20170802-三星证券-Focus_on_capital_gains_18页_1mb

Samsung Strategy Weekly Summary

Core Content

This report outlines the implications of the 2017 tax code revision on the Korean stock market, with a focus on capital gains taxation, sector performance, and investment opportunities. It provides a detailed analysis of the changes in the tax system, market valuation metrics, and the impact of these changes on different sectors, particularly the Kospi and Kosdaq indices.

Key Information

Tax Code Revision Overview

• Capital Gains Tax for Majority Shareholders: The government is expected to increase the capital gains tax rate from 20% to 25% for majority shareholders.
• Expansion of Majority Shareholder Definition: The threshold for what constitutes a majority shareholder is set to decrease from KRW2.5b (Kospi) and KRW2b (Kosdaq) to KRW1.5b and KRW1b respectively by 2018 and 2020.
• Tax Equity Concerns: There is a growing call to tax all share trading to improve tax equity, as the current system only applies to majority shareholders.

Market Performance

• Kospi and Kosdaq Performance:
  • Kospi: 1W -2.0%, 1M +0.8%, 3M +8.9%, YTD +18.5%
  • Kosdaq: 1W -3.5%, 1M -1.9%, 3M +3.9%, YTD +3.4%
• Market Valuation (12m Fwd):
  • Kospi: P/E 9.5, P/B 1.01, ROE 10.6
  • Kosdaq: P/E 14.5, P/B 2.01, ROE 13.9
• EPS Forecast Changes:
  • Kospi: 1M +3.0%, 3M +5.8%, 6M +17.2%
  • Kosdaq: 1M +2.6%, 3M +6.2%, 6M +12.1%

Sector Views

• Sector Rotation: The VEM model highlights shifts in sector preferences.
  • Semiconductor: Moved from expensive to underweight
  • Healthcare, Banking, Brokerage, IT Hardware: Remained expensive
  • Machinery: Escaped a value trap and moved to overweight
  • Hotel/Leisure: Slid into a value trap

Capital Gains Tax Impact

• Trading Pattern: Majority shareholders tend to sell shares at year-end to avoid capital gains taxes, leading to Kosdaq underperformance in December.
• Kosdaq Weakness: The expansion of the majority shareholder definition is expected to deepen Kosdaq weakness this year.
• Investment Opportunity: Investors are advised to take advantage of potential share price pullbacks for bargain hunting.

Main Points

• The tax code revision is likely to increase the capital gains tax rate for majority shareholders from 20% to 25%.
• The scope of majority shareholders will expand, which may lead to more significant share price pullbacks, especially in the Kosdaq.
• The government's stance on taxation is to enhance tax equity, which could lead to a long-term shift toward taxing all share trading.
• The current system is criticized for being discriminatory and inefficient.
• The report highlights the need for careful consideration of the tax impact on equity demand, particularly in a low-dividend environment.

Investment Ideas

• Samsung Biologics: Expected to see strong performance due to increased biosimilar sales and upcoming EMA approvals. Target price raised by 30.8% to KRW340,000.
• LIG Nex1: Revised rating to BUY due to solid 2Q results and favorable defense budget outlook.
• Chemicals Sector: Benefiting from China's trash-import ban, with increased demand for virgin plastics.
• SK Materials: Shows signs of recovery, with recent results meeting expectations and strong client investments driving growth.

Conclusion

The 2017 tax code revision is expected to have a significant impact on the Korean stock market, particularly on the Kosdaq, due to the expansion of the majority shareholder definition and the potential increase in capital gains tax. Investors should be aware of these changes and consider them when making investment decisions. The report also provides sector-specific insights and highlights key stocks for potential investment.