Global investment bank Morgan Stanley recently secured about 4% equity in DK-Lok, a KOSDAQ-listed company. Investors are split over what this means.
A new equity disclosure by a foreign institution is often taken as a bullish sign, interpreted as the institution "noticing this corporations" as a long-term investment. In fact, DK-Lok's share price, which was around 6,800 won until early April this year, recently rose close to 11,000 won on expectations for new businesses.
However, just before this equity disclosure, Morgan Stanley sold more than 1% equity, and the share price plunged, raising the possibility of a short-term trade.
Morgan Stanley & Co. International plc, an asset management affiliate of Morgan Stanley, disclosed on the 15th that it holds 400,135 shares of DK-Lok (an equity stake of 3.94%).
Founded in 1986 in Gimhae, South Gyeongsang Province, DK-Lok specializes in pipe fittings and valves that connect piping. Fittings and valves are used across all industries, including shipbuilding, nuclear power plants, automobiles, semiconductors, aviation, and defense. The company supplies products to more than 300 clients, including Texas oil corporations ExxonMobil and Hyundai Heavy Industries, and more than 70% of total sales come from exports. Founder No Eun-sik, the CEO, is the largest shareholder with 29.96% equity.
On the 9th, Morgan Stanley secured a total of 540,000 shares, triggering the obligation to disclose holdings of 5% or more equity, but it repeated buying and selling over the three trading days until the disclosure. During this period, it sold 1.6 billion won worth of DK-Lok shares (151,874 shares) on the open market, while it purchased only 14,560 shares.
This appears to have affected DK-Lok's share price as well. DK-Lok hit a low of 6,820 won on Apr. 7 this year and then rose more than 60% to 10,920 won on the 11th, but then plunged 11% over two trading days to the 15th (9,710 won). The previous day, it rebounded slightly to 10,090 won.
Morgan Stanley's trading pattern of reducing its holdings just before disclosure after triggering the obligation to disclose ownership of 5% or more equity is the first since the disclosure of equity (4.95%) in LOT Vacuum, a front-end semiconductor corporations, in Dec. 2023.
At the time, LOT Vacuum's share price rose more than 50%, from the 12,000-won range in early April to the 19,000-won range in early December, on expectations of strong earnings. But since Dec. 11, when Morgan Stanley disclosed its stake, the share price fell 56% over a year to 8,200 won. As Morgan Stanley did not issue additional equity disclosures, it is presumed to have unwound its holdings in the meantime.
Conversely, some say Morgan Stanley's latest disclosure signals long-term interest in DK-Lok. Although Morgan Stanley appears to have taken profits on part of its holdings after the share price rose, it could increase its equity again depending on expectations for earnings improvement and further gains.
In particular, DK-Lok is expected to receive additional orders for aviation fittings from Korea Aerospace Industries (KAI). Lee Ji-han, an analyst at Shinhan Investment & Securities, said, "Aviation fittings are priced 10 to 20 times higher than existing products, and DK-Lok is supplying fittings for the KAI KF-21," adding, "The timing of additional orders is expected to be late this year to early next year, and expansion of business with overseas airlines is also anticipated."
Meanwhile, DK-Lok posted sales of 51.7 billion won and operating profit of 1.7 billion won in the first half of this year. Those figures were up 7% and 193%, respectively, from a year earlier. However, due to higher non-operating expenses from foreign-exchange losses and back taxes, it swung to a net loss of 2.9 billion won.