South Korea: Woori Financial Group , LG Energy Solution, Dongwon Industries and more

In today’s briefing:

Woori Financial Block Deals: Another Shares Let-Go Event for Passive Buying
A Pair Trade Between LG Chem & LG Energy Solution
Dongwon Industries Listens to Minority Shareholders and Changes Merger Ratio with Dongwon Enterprise

Woori Financial Block Deals: Another Shares Let-Go Event for Passive Buying

The KDIC sold a 2.33% stake in Woori Financial through an after-hours block sale. From a passive flow perspective, this is quite similar to KSOE’s HHI block deals yesterday.
Woori is likely to show a similar share price movement as HHI. Expectations for the passive inflow effect must have dissipated, and a short-term share price correction is now inevitable.
However, the passive inflow sizes are still too substantial. With this in mind, we need to consider a strategy that approaches this price correction as a re-entry opportunity.

We believe there is an attractive pair trade of going long on LG Chem and going short on LG Energy Solution at current levels.
Main reasons why we like this pair trade include large shares that could be sold after 6 months lockup for LGES, LG Chem’s attractive valuation, and shift to value stocks.
In the past one month, LG Energy Solution is down 5.3% whereas LG Chem is up 2.4%. We believe this gap could widen in the next several months.

In a surprising move, Dongwon Industries announced that it will listen to the demands of the minority shareholders and change the merger ratio with Dongwon Enterprise.
This is likely to have a positive impact on Dongwon Industries since it boosts the value of Dongwon Industries’ minority shareholders at the expense of controlling shareholders of Dongwon Enterprise.
The merger price of Dongwon Industries will be raised from 248,961 won to 384,140 won (reflecting net asset value). The merger ratio will be adjusted from 1:3.8385530 to 1:2.7023475.

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