The 10th Annual New York Value Investing Congress takes place in New York on September 8th and September 9th 2014. ValueWalk will be providing coverage of the event- below is a summary of a presentation by David Hurwitz on activism in South Korea.
David Hurwitz is a Partner at SC Fundamental, a value-based long/short hedge fund founded in 1990. In focusing on value, SC invests as if there were no market. That is, it attempts to buy stocks and bonds which would provide good returns even if it could never sell them.
David Hurwitz, SC Fundamental: Activist Investing in Korea
Investing for 24 years and more recently, heavily in Korea. Compelling valuations in Korea today: 0.5x book value, low single digit P/Es, discounts to net cash and profitable.
Past investment: Kukbo Designs – interior design services for commercial properties. Was trading below net cash and low single digit P/E. Initially purchased at 3,000 in 2010 and currently trades for 18,000 per share. Interesting minority rights in Korea which are underemployed. Initiated a proxy battle and won various concessions.
Korea’s GDP ranks 15th in the world. Developed economy nearly the size of Germany and Australia. KOSPI index trades at nearly 50% discount to P/E and P/B of S&P 500. $300bn of companies trading below 8x earnings.
Korea is not Japan. Have made a concerted effort not to follow the past decisions made by Japan. Receptive to foreign investors, stronger minority shareholder rights, large insider stakes, higher ROEs and lower P/Es.
Difficulties investing in Korea include: few report in English, lighter trading volume, confusing holding company structures, recent accounting change from Korean GAAP to IFRS.
David Hurwitz’s New Ideas
SamHo Development Co (KRX:010960) – Constructs highways, tunnels, subways and other civil projects. Government related revenue >90%.Net cash >100% of market cap. Trades at 0.5x book value and P/E < 7x on depressed earnings.Started repurchasing shares and reviewing dividend policy. More to come.
KTCS CORPORATION (KRX:058850) – Call center services, re-sell services from Korea Telecom. Net cash 76% of market cap. Large pile of excess cash. Bloated cost structure after spun out of Korea Telecom (18% owner). Local shareholder proposed higher dividends, board seat and statutory auditor. CEO purchased shares, promised more transparency and accountability.
Finding plenty to look at and buy in Korea today.