Our Senior Investment Analyst, Marcus Chu, recently embarked on an in-depth research trip to Korea, where he met with 15 companies and conducted two days of site visits across the Korean manufacturing supply chain. This comprehensive journey provided firsthand insights into Korea’s robust industrial landscape, where initiatives like the Corporate Value Up Program and exceptional manufacturing capabilities are garnering substantial global interest. From enhancing shareholder value to showcasing cutting-edge manufacturing prowess, our observations underscore why Korea’s manufacturing and industrial giants are becoming increasingly attractive to international investors.
From an investment perspective, we anticipate long-term benefits for Korea stemming from its Corporate Value Up Program. This initiative emphasizes improving financial metrics, offering tax incentives, and strengthening corporate governance, all aimed at increasing shareholder returns over time. By aligning corporate practices with global standards and fostering better returns, the Value Up Program is set to create a more robust and attractive market for investors.
During our recent research trip, we observed significant potential for value enhancement and improved shareholder returns firsthand. A prime example was the Hyundai Motor Company’s CEO Day, which highlighted the company’s commitment to further improve its standards to meet investors’ high expectations. Throughout our meetings with various corporations, the themes of value enhancement and shareholder returns were consistently prominent, reflecting a widespread awareness of the growing investor interest. This collective focus not only underscores Korea’s dedication to fostering a more investor-friendly environment but also reinforces the market’s attractiveness as a compelling destination for long-term investment.
The Korean cosmetics industry is a prime example of how the country’s exceptional manufacturing capabilities are capturing substantial global interest. Many Korean cosmetic Original Design Manufacturers (ODMs) saw their China business hit by the pandemic, which led to a strategic shift toward international markets. This pivot has been further propelled by the burgeoning influence of Korean pop culture and the rise of live streaming platforms like TikTok and YouTube in the US, significantly boosting the popularity of K-Beauty products. As a result, numerous independent brands in the US are increasingly relying on Korea’s competitive ODM services and cutting-edge R&D capabilities to expand their market share.
Our analyst visited several key players in the Korean cosmetics industry, including manufacturing powerhouses like C&C International, Cosmecca, and Kolmar Korea. These companies are the unsung heroes behind many of the world’s most popular beauty brands, providing not just manufacturing capabilities but also leading R&D and formulation expertise.
Walking through their state-of-the-art production facilities, we were struck by the scale and sophistication of operations. At C&C International’s Green Country Production Plant, for instance, we saw how a single facility could churn out tens of millions of units of cosmetics products annually, including eye pencils, lip pencils, lipsticks, etc. The company’s rapid expansion plans, including a new factory with capacity for over a billion units per year, speak volumes about the industry’s growth trajectory.
Perhaps what truly sets these Korean cosmetics companies apart is their nimbleness and innovation. As one executive at Kolmar Korea explained, they can develop up to 100 new formulations every month – a pace that keeps them at the forefront of beauty trends. This agility is particularly crucial in catering to the fast-moving world of “indie brands” and social media-driven beauty crazes.
From an investment perspective, we view the Korean cosmetics sector as a compelling opportunity with robust growth potential over the coming years. The industry’s substantial investment in R&D, often between 2-4% of revenue for leading players1, continues to fuel innovation and ensure cutting-edge product offerings. This technological edge, combined with the rising global influence of K-culture, is propelling K-Beauty’s expansion worldwide, particularly in lucrative markets like the US. Despite its growing popularity, K-Beauty currently accounts for only 2% of the US cosmetics market2, suggesting significant headroom room for growth as consumer demand continues to rise. This confluence of innovation, cultural appeal, and market potential positions the Korean cosmetics industry as an exciting prospect on our radar.
Autos is another sector where we’ve witnessed Korean players gaining global market share. Our analyst met with industry giants like Hyundai Motor Company and innovative parts suppliers such as HL Mando Corporation, revealing that the sector is not just participating in the global auto space but actively steering it.
Hyundai has made significant strides in establishing and expanding its presence in the US automotive market. Over the years, the company has significantly improved its vehicle range to appeal to various consumer needs while incorporating advanced technology and features, all at a fraction of the price compared to US and European auto brands.
Hyundai’s continued focus on electrification stood out as a key highlight during this trip. The company is significantly ramping up its Hybrid Electric Vehicle (HEV) and Electric Vehicle (EV) production targets, aiming to deliver more than 1.3 million HEV shipments in 2028, which is 40% higher than its previous target3. This expansion is complemented by Hyundai’s entry into the Extended Range Electric Vehicle (EREV) segment, targeting over 80,000 units in North America and 30,000 in China4. The introduction of EREV models provides consumers with greater flexibility and extended driving ranges, positioning Hyundai as a versatile player in the EV landscape.
Similarly, Mando, a prominent player in automotive parts and technology, showcased its resilience and innovation amidst changing market dynamics. Despite facing a slight dip in earnings due to a decline in major customers, Mando is buoyed by new business wins with global giants like Huawei and Tesla. Our analyst noted Mando’s impressive ability to secure high-value contracts, particularly in the US and China, which positions the company favorably against international competitors.
