Second Week of April 2021

2021.04.05.

□ Funds raised through global IPOs in Q1 this year hit a record KRW 223 trillion … the U.S. IPO market alone absorbed 68% of total IPO proceeds.

□ The Wall Street Journal: “Vietnam and Thailand will be the biggest beneficiaries of U.S.-led global growth … the eurozone will see little benefit, while emerging economies in Asia and Africa should worry about capital outflows."
▶ The interpretation is that differences in vaccine rollout rates are now dividing the pace of economic recovery. In the United States, it appears likely that the Biden administration will have little difficulty reaching its target of 200 million vaccine doses administered by the end of April. Accordingly, the timing of herd immunity, previously expected around late summer, now appears likely to come sooner.

□ Bloomberg: “The average transaction price in the NFT market has plunged 67.4% from its February peak this year” … ‘a short-term liquidity beneficiary after COVID-19’ vs. ‘as with Bitcoin in its early days, it will ultimately be recognized as a new asset class over the long term’
▶ My own view is closer to the latter, since there is at least a real application for blockchain (encryption) technology in the form of ‘digital intellectual property rights.’ See the 2021.03.26. news clipping.

□ China’s Nasdaq-style STAR Market sees 180 companies withdraw their listing plans … the interpretation is that, after watching Ant Group’s IPO collapse following Jack Ma’s public criticism of Chinese financial regulators, other tech firms are also growing wary of government pressure.

□ Japan’s National Institute of Information and Communications Technology succeeds in developing an IC card using quantum cryptography that prevents personal-data leaks, with commercialization scheduled from 2025 … the global IC card market is estimated to grow from USD 14.2 billion in 2018 to USD 21.5 billion in 2023.

□ The law supporting low-income and lower-mid-credit borrowers, funded by contributions from the entire financial sector and needed to launch the new loan products “Haetsal Loan Bank” and “Haetsal Loan Card," is likely to pass this month … banks are being pressured by the government to provide funding contributions, yet the government says, “We will guarantee only 70-80% of Haetsal Loan Bank at most."
▶ Delinquency rates on Haetsal Loan 17, a policy loan product for low-income borrowers, range from 4.5% to 11.8% depending on the bank. That is more than twenty times the average household-loan delinquency rate of 0.2-0.3%.

□ The Financial Services Commission revises the Credit Union Act and its enforcement decree … “Mutual-finance institutions such as NongHyup and credit unions will be required to keep loans to real estate and construction each below 30% of total lending, and their combined share below 50%."
▶ This appears to be blowback from the LH scandal. See the 2021.03.26. news clipping.

□ Last year, the top 100 Korean companies invested a record KRW 49.5 trillion in R&D … there is also criticism of a ‘Samsung distortion’ effect. Samsung Electronics alone invested KRW 21.2 trillion, accounting for 42.8% of total R&D spending by the top 100 firms.
▶ Samsung Electronics and SK Hynix alone account for more than half of total R&D spending among the top 100 companies.

□ The Financial Services Commission tells K Bank and KakaoBank, “Submit plans showing how you will raise the share of mid-rate loans." … KakaoBank plans to expand its mid-rate lending this year beyond last year’s KRW 1.4 trillion, while K Bank plans to raise the share of loans to lower-mid-credit borrowers in credit grade 4 and below to 30% by 2023.
▶ See the 2021.01.26. news clipping.

□ Zhonghan Petrochemical, the joint venture between SK Innovation and Sinopec, China’s largest oil company, completes the expansion of its petrochemical facilities after investing KRW 740 billion since 2017, with full-scale operation scheduled from the second half of this year.

□ Hanwha Solutions appoints Jang Se-young, former Samsung Electronics executive director and only the second woman in her 30s ever to become an executive at Samsung Electronics, as the group’s first female vice president … through the newly created NXMD organization, she will be tasked with identifying new business opportunities in next-generation electronic materials and components, signaling the company’s willingness to invest in future growth drivers in chemicals as well.

□ Competition in e-commerce intensifies as Coupang, armed with fresh capital from its NYSE listing, expands free Rocket Delivery … in a letter to shareholders, Naver CEO Han Seong-sook said, “This year we will increase Smart Store transaction value by 50% YoY to KRW 25 trillion, and over the next five years expand the number of Smart Stores from about 420,000 now to more than double that level, reaching 1 million."

