Growing Interest in Holding Companies Increasing Shareholder Returns

Recent Continuous Institutional Net Buying of Holding Companies
Increased Interest in Stable Dividend Stocks and Shareholder Returns through Value-Up Programs Amid Volatility
Focus Needed on Holding Companies with Strong Shareholder Return Capacity Including Dividends

As market volatility has increased recently, interest in stable dividend stocks is growing. Additionally, with the value-up programs, there is also rising attention on companies expanding shareholder returns, making holding companies with the capacity to increase shareholder returns, including dividends, likely to attract attention. It is suggested that if dividend increases are pursued, it could lead to improved investor sentiment toward holding companies.

Recently, institutional investors have been focusing on net buying dividend stocks amid increased market volatility, with a particular focus on holding companies. According to the Korea Exchange on the 28th, institutions have net purchased Hanwha stocks every day except for one day during the period from the 2nd of last month to the 26th of this month. They net bought GS stocks for 11 consecutive days and purchased LG, SK, and Samsung C&T stocks for 4 consecutive days.

The sustained buying of holding companies by institutions is interpreted as reflecting expectations for shareholder returns. It is forecasted that dividends from holding companies will gain attention toward the end of the year. Han Kim, a researcher at Hyundai Motor Securities, stated, "As we approach the fourth quarter, dividends from holding companies will be highlighted," adding, "Currently, revaluation of holding company stocks is underway, and many stocks are resolving the causes of discounts from the perspective of fundamentals, such as net asset value (NAV) expansion. Dividends can further improve investor sentiment and contribute to reducing undervaluation."

In particular, interest is expected to rise in holding companies with the capacity to expand shareholder returns, including dividends. Hanwha is evaluated as having the greatest capacity for shareholder return expansion among holding companies. Kwansoon Choi, a researcher at SK Securities, explained, "Hanwha has the highest capacity for shareholder returns among domestic holding companies," adding, "Shareholder returns for value-up are divided into treasury stock cancellation and dividend increases, and Hanwha is likely to increase dividends. Despite a net loss in the separate financial statements for the second quarter, dividend income and brand license sales, which serve as sources for dividends, are expected to increase by 40% year-on-year due to increased dividends from Hanwha Life and increased sales from Hanwha Ocean."

Dividend increases are also expected from Samsung C&T. Researcher Kim analyzed, "Samsung C&T already announced a shareholder return policy for the next three years (2023?2025) in February last year and additionally announced this year that it will cancel all treasury stocks within three years. However, due to the structure of its dividend policy, dividends from Samsung C&T can increase when dividends from affiliates increase." He added, "Thanks to the policy of returning 60?70% of affiliate dividend income as cash dividends, the value of listed shares has been increasing in the second half of the year, and a gradual upward trend is expected to continue."

SK Square and LG are also attracting investor interest for the possibility of additional shareholder returns based on abundant resources. Researcher Kim analyzed, "SK Square has net cash of 635 billion KRW at the end of the half-year and, due to the nature of holding companies, is always undervalued in valuation, making it a stock that can outperform its major subsidiaries," adding, "LG had net cash of 1.4 trillion KRW at the end of the half-year, and although direct and indirect investments of 248 billion KRW occurred in the first half, slightly decreasing compared to the previous period, it remains substantial."