Daily BriefsTMT/Internet

TMT: LG Corp, Darktrace, GLOBALFOUNDRIES Inc, Samsung Electronics, Iljin Materials, Shift Inc, Novatek Microelectronics Corp and more

In today’s briefing:

  • LG Corp: SoTP Valuation Analysis Update + Four Key Catalysts
  • STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance
  • GlobalFoundries IPO – The Business
  • SEC/Kospi Sync Levels with SEC Lacking
  • MSCI Korea Standard SAIR: Drastic Changes to Likely Adds/Deletes in Recent Weeks
  • Shift 4Q: Growth Story Is Getting Stronger
  • Novatek (3034 TT, NEUTRAL, NTD389.00)

LG Corp: SoTP Valuation Analysis Update + Four Key Catalysts

By Douglas Kim

In this insight, we provide an updated SoTP valuation analysis on LG Corp (003550 KS). We have a positive view of this stock. Our base case valuation analysis suggests an implied price of 131,911 won per share, representing a 41% upside from current levels.

After much delay, the IPO of LG Energy Solution could finally occur in the next several months and this may be the largest ever IPO in Korea. The IPO of LG Energy Solution could be a key catalyst for LG Chem Ltd (051910 KS) and LG Corp (003550 KS) in the coming weeks. 

In addition to its deep discount versus its NAV, there are also four key catalysts for the company which are as follows:

  • IPO of LG Energy Solutions
  • Potential for higher dividends
  • Improvement in balance sheet & potential for higher share buybacks
  • Rising foreign ownership

STOXX Europe Indices: Quiddity Leaderboard for December 2021 Rebalance

By Janaghan Jeyakumar, CFA

The European Benchmark Indices (BMI) of the STOXX Index family are reviewed on a quarterly basis in March, June, September and December. In this insight, we take a look at the potential adds and deletes for the next review which will take place in December 2021 for the STOXX Europe 600 Index and the EURO STOXX Index. 

The STOXX Europe 600 Index is a benchmark index with a fixed number of 600 components representing large, mid and small capitalization companies across 17 countries of the European region. The EURO STOXX Index is a subset of the STOXX Europe 600 Index and is also the parent index for one of the most widely tracked blue-chip indices in the Eurozone (“EURO STOXX 50”), which is rebalanced once a year in September. 

More below the fold.

GlobalFoundries IPO – The Business

By Mio Kato

GlobalFoundries has filed to IPO as the foundry business enjoys tailwinds from semiconductor shortages. With the company struggling to make profits even in this environment and all adulation seemingly reserved for TSMC we examine whether there is something worthwhile here.

SEC/Kospi Sync Levels with SEC Lacking

By Thomas Schroeder

Samsung Electronics (005930 KS) is seeing capitulation selling into a ST low ahead of a bounce sequence. There are some ominous bear points post reaction rise to content with.

The September SEC short call at 77-78k has worked nicely given the maturing bear wedge. The break of wedge support did induce downside momentum. See SEC Oversold Long Level/Short a Rally .

SEC lead relative bull turn versus the KOPSI is lacking and sell volumes are still on the high side with scope for a capitulation low coming up.

Important to align SEC lack of bull signals with a KOSPI bounce level and muted upside rally.

SEC near support at 67k to shape a low. RSI in our buy zone.

MSCI Korea Standard SAIR: Drastic Changes to Likely Adds/Deletes in Recent Weeks

By Sanghyun Park

There are many stocks whose stock prices have changed substantially over the past two weeks, so we will likely see radical changes to the candidates for the upcoming MSCI Korea SAIR addition/deletion.

As a reminder, below are the Korea Standard screening thresholds for this November SAIR.

SAIR requirements (× Cutoff)MultipleValue
Full market cap (Outside IMI)1.00x₩3.40T
Full market cap (Small → Standard)1.50x₩5.10T
Float-adjusted market cap (Outside IMI)0.50x₩1.70T
Float-adjusted market cap (Small → Standard)0.50x₩1.70T
Full market cap (Existing Standard)0.67x₩2.27T
Float-adjusted market cap (Existing Standard)0.50x₩1.70T
Source: MSCI

Adds: Iljin Materials is rapidly emerging as a strong candidate.

Among the candidates moving up from the Korea Small Cap to the Standard, Iljin Materials, in addition to L&F and F&F, is highly likely to exceed the full market threshold (₩5.10T) as its share price recently surged.

Top 10 constituentsTickerCurrent market capIndex Wt.
L&F Co066970₩7.34T1.63%
Hansol Chemical Co014680₩4.01T1.35%
OCI Company010060₩3.57T1.32%
BNK Financial Group138930₩2.82T1.06%
Iljin Materials020150₩5.14T1.03%
Doosan Fuel Cell336260₩3.29T0.95%
DL E&C Co375500₩2.59T0.89%
DB Hitek Co000990₩2.23T0.89%
Hyosung Advanced Materials298050₩3.46T0.85%
Source: MSCI

So, based on the current share price, the following five stocks, including Iljin Materials, exceed the full market cap and float-adjusted market cap hurdles. Of course, Kakao Games’ inclusion assumes that MSCI has accepted the 45% float in this SAIR. For SD Biosensors, it is still slightly below the float-adjusted market cap hurdle.