□ As working from home increases, more ‘fathers who cook’ are emerging, driving a sharp rise in meal-kit purchases among men in their 40s and 50s … the spread of drinking at home and camping culture has also contributed to rising meal-kit sales.
▶ It looks as though the ‘novice hikers’ crowd holds a meaningful share of meal-kit revenue as well. See the 2021.03.08. news clipping.

□ Kakao pushes to acquire Radish, the No. 5 U.S. web-novel platform by revenue (KRW 22 billion in 2020), for KRW 400 billion … by acquiring Radish, which focuses on original content production, Kakao aims to expand its North American market share and counter Naver, which acquired Wattpad, the platform with the world’s largest user base despite ranking only No. 10 in U.S. revenue.
▶ See the 2021.01.21. news clipping.

□ LG Uplus introduces autonomous mobile robots in Jeonju, North Jeolla Province, capable of measuring and analyzing ambient air conditions such as fine dust in real time.
▶ Much like SKT, which recently entered a full-scale stock-rerating phase after a major restructuring (see the 2021.03.26. news clipping), LG Uplus also appears to be pivoting toward AI because the telecommunications industry, now in maturity, faces structural limits to growth. Last year its operating profit rose 29.1% YoY and revenue 8.36% YoY, though the revenue mix by business division still needs to be checked. As noted in the 2021.01.26. news clipping, the share price is still sluggish along even after strong earnings announced in February.


2021.04.06.

□ U.S. Republicans, criticizing President Joe Biden’s USD 2.3 trillion infrastructure stimulus plan, say “Only about 30% of the USD 2.3 trillion qualifies as traditional infrastructure spending” and demand it be cut to USD 615 billion … even Democratic House Ways and Means Committee Chairman Richard Neal says, “Parts of the package need to be revised."
▶ This article says, “Consulting firms are freezing or reducing hiring," but that is not true. Both investment banks and strategy consulting firms in the United States filled last year’s planned hiring numbers, and some even expanded them.

□ The UK will reopen in-person sectors such as retail, outdoor dining, and hair salons from the 12th, and allow overseas travel from the 17th … Israel, having vaccinated 56% of its population, has begun removing masks starting with some military units.

□ The People’s Bank of China tightens lending regulation as rapid economic recovery drives a surge in real-estate investment … new loans at commercial banks are up 16% YoY, and home sales transactions are up 133% YoY.

□ The U.S. labor market shows signs of recovery as March nonfarm payroll growth reaches 916,000 … from July 2020 through March this year, Amazon alone hired 500,000 people globally and more than 400,000 in the United States.
▶ U.S. GDP growth this year is estimated at +7.7%. Goldman Sachs recommends cyclical financial stocks such as Berkshire Hathaway, JPMorgan, and Bank of America, whose revenues are generated mostly within the U.S.

□ Korea Institute of Public Finance, Fiscal Forum, March issue: “Since the 2008 financial crisis, the household debt ratio has risen 27.6 percentage points through 2Q20 … debt is now approaching 100% of GDP."

□ Korea’s foreign-exchange reserves stood at USD 446.13 billion at the end of March … down USD 1.43 billion in a month because of dollar strength.

□ Domestic equity issuance reached KRW 12 trillion in Q1 this year, already approaching the record KRW 12.9 trillion set in 2011, while bond issuance reached KRW 18 trillion … KRW 867 billion worth of BBB-rated corporate bonds (i.e. junk bonds) from firms such as Doosan Infracore, Hanjin KAL, Hanshin Engineering & Construction, and DB Capital were sold, along with KRW 2.2 trillion worth of convertible bonds.
▶ Increased M&A activity and dollar-bond issuance by large companies such as Naver also helped push foreign direct investment to USD 4.27 billion, the third-highest quarterly figure on record.

□ Theme-driven active ETFs are booming in the Korean and U.S. equity markets … in the U.S., the number of ESG-themed ETFs rose from 233 in 2018 to 497 in 2020; in Korea, 22 of the 27 ETFs listed since last September are ESG-, hydrogen-, or New Deal-themed.
▶ The most heavily purchased overseas stock among Korean retail investors is Tesla (roughly KRW 249 billion worth). No. 2 is FNGU (a 3x leveraged product tracking large-cap Nasdaq tech stocks).

□ LG Electronics decides to shut down its mobile division, which has recorded losses for 23 consecutive quarters and accumulated KRW 5 trillion in losses over 26 years … phone production and sales will cease as of July 31, and the company will focus on new businesses such as automotive electronics and batteries.
▶ LG Electronics’ domestic smartphone market share is 11%. A beneficiary here could be Samsung Electronics.

