Petra Capital Manager

“Korea: A Goldmine for Value Investors”

Based out of South Korea, Seoul, Korea

Ben Graham Disciples

South Korea is the size of Maine, but has a population of 49 million

Believes there is no threat from North Korea

Attacks from N. Korea have shown no effects

Why Korea?

Korea grew 3.6% last year.

Shift in household asset allocations toward equities

No capital gains tax inKorea

Positive Regulatory Changes

Growing exposure to emerging markets

Shift in household asset allocation- No capital gains tax

Positive regulatory changes

Growing exposure to emerging markets

Korean companies with improved earnings quality- balance sheets have never been this strong

9.7x P/E  1.1x P/B

Undervalued Yields, Earnings yield 4.2% greater than bond yield

More than 100 Net Nets publicly listed- Samsung Climate Control and Pangrim

CJ O Shopping- $1billion market cap

Online and TV shopping

No 1 cable operator in korea with 15.6% market share (70% owner) – subscription and ad revenues

Sold its china joint venture and stock price dropped harshly- thinks it is overdone and market misreading the situation

Growing at 13.6%.  Founded in 1994 and went public in 2000.  Minimal CAPEX.  Favorable channel position.  Private brands.

Also owns a cable company.  Stock sold off dramatically after they sold their Chinese home shopping business.

CJO Shopping is worth 1,811 billion Won but trades at 1,158 billion Won.

Private brands

Value $1,646 Million, but trading at market cap of $1,054 Million due to market over reaction,

KG Inicis  $144 million Market cap

P/E 6x trailing earnings

Payment gate business, mobile payment business

Leading online payment company

It is a leading company in the fast growing online transaction market.  Online shopping is increasing at 16.6%.  Established in 1998 and public in 2002.   Also, has the no. 1 mobile payment called KG Mobilians.  The company is worth $227 billion Won and the market cap is $162 billion Won.

Has not been this cheap since its IPO went public in 2002

Acquired by KG Chemical in 2011, renamed in 2012 KG INICIS

Growth rate has been decreasing- thinks it will turn around

Owns 43% of KG Mobilians – mobile payment service provider

Worth $206

Why are margins going down at CJO Shopping?  Margins lower but revenue is growing nicely.  CJO is increasing direct sourcing.

China is #1 trading partner with Korea

Definitely a bubble in China, expect more of a gradual, soft landing

Long only fund, and Korea just allowed shorting, but you need a license

Look for domestic Korean companies if you are scared of china blow up

Dividends are taxed at the highest tax rate in Korea and a lot of times companies are family owned and so the management does not want to pay out a dividend.

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