AddsKrafton IncIljin Materials Co LtdL&F Co., Ltd.F&F Co LtdKakao Games CorpSD Biosensor Inc
TypeNew Investable Companies (outside IMI)Small-Cap→Standard migrationSmall-Cap→Standard migrationSmall-Cap→Standard migrationCompanies assigned to the Standard Index during the last IR that failed the final screeningNew Investable Companies (outside IMI)
Float rate14.00%50.00%60.00%45.00%45.00%35.00%
Interim Cutoff₩3.40T₩3.40T₩3.40T₩3.40T₩3.40T₩3.40T
Full market cap hurdle₩3.40T₩5.10T₩5.10T₩5.10T₩3.40T₩3.40T
Float-adjusted market cap hurdle₩1.70T₩1.70T₩1.70T₩1.70T₩1.70T₩1.70T
Full market cap₩23.79T₩5.14T₩7.34T₩6.57T₩4.95T₩4.61T
Float-adjusted market cap₩3.33T₩2.57T₩4.40T₩2.96T₩2.23T₩1.61T
Beat the threshold by % – full market cap599.72%0.81%43.87%28.89%45.64%35.47%
Beat the threshold by % – float-adjusted market cap95.92%51.22%158.97%74.00%31.08%-5.17%
Source: KRX & MSCI

Deletes: Huge changes have been made recently.

Deletion candidates have seen more changes over the recent weeks. The following are stocks with a current market cap of ₩3.40T or less among the MSCI Korea Standard constituents.

MSCI Korea Standard constituents > a full market cap of ₩3.4TTicker
Current market cap
CJ Logistics Corp000120₩3.39T
Korea Aerospace Industries Ltd047810₩3.25T
S1 Corp012750₩3.22T
Shinpoong Pharmaceutical Co Ltd019170₩3.22T
Green Cross Corp006280₩3.19T
Alteogen Inc196170₩3.11T
BGF Retail Co Ltd282330₩3.05T
LG Chem Ltd Preference Shares051915₩3.03T
Lotte Shopping Co Ltd023530₩2.93T
CJ Corp001040₩2.88T
Seegene Inc096530₩2.66T
Cheil Worldwide Inc030000₩2.62T
Shinsegae Inc004170₩2.55T
Daewoo Shipbuilding & Marine Engineering042660₩2.52T
Fila Holdings Corp081660₩2.43T
Hyundai Motor S1 Pref Shs005385₩2.41T
LG Household & Healthcare Ltd Preference Shares051905₩1.41T
Source: KRX & MSCI

Among them, the seven stocks do not meet the float-adjusted market cap hurdle.

DeletesCheil Worldwide IncLG Household & Healthcare Ltd Preference SharesDaewoo Shipbuilding & Marine EngineeringLotte Shopping Co LtdCJ Logistics CorpBGF Retail Co LtdCJ Corp
TypeExisting constituentExisting constituentExisting constituentExisting constituentExisting constituentExisting constituentExisting constituent
– Rounding up60.00%95.00%35.00%40.00%50.00%45.00%50.00%
Interim Cutoff₩3.40T₩3.40T₩3.40T₩3.40T₩3.40T₩3.40T₩3.40T
Full market cap hurdle₩2.27T₩2.27T₩2.27T₩2.27T₩2.27T₩2.27T₩2.27T
Float-adjusted market cap hurdle₩1.70T₩1.70T₩1.70T₩1.70T₩1.70T₩1.70T₩1.70T
Full market cap₩2.63T₩1.40T₩2.52T₩2.93T₩3.38T₩3.05T₩2.87T
Float-adjusted market cap₩1.58T₩1.33T₩0.88T₩1.17T₩1.69T₩1.37T₩1.44T
Beat the threshold by % – full market cap15.97%-38.12%11.00%29.17%48.95%34.59%26.79%
Beat the threshold by % – float-adjusted market cap-7.22%-21.62%-48.20%-31.11%-0.70%-19.25%-15.47%
Source: KRX & MSCI

Shift 4Q: Growth Story Is Getting Stronger

By Shifara Samsudeen, ACMA, CGMA

Shift Inc (3697 JP) reported its 4QFY08/2021 and full-year FY08/2021 results on Tuesday (12th October) which saw revenues growing 60.2% YoY to JPY46.0bn from JPY28.7bn in FY08/2020. The operating profit for the year grew 69.8% YoY to JPY4.0bn vs JPY2.4bn in the previous year. Both reported revenue and OP beat Shift’s guidance by 2.2% and 17.5% respectively while revenue and OP beat consensus estimates by 0.4% and 4.5% respectively.

The company’s share price rose 10.0% at the end of Wednesday’s close following the company’s strong FY08/2021 earnings.

We discuss the details below.

Novatek (3034 TT, NEUTRAL, NTD389.00)

By Capital Securities

Inventory adjustments by end-market panel makers may affect Novatek’s sales; downgrade to NEUTRAL. Despite limited capacity, Novatek continues to improve its revenue/earnings through product mix variation in addition to raising prices. Regarding Novatek’s capacity in FY22, wafer foundries are still unable to satisfy the company’s demand after initial negotiation. Even though supply is tight, end-market panel makers may adjust inventories in the short run and wafer foundries may continue to raise prices, which are both damaging to Novatek’s GM in the future. Thus, we downgrade Novatek to NEUTRAL.

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