Most of the stocks in my Korean net net series are cheap for reasons that take some digging to appreciate.
Today’s company doesn’t require much digging. It’s a simple business that has done the same boring thing for decades. Its product is a household name in Korea, and the stock trades right around net cash.
I like this one especially for the following four reasons:
- It’s cheap on earnings. The stock trades at 4x TTM earnings and 5-6x my estimate of normal owner earnings. It’s been profitable in every year I can see.
- The shareholder register is open. The founding family owns <1/3 of the shares and no one else seems to own as much as 5%. This is unusual in this universe.
- It’s mid-handover cycle. The controlling shareholder inherited his stake from the founder 10 years ago and is in his mid-60s, so the next one is likely years off. That matters because Korean families tend to prefer a low share price when a block is about to change hands. I don’t see that pressure here.
- The family now has an incentive to care about the share price. The minimum market cap for staying listed on KOSDAQ goes to KRW30bn by July next year, and this company clears the new bar by a slim margin. Just a few months ago, it published an investor presentation citing its major cash pile, which is rare among family-run Korean net nets. I think it clears the way for a Value-up plan in the near term.
All in all, it’s a compelling setup with strong downside protection.
This is a simple investment case with a simple kicker, so I’ll keep the writeup short.
Let’s dig in.