Mando’s advancements in autonomous parking and electronic suspension systems were particularly noteworthy. The company’s collaboration with Tesla for the Model Y’s Intelligent Drive Brake (IDB) system exemplifies its cutting-edge technology and strong industry partnerships. Additionally, Mando’s localized production efforts in India highlight its strategic approach to tap into emerging markets, ensuring cost competitiveness and operational efficiency.
Korea’s heavy industry is another sector that’s been crucial in driving the country’s export-led economic growth. Across various fields, whether it’s electrical equipment, shipbuilding, or heavy machinery, leading Korean players have developed a reputation for having cutting-edge technology, quality products, and efficient production processes.
During our recent trip, we had the privilege of touring the HD Hyundai Electric plant – a leading manufacturer of power solutions, including power transformers, switchgears, and other essential electrical equipment. What truly stood out was the company’s expansive growth potential and unwavering commitment to excellence. We are currently witnessing a global surge in investment toward electrical infrastructure, driven by the increasing emphasis on renewable energy, the rise of EVs, and, more recently, the rapid expansion of AI infrastructure. While the market is populated with many established global suppliers such as Eaton and Siemens, we believe Korean manufacturers like HD Hyundai Electric are uniquely positioned to benefit from this momentum, thanks to their long-standing track record in developed markets and competitive product pricing which sets them apart from the competition.
Touring their manufacturing facility, it was evident that HD Hyundai Electric is well-equipped to meet the growing global demand. The company is actively expanding its production capacity to address the rising needs of US utilities and renewable energy firms facing supply tightness. Additionally, despite the challenges of manual operations in critical stages like the winding process, the company is investing in automation and innovative technologies to streamline production. These investments in strategic expansions and automation will not only boost their revenue growth prospects but also strengthen their competitive margins in an increasingly demanding market.
Equally impressive was our visit to HD Hyundai Heavy Industries’ (HHI) shipyard, where we witnessed firsthand the robustness of the company’s shipbuilding business. HHI is a powerhouse in vessel production, specializing in containers and LNG carriers. Last year, the company successfully delivered 42 vessels, increasing to 48 this year, reflecting robust operational efficiency and growing demand5. We were particularly impressed by the state-of-the-art manufacturing yards equipped with 11 dry docks and expansive indoor areas, ensuring seamless operations even during adverse weather conditions. HHI’s commitment to innovation was evident in its engine manufacturing capabilities. Producing up to 1,000 engines annually, the company is ramping up its capacity to cater to the rising needs of the LNG sector and large-scale container fleets6. Additionally, their investment in dual-fuel engines and advanced manufacturing techniques underscores a forward-thinking approach that aligns with evolving environmental standards and energy needs.
From an investment perspective, Korea’s heavy industry sector stands out as an enticing opportunity as these companies are actively capitalizing on increasing global demand for various infrastructure needs. With strong order pipelines, favorable market conditions, and a proven ability to adapt to evolving industry demands, HD Hyundai Electric and HHI exemplify the resilience and growth potential inherent in Korea’s heavy industry.
This research trip to Korea has reinforced our conviction in the country’s manufacturing and industrial sectors as compelling investment opportunities. From cosmetics to autos, and electrical equipment to shipbuilding, Korean companies are demonstrating their ability to innovate, adapt, and compete on a global scale. Meanwhile, the Corporate Value Up Program is fostering a more investor-friendly environment, which we expect will support shareholder returns over time. As Korea continues to strengthen its position on the global stage, we believe it presents a wealth of opportunities for discerning investors looking to participate in the future of global manufacturing and industry.
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Investment involves risk. Past performance is not indicative of future performance. It cannot be guaranteed that the performance of the investment product will generate a return and there may be circumstances where no return is generated. Investors could lose all or a substantial portion of any investment made. Before making any investment decision, investors should read the Prospectus for details and the risk factors. Investors should ensure they fully understand the risks associated with the investment product and should also consider their own investment objective and risk tolerance level. Investors are advised to seek independent professional advice before making any investment.
Shikhara’s investment products are suitable only for sophisticated investors and require the financial ability and willingness to accept the high risks and lack of liquidity inherent in Shikhara’s investment products. Prospective investors must be prepared to bear such risks for an indefinite period of time. No assurance can be given that the investment objectives of any given investment product will be achieved or that investors will receive a return of their investment.
Certain of the information contained in this website are statements of future expectations and other forward-looking statements. Views, opinions, and estimates may change without notice and are based on a number of assumptions which may or may not eventuate or prove to be accurate. Actual results, performance, or events may differ materially from those in such statements.
Certain information contained in this website is compiled from third-party sources. Whereas Shikhara Investment Management has, to the best of its endeavor, ensured that such information is accurate, complete, and up-to-date, and has taken care in accurately reproducing the information, Shikhara Investment Management takes no responsibility for the accidental publication of incorrect information, nor for investment decisions taken based on this website. Neither Shikhara Investment Management nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein should be relied upon as a promise or representation as to past or future performance of any investment product or any other entity.
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