South Korea Archives | Page 42 of 126 | Smartkarma

• Today’s surge in Korean battery stocks stems from sector rotation and improved fundamentals, with SK On’s healthier balance sheet and Samsung SDI’s new U.S. plant fueling optimism.
• But with POSCO affiliates showing standout performance relative to their peers., the value-up factor is once again shaking things up and driving those differences in relative performance.
• Today’s price action suggests using the value-up factor for long-short strategies, especially with KRX hinting at sector quotas in the value-up index.

• On 29 August, the three major POSCO Group companies including POSCO Holdings announced that they plan to provide detailed explanations of their Corporate Value Up plans in 4Q 2024. 
• In general, the companies that have provided more detailed plans for their Corporate Value Up plans have done better recently. 
• However, now there are cases such as the three main POSCO Group companies whose share prices are rising just by announcing that they will provide Corporate Value Up plans later.

• Recent media reports on declining passenger vehicle (PV) sales in India for August are based on wholesale data and reflect expected weakness due to high dealer inventory levels.
• Hyundai Motor India (1342Z IN)‘s  dispatches dropped by 8% in August, yet the company remains strong in the SUV segment, with the Creta, launched in January 2024, driving growth.
• Outlook for the passenger vehicle segment is cautiously optimistic, supported by monsoon impact, festive season, new product launches, but challenges like heavy rainfall, high inventory levels, and economic uncertainties persist.

• In this insight, we discuss the alpha generation through companies that have been buying back their shares in the Korean stock market in July and August 2024.
• On average, the share buyback announcements by 46 companies represented 2% of outstanding shares.
• Major companies that have announced share buybacks in Korea in the past two months include KT&G, Mirae Asset Securities, and POSCO Holdings. 

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• China Vanke
• Shui On Land
• SK Hynix
• Yankuang Energy Group

• Construction and semiconductors are key targets due to their low value-up representation. For shareholder returns, keep an eye on Samsung C&T and SK Square.
• Expect announcements before the mid-September value-up index, with early September releases mirroring LG Electronics’ prior notices and detailed plans arriving by Q4.
• Even with prior notices, details will leak. Samsung C&T and SK Square are likely to prioritize short-term shareholder returns over long-term growth, potentially leading to a bigger price impact.

• The arbitrage is clear: it’s the difference between stock rights/subscription costs and short hedge price. Kumyang’s high market interest and volatility amplify this, suggesting unusual trading angles.
• Kumyang’s futures also show extreme volatility, likely causing excessive backwardation around the ex-rights date and stock rights window, affecting futures-based short hedge positions.
• This opens up the possibility that, depending on entry points, our futures-based short hedge position might temporarily enter an unusual profitable zone relative to the stock rights and subscription costs.

• In the past week, there were numerous local news accounts about a rights offering of nearly 800 billion won by Kum Yang. This has not been confirmed by the company. 
• Although Kum Yang has not committed to a rights offering, there is a high probability of such capital raise in 4Q24 which is likely to dilute existing shareholders. 
• Kum Yang remains a highly speculative stock. The management has lost so much credibility in the past year. We would stay away from it as far as possible.

• During NCSoft’s exercise period starting August 14, the spread was tight, with NPS likely to exercise rights if it widens above 5% in the final days.
• NPS is unlikely to exercise its full 6.3% stake, but may sell 2% if the stock price drops below ₩180,000, widening the spread over 5%.
• This may increase NCSoft’s division costs and overhang risk, potentially amplifying stock price decline. Monitoring NCSoft’s stock early next week is crucial.

• We discuss the end of the mandatory lock-up periods for 49 stocks in Korea in September 2024, among which 3 are in KOSPI and 46 are in KOSDAQ.
• These 49 stocks on average could be subject to further selling pressures in September and could underperform relative to the market.
• The top three market cap stocks including those of which at least 1% of outstanding shares could be sold in September include LS Materials, CIS, and Kyobo Securities.

• On 29 August, LG Corp announced that it plans to purchase about 200 billion won worth of LG Electronics and about 300 billion won worth of LG Chem.
• After these share purchases, LG Corp’s stake in LG Electronics will increase from 30.47% to 31.59%, and its stake in LG Chem will increase from 30.06% to 31.29%.
• LG Corp plans to purchases these shares starting 1 November 2024. The share purchases will be conducted in two stages and will be completed by 31 March 2025. 

