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Morning Focus February 15, 2019 Korea Morning Focus Company News & Analysis Major Indices Close Chg Chg (%) SK Holdings (034730/Buy/TP: W400,000) Raise TP KOSPI 2,225.85 24.37 1.11 Share re-rating on the horizon KOSPI 200 288.68 3.71 1.30 KOSDAQ 742.27 2.36 0.32 KEPCO KPS (051600/Buy/TP: W42,000) Upgrade rating & Raise TP Improving outlook for 2019 Turnover ('000 shares, Wbn) Volume Value Asiana Airlines (020560/Hold) Downgrade rating KOSPI 561,305 6,281 KOSPI 200 111,332 4,743 Disappointing earnings KOSDAQ 725,633 3,926 Kakao (035720/Buy/TP: W130,000) Market Cap (Wbn) Steady growth ahead Value KOSPI 1,469,358 Studio Dragon (253450/Buy/TP: W130,000) Lower TP KOSDAQ 251,780 Investment case remains intact KOSPI Turnover (Wbn) Buy Sell Net CJ CheilJedang (097950/Buy/TP: W460,000) Foreign 1,646 1,696 -49 Three investment points for 2019 Institutional 2,027 1,803 223 Retail 2,580 2,773 -192 Orion (271560/Buy/TP: W155,000) Growth strategy for 2019 KOSDAQ Turnover (Wbn) Buy Sell Net Emart (139480/Buy/TP: W240,000) Foreign 354 341 13 Institutional 233 252 -19 In need of differentiated traffic growth strategy Retail 3,352 3,327 26 Lotte Shopping (023530/Trading Buy/TP: W220,000) Lower TP Program Buy / Sell (Wbn) Uncertainties resurface Buy Sell Net KOSPI 1,679 1,485 194 Ssangyong Cement (003410/Buy/TP: W8,300) Raise TP KOSDAQ 307 306 1 Tried and true Advances & Declines Advances Declines Unchanged Meerecompany (049950/Not Rated) KOSPI 451 368 76 Potential revaluation of surgical robots KOSDAQ 678 508 104 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 47,500 1,300 802 KODEX KOSDAQ150 LEVERAGE 13,455 20 195 KODEX LEVERAGE 13,750 245 186 Hynix 77,400 1,200 177 Hyundai Motor 121,500 -3,000 129 KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Diostech 20,750 -1,350 112 LB SEMICON 4,700 205 102 SCD 1,940 445 84 Emerson Pacific 24,850 -1,100 70 Toptec 11,950 1,450 66 Note: As of February 14, 2019 Mirae Asset Daewoo Research This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose. SK Holdings (034730 KS) Share re-rating on the horizon Conglomerates SK Biopharmaceuticals’ out-licensing deal with a European partner SK Biopharmaceuticals, SK Holdings’ wholly owned subsidiary, disclosed on February Company Update 14th that it has entered a US$530mn out-licensing agreement for cenobamate (epilepsy treatment) with Arvelle Therapeutics (Switzerland), targeting 32 countries in Europe. February 15, 2019 Under the agreement, SK Biopharmaceuticals will receive an upfront payment of US$100mn and is eligible to receive up to US$430mn upon the achievement of regulatory and commercial milestones. It is the largest licensing deal in the European central nervous system (CNS) drug market. When the drug hits the market, SK (Maintain) Buy Biopharmaceuticals will also receive recurring royalties based on net revenue. Notably, the upfront payment is non-refundable and accounts for 18.9% of the total contract ▲ value, which is two times the market norm (upfront payments typically are around 10% Target Price (12M, W) 400,000 of the contract value). We believe this reflects the confidence Arvelle Therapeutics has regarding cenobamate’s chances of regulatory approval and commercialization. SK Share Price (02/14/19, W) 277,500 Biopharmaceuticals plans to file a new drug application (NDA) with the European Medicines Agency (EMA) for cenobamate, based on global clinical trial results. Expected Return 44% Raising fair value of SK Biopharmaceuticals; Successful IPO more likely In light of the deal, we revise up the fair value of SK Biopharmaceuticals to W5.5tr. (We had valued the firm at around W4.5tr, based on the expected US sales of cenobamate.) OP (18F, Wbn) 5,175 Consensus OP (18F, Wbn) 6,189 1) Cenobamate: SK Biopharmaceuticals filed an NDA with the US FDA for cenobamate in November 