Stock picks: buy Woongjin Energy, sell Hyundai Motor

Buy: Shinsegae

●The spinoff of low-end discount store chain Emart from Shinsegae will make its remaining high-end department store business appear more attractive, said Hanwha Securities and KB Investment & Securities.

On Friday, Shinsegae and Emart shares began trading as separate entities on the KOSPI market. Their valuation in the spinoff was 266,800 won per share for Shinsegae, and 271,330 won for Emart.

But Friday’s trading showed a strong gain for Shinsegae (407,500 won) and a strong loss for Emart (223,500 won), hinting that the initial valuation by the company was not in line with the market’s consensus.

Friday’s big gain means Shinsegae is already over the target price of Hanwha and KB. Hanwha, which aimed for 350,000 won, said that it can now position itself as a prestigious brand after the departure of the Emart chain. It has Shinsegae International, a luxury fashion importer, and Shinsegae Chelsea, a fashion outlet chain.

KB said that the department store industry’s average valuation (price-earnings ratio of 11) means Shinsegae’s price should be around 380,000 won per share. It also highlighted that Shinsegae is increasing the number of its stores, while its main competitor Hyundai Department hasn’t opened one in the past five years.

Buy: Woojing Energy

●Woongjin Energy is a big beneficiary of solar power’s rising popularity in the United States, Japan and China, says Shinhan Investment and Securities.

Woongjin Energy is a joint venture of Woongjin Group of South Korea and SunPower of the U.S. The former is a fast-growing Korean business group, and the latter is the second largest manufacturer of solar panels in the U.S.

Woongjin Energy is increasing its production of solar panel components to supply SunPower, the report said. And the yield of the wafer, which is the base material of solar cells, will improve from the second quarter of the year, it said.

The company was set up in 2006 in Daejeon and its IPO was last June. Last year’s sales rose by 35 percent to 160 billion won from a year ago, with an operating profit of 57.4 billion won.

The solar power industry is gaining momentum especially after Germany said it would shift from nuclear to renewable energy sources by 2020.

In the U.S., solar power has become cheaper than nuclear and is competitive with gas and coal, the FT said last week citing an official of SunPower.

Sell: Hyundai Motor

●Hyundai Motor stocks have risen enough this year so that investors can, and should, feel content and cash out, says Samsung Securities.

Hyundai and its affiliate Kia Motors have been the hottest stocks of the year in Korea as they increased their market share in North America and Europe. The Japan earthquake also made it look more promising as their competitors in Japan have suffered from the disruption of their car parts supply chain.

At 223,000 won, Friday’s price means that investors should have garnered a return of over 30 percent, if they held onto Hyundai stock since February when Samsung recommend it as a buy.

Another concern Samsung Securities has is an ongoing investigation by the Fair Trading Commission. The FTC raided Hyundai’s office on Thursday, suspecting that the company has unlawfully forced its suppliers to lower the prices of car parts.

Hyundai denied the charge.

The firm’s stock price is more than 10 percent down from a record-high of 257,000 won on June 1.

Compiled by Cho Jin-seo