□ SK Group hits a series of investment jackpots … it expects at least a 10x return, or roughly KRW 423 billion, from the listing of SolidEnergy Systems, a next-generation (solid-state) battery developer in which it holds an equity stake.

□ Hyundai Motor’s production is disrupted by 7,000 vehicles—roughly half a month’s sales volume—because of the auto semiconductor shortage … after the Ulsan Plant 1 shutdown for one week, a temporary shutdown of the Asan plant is also under review.

□ Samsung Electronics’ “Samsung Future Technology Development Program” selects 13 basic-science, 7 materials, and 7 ICT research projects … among them is an AI learning-model project led by Professor Ryu Kyung-seok’s team in the Department of Mathematical Sciences at Seoul National University.

□ Key raw materials for vaccines and treatments, for which Korea remains highly import-dependent, are running short because of COVID-19 vaccine production … apart from a few large companies with purchasing leverage, such as SK Bioscience and Celltrion, supply is proving difficult.

□ Transparent PI film independently developed by Kolon Industries is used in the cover window of the Lenovo ThinkPad X1 Fold, the world’s first foldable laptop.

□ “KakaoTalk Wallet,” which can store certificates, ID cards, and official qualifications, surpasses 10 million users … the fastest growth among private authentication services.

□ Samsung Engineering and Lotte Chemical sign an MOU for “carbon neutrality and expansion of eco-friendly businesses” … covering Lotte Chemical’s carbon-neutral roadmap, joint investment and development in green technologies, and commercialization of eco-friendly businesses.

□ Second-generation owners at mid-sized manufacturers such as YG-1, Chemtronics, and Sungho Electronics are beginning to join boards of directors one after another.
▶ In general, this tends to be a good setup for short-term gains when preparation for second-generation succession begins.

□ LH will supply 130,000 rental housing units nationwide this year, after 99,000 last year … including 35,000 units for young people, 43,000 for newlyweds, and 10,000 for older people.


2021.04.08.

□ U.S. Treasury Secretary Janet Yellen, in a speech to the Chicago Council on Global Affairs, says “We need to stop the 30-year race among countries to cut corporate tax rates” and proposes a 21% global minimum corporate tax rate, far above the 12% currently under discussion at the OECD … major EU countries such as France and Germany, IMF fiscal affairs director Vitor Gaspar, and Amazon chairman Jeff Bezos support the idea.
▶ A finance ministry vice minister says, “A corporate tax increase is something that must be considered carefully."

□ The EU, citing a Joint Research Centre (JRC) report stating “There is no scientific basis to conclude that nuclear energy is more dangerous to human health and the environment than green energy”, reviews a plan to include nuclear power in the green industry category … critics point out that, unlike the global trend, Korea alone is pursuing the Moon administration’s anti-nuclear policy, drawing up inefficient measures without any proper alternative.

□ Even as the U.S. economy recovers rapidly, the increase in hybrid work (home plus office) is shrinking the office footprint companies need … but long-term lease transactions are rising as more tenants and firms increasingly view current prices as bottoming levels.

□ A researcher working on a paper criticizing bias in Google’s AI models is notified of dismissal, and senior AI researchers, including AI authority Samy Bengio, head of the AI ethics team, resign in succession.
▶ Where did “Don’t be evil” go?

□ Korea records a low vaccination rate after failing to secure COVID-19 vaccines … Ma Sang-hyuk, vice chairman of the Korean Vaccine Society, says, “The AstraZeneca vaccine, which the government worked so hard to secure, was mired in controversy over side effects. Had the government listened to experts earlier, the outcome would have been completely different."
□ Campuses such as Yonsei, Sogang, and Ewha are shut down again as new confirmed cases continue to emerge … shops around university districts are also effectively back to opening in name only.
▶ A woman in her 20s who received the AstraZeneca vaccine developed blood clots in her leg and lungs. This is the third such case in Korea.
▶ New confirmed cases reached 668, the highest since January 8, when the daily total was 674. A disease-control official says, “Since herd immunity has not formed in Korea, new cases can multiply."
▶ SK Bioscience, which had been advertising that it would receive vaccine technology transfer from U.S.-based Novavax, still has not even set a timetable for regulatory approval. Commercial release is expected no earlier than next year. See the 2021.02.18. and 2021.02.21. news clippings.

