Strong appeal of Korea: Upside potential could drive valuations
Just a few months back, we highlighted a thematic overseas exchange listing play. We saw strong support for companies announcing plans to do a dual listing in Hong Kong or Korea, as well as companies proposing to list depository receipts in exchanges overseas.
We believe we could see a revival of interest in these companies again, especially for companies listing in Korea.
On 14 Dec 2010, Korea’s KOSPI surpassed the 2,000 level in three years, backed by strong foreign net buying of 500bn KRW. This peak was previously achieved in late 2007, which quickly retreated upon the surfacing of the US sub prime mortgage crisis.
KOSPI is currently trading at 2,003. Year to date, the index has gained 19.1%, outperforming most of its regional peers.
According to our Korean counterpart Daishin Securities, KOSPI’s current fundamentals appear more solid that in 2007, and further upside is expected in 2011, in view of sustainable foreign net buying of the KOSPI as well as on expectations of strong corporate earnings.
This could drive valuations for stocks even further. According to Bloomberg, the KOSPI is currently at 17.3x P/E.
As the saying goes, rising tide lifts all boats. A rising Korean market bodes well for local companies planning a dual listing or KDR listing in Korea.
China Gaoxian announced receipt of its listing eligibility in Korea on Monday and has risen 19.6% on strong volume to 33.5 Scts as compared to its closing price of 28 Scts last Friday. Apart from China Gaoxian, Combine Will is planning to seek a dual listing in Korea. Sunmart is also proposing to seek a KDR listing.
We would like to remind investors that the new shares or KDR for all three companies are fungible, which means that investors are able to transfer their shares over to Korea to be traded.
In our view, share price support for the aforementioned companies could come from lower liquidity from share transfer to Korea, as investors could prefer to trade their existing shares at higher valuations. According to Bloomberg, STI is trading at 12.4x P/E as compared to KOSPI’s 17.3x.
Investors interested in gaining from the rising Korean market might want to look at Combine Will (BUY, TP S$0.52) and Sunmart (NOT RATED).
After studying how prices run up to the point of price-fixing in Korea, CIMB today has a 'buy' call on Combine Will == ie, to buy CW until its KDR price is fixed.
Cos CIMB says SG price tend to fall after price fixing.
Dont know if this will hold true anymore after Goaxian case.
Trends continue until something dramatic happens, and the world cease to be the same after that. True or not?
