Chan Lee and Albert Yong of Petra Capital Management discussed the rise of Korea’s “cultural economy” and presented their investment theses on SM Entertainment (Korea: 041510) and Com2uS (Korea: 078340) at Asian Investing Summit 2018.
Korea is no emerging market; Korea is home to the world’s most successful companies with leading technologies, skilled labor forces, and highly educated management. So-called “Hallyu” has been a blessing for Korea, its businesses, culture and country image; Korea has become one of the world’s coolest brands. Many competitive Korean companies are ready to break out and expand outside of Korea benefiting from the soft power developed through the increasing popularity of the “Korean Wave”.
SM Entertainment is Korea’s best entertainment agency/music studio company, founded by Mr. Soo-man Lee, a popular artist in Korea of the 1970s and 1980s. The company has the best farm system to develop K-pop artists who have become superstars in Asia. It benefits from the growing popularity of Hallyu worldwide. SM Entertainment should create value from its entry into the Chinese entertainment market by forming a strategic partnership with Alibaba Group. The market’s overreaction to the THAAD (Terminal High Altitude Area Defense) deployment issue which has provided a contrarian buying opportunity. Despite the recent stock price rally, the market price does not fully reflect the Company’s brand power and long-term growth prospects in Asia.
Com2uS is one of the top mobile game developers in the world, generating ~80% of revenue from outside of Korea. The company has experienced continuous success and strong recurring earnings from its flagship game, Summoners War. Com2uS should continue to benefit from the growing popularity of Korean online games. The company has a strong pipeline of new games over the next twelve months. The shares offer a margin of safety in net cash and an investments balance of ~700 billion Won, which can be used to buy back shares or deploy in accretive acquisitions. Despite the recent stock price rally, the market price is substantially undervalues the company.
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About the instructors:
Chan Lee has over 20 years of investment experience in Korea. His investment career has focused on identifying and analyzing undervalued competitive companies whose market prices are significantly discounted to intrinsic value. Prior to co-founding Petra in 2009, he was a Director and Head of M&A at Hana Financial Investment. Chan received his JD from the UCLA School of Law and his BS in Business Administration from the University of California at Berkeley.
Albert Yong has two decades years of experience of investing in Korea. Albert utilizes a disciplined and patient deep value investing approach to seek superior risk-adjusted returns with limited volatility and bases his investment decisions on detailed, research-based analysis and thorough due diligence. Prior to co-founding Petra in 2009, Albert was a Managing Director and the CIO of Pinnacle Investments and a Portfolio Manager of Pan Asia Capital. Albert received his MBA from the UCLA Anderson School of Management and his BS in Electrical Engineering from Seoul National University.