[New Market Cap Ranking] ② 'LG-SK Reversal' Financial Strategy Made the Difference

Editor's NoteDomestic stock markets have continued to underperform this year. As central banks around the world have rushed to raise benchmark interest rates to combat inflation, funds have been flowing out of the stock markets. The KOSPI, which was above the 3,300 level last July, has fallen to the 2,300 level. It has dropped nearly 1,000 points over the past 16 months. Coupled with the semiconductor industry downturn, Samsung Electronics, the leading stock in the domestic market, has also struggled. The U.S. Federal Reserve (Fed) projected after the November Federal Open Market Committee (FOMC) meeting that the final peak of the benchmark interest rate would be higher than previously expected. The stock market, which had been rising based on asset liquidity until last year, is likely to continue to show weakness next year. It is difficult to predict the future without understanding the current changes. Asia Economy conducted a comprehensive survey of changes in the market capitalization of corporate groups with over 1 trillion won in market cap in the domestic stock market. As of the closing price on July 6 last year, when the KOSPI hit an all-time high, there were 219 corporate groups with market caps exceeding 1 trillion won, but this number decreased to 164 as of last month’s 31st. We examine the changes in rankings among the top market cap corporate groups and the details of market cap increases and decreases.

Analysis by Im Hee-jin, Heo Mi-dam

[Asia Economy Reporter Park Hyungsoo] Despite the spin-off of LX Group, LG Group has risen to become the second-largest corporate group by market capitalization. By successfully debuting LG Energy Solution, the leading company in secondary batteries, on the stock market, the market capitalization of LG Group’s listed stocks increased significantly. SK Group, which had held the second position for a long time, was overtaken by LG Group due to SK Hynix’s weak stock price and the delayed listing of SK On, which was spun off from SK Innovation.

According to Asia Economy on the 4th, as of the closing price at the end of last month, LG Group’s total market capitalization was 222 trillion won, about 89 trillion won larger than SK Group’s 133 trillion won. Over the 16 months since July 6 last year, SK Group’s market cap decreased by 83 trillion won, while LG Group’s increased by 57 trillion won. LG Group’s number of listed companies within the corporate group decreased from 14 at the end of September last year to 11 at the end of June this year due to the spin-off of LX Group. Despite the decrease in the number of listed companies, the overall market capitalization grew.

This is attributed to the successful stock market entry of LG Energy Solution. Upon its listing, LG Energy Solution emerged as the core company within LG Group, accounting for half of the group’s total market capitalization. Thanks to the global increase in electric vehicle sales and the resulting rise in demand for secondary batteries, LG Energy Solution’s market capitalization surpassed 130 trillion won. It became the second-largest market cap company in the domestic stock market.

LG Energy Solution was established in December 2020 by spinning off the battery business division from LG Chem. Immediately after the board approved the spin-off plan in September 2020, LG Chem’s general shareholders expressed opposition, fearing damage to existing shareholder value. LG Group needed to list the company after the spin-off because it did not have sufficient capacity to invest in expansion to meet the rapidly growing demand for secondary batteries.

Despite shareholder opposition, the battery business division was spun off, and LG Energy Solution raised expansion funds through an initial public offering (IPO). It issued 42.5 million new shares at an offering price of 300,000 won, raising 12.75 trillion won. Institutional investors flocked to LG Energy Solution’s demand forecast. The total order volume reached 1,520.3 trillion won. The order volume in the 'Kyung (京)' unit was a first in the history of the domestic stock market.

On its first day of listing on January 27 this year, the stock price rose to 598,000 won but fell to 352,000 won by July. Since then, foreign investors began buying, and the stock price recovered to around 500,000 won. Growth prospects were bolstered by joint ventures established with General Motors (GM), Stellantis, Honda, and others. LG Chem, which was pushed to second place within the group after LG Energy Solution’s listing, has recently been expanding its presence, focusing on the secondary battery materials business.

SK Group has not reflected the growth in the secondary battery market in the market capitalization of its listed companies, as the semiconductor industry downturn led to a decrease in SK Hynix’s market cap. SK On, the secondary battery subsidiary spun off from SK Innovation, is not yet listed. SK On is currently seeking funding in the private market. If SK On goes public, the gap with LG Group is expected to narrow.

Compared to Samsung, Hyundai Motor, and LG groups, SK Group, which experienced a large decline in market capitalization, is struggling to devise stock price support measures. Since last year, SK Group Chairman Chey Tae-won has emphasized 'financial story management' to the CEOs of affiliated companies. This management vision aims to enhance future corporate value by strengthening non-financial performance such as ESG (environmental, social, and governance) management alongside traditional financial results like sales and profits.

Chairman Chey has urged affiliated company CEOs to increase corporate value. Various measures, including share buybacks and performance improvements, are being considered. Holding company SK and affiliate SKC recently decided to repurchase treasury shares worth 200 billion won and 166.2 billion won, respectively. However, in the ongoing domestic stock market downturn, concrete results have yet to be achieved.