Mirae Asset Securities' Korean Stock Picks (February 2024)
Focus on tangible book value + Korean stocks such as Dentium, Hanwha Aerospace, KEPCO, InBody, Classys, SM Entertainment, Lotte Rental, Hankook Tire & Technology, Hyundai Rotem, Posco, etc.
Over the holidays, I had listened to The Warren Buffetts Next Door: The World’s Greatest Investors You’ve Never Heard Of. Although published in 2010, this book is still an interesting read as none of the investors profiled use the same investment strategies or resources to find and analyze stocks to invest in. And like those profiled in the classic book, The Millionaire Next Door: The Surprising Secrets of America's Rich, they are mostly normal or almost normal people…
One of the investors profiled was Christopher Rees (Rees Capital Management) who never went to university and spent much of his early adult life wandering the world working odd jobs before discovering and teaching himself about investing in order to help fund his adventures.
The book noted that at the heart of Rees’s strategy is his:
…extreme aversion to losing money, or protecting his downside. Says Rees, “My basic philosophy is that I don’t believe successful investing is about finding stuff that goes up. I think it’s about finding stuff that’s not going to go down.”
What stuck in my head as being useful for evaluating emerging market, frontier market and international stocks in general was this metric he uses:
To this end Rees is obsessive about determining a company’s tangible asset value, also known as its tangible book value. In conversation he sometimes refers to it as liquidation value.
Tangible asset value is defined as a company’s assets minus its liabilities. However, deducted from those assets are the fuzzy things that tend to inflate the number such as “goodwill,” which might measure the value of brands acquired during an acquisition. Another intangible asset that Rees might deduct is his estimation for obsolete inventory. In general, Rees is looking for companies that are selling at a price that is significantly lower than his estimation of its tangible asset value per share.
And:
Strategy Tip
Rees cautions investors not to confuse his tangible asset value with the book value figures that are commonly quoted on dozens of web sites, including Yahoo Finance. Book value can be inflated by intangibles like goodwill or obsolete inventory. “Book value is too dodgy, squishy,” says Rees.
However, I am including price/book (most recent quarter) ratios plus forward or trailing P/E and dividend yields from the Yahoo! Finance statistics page in these posts because, well, you need to start somewhere. These are quick and dirty numbers that can help you decide whether to spend more time doing the sorts of more complicated book value calculations that Rees performs.
Note that Rees’ buy rules go beyond just tangible book value:
Rees’s Rules of Investing
Buy Rules
Find companies with low debt, less than 50 percent of equity.
Focus on tangible asset value (also known as tangible book value) and be mindful of intangibles that can inflate asset values.
Look at realistic forward earnings potential.
Again, Yahoo! Finance’s Statistic page and any good stock screener should be able to screen for such quick and dirty statistics. But it will be up to you to decide how accurate they are…
Getting back to Korean stocks, Mirae Asset Securities (KRX: 006800 / 520003 / 00680K) is the largest investment banking and stock brokerage company by market capitalization in South Korea. They come out with (and post on their website) a steady stream of free research pieces - namely about Korean stock picks.
Stocks covered by their research during the month of February and (in the order they covered them from the most recent to the earliest in the month) in this post include:
LX Hausys Ltd; Dentium; Korea Gas Corporation; HYBE; Kolmar Korea; Hanwha Systems Co Ltd; Hanwha Aerospace; KEPCO; InBody; Hanwha Solutions; Iljin HySolus Co Ltd; Hyundai Livart Furniture Co Ltd; JejuAir Co Ltd; SOCAR; SK Oceanplant Co Ltd; CS Wind Corp; Ray Co Ltd; Seegene; HD Hyundai Electric Co Ltd; Korea Aerospace Industries; Dong-A ST Co Ltd; PearlAbyss Corp; Kakao; Classys; Neowiz; Vieworks; Pan Ocean; CJ Logistics; SM Entertainment Co Ltd; Krafton; KT Corp; NCSoft Corp; CS Bearing Co; Kakao Games; LIG Nex1 Co; Lotte Rental; LG Uplus; Lotte Chemical; Netmarble Corp; Wemade; OCI Holdings; SoluM Co Ltd; Yuhan Corp; SK Innovation; SKC; Vatech; Hankook Tire & Technology; HL Mando Corp; SK Telecom; Daewoong Pharmaceutical; Koh Young Technology; Hanmi Pharma; LX International; S-Oil Corp; NAVER; ST Pharm; Hyundai Rotem; DL E&C Co Ltd; GS Engineering & Construction Corp; CowinTech; LG H&H; Samsung Electro-Mechanics Co Ltd; Samsung C&T Corp; Posco International Corp; Samsung Electronics; LG Chem; & Samsung SDI
As mentioned in the past, the Korean government’s “Corporate Value-up Program” aims to close the so-called “Korean discount:”
📰 Foreign investors rush to ‘undervalued’ stocks (The Korea Herald) February 2024
Korea’s average PBR for listed firms stood at 1.1 as of last year, lower than the US’ 4.5, India’s 3.69, Taiwan’s 2.41, and Japan’s 1.4, according to the Financial Service Commission.
