Second Week of February 2021
2021.02.08.
□ Tesla, which recorded its first profit in fourteen years, is creating a mass following of “Tesla devotees” by capturing the image of an eco-friendly, affluent brand … “Tesla is the successor to Apple, and Elon Musk is the successor to Steve Jobs."
▶ As with Apple, this is a combination of luxury positioning and brand faith. Consumers are not buying it simply for functionality, but because it is a brand aligned with their beliefs (e.g. environmental protection). It reaches the point where people buy it “even while fully aware that Tesla EVs have quality problems," overlooking almost any defect. Just as most Apple buyers are purchasing not merely a device but an aesthetic identity, Tesla consumers too are consuming not just a means of transport but a statement of values (i.e. “value-based consumption”).
□ The Japanese government is reviewing the establishment, within the year, of a legal basis for unmanned delivery services using autonomous robots.
▶ As I wrote on the blog, I expect that even if births decline, labor-driven output will not necessarily decline. AI has already been used for more than a decade even in white-collar fields such as finance and law, and the scope of work AI can handle continues to expand.
□ The number of households delinquent on city-gas bills last year is estimated at over 1 million … the largest figure since records began in 2013.
▶ At a time when phrases such as “sudden poverty” and “money-printing” are in circulation, the number of people unable even to pay their gas bills is also surging. I had long thought Korea could, within twenty years, end up with a level of polarization somewhere between that of Britain and that of the Philippines, but COVID appears likely to accelerate the process.
□ Investment in ETFs through pension accounts surged, replacing “debt-financed stock speculation," rising about 342% from KRW 488.7 billion in 2019 to KRW 2.1607 trillion in 2020 … because bank and insurance pension accounts do not allow free ETF investment, more pension accounts are being transferred to brokerages.
▶ The largest ETFs by assets under management: TIGER U.S. Nasdaq 100, China CSI300, China Electric Vehicle Solactive, Secondary Battery Theme; KODEX U.S. FANG Plus (H), Secondary Battery.
▶ Pension accounts too are moving from banks and insurers to brokerages, while Mirae Asset Daewoo (TIGER) and Samsung Securities (KODEX) are sweeping up the ETF product market.
□ SK Telecom is pushing IPOs for several affiliates, including T Map and 11st.
▶ See the 2021.1.26. news clipping. Whether this can actually enhance corporate value remains to be seen.
□ Net profit at the five major banks declined 4.1-10.8% YoY … the issue is the deferral of principal and interest payments on KRW 115 trillion in loans whose maturities were extended because of COVID-19.
▶ Given the global low-rate environment, shrinking net profit is natural. The decline in profit caused by government pressure alone amounts to KRW 1.4-2.3 trillion. As I estimated in an earlier news clipping, lower pricing could be offset by higher volumes: loan balances were up 10% YoY, to KRW 234-295 trillion.
▶ Most loans are floating-rate. If rates rise, what happens to net profit on the existing loan book? The banking sector as a whole is in a zone of severe undervaluation relative to fundamentals. With the government pressing banks so hard, an immediate rerating may be difficult, but taking dividends into account, it still seems acceptable to include some on a long-term view.
□ Small and mid-sized non-life insurers are scaling back auto insurance because of chronic accumulated losses … auto-insurance premiums are indirectly controlled by the government, making autonomous pricing adjustments difficult.
▶ Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, and KB Insurance should gain market share. Since upside in pricing is capped, the case has to come through volume. The large insurers are structurally positioned for growth in volumes, so the near-term financial statements should look good, though I am not sure what the long-term catalyst is.
□ The furniture market, now grown to KRW 10 trillion a year, is being driven by a stronger B2C focus and online sales … Hanssem posted record results, with revenue exceeding KRW 2 trillion for the first time in three years.
▶ This is why I said to pay attention to interior fit-outs for homes. See the 2021.01.20. news clipping.
2021.02.09.
□ U.S. Treasury Secretary Janet Yellen says, “If the USD 1.9 trillion stimulus package passes, the current 6.3% unemployment rate could be brought down to the pre-COVID level of 3.5% in 2022. Without federal support, that would not happen until 2025."
□ WTI crude rises above USD 60 as OPEC+ production cuts and the global decarbonization push lead major financial institutions to reduce lending to fossil-fuel-related companies.
▶ As noted several times, with current technology it is structurally difficult for green industries to reach breakeven without government support. Even if the world now moves toward concentrated promotion of alternative energy, it is still only at the starting stage, and it would take until at least 2025 to produce visible results.
▶ Since oil prices naturally rise when economic activity resumes, I advised back in March last year, “If you are looking out more than a year, invest in oil-related stocks." On top of that, with the launch of the Biden administration and the global turn toward decarbonization, supply contraction has piled on, and prices have risen more than threefold in a year.
