Daily BriefsSouth Korea

South Korea: Kakao Pay, Korea Stock Exchange Kospi 200 Index, Soulbrain, SK Telecom, LG Energy Solution, Eubiologics, LG Chem Ltd and more

In today’s briefing:

  • Kakao Pay IPO – Low-End Still Appear Reasonable but Stock Will More Likely Be Driven by Sentiment
  • Unloved Korea to Bottom on a Short Squeeze
  • TIGER WISE Secondary Cell Index: October 14 Rabalancing Trading
  • SKT Demerger Got Shareholder Approval & SK Square NAV Analysis
  • LG Group’s Provisions GM Bolt Battery Recall Announced – A Prelude to LG Energy Solutions IPO?
  • EuBiologics (206650 KS): Cashing on Vaccine Business
  • LG-GM Battery Recall: A Lot of Confusion & Clarifications Based on the Latest WSJ Report

Kakao Pay IPO – Low-End Still Appear Reasonable but Stock Will More Likely Be Driven by Sentiment

By Sumeet Singh

Kakao Pay (KP), one of South Korea’s largest payment and financial services apps, aims to raise up to US$1.3bn in its South Korean IPO. Kakao held a 55% stake prior to listing, with Ant Financial holding the balance 45% stake.

As the company is slated to be in front of investors again and finally launch its bookbuilding next week, in this note we will talk about the updates from the refiled prospectus and have a relook at valuations.


Unloved Korea to Bottom on a Short Squeeze

By Thomas Schroeder

Korea is now so unloved as we reach oversold levels that we are layering out of our short and probing for a long level on weakness in mid October.

Korea has been a top short in Asia since June/July.

Kospi is now a crowded/consensus short, it is time to look for a low and short squeeze rise.

Near support at 367 and will look for a bottom above this zone.

USD/KRW topping zone near 1,200-05 as bear divergence builds.

We labeled this a bullish insight due to the expected low to take shape in October but will be alert to a top near 395/405 to revisit a short strategy if the rise runs out of gas.


TIGER WISE Secondary Cell Index: October 14 Rabalancing Trading

By Sanghyun Park

The quarterly rebalancing of the WISE Secondary Cell Index is this Friday. So, rebalancing trading takes place this Thursday at the close.

  • The TIGER ETF (305540) is the only ETF that tracks this index. However, the recent AUM has risen sharply, and as of yesterday’s closing price, the AUM is approaching KRW 1 trillion.
  • There is no add (or delete) in this rebalancing that will cause a substantial passive impact like SKIET in the previous rebalancing.
  • But the AUM is massive, so the level of stock price fluctuations potentially resulting from index weight changes is expected to be large enough to deserve our attention.
Index summary
Index name
Wise Secondary Cell
ETF
Mirae Asset TIGER Secondary Cell ETF
Ticker305540
AUM₩999.3B
SO44,650,000
Number of constituents26
Weight type
Float-adjusted market cap
Cap10.00%
Rebalancing cycleQuarterly
Rebalancing month
January, April, July, and October
Announcement date
Only ETF operator is notified
Implementation date
The trading day following the option expiration dates
Next implementation date
October 15, 2021
Rebalancing trading
At the close on October 14, 2021
Screening base date
The last trading day of the month preceding the date of regular rebalancing
Screening period
The three months preceding the screening base date
Source: KRX & TIGER ETF

SKT Demerger Got Shareholder Approval & SK Square NAV Analysis

By Sanghyun Park

October 12 EGM results

SK Telecom’s demerger and stock split got shareholder approval yesterday.

Based on the number of attending votes, the approval rate for the demerger reached 99.95%, and the approval rate for the stock split was 99.96%, receiving overwhelming support from individual shareholders as well as institutions, including the National Pension Service.

As a result of this, SK Telecom and SK Square will be officially launched on November 1, the record date of the demerger. The current SK Telecom will be listed and re-listed as SK Telecom and SK Square, respectively, on November 29 after a period of stock trading suspension from October 26 to November 26.

Schedule
Trade suspension begins2021. 10. 26
Record date of demerger2021. 11. 01
Trade suspension ends2021. 11. 26
Re-listing2021. 11. 29
Source: DART

SK Telecom plans to transform itself into a telecom service, artificial intelligence, and digital infrastructure service company and increase its annual sales from ₩15T in 2020 to ₩22T in 2025.

  • As for the Telecom service business, it plans to solidify 5G leadership and continue the growth of media services. In the case of AI-based services, it will evolve the subscription service (T Universe) into an online and offline subscription commerce platform. Lastly, the company plans to fully expand its high-growth data center, cloud, and industrial Internet of Things (IoT) businesses by utilizing 5G MEC (mobile edge computing) for the digital infrastructure service business.
  • SK Square will be launched as a semiconductor/ICT investment company. Based on the successful DNA accumulated through investments in the semiconductor and ICT platform business so far, the company has set a vision to increase its net asset value from the current ₩26T to ₩75T by 2025.
Vision 2025SK TelecomSK Square
Core business areasTelecom service, AI-based service, & digital infrastructure
Semiconductor & ICT investment
Current valueFY2020 annual sales of ₩15TFY2021 net asset value of ₩26T
Target by FY2025Yearly sales of ₩22TNet asset value of ₩75T
Source: SK Telecom

After the demerger, SK Telecom will have SK Broadband, SK Telink, PS&Marketing, F&U Credit Information, Service Top, Service Ace, and SK O&S as subsidiaries. On the other hand, 16 companies will be placed under SK Square: SK Hynix, ADT Caps, 11st Street, T Map Mobility, One Store, Contents Wavve, Dream Us Company, and SK Planet.