2018. The regulatory review commenced in February 2019. The drug is EPS Growth (18F, %) 17.4 expected to gain FDA approval in 2H19 (November), followed by commercial release in the US in 2020. Annual sales are projected to reach W1tr in 2024. Market EPS Growth (18F, %) 4.6 P/E (18F, x) 9.4 * UCB’s Vimpat, the current best-selling antiepileptic drug in the US, records annual Market P/E (18F, x) 9.2 sales of roughly W1.1tr. KOSPI 2,225.85 * In a phase 2b study, cenobamate showed superior efficacy, including lower frequency of seizures, compared to Vimpat. Market Cap (Wbn) 19,525 Shares Outstanding (mn) 71 In addition, the sleep disorder treatment solriamfetol, which the company licensed out Free Float (%) 48.9 to Jazz Pharmaceuticals in 2011, is anticipated to gain approval from the US FDA in March and the EMA in September 2019. The drug is anticipated to generate royalty Foreign Ownership (%) 26.5 income following its commercial production and release in 2H19. Beta (12M) 1.10 52-Week Low 245,500 2) A virtuous cycle to enhance shareholder returns: Proceeds from SK Biopharmaceuticals’ IPO to be distributed as special dividend 52-Week High 313,500 Meanwhile, SK Holdings introduced a new dividend policy, which allows for the payout (%) 1M 6M 12M of special dividends using proceeds from subsidiary IPOs or stake sales. The firm’s Absolute 10.1 7.1 -4.5 dividend yield looks very attractive in light of 1) past dividend levels (DPS of W4,000 in Relative 2.1 8.7 3.9 2017 and W5,000 in 2018) and 2) the potential for special dividend payouts in the event that SK Biopharmaceuticals goes public after 2H19. 110 SK Holdings KOSPI Maintain Buy and lift TP to W400,000; Undervalued stock 100 We maintain our Buy rating and lift our target price to W400,000 (from W390,000), as 90 we revised up the value of the firm’s stake in SK Biopharmaceuticals, reflecting our upward adjustment to the latter’s enterprise value (from W4.5tr to W5.5tr). The stock 80 looks steeply undervalued, trading at a more than 40% discount to its NAV. 70 Our reverse calculation based on SK Holdings’ market value suggests that SK 2.18 6.18 10.18 2.19 Biopharmaceuticals is currently being priced at a deep discount. Given the latest out- licensing deal and the likelihood of an IPO, we expect the company’s equity stake in SK Biopharmaceuticals to come into focus, prompting a re-rating in the stock. Mirae Asset Daewoo Co., Ltd. [ Conglomerates/Software] FY (Dec.) 12/15 12/16 12/17 12/18F 12/19F 12/20F Revenue (Wbn) 39,300 82,730 90,613 101,507 103,278 105,278 Dae-ro Jeong +822-3774-1634 OP (Wbn) 1,407 5,281 5,745 4,689 6,475 7,125 [email protected] OP margin (%) 3.6 6.4 6.3 4.6 6.3 6.8 NP (Wbn) 5,346 766 1,677 1,969 2,076 2,255 EPS (W) 93,713 10,794 23,650 27,759 29,266 31,788 ROE (%) 70.6 6.0 12.5 13.3 12.3 12.0 P/E (x) 2.6 21.3 12.0 9.4 9.5 8.7 P/B (x) 1.3 1.2 1.4 1.1 1.1 1.0 Dividend yield (%) 1.4 1.6 1.4 1.9 1.8 1.8 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. KEPCO KPS (051600 KS) Improving outlook for 2019 Utility 4Q18 review: OP hits highest level since 4Q14; Strong results even after considering one-offs Results Comment For 4Q18, KEPCO KPS reported revenue of W386.4bn (+12.8% YoY), handily beating the February 15, 2019 market consensus (W343.2bn). Revenue improved across all major divisions. The thermal and nuclear segments returned to positive growth, with revenue expanding 6.3% and 14.8% YoY, respectively. We believe a large portion of the revenue recognitions that were previously delayed came through in 4Q18. Overseas revenue (Upgrade) Buy also grew 46.8% YoY, boosted by revenue recognition for the UAE nuclear plant trial run. Target Price (12M, W) ▲ 42,000 Operating profit also came in far above the consensus (W64bn), surging 141.5% YoY to W88.4bn—the highest level since 4Q14 (W96.4bn).
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