sub’s fundamentals. 4Q results aren’t strong enough to turn the tide drastically.
  • Sub has been one of the most heavily shorted stocks in Korea lately. Yesterday’s huge gain might have been a short covering. This shouldn’t be a structural price pushing up for Sub. Sub staying below -1σ wouldn’t last another day. I expect a quick mean reversion at this point.

3. Hana Financial: Hand It to Hana

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Fundamental trends at Hana Financial (086790 KS) are benign and stand out within South Korea’s improving and deep value banking universe. Key metrics/signal at 12M18 positive fundamental momentum and value-quality trends embodied in a high PH Score™.

Hana is an important constituent of South Korea’s Banking Sector, holding approximately 13% of the system total loans, 15% of deposits and about 40% of the nation’s trade finance due to the bank’s entrenched foreign-currency clearing system. This valuable franchise is backed by strengthening capitalisation, improving asset quality after a difficult period for banks grappling with corporate exposures, and discrete gains on Efficiency and Profitability post sizeable merger and integration costs.

Corporate governance remains an issue to monitor after the nepotism scandal of recent years and was covered by Douglas Kim last year.

Having said that, Hana is a slightly higher risk than peers with a HY profile given its default rating.

Shares of Hana are attractively priced, trading on earnings and dividend yields of 19% and 3.8%, respectively, a dividend-adjusted PEG factor of 2x, a P/B of 0.47x, and a franchise value of 5% with the tailwinds of a quintile 1 PH Score™. In line with regulatory change regarding higher DPRs, Hana will raise its dividend payout ratio to 25.5% in 2019 from 22.5% in 2018.

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