YB new stock pitches (Thu, May 7)

Rigaku Holdings (268A.T), a 75-year X-ray instrumentation leader and the largest position in the portfolio (new position), trades on the thesis that semiconductor fabs require X-ray measurement tools for advanced nodes as traditional light-based tools fail at 2nm transistors and 200+ layer memory structures. The vertically integrated company, which builds everything from X-ray sources to software in-house, re-listed in October 2024 following a Carlyle buyout with minimal sell-side coverage. On April 21, Onto Innovation, a major US semiconductor equipment company, acquired 27% of Rigaku from Carlyle for $710 million and secured a board seat, with two customers already selecting the combined Onto-Rigaku offering. External analysts estimate the X-ray process control market could exceed $1 billion within five years, and the stock hit an all-time high following the announcement, validating the thesis that Rigaku's tools are becoming essential rather than optional across every node, geography, and customer type. The position was built across two weeks in April before the Onto deal announcement.

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Muhak Co., Ltd. (033920.KS), a Korean soju maker trading at ₩8,900 per share with a ₩254 billion market cap, operates a declining regional liquor business while holding a ₩444.3 billion financial portfolio—roughly 3x annual revenue of ₩144 billion and 1.75x its market cap—creating a sum-of-the-parts opportunity with 57-93% upside. The operating business generated ₩10.4 billion in operating profit in 2025, down 40% year-over-year as HiteJinro captured market share in Muhak's southeastern stronghold where its Busan share reportedly fell from 80-90% to around 30%, while net income of ₩49.7 billion was subsidized by portfolio gains masking operational deterioration. The Choi family controls 61.44% through fragmented holdings and recently executed treasury share cross-swaps with friendly companies (Geumbi and Samsung Gongjo) totaling 3.3% of shares and issued a ₩10 billion exchangeable bond, appearing to circumvent the spirit of their December 2025 Value Up plan which committed to lifting PBR from 0.32x to 0.7x by 2027, achieving 10% ROE, and allocating 5% of net income to buybacks. Catalysts include Korea's mandatory treasury cancellation deadline (18 months from February 2026 Commercial Code amendment), potential activist campaigns from funds like KCGI, Align Partners, or Cha Partners targeting the governance red flags, and forced realization of assets including the Goodday Building in Hannam-dong (estimated ₩40-80 billion) and the ₩289 billion discounted financial portfolio. The valuation assigns ₩60-110 billion to the operating business at 7-9x after-tax earnings, ₩289 billion to the portfolio at a 35% conglomerate discount, ₩40-80 billion to real estate, and ₩10 billion treasury accretion, totaling ₩400-490 billion against the ₩254 billion market cap. The stock pays a 6% dividend yield though free cash flow coverage is questionable as cash dropped from ₩250 billion at year-end 2024 to ₩24 billion by mid-2025 while the portfolio expanded via ₩239.6 billion net ELS purchases in H1 2025, raising dividend cut risk. Key risks include accelerating operating profit decline in a structurally declining soju market, financial portfolio opacity with potential for ₩50-100 billion mark-to-market losses similar to Q1 2020's ₩66.2 billion unrealized loss, regulatory backsliding on Value Up enforcement, unsustainable dividends funded by cash drawdown rather than operating cash flow, and low liquidity at $300-400k daily volume. The recommended approach is a 50-100 basis point starter position given the 6% carry and asset coverage downside protection, with aggressive scaling if a 5%+ activist disclosure appears on DART, monitoring treasury cancellations, real estate disposals, Q1 2026 operating performance stabilization, and foreign ownership movement above the current 2.23% level.

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LKQ Corporation, an aftermarket auto parts supplier operating at scale with 40% gross margins and 10-15% EBITDA margins, serves fragmented buyers including retail and small body shops rather than OEMs, providing a better market dynamic than traditional auto suppliers. The company holds approximately 35% share in the US (its stronger business with higher ROIC) and 15% share in Europe (weaker and more fragmented), benefiting from scale advantages in logistics, inventory availability, and faster delivery times for time-sensitive repairs. Currently trading at 12x forward P/E and 9.1x price/FCF on $700-850M FCF guidance against a $7.3B market cap (7.3x EV/EBITDA for 2025), the stock appears inexpensive despite facing headwinds including negative organic growth, margin compression, and a problematic ERP implementation that has driven EPS down from $3.49 in 2023 to $2.16-$2.46 guidance for 2026, though free cash flow has held around $800M for two years. A strategic review launched in late April 2026 with Goldman Sachs serves as the primary catalyst, with private equity historically active in the space and the ideal outcome being divestiture of challenged European assets while retaining the crown jewel US business, though risks include prolonged ERP disruption, self-driving technology reducing collisions, EV adoption impacts, consumer budget pressures, no deal or poor deal from the strategic review, and further earnings deterioration beyond current guidance.

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