A number of the Korean stocks in this post do have price/book ratios below 1.00 - indicating (on the surface…) they are or could be undervalued…
Mirae Asset Securities publishes their Korean stock pick research in English. Note that when I click on their website, I receive NO pop-up asking what sort of investor I am or my location; but there is this disclaimer at the end of each of the research report PDF files:
This post will NOT be quoting directly from the website or research documents themselves (beyond giving the title of the report - please keep the above disclosures in mind).
However, their summaries and the more detailed research contained in the PDF files do NOT include good long term technical charts, descriptions of what the company does or links to the stock pick’s IR page, current quote, or most recent statistics - all pet peeves of mine when not made available.
To make your life easier, this post includes:
A heading with the stock name.
A quick description of the stock pick with links to the IR page and stock quote(s) on Yahoo! Finance.
A link to any Wikipedia page (for what it might be worth…)
The title of the report linked to the short summary brief on the Mirae Asset Securities website.
The link to the Mirae Asset Securities research report PDF file about the stock pick.
A price/book (most recent quarter) ratio plus forward or trailing P/E and dividend yields linked back to the Yahoo! Finance statistics page.
The latest long term technical chart linked back to Yahoo! Finance.
And as always, this post is provided for informational purposes only (and again, to make your life easier…). It does not constitute investment advice and/or a recommendation…
Keep in mind that Mirae Asset Securities would more or less be doing sell side research (with all the usual conflicts of interest that can arise from doing that) and you probably will never or rarely see a sell recommendation from them - just like you almost never see a sell recommendation coming from Wall Street…
But their equity research comes with good stock financials and it’s in English (as again, many Korean stocks still do not have IR pages or financial reports in English) - meaning its a good starting point for anyone interested in investing directly in Korean stocks.
LX Hausys Ltd
LX Hausys Ltd (KRX: 108670) manufactures and sells building materials in South Korea and internationally. It operates through two divisions, Construction Materials and Automotive Materials/Industrial Film. The company offers building products, such as windows, plastic windows, functional glass, artificial marbles, insulators, and aluminum windows; and interior materials, including wallpapers, flooring, phenolic foam insulation, easton, and solid surfaces to construction companies and consumers. It also provides automotive materials, which include automotive fabrics, general parts, and lightweight parts; and industrial films comprised of decorative films, interior films, home appliance films, and advertising films. In addition, the company operates an online store.
The company was formerly known as LG Hausys, Ltd. and changed its name to LX Hausys, Ltd. in July 2021.
LX Hausys (108670 KS/Buy) - Profits and dividends to stay elevated
Price/Book (Most Recent Quarter): 0.48
Trailing P/E: 6.20 (no forward P/E) / Forward Annual Dividend Yield: 4.28% (Yahoo! Finance)
Dentium
Dentium (KRX: 145720) is a dental medical device company that produces implant products. It has grown into a global company that exports implant products to over 70 countries around the world, including Europe, China, Russia, the Middle East, Asia and Latin America.
Dentium (145720 KS/Buy) - Implant price decline in China finally coming to an end
Price/Book (Most Recent Quarter): 2.60
Forward P/E: 15.61 / Forward Annual Dividend Yield: 0.31% (Yahoo! Finance)
Korea Gas Corporation
The main business of Korea Gas Corporation (KRX: 036460) is building terminals and a gas supply pipeline network, importing LNG, regasifying it at the terminals, and supplying it stably to local gas companies and power plants. They import LNG mainly from the Middle East (Qatar, Oman, Yemen, and Egypt), Southeast Asia (Indonesia and Malaysia), Russia (Sakhalin), Australia, and the United States.
KOGAS has grown into the largest LNG-importing company in the world. It currently operates a nationwide pipeline network spanning over 5,027(as of Jan. 2022), and supplies natural gas to 19.25 million households in 212 cities and counties with a distribution rate of 83.4% of all households nationwide (as of Dec. 2020).
KOGAS (036460 KS/Hold) - Lingering uncertainty over receivables and dividends
Price/Book (Most Recent Quarter): 0.23
Trailing P/E: 3.30 (no forward P/E) / Forward Annual Dividend Yield: N/A (Yahoo! Finance)
