Kum Yang: Announces Its Shares Will Be Listed on the US Stock Market Through ADRs

• On 27 December, Kum Yang announced that its shares will be listed on the US stock market in the form of DRs, resulting in its shares rising by 11.7%.

• The listing of Kum Yang ADRs is likely to have a short-term positive impact on its share price as this is likely to reduce free float of local common shares.

• Nonetheless, over the next 6-12 months, we expect Kum Yang's share price to trade much lower (30% or more) as its shares are highly overvalued.

Conclusion First

The total issuance limit of the ADRs is 23.22 million shares. The conversion ratio of ADRs to the local shares is 0.25 which corresponds to 5.8 million local common shares, representing about 10% of the company's outstanding shares.

Initially, Kum Yang announced its ADR listing to occur on 29 December. However, on 28 December, Kum Yang announced that it will postpone the listing of ADRs in the US OTC market in January 2024, due to a delay in the ADR OTC registration process.

The listing of Kum Yang ADRs is likely to have a short-term positive impact on Kum Yang's share price as this move is likely to reduce the overall free float of local common shares. Nonetheless, we are still unconvinced of the attractiveness of the company's long-term valuations at current lofty levels. Kum Yang's shares are trading at P/S of 45x (using annualized sales in 2023) and P/B of 28x (using equity at 3Q 2023) at current prices.

Although we expect this move to have a short term positive impact, we believe shares of Kum Yang is likely to trade lower at 30%+ further downside risk from current levels in 6-12 months.