071055.KS - Korea Investment Holdings Preferred

[Packer16]

Another of the cheap S. Korean preferred stocks.  KIH is one of the largest brokerage firms in Korea and also one the largest asset managers (US$31 bn AUM).  Its funds have actually had inflows over the past few years while most other asset managers have had asset outflows.  They follow a value approach in there funds.  The other major Asian asset manager is Value Partners ($10.5 bn AUM) which trades for 9% of AUM.  If you value the firm at TBV plus 2% of AUM (typical US asset manager value) then the common has value of W53,430 per share versus a preferred share price of W20,700.  In this case, the preferred may be actually worth more than the common as it has a 5% dividend versus 1.3% for the common but no vote.  The common trades for W39,900.  KIH has grown TBV by 10% per year for the past 10 years.  So you have a 10% grower yielding almost 5% for one of the best brokers in S. Korea.

 

Packer 

[plato1976]

What's their main assets in the TBV?

I would imagine that as a brokerage firm and an assert manager their main asserts are quite liquid financial assets

 

Another of the cheap S. Korean preferred stocks.  KIH is one of the largest brokerage firms in Korea and also one the largest asset managers (US$31 bn AUM).  Its funds have actually had inflows over the past few years while most other asset managers have had asset outflows.  They follow a value approach in there funds.  The other major Asian asset manager is Value Partners ($10.5 bn AUM) which trades for 9% of AUM.  If you value the firm at TBV plus 2% of AUM (typical US asset manager value) then the common has value of W53,430 per share versus a preferred share price of W20,700.  In this case, the preferred may be actually worth more than the common as it has a 5% dividend versus 1.3% for the common but no vote.  The common trades for W39,900.  KIH has grown TBV by 10% per year for the past 10 years.  So you have a 10% grower yielding almost 5% for one of the best brokers in S. Korea.

 

Packer

[siddharth18]

Thanks for the idea Packer. As for US persons looking to buy Korean securities, it's still the tedious/expensive route via Fidelity? Or have we found something easier/cheaper/better? TIA

[yadayada]

well samsung and hyundai and WKOF are buyable on IB, but besides that, you have to go fidelity.

[Packer16]

Yes the main assets are very liquid in the TBV calculation.  Most brokers in Korea also hold a stake in KRX (the Korean stock exchange).  For the smaller brokers this can be a significant portion of their market cap but it is much smaller for a firm like KIH.  If the KRX goes the way of the NYSE, this may be another "hidden" asset.

 

Packer

[muscleman]

Another of the cheap S. Korean preferred stocks.  KIH is one of the largest brokerage firms in Korea and also one the largest asset managers (US$31 bn AUM).  Its funds have actually had inflows over the past few years while most other asset managers have had asset outflows.  They follow a value approach in there funds.  The other major Asian asset manager is Value Partners ($10.5 bn AUM) which trades for 9% of AUM.  If you value the firm at TBV plus 2% of AUM (typical US asset manager value) then the common has value of W53,430 per share versus a preferred share price of W20,700.  In this case, the preferred may be actually worth more than the common as it has a 5% dividend versus 1.3% for the common but no vote.  The common trades for W39,900.  KIH has grown TBV by 10% per year for the past 10 years.  So you have a 10% grower yielding almost 5% for one of the best brokers in S. Korea.

 

Packer

 

I think it makes sense to value conservatively at TBV, but why add 2% AUM?

[Packer16]

Because asset managers have little TBV and are typically priced at 2 to 4% or more of AUM

 

Packer

[muscleman]

http://www.koreaholdings.com/tffh/en/ir/stock1.jsp

 

I can't see the basics of the number of common stocks and the number of preferred stocks. Is their site broken?

Anyway, are you going to buy through the expensive Fidelity manual traders?

 

Their historical ROE seems to be on the 10% side. Please correct me if I am wrong, but if the preferred trades around book value, and long term ROE is 10%, then won't I be getting the 10% return in the long term as well?

[Packer16]

The key to KIH is to divide it into a the capital intensive side of the business (brokerage) that will grow at slower than 10% growth and the capital light AM business which will grow faster and trade on a multiple of FCF or AUM vs. BV.  So right now the AM business is worth about 20% of the TBV.  So you will have a broker growing at 10% per year plus an AM business growing at 10%+ per year.  What makes this a really attractive investment is the pfd/common discount on a modestly undervalued brokerage business and growing AM business trading at .45x BV using the preferred stock price.

 

Packer

[moody202]

http://www.koreaholdings.com/tffh/en/company/capital.jsp

 

As per this link, the preferred dividend is common + 1.23%...am I reading it correctly

 

At the bottom of the page (Dividend Status) is indicates the preferred dividend in '13 was 1.57% not 5% ???

[Packer16]

Yes, the 2013 dividend was W662 or yield of around 3% on a price of W22,050.

 

Packer

[moody202]

@Packer -- I see the AUM is growing but profits have been between 175-290 since..do you see the same?

 

Also - where do you see the TBV? I can't find it in the reports!

[Packer16]

The current profit is W164bn per year.  This fluctuates alot because the brokerage earnings are volatile.  The TBV is about W2.682tr.

 

Packer