The tensions along the 38th parallel have been hostile since the end of WWII in 1945. The consequences of war have extended far beyond deaths in the field of battle to include deprivation and divestment of infrastructure, utilities and basic services. The decline in personal well being and income that occurred as a result of disruption of economic activity, as well as unemployment, uncertainty, military cost and capital flight have taken a toll on Koreans. The economic implications of armed conflict often have dire effects on nations and regions. In spite of the direct impacts of active wars, there are a number of indirect effects that can occur long after the violence as cold wars endure and persist. For North and South Korea, three years of a violent war brought on sixty-five years of a cold war. The Trump-Kim Summit may be the first step to lasting peace. Although it is still early in the process, it is natural for peace and prosperity to ensue when the appropriate foundation is established by the governmental authorities.
One only needs to look to Northern Ireland and Ireland to witness the tremendous economic benefits that followed their years of turmoil. Jobs replaced destruction and wages replaced war. With peace treaties forged, both regions experienced declining unemployment, rising GDP, increased manufacturing, a building boom and improved infrastructure. There is great hope that North Korea and South Korea can experience the same opportunities and success.
The North Korean economy is in poor shape after 68 years of turmoil. Economic cycles have ranged from stagnant to impoverished. Alternatively, the South Korean economy, with the help of the U.S initially flourished, but has recently slowed to a 2% to 3% economic growth range since 2004.
The economic benefits of securing stability and maintaining peace can have a tremendous impact on the economies for both North and South Korea. The outcome of Tuesday’s historic meeting between the two leaders concluded with the U.S committing to provide a guarantee of security to North Korea in exchange for their denuclearization. This initial deal may lead to future agreements that could create an exciting future and improve the economy for both countries. A solid foundation for investment should be cemented as investor confidence and sentiment rise for the region. Without doubt, many South Korean companies have been able to prosper despite the dark clouds that have hovered over the Korean peninsula. As those clouds dissipate, many of these companies may begin to flourish even more. In celebration of the Trump-Kim Summit, we would like to highlight our top recommendations for South Korea. The promise of removal of war can likely further enhance the potential for these favorable companies. The companies listed below possess very strong fundamentals and financial metrics. The stocks also possess ADR’s and are listed on U.S exchanges.
The foundation of our recommendations is to identify companies that perform best and worst on the collective basis of value, growth, EPS revisions, profitability, and LT momentum. The CressCap systematic trading model gathers data daily on 6,500 companies globally and assigns academic grades (A - F) for each financial metric. These grades are scored relative to its region/sector.
Samsung Electro-Mechanics Co., Ltd (009150-KR)
Samsung Electro-Mechanics is a producer of audio/video parts. They have been leveraging their technological abilities in key areas, such as high-frequency wireless materials and power/precision mechanics. On April 26, the company released their first quarter 2018 earnings results, where the year over year performance had increased for both sales and net income, by 5.4% and 29% respectively. In the second quarter, they have stated that they expect demand for package substrates for new applications to increase. The company has a CressCap rank of A+ accompanied by a buy recommendation. The growth rate and the EPS revisions are seen as this stocks strengths. The stellar growth performance can be seen in both the 2 year forward EPS growth rate, outperforming the sector 307.17% to 38.14% and the 2-years historic EPS growth rate of 1,299.35% vs. sector 21.14%. This fiscal year’s EPS revision grade of A+ is backed by analysts who have increased earnings estimates by 28.23% over the last 90 days. Samsung possesses very strong fundamentals and is a top pick in the South Korean market.
Shinsegae International Co., Ltd (031430-KR)
Shinsegae International Co., Ltd is an apparel and cosmetics company that is involved in the brand distribution process. The stock ranks 3 out of 272 companies in the CressCap emerging markets Consumer Discretionary sector. EPS revisions and momentum score very well for the company with A+ CressCap grades. EPS revisions look promising as analysts have revised estimates up 29.47% over the last 90 days for the current fiscal year. The value of this stock is fair and on par with the sector performance as exhibited by the P/E ratio with a CressCap grade of C+. Additionally, the P/B ratio of 2.44x relative to the sector at 2.84x, means that the stock is somewhat inexpensive. The CressCap grade of A+ for momentum is also notable with the price increase of the stock at 121.78% over the past 52 weeks.
SK hynix Inc. (000660-KR)
SK Hynix Inc. is a South Korean memory semiconductor supplier of dynamic random-access memory chips and flash memory chips. On April 24, the company announced the financial results for its first quarter of 2018. The year over year performance for both the revenue and net income increased by 39% and 64% respectively. SK hynix plans to increase the sales of high density mobile applications and a variety of client SSD solutions in the upcoming quarters.The overall grades on this stock are impressive, with no CressCap rank falling below a B. This stock is given a CressCap sector rank of 7 out of 257 companies in the emerging markets IT sector. The company is also very attractive on valuation. P/E and EV/EBITDA both receive A+ grades. P/E FY1 (Current Fiscal Year) rest at 4.28X vs. the sector at 15.38x and Enterprise Value/EBITDA FY1 at 2.19x vs. the sector at 8.32X. Notably, the company’s profitability stands out reflected by an A+ ranking. The operating margin is 62.35% compared to the sector 16.25% and its ROE also crushes its competitors with a 36.80% return vs. the sector at 14.40%. With an A+ ranking and good metrics across the board, CressCap sees this stock as a good investment.
Taeyoung Engineering & Construction Co., Ltd. (009410-KR)
Taeyoung Engineering & Construction Co,Ltd. is in the construction business, and concentrates on public civil engineering projects including highways, water drainage systems, and bridges. Taeyoung ranks 2 out of 503 companies in the CressCap industrial sector. In our opinion, the stock looks good for quant, technical, and fundamental criteria. The sales growth metric demonstrates a strong track record with the 2 year historic sales growth rate at a 73.42% dominating the sector at 13.75%. The impressive value of this stock is shown by the P/E FY1 ratio given a CressCap grade of A+ with a multiple of 4.47x vs. the sector 12.40x. EV/EBITDA possesses a CressCap grade of A- at 6.33x compared to 9.71x for the sector. This stock is on our buy list as it possesses strong growth, holds good value, and is profitable. We view this as an opportunity to investors.
I founded CressCap Investment Research in 2016. At CressCap, we provide research across multiple asset classes and are viewed as a pioneer in the fusion of statistical computing systems, systematic trading models and autonomous research analytics. The genesis of CressCap was...MORE
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