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Disclaimers
This presentation is for informational purposes only and does not constitute investment advice. Nothing contained herein shall constitute an offer to sell or a solicitation of an offer to buy any security or partnership instrument. Information and analyses relating to the companies presented herein are based on the companys filings and security prices as of March 26, 2014 or such other time as indicated. Index and economic data is sourced as indicated herein. Investments funds managed by SC Fundamental LLC and its affiliates (collectively, SC) had or have positions in the companies discussed herein. SC has no ob ligation to update the information contained herein and may make investment decisions inconsistent with the views expressed in the presentation. SC makes no representation or warranty as to the accuracy, completeness or timeliness of the information, text, graphs, and analyses contained in this presentation. SC expressly disclaims all liability for errors or omissions in, or the misuse or misinterpretation of, anything contained in this presentation. Past investment performance is no guarantee of future results.
Country Overview
The total market capitalization of Korean companies approximates $1.2 Trillion* Nearly the size of Australia ($1.3 trillion) and Germany ($1.4 trillion) Larger than Switzerland ($1.1 trillion) and Hong Kong ($1.1 trillion) More than twice the size of Italy ($0.5 trillion)
Fiscally sound government and economy Budget surplus 9 of the past 10 years Public debt / GDP is amongst the lowest of developed economies (approx. 34%) Currently running a trade surplus S&P sovereign rating of A+
*Source: Bloomberg
2004:
2006: 2006:
Purchased 4% of Posco
If Id been running a little partnership three years ago, Id have started 100% in Korea. Given a copy of a Korean stock market guide, he found the values so compelling he put together a $100mm portfolio of 20 companies. I could find better things to do with a million dollars probably in Korea than I could probably find in the U.S. market. We like the ethos of Korea for shareholders and we like the performance of the businesses. Were looking to buy big businesses in Korea. Went to Korea for the second time to visit TaeguTec, the first Berkshire company in Korea.
2008:
Returns on equity in Korea are much higher and P/Es are much lower.
Few companies report in English Trading ID required Trading volume is generally lower than in the U.S. Holding company structures frequently opaque Recent accounting change from Korean GAAP to International GAAP makes historical comparisons challenging Shareholder activism not yet widely embraced
Shareholder Proposal
1.0% *
0.5% *
0.5% *
0.1%
3.0%
3.0%
Result:
Komelon Corp. Koreas leading measuring tape manufacturer, has sold products in over 80 countries. Cash and equivalents = 70% of market cap; Price/Book = 40%; No debt; P/E = 3.9x 15+ consecutive years of profitability. Share buybacks, revised dividend policy, increased company awareness
Result:
*At time of initial investment
Overview:
Samho constructs highways, tunnels, subways and other civil projects. Government-related work >90% of revenue Large number of competitors recently deceased
Issues
Large pile of idle cash Part of cash invested in biotech stocks Part of cash invested in venture capital Started money-losing asset management business
Progress
Passed a board resolution to repurchase shares May be convinced to exit biotech investments Reviewing dividend policy May be convinced to sell or close down asset management business Earnings likely closer to bottom of the cycle Future: More things the company can do We will continue to work with them
Overview
Engaged in call center services 411 directory services, partially ad-based in Korea Re-sells various services provided by Korea Telecom
Valuation at Purchase
Net Cash / Market Cap: 76% Current Assets Total Liabilities / Market Cap: 82% P / E: 7.3x Price / Book: 96% 5-Year Average ROE: 12% ROE Ex-Cash: 48% EV / EBIT: 1.2x
Issues
Large pile of idle cash Bloated cost structure 411 business likely to decline over time Controlled by Korea Telecom (18% owner)
Progress
Local shareholder put several proposals on March annual meeting ballot:
Higher dividends, Board seat, Statutory auditor
CEO purchased shares, promised more transparency, accountability Crony statutory auditor replaced by statutory auditing committee Shareholders and press now scrutinizing company actions Company cancelled 3 million treasury shares
Review
Valuations and environment remind us of the US in the late 1970s / early 1980s.
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