[Click eStock] Ecopro to Undergo Demerger... When Is the Right Time to Buy or Sell?

[Asia Economy Reporter Lee Seon-ae] Meritz Securities presented a response strategy regarding the EcoPro spin-off on the 2nd.

EcoPro is scheduled to undergo a spin-off into a newly established company (environmental business division) and a surviving company (holding company). Following the shareholders' meeting on the 30th, trading suspension on April 29, the spin-off is expected to be re-listed on May 28. The purpose of the spin-off is to improve efficiency through specialization of the holding company and environmental business areas and to eliminate the discount on the environmental business division. The split ratio is 0.169 (EcoPro HN) to 0.831 (EcoPro Holding).

Meritz Securities values EcoPro HN at 740 billion KRW and EcoPro Holding at 1.2 trillion KRW.

Researcher Joo Min-woo of Meritz Securities stated, "The combined market capitalization is currently trading lower than EcoPro's current market capitalization (1.4 trillion KRW), and until the trading suspension on April 29, EcoPro's market capitalization is expected to trend upward toward 1.9 trillion KRW." He added, "If it does not reach 1.9 trillion KRW by April 29, we recommend a strategy of selling after the spin-off re-listing." He further explained, "An analysis of the purchase timing returns of companies that announced spin-offs in the past three years showed that the highest returns were eight weeks before the spin-off date (EcoPro's is May 1). Therefore, we consider now the best buying timing."

EcoPro's value is determined by the operating value of the environmental division (EcoPro HN) and the value of subsidiary equity, with the valuation of EcoPro HN being particularly important. While the equity value calculation method is fixed and does not vary much regardless of who calculates it, the evaluation of EcoPro HN can vary.

Researcher Joo explained, "The catalytic technology, microwave technology, and filter technology held by EcoPro HN are so advanced that it is difficult to find comparable domestic companies." He added, "The closest comparable business portfolios are held by Husung (semiconductor front-end, CDM business) and E&Di (particulate matter reduction devices, catalysts), and by applying their average price-to-earnings ratio (PER) of 25 times, we estimate EcoPro HN's appropriate market capitalization to be 750 billion KRW."