National Pension Fund's November Basket Filled with 'Good Performing Stocks'

Doosan and IBK Additional Purchases... HDC Hyundai Development Company, Hotel Shilla, KEPCO, and Others Reduce Holdings

[Asia Economy Reporter Park Jihwan] The key theme for the National Pension Service (NPS), a major player in the domestic capital market, in November was ‘performance.’ While NPS increased its holdings in Doosan and Industrial Bank of Korea, which are expected to show clear performance improvements, it chose to reduce portfolio weights in HDC Hyundai Development Company, Hotel Shilla, Korea Electric Power Corporation, and others that announced poor results or have bleak future prospects.

According to financial information provider FnGuide on the 15th, among the stocks in which NPS holds more than 5% equity as of the 12th of this month, the number of companies where it increased its stake was two: Doosan (8.59% → 10.14%) and Industrial Bank of Korea (5.20% → 5.75%). Both companies recorded strong third-quarter results this year and are expected to continue improving performance going forward.

Doosan, a holding company, is favored due to the solid performance of its core business as well as clear improvements in its subsidiaries such as Doosan Heavy Industries & Construction and Doosan Bobcat. Doosan’s consolidated sales for the third quarter reached KRW 3.78 trillion, up 15% year-on-year, and operating profit rose 80% to KRW 259.5 billion. The steady growth of Doosan’s own business and Doosan Bobcat, combined with a significant improvement in Doosan Heavy Industries & Construction’s performance, drove the upward trend. Doosan Heavy Industries & Construction’s third-quarter operating profit was KRW 243.1 billion, a 128% increase compared to the same period last year. Doosan Bobcat also showed a 17% growth in operating profit to KRW 129.6 billion year-on-year. Choi Nam-gon, a researcher at Yuanta Securities, said, “The current market capitalization reflects only the value of Doosan’s own business. As credit risk for Doosan Heavy Industries decreases and market confidence in the continuing business grows, the value of subsidiaries is expected to be added to Doosan’s shareholder value evaluation.”

Industrial Bank of Korea benefits from rising interest rates and strong earnings. In the third quarter, the bank posted a net profit of KRW 670.9 billion, a 68% increase from the same period last year. The full-year net profit is expected to rise 37% to KRW 2.099 trillion. Next year, net profit is forecasted to increase by 12% to KRW 2.347 trillion compared to this year. The main reasons for the improved performance are the increased loan growth rate and net interest margin (NIM) rise resulting from policy support during the COVID-19 pandemic last year. The bank’s core revenue source, NIM, is structurally bound to rise amid the base rate hike phase, with a full-scale improvement expected from next year. Additionally, the profit growth trend in non-bank sectors such as capital and securities is also positively evaluated.

NPS reduced its investment weights in HDC Hyundai Development Company (13.41% → 12.51%), Hyundai Steel (8.18% → 7.53%), Hotel Shilla (10.17% → 9.68%), Korea Zinc (10.06% → 9.71%), Korea Electric Power Corporation (6.43% → 6.13%), and Tesna (11.89% → 11.63%). Notably, HDC Hyundai Development Company, Hotel Shilla, and Korea Electric Power Corporation all reported third-quarter results below market expectations.

HDC Hyundai Development Company posted KRW 859.4 billion in sales and KRW 66.4 billion in operating profit for the third quarter. While sales increased 6% year-on-year, operating profit dropped 50%. Operating profit fell 46% short of the market estimate of KRW 124 billion. Korea Electric Power Corporation recorded a loss of KRW 936.6 billion in the third quarter, significantly widening the deficit from KRW 764.9 billion in the previous quarter. Yoo Jae-sun, a researcher at Hana Financial Investment, said, “KEPCO’s loss widened due to decreased sales from lower fuel cost adjustment rates and increased costs from rising raw material prices. The deficit is expected to widen further in the fourth quarter, and considering the lag in cost reflection, poor performance is likely to continue until the first half of next year.”

Hotel Shilla posted an operating profit of KRW 20.9 billion in the third quarter amid intensified competition in the duty-free sector. Aggressive promotional events to attract consumer channels and reduced product margin rates for inventory efficiency in the duty-free business, its main segment, resulted in performance less than half of the market expectation of KRW 46.4 billion. Kim Myung-joo, a researcher at Korea Investment & Securities, said, “Until full-scale travel resumes, competition within the duty-free market is expected to continue intensifying.”