Governance Forum "Proper Implementation of Corporate Value Enhancement Plan Can Achieve KOSPI 4200"

Chairman Lee Nam-woo: "Listed Companies Should Establish Corporate Value Enhancement Plans Like Meritz"

The Korea Corporate Governance Forum announced on the 5th that if domestic listed companies improve governance through proper corporate value enhancement plans and the KOSPI valuation is reassessed, an index level of 4200 is achievable.

Regarding the value-up corporate value enhancement plan announced by Meritz Financial Group the previous day, Namwoo Lee, Chairman of the Korea Corporate Governance Forum, stated, "Not only are the goals and procedures clear, but all key indicators such as total shareholder return, shareholder payout ratio, cost of capital, excess capital return, and valuation are included," emphasizing, "If all listed companies adopt shareholder-centric management that meets global standards like this, the Korea discount will disappear." He added, "There is evidence that the management and the board have deeply deliberated together," and noted, "Both Korean and English materials are provided simultaneously, which seems to consider foreign investors holding 17% of shares as well as potential foreign shareholders."

Meritz announced that it decides capital allocation by comparing three returns: internal investment return, treasury stock repurchase and cancellation return, and cash dividend return. According to the mid-term plan, 50% of consolidated net income will be returned to shareholders, and if the expected price-earnings ratio (PER) exceeds 10 times, the cash dividend ratio will increase, clearly stating the capital allocation policy. The long-term plan also aims to maximize total shareholder return.

Chairman Lee pointed out, "The company selected total shareholder return as the core indicator for enhancing corporate value and shareholder payout ratio as the execution indicator," and criticized, "Many domestic company executives and controlling shareholders mistakenly believe that the cost of corporate bonds and bank loans is the cost of capital, while thinking that equity has zero cost once listed." He continued, "Meritz clearly stated that the cost of capital is the shareholders' required rate of return, currently in the 10% range. Naturally, companies should pursue positive excess capital returns."

He further added, "Applying Meritz's capital allocation model not only to other financial holding companies but also to listed companies, the answer for value-up at low valuation stages is to increase shareholder returns through large-scale treasury stock repurchases and cancellations to raise valuation," and concluded, "If listed companies focus on core businesses and improve governance, leading to a reassessment of KOSPI valuation, an index level of 4200 is definitely possible."