• Hyundai Rotem is right on the edge for Small Cap→Standard, so it is the only one having a real chance of being included in the November review.
• Doosan Robotics’ float rate will rise to 40% after issuing 20,219,376 new shares, making it a top candidate for inclusion among Outside IMI and comfortably surpassing the cutoff.
• With high trading volume volatility, it’s early to predict passive impact. Watch for momentum buildup like LS Electric and monitor the trading volume of Hyundai Rotem and Robotics closely.

• Maekyung reported that Doosan Robotics and Bobcat will cancel their merger, but the merger between Robotics and Enerbility’s spun-off company will proceed.
• The merger’s risks have been overblown in Robotics’ stock, which might rebound. Bobcat’s stock outlook is uncertain, with fading merger hopes potentially hurting short-term sentiment.
• The Robotics-Enerbility merger might also be canceled under regulatory pressure, but this could hurt Enerbility’s stock due to debt concerns; forcing the merger may increase costs.

• On 29 August, the Doosan Group announced that it is cancelling the merger between Doosan Robotics (454910 KS) and Doosan Bobcat Inc (241560 KS).
• However, the plan to split Doosan Enerbility into a newco and then merge Doosan Bobcat with the newco will remain in place.
• Doosan Group is still trying to complete the first two portions of reorganization (Split of Doosan Enerbility and Merger Swap Between Doosan Enerbility and Doosan Robotics), resulting in continued uncertainty.  

• LG Corp has announced it will buy ₩300B of LG Chem shares during trading hours, marking the first use of the new 30-day advance notice rule.
• LG Corp will buy LG Chem shares in two stages with 30-day advance notices. So, today’s announcement is a preliminary notice ahead of these 30-day advance notices.
• This transaction’s flow impact on LG Chem doesn’t seem substantial. But this first two-stage advance notice could provide key insights into price impact patterns.

• Hyundai’s TSR target is 35%+ (dividends plus buybacks), up 10 percentage points from previous years. They’ve also set a new annual dividend of ₩10,000, paid evenly quarterly.
• Hyundai’s Value-Up targets may not fully meet market expectations, but the key is the timing. By aligning early with government policies, Hyundai has reduced risks and secured investment flow.
• Hyundai plans a pref-skewed buyback, likely continuing this approach as retiring preferred shares first may boost ROE.

• In this insight, we discuss the potential alpha generation from new entries in the “KOSDAQ Rising Stars.”
• For the KOSDAQ Rising Stars New Entries in 2023, there was a massive outperformance. Of course, we want to reiterate that past performance is NOT indicative of future performance.
• On 28 August 2024, KRX provided a list of 39 KOSDAQ Rising Stars companies (including 29 existing ones and 10 new companies).

• On 28 August, Hyundai Motor announced its Corporate Value Up policies, including a minimum dividend per share this year targeting 10,000 won per share for common shares. 
• Hyundai Motor plans to implement a shareholder return policy based on a total shareholder return (TSR) of 35% or more from 2025 to 2027.
• Hyundai Motor’s Corporate Value Up plan of providing TSR of 35% or more from 2025 to 2027 is certainly better than what it provided in the past three years (26%). 

• Woori Financial’s value-up plan centers on improving the CET1 ratio to boost shareholder returns, with the total return ratio directly tied to the CET1 ratio.
• The market believed that if the acquisition cost stayed under ₩1.9 trillion, the CET1 ratio impact would be minimal, potentially leading to mid-term gains from non-banking profits.
• Though this may hurt Tongyang Life’s short-term stock, it opened the door for local institutional investors, especially NPS, to consider Woori Financial for value-up investments.

• The momentum for getting ahead on positions with KOSPI 200 rebalancing is holding steady. With around 60% of the screening period behind us, it’s time to start preparing our positions.
• The current rebalancing’s screened changes have a relatively lower price volatility, suggesting a stronger chance for more aggressive position build-up now compared to previous rebalancings.
• Trading volumes vary greatly among these changes, affecting their passive impact sizes. Consider using different weights in basket trading instead of equal weights.

• Hynix’s potential 15% stake in Kioxia doesn’t violate the 20% rule because KFTC’s mandatory stake rule doesn’t apply to foreign investments.
• SK Group may transfer Hynix’s 15% Kioxia stake to SK Square by splitting Hynix and merging its investment arm with SK Square for future AI investments.
• SK Square may attract more attention than Hynix short-term, as Kioxia’s stake via Hynix could boost market expectations for value transfer to SK Square.