□ New unemployment-benefit applications in Korea reached a monthly record of 212,000 in January, while the increase in employment-insurance subscribers fell to a record low of 151,000.
□ The Ministry of Science and ICT, in its “2021 Space Development Promotion Implementation Plan," states: “A total of KRW 615 billion will be invested in launch-vehicle and satellite development and in fostering the private-sector space-industry ecosystem."
□ The number of foreign workers entering Korea has fallen because of COVID-19, creating labor shortages at SMEs and in rural areas; 27,400 new workers are needed this year, but only 105 have entered … “Given the nature of the work done by foreign laborers, it has to be replaced by young workers, but young Koreans neither come nor stay for long."
▶ This is not military hardship training; why should people be expected to “put up with” the job? Government officials still do not seem to grasp the point. The 390,000 undocumented residents could also become a weak point in COVID containment.
□ Daily KOSPI trading value fell 55% from the start of the year to KRW 19.2 trillion … suggesting that the correction phase may continue.
▶ In an index upswing, the move is usually led by the highest-market-cap names (mainly large blue chips), but when the shift in money commonly called “sector rotation” begins, affiliates of those large blue chips (e.g. Samsung Electronics and ADTechnology, etc.) and stocks undervalued relative to earnings tend to follow later. I think this will be the year in which small- and mid-cap names that were neglected despite good results last year finally begin to move.
□ Hyundai Motor Group disclosed on the 8th that it “is not in talks with Apple on autonomous-vehicle development” … since the only automakers with dedicated EV platforms are GM, Volkswagen, and Hyundai Motor Group, renewed discussions remain possible.
▶ KRW 13.5 trillion in market cap evaporated. See the 2021.02.07. weekly trends.
□ Cathode materials, which affect EV-battery performance and stability, are expected to see their market expand from 610,000 tons in 2020 to 2.75 million tons in 2025 … in 2019 the No. 1 player was Japan’s Sumitomo (42.6%), while Korea’s EcoPro BM held 16.7%.
□ Despite COVID-19, global display makers centered in Greater China continue to increase investment in production facilities … robots related to food tech, where demand has also risen because of COVID-19, are worth watching as well.
▶ This year the OLED market, used broadly in EVs and smartphones, is expected to expand further. OLED-material names: Duk San Neolux, Innox Advanced Materials, PI Advanced Materials, etc.
□ LG Display will invest an additional KRW 840 billion in its OLED panel module plant in Haiphong, Vietnam.
□ OCI signs a KRW 930 billion polysilicon supply contract with China’s LONGi Green Energy Technology through its Malaysian subsidiary OCIMSB.
□ Kakao Games records all-time high 2020 revenue of KRW 495.5 billion … with operating profit also up 90% YoY to KRW 66.6 billion.
□ As COVID-19 pushes more people to camping instead of overseas travel during vacation seasons, the number of campers is rising … Shinil’s fan heater, now a camping essential, has even gone into additional production because of stockouts.
□ Cheil Worldwide holds up well despite COVID-19, posting operating profit at the 2019 level … digital marketing, which accounted for 19% of gross profit in 2010, expanded to 43% in 2020.
▶ It is pursuing acquisitions of big-data analytics firms in Europe. Overseas M&A totaling about KRW 50 billion has been conducted over the past three years.
2021.02.10.
□ The U.S. Congressional Budget Office estimates that the Democratic bill to raise the federal minimum wage from the current USD 7.25 to USD 15 by 2025 would have the following effect: “900,000 Americans would be lifted out of poverty, while 1.4 million jobs would disappear."
□ Tesla, having purchased KRW 1.7 trillion worth of Bitcoin, says, “We will also accept Bitcoin as payment." … Bitcoin rises above KRW 50 million.
□ Bitcoin market capitalization (USD 860.3 billion) surpasses Tesla’s (USD 818.4 billion), as its use in payments expands and it establishes itself as an “inflation hedge," even threatening dollar hegemony. \
□ COVID-19 disrupted corporate operating activity … sluggish consumption reduced VAT revenue by KRW 5.9 trillion and corporate-tax revenue by KRW 16.7 trillion.
▶ By contrast, booming real-estate and stock transactions increased capital-gains tax revenue by KRW 7.6 trillion and securities-transaction tax revenue by KRW 4.3 trillion.
▶ This marks the first two consecutive years of falling tax revenue since 1961. Last year’s fiscal deficit is estimated at KRW 110 trillion.
□ Copper foil, a core material for secondary batteries, is expected to see its market expand from 135,000 tons in 2020 to 748,000 tons in 2025 … the key players are Iljin Materials, which has been developing the technology since 1978, and SKC, which grew rapidly through acquisitions of companies holding core technologies.