SK TelecomSK Square
: 7 in total: 16 in total
SK BroadbandSK Hynix
SK TelinkADT Caps
PS&Marketing11st Street
F&S Credit InfoT Map Mobility
Service TopOne Store
Service AceContents Wavve
SK O&SDream Us Company
SK Planet
FSK L&S
Incross
Nano N Tech
Spark Plus
SK Telecom CST1
SK Telecom TMT Investment
ID Quantique
Techmaker
Source: SK Telecom

In a separate regulatory filing,

SKT said that it would transfer 520,000 treasury shares to its employees. In other words, SKT is giving 100 shares of treasury stock to each employee. Based on the closing price of ₩304,500 on October 8, this is equivalent to ₩158.3B.

It represents 0.72% of the total issued shares and about 60% of its current treasury shares. After this transaction, SKT’s treasury shares will fall to 379,500, 0.53% of the shares outstanding.


LG Group’s Provisions GM Bolt Battery Recall Announced – A Prelude to LG Energy Solutions IPO?

By Douglas Kim

  • LG Energy Solution and LG Electronics announced today that they have concluded the negotiation with GM regarding the Bolt EV battery recall and that LG Energy Solution now plans to complete an IPO in the near future. 
  • According to LG Energy Solution, the total replacement cost for the GM Bolt EV battery recall is expected to be about 1.4 trillion won (US$1.2 billion). Currently, LG Energy Solution and LG Electronics are expected to be burdened with about half of this amount each (700 billion won).
  • While LG Energy Solution and LG Electronics have mentioned that this battery recall issue has been finalized, GM has not officially confirmed this. Previously, GM mentioned that the total cost of battery recall could be nearly $1.8 billion. It was mentioned in the local media that GM will formally respond by Thursday 14 October (KST) regarding the final reimbursement cost of this battery recall case. 
  • In the next several weeks, once there is a definite confirmation of the LG Energy Solution IPO, there could be a renewed interest in LG Chem and LG Corp shares. 

EuBiologics (206650 KS): Cashing on Vaccine Business

By Tina Banerjee

South Korea-based EuBiologics is the largest supplier of oral cholera vaccine in the world, representing more than 80% market share. By leveraging on market leadership positioning, amid increasing demand and capacity expansion, its oral cholera vaccine has become a stable cash cow for the company. This year, EuBiologics has started developing COVID-19 vaccine, EuCorVac-19, which is currently under clinical trial. The company is one of the frontrunners among the local COVID-19 vaccine developers. With just 2.5% of the people in low-income countries (EuBiologic’s core operating markets) receiving at least one dose of a COVID-19 vaccine, EuCorVac-19 has the potential of becoming second major revenue stream for EuBiologics. Demand for vaccinations will remain for years to come, as more populations become eligible for vaccinations and booster vaccines are rolled out. EuBiologics has a rich late-stage pipeline of typhoid and pneumococcal conjugate vaccines, which target a combined market size of more than KRW8 trillion.   


LG-GM Battery Recall: A Lot of Confusion & Clarifications Based on the Latest WSJ Report

By Sanghyun Park

There is a lot of confusion about LG and GM’s recall cost-sharing.

First, in a press release on the afternoon today (October 12), LG announced that it had reached an agreement on the recall cost with GM. And as a result of this, it said that it would resume the IPO of LG Energy Solutions.

(Source: Bloter.net)

The details revealed in the press release are just that. It did not disclose the total cost of the recall and how much LG would have to pay.

Immediately after the press release, LG Chem and LG Electronics disclosed the size of the provision to be reflected in the third quarter through regulatory filings.

LG Energy Solutions said it would reflect ₩620B in recall provision in the third quarter, bringing the total to ₩711B. It already reflected ₩91 billion in recall provisions in the second quarter of this year.

Similarly, in a separate regulatory filing, LG Electronics said that it would reflect ₩480B in recall provision in the third quarter. As a result, its total recall provision becomes ₩715B as it already reflected a provision of ₩235B in the second quarter.

So, this afternoon, local media started reporting that the total amount LG has to pay is about ₩1.42T. It is not the total amount confirmed by LG, but an estimate based on the provisioning size disclosed through regulatory filings.

It is 2/3 of the total provisioning set by GM in early August. That implies LG will share the cost with GM roughly at a 7:3 ratio. The overall provisioning level did not deviate from the market expectations. The share ratio was also at a level of 7:3, which was the share ratio for the previous recall case with Hyundai Motor. So it could be seen that ₩1.42T met the market expectations. As a result, LG Chem closed +4.19% today, and LG Electronics also closed +3.33%.

LG & GM recall cost structureTarget vehicleTarget numberRecall cost (USD)Recall cost (KRW) at today’s currency rate
1st recall2017-2019 Chevrolet Bolt68,600$0.8B₩957.3B
2nd recall2019-2022 Chevrolet Bolt73,000$1.0B₩1,196.6B
Total$1.8B₩2,153.9B
: What LG pays₩1,420.0B (about two-thirds of the total provisions set by GM)
Source: LG Chem & DART

By the way, LG also said that the cost payment ratio between LG Energy Solution and LG Electronics will be confirmed again later. Until they prove the exact responsibility ratio between the two, ₩710~715B, the median of the total estimated cost, was set as a provision for each according to the rational estimation principle.


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