[Click eStock] "Ecopro, Significantly Overvalued Compared to NAV"

Samsung Securities Report

Samsung Securities evaluated that Ecopro's stock price is significantly overvalued compared to its NAV (Net Asset Value) and downgraded its investment opinion from 'Buy' to 'Neutral.' The target price was revised upward from 160,000 KRW to 380,000 KRW, reflecting the increase in the value of its holdings due to the sharp rise in the stock prices of its subsidiaries.

On the 4th, Samsung Securities analyst Jang Jeong-hoon stated about Ecopro's stock price, "It is a strange situation where the holding company is receiving a 20% premium over the value of its holdings."

Analyst Jang pointed out, "According to the 2022 business report, Ecopro's business purpose is to operate investment businesses including subsidiary management," and added, "The holding company's main source of income is dividends received from its controlled subsidiaries, and the value of the holding company has been evaluated by applying a certain discount rate to the value of its holdings."

He continued, "Although debates about whether the discount rate for holding companies is appropriate continue, at least in the Korean market, the market agrees on a discount rate of 30-50% compared to the value of the holdings of the operating companies for holding companies."

He further noted, "Ecopro had been evaluated with a discount ranging from 30% to 70% after the spin-offs of Ecopro BM (247540) and Ecopro HN (383310), but since March, it has started to receive a premium instead of a discount, and as of the end of March, it is being valued 20% higher."

He added, "The attempt to find reasons for valuing the holding company higher than its operating subsidiaries in the business value of unlisted subsidiaries is also burdensome."

Analyst Jang said, "The market expects the value of unlisted companies such as Ecopro Materials, which produces precursors, and Ecopro Innovation, which operates the lithium hydroxide processing business," but pointed out, "Most of these products are used as raw materials for cathode manufacturing by Ecopro BM, Ecopro's listed subsidiary, so assigning market value to unlisted companies, whose main sales are internal transactions within the group, based on asset or earnings value is questionable."

He concluded, "If you agree that Ecopro's business purpose, as stated in the report, is to control subsidiaries and that its income is generated through general service fees, brand royalties, and dividend income as a holding company, then the appropriate value of the company would be an NAV (Net Asset Value) evaluation that excludes net debt from the value of its holdings."