• Three key catalysts for LG Corp include potential inclusion in Korea Value Up Index, an IPO of LG CNS in 1Q 2025, and an increasing probability of higher shareholder returns. 
• An IPO of LG CNS is likely in 1Q 2025. LG CNS is currently valued at about 7 trillion won and LG Corp has a 50% stake. 
• Our base case NAV valuation analysis of LG Corp suggests implied NAV of 15.3 trillion won or NAV per share of 96,957 won, which is 19.8% higher than current price.

• Foreign investors have continued buying KT Corp (030200 KS) and the stock has outperformed SK Telecom (017670 KS), though not by a lot. 
• Foreign buying has pushed foreign room in KT Corp (030200 KS) below 3.75% and the stock could be deleted from a global index at the next rebalance.
• There will be some interesting trading dynamics in KT Corp (030200 KS) over the next couple of months and there will be trading opportunities versus its peers.

• LG Electronics has already picked the bankers for the Indian IPO. JP Morgan and Morgan Stanley are on board as the lead underwriters, along with two unnamed local Indian banks.
• LGEIL is aiming to submit the Draft Red Herring Prospectus (DRHP) to India’s SEBI by the fourth quarter of this year.
• LG Electronics plans to raise about USD 700 million by selling around 25% of its stake in a secondary offering.

• KRX plans to launch the Value-Up Index as two separate indices: the “Excellent Value-Up Index” and the “Promising Value-Up Index.”
• The universe will include 150 constituents from KOSPI 200 and KOSDAQ 150. Allocation between indices is undecided, with sector limits on number and weight confirmed.
• The key indicators (ROE, PBR, shareholder return rate) remain unchanged. The Promising Index’s weights are undisclosed, but the Excellent Index favors financial and automotive stocks.

• Our base case valuation of Hyundai Motor India is market cap of US$18.6 billion, based on P/E of 24.4x our estimated net profit of 64.1 billion INR in FY25. 
• There have been some increasing concerns about Hyundai Motor India paying out higher royalty to its parent Hyundai Motor and dividend to shareholders, which could lower profit.
• According to a recent article by livemint, the expected valuation of Hyundai Motor India has fallen to about USD16 billion to USD20 billion.

• STCube announced it plans to increase capital by 89 billion won (13 billion won through a third party rights offering and 75.7 billion won through shareholder preferred capital increase).
• We have a positive view of STCube’s capital raise and there could be some alpha generating returns in our view.
• The fact that the company’s share price surged nearly 5x from the last rights offering in May 2022 (to October 2022) is likely to positively impact capital raise this time. 

• The review period for the September rebalance of the KOSPI Size Indices commenced on 1 June and will end on 31 August. Only 4 trading days to go.
• We see 7 migrations from MidCap to LargeCap, 1 new addition to LargeCap, 12 stocks moving from SmallCap to MidCap and 3 new additions to MidCap.
• The upward migrations have underperformed the downward migrations over the last month as a few stocks have sold off hard. Some despite being included in global indices.

• FSS Governor Lee challenged the legality of the Robotics-Bobcat merger ratio, citing Article 176-5 of the Capital Markets Act, allowing a 10% premium or discount.
• Following the FSS Governor’s statements, Doosan must likely apply a 10% premium/discount to the Robotics-Bobcat merger, creating a 30% spread based on current stock prices.
• Doosan may still revise or cancel the merger, but the FSS Governor’s comments might boost Bobcat short-term. Given the uncertainty, aggressive trading is risky.

• Early position buildup has minimal price impact, and even after the announcement, only a few stocks with a larger passive impact see significant movement.
• Since these KRX sector indices include many small to mid-cap stocks, the price impact of constituent changes on ETF rebalancing day was quite noticeable.
• Due to potential learning effects, build positions in predictable high-impact stocks before the announcement, then monitor flows and impacts to decide on targeting the ETF rebalancing trading day.

• The market is watching closely for when Hyundai Motor might sell its 5% stake in Korea Zinc, with the lockup ending on October 7th.
• Hyundai might mediate to end the lawsuit and lift the injunction, potentially agreeing to sell the stake to a third party or on the market.
• The uncertainty around Hyundai’s Korea Zinc stake sale makes trading challenging, but its actions in Q4 could significantly affect Korea Zinc’s stock price and create trading opportunities.