Stock picks: Buy NHN, sell Kangwon Land

Buy: NHN

Long-term investors should seize the chance to buy NHN now because its price-earnings ratio is close to an all-time low, said KB Investment & Securities.

NHN is the operator of Naver, the dominant online portal and search engine in Korea. Its second quarter profit is expected to increase 17 percent from a year ago, KB said.

Furthermore, NHN will launch an online shopping site in the third quarter and its search engine will be renovated in the fourth quarter, and these changes will help the firm post double-digit growth for the third consecutive year, the report said.

NHN’s revenue mostly comes from its advertising sales and online game fees. Its price-earnings ratio is currently around 16, which is relatively lower than other big internet firms.

KB’s valuation was that NHN is worth 219,000 won per share when calculated on the PER of 19, or 249,000 won per share when using the discounted cash flow method.

Buy: CJ

CJ shares need revaluation as investors fear too much over its bid for Korea Express, said Woori Investment & Securities.

CJ is the holding company of the CJ Group. Profit will rise for its main affiliates such as CJ EM and CJ Cheil Jedang in the second half of this year, Woori said.

The group is competing with POSCO and Lotte Group to buy the controlling share of Korea Express, a major logistics company. The price is expected to be as much as 2 trillion won. Analysts are concerned that the winning bid may be overspending as the rivalry between POSCO and CJ is overheated.

But the situation changed as Samsung Group, the largest conglomerate of Korea, announced on Thursday that it is joining forces with POSCO in the bid. Because of the sheer financial power of Samsung, many analysts say that the competition is virtually over and CJ will pull out from the bid before the June 27 deadline. The controlling families of CJ and Samsung are cousins.

Woori has previously recommended CJ, saying that it is a major shareholder of Samsung Everland, the de facto holding company of Samsung, which is not listed on the stock market. Woori analysts believe the real value of Everland shares may be much higher than their book value.

Sell: Kangwon Land

Kangwon Land shares lost 3.6 percent on Thursday when the culture minister said he would consider allowing more casinos for Korean citizens. The next morning Woori Investment & Securities took it out from its recommendation list.

Kangwon Land casino is located in the deserted mining town of Taebaek, deep in Gangwon province. It is the only casino Koreans can legally enter, while there are several others dedicated to foreign tourists. But Minister Choung Byoung-gug told reporters that all casinos should have an equal policy towards foreigners and citizens alike, that they should be open to everyone or they should be closed altogether. He also said it is time to reconsider the government’s prohibitive policy on gambling, saying it is a global trend to develop casinos as multi-purpose entertainment facilities.

This was enough to scare some shareholders but on Friday Kangwon Land regained some of Thursday’s loss, as virtually every newspaper condemned the minister and predicted the idea was unlikely to get support at the National Assembly.

In March, the National Pension Service, the largest equity investor in Korea, said that it will gradually divest from casino firms such as Kangwon Land. Its major shareholders are Gangwon Province and other public organizations.