Petra Capital Management (Petra) have published an interesting presentation on opportunities for international investors in Korea and recent corporate governance trends in the country. The document also includes three detailed investment case studies on Samho Development, KyungDong City Gas and GS Home Shopping. You can access and download the presentation directly from their website (link here).
Petra is an investment management firm that specialises in Korean equities and employs a disciplined, deep-value investment style. The firm was founded by Albert Yong and Chan Lee. Since inception in September 2009, they have returned 14.1% (annualised, net of fees) vs. 3.2% for the KOSPI.
Some highlights below:
- Attractive universe: low valuations (discount to book, single digit P/E, net-nets) combined with very little research coverage of listed small- and mid-cap companies.
- At the same time, there are barriers for international investors looking at Korean equities:
- Language issues (few companies report in English, communicating with management etc.).
- Low liquidity / trading IDs required.
- Recent change from Korean GAAP to IFRS make historical comparisons more difficult.
- Historically, Korea “discount” has existed due to complex ownership structures, reputation issues (e.g. chaebols) and poor track records of capital allocation.
- Recent signs that corporate governance is improving:
- Government reforms to increase transparency and accountability.
- Korean institutional investors with clout (e.g. NPS) are becoming more vocal.
- More money being returned to shareholders (driven by tax deductions on dividend payments and government-imposed penalties for holding excess cash).