□ According to the Bank of Korea’s “February Balance of Payments,” the current account posted a surplus for the 10th consecutive month, while the services balance returned to surplus for the first time in 75 months … transport income improved sharply from a USD 20 million deficit in February 2020 to a USD 810 million surplus, thanks to stronger shipping conditions including increased cargo volume.
▶ See the 2021.03.26. news clipping.

□ Paint stocks such as Noroo Paint and KCC rise as downstream industries including construction and shipbuilding recover … domestic small- and mid-cap steel stocks also rise on hopes of lower U.S. export barriers and China’s production controls on its own steelmakers under its low-carbon policy.

□ Samsung Electronics posts an earnings surprise for 1Q21, with KRW 65 trillion in revenue and KRW 9.3 trillion in operating profit, driven by revenge consumption in smartphones and home appliances after COVID-19 … the semiconductor division posted KRW 3.4 trillion in operating profit, down 14.8% YoY because of factors such as the Texas foundry shutdown caused by the U.S. cold wave, but the mobile division delivered KRW 4.6 trillion in operating profit, up 73.6% YoY and accounting for nearly half of total operating profit.
▶ Strong improvement in premium-device sales—not only smartphones, but also Galaxy Buds Pro and tablet PCs—also contributed. With the early release strategy for the Galaxy S21, Samsung recorded a 23.1% global market share and overtook Apple (22.2%) to rank first. Still, revenge consumption will not continue indefinitely, so 2Q21 must also be watched.
▶ “From 2Q onward, higher memory-chip prices will begin to be reflected in earnest, marking the start of a supercycle” vs. “Shortages in system semiconductors could reduce production of finished goods such as smartphones and in turn reduce revenue."

□ Last year, 304 bank branches were closed, equivalent to 4.5% of all branches … as COVID-19 accelerates the spread of digital finance, attention is turning to productivity improvements at internet-only banks.
▶ KakaoBank posted net profit of KRW 113.6 billion in 2020, up 729% YoY. As non-face-to-face business expands, growth at internet-only banks is likely to become more distinct.

□ Naver purchases KRW 167.8 billion worth of shares in Indonesia’s largest media company, Emtek … Southeast Asia’s digital economy, in a region where IT adoption is accelerating, is projected to grow from USD 100 billion now to USD 300 billion by 2025.
□ AliEx, a Korean SME, succeeds in entering Vietnam’s card-payment market, where even Japan’s largest telecom company NTT failed … it plans to deploy 1 million payment terminals across Vietnam by 2025.
▶ Southeast Asians appear to spend nearly as much time on smartphones as Koreans do, much of it on social media. Given the gap in telecom and broader IT infrastructure, that level of smartphone usage is strikingly high.

□ LG Electronics posts record quarterly results in 1Q21, with KRW 18.8 trillion in revenue (YoY +27.7%) and KRW 1.5 trillion in operating profit (+39.2%) … the home-appliance division, whose premium-appliance strategy proved effective in the contactless era, is estimated to have contributed more than half of total operating profit.
▶ With the smartphone business—which had been dragging down operating profit—also exiting, results should improve further.

□ Chong Kun Dang Health increases revenue eightfold and operating profit twenty-six-fold over five years through gender- and age-specific marketing … in 2020, its probiotic product “Lacto-Fit” recorded KRW 262 billion in sales, more than double the top-selling confectionery product, Lotte’s Pepero (KRW 126 billion).
▶ Chong Kun Dang Holdings, the parent company, is the company I invested in around 2015 or 2016 and that taught me the lesson that “share prices do not always move in direct proportion to corporate value, nor can one know how long one must wait before that value is recognized” (see Chapters 4-5). Chong Kun Dang Holdings, too, has increased both gross profit and operating profit to more than four times their 2016 levels, yet the share price is only about 30% above its late-2016 level.

□ EDGC and MyGenomeBox begin developing an SNS platform that connects people with similar genetic profiles.

□ Kolon Industries and SK Global Chemical will begin mass production of biodegradable plastic products from the third quarter of this year.

□ Seoul apartment prices have continued rising since July 2020, when panic buying by people in their 20s and 30s surged … average apartment sale prices in Seoul rose 15.7%, from KRW 950 million in July 2020 to KRW 1.1 billion in March 2021 (based on KB monthly time-series data).
▶ Over the past year, the area with the highest apartment-price increase nationwide was Bundang, where prices rose by more than KRW 10 million per $$3.3\ m^2$$.