[Click eStock] "Hyosung, Demerger and Subsidiary Withdrawal... Target Price Lowered to 70,000 Won"

On the 30th, Daishin Securities downgraded the target price for Hyosung from 79,000 KRW to 70,000 KRW, citing inevitable valuation changes following the spin-off and listing of HS Hyosung, along with the withdrawal of four subsidiaries including Hyosung Advanced Materials. The investment rating was maintained as 'Buy.'

In February, Hyosung's board resolved a spin-off plan to establish a new holding company (HS Hyosung) by spinning off the investment divisions of six companies, including Hyosung Advanced Materials, Hyosung Information Systems, and Hyosung Toyota. The spin-off plan was approved at the extraordinary general meeting in June.

Researcher Yang Ji-hwan stated, "Valuation changes in the SOTP are inevitable due to the listing of HS Hyosung after the spin-off and the withdrawal of subsidiaries such as Hyosung Advanced Materials, Hyosung Information Systems, and Hyosung Toyota." SOTP (Sum of the Parts) is a corporate valuation method that estimates the appropriate value by valuing each business segment separately and summing them up.

He added, "Considering the reduction in the number of shares due to the spin-off and changes in subsidiary equity values, the current stock price is judged to be undervalued, so the buy recommendation is maintained."

Currently, Hyosung's corporate value is estimated at approximately 3.3 trillion KRW. This includes about 1.3 trillion KRW in equity value from listed affiliates (Hyosung Heavy Industries, Chemicals, TNC, ITX), 850 billion KRW in equity value from unlisted affiliates, 470 billion KRW for the Anyang factory site, 600 billion KRW in royalty income value, and net cash of 49 billion KRW.

Researcher Yang explained, "The net asset value per share is 199,130 KRW, and applying a target discount rate of 65%, we present a target price of 70,000 KRW."

Regarding dividends this year, he noted, "Due to the sluggish business conditions of chemical affiliates excluding Hyosung Heavy Industries, a significant increase in dividends in 2024 is unlikely. However, the performance of the unlisted consolidated subsidiary Hyosung TNS has entered an improvement phase since the second quarter, and as of the end of the first half, it holds about 50 billion KRW in cash, so the 2024 DPS is estimated to be over 3,000 KRW."

He added, "Brothers Cho Hyun-joon and Cho Hyun-sang are exchanging shares through large off-hours trades, following the process of separating the affiliates. It will also be difficult to reduce dividends to prepare for inheritance tax (estimated at 430 billion KRW)."