[Column] What Is the 'Real Price' of Korea Zinc?

Crowned 'Emperor Stock' in Box Range for Years
PBR and Others Are Favorable... Might Not Be a 'Bubble'

For years, trading within the 400,000 to 500,000 KRW range, then an open tender offer at around 800,000 KRW following a management rights dispute, and now one of only two 'emperor stocks' on the KOSPI market. The protagonist of this stock price story is Korea Zinc, recently in the spotlight due to a management rights battle. Amid the celebration by most investors, a question arose: what is the 'real price' of Korea Zinc? Is the current price a 'bubble'?

The reason individual investors were particularly enthusiastic during this Korea Zinc rally is that it was a very special case where minority shareholders could also benefit. In typical management rights transactions of companies other than Korea Zinc, minority shareholders and general shareholders such as the National Pension Service usually gain nothing. The numbers displayed on the Home Trading System (HTS) are often 'fake prices,' hiding the 'real price' behind them. In Korea, it is common for controlling shareholders to trade their shares off-market at a premium, while ordinary shareholders receive no premium?this is the so-called 'control premium' phenomenon.

Just this year, there was a case where the largest shareholder’s stake was acquired through a merger and acquisition (M&A) at five times the stock market price. In that process, ordinary shareholders received no share of the benefit. In advanced countries like the US and Europe, the 'mandatory tender offer system' requires the new controlling shareholder to offer minority shareholders the opportunity to sell their shares at the same price. Korea introduced this system under the Securities Exchange Act in 1997 but abolished it the following year. Although reintroduction has been discussed for several years, there is no strong momentum to actively pursue it.

In the Korean market, since controlling shareholders can sell their shares at prices higher than the market price, there is little incentive to manage the stock price regularly. Korea Zinc was no exception. When a management rights threat emerged, only then did it announce plans to buy back a large volume of treasury shares worth nearly 3 trillion KRW. When the stock price was in the 500,000 KRW range, it did not move; at 800,000 KRW, it pleaded for shareholders to sell. This is an admission that the stock price, which had been trading in a box range for years, was not the 'real price.'

Unexpectedly, the management rights issue may have prompted Korea Zinc to now seek its 'real price.' Korea Zinc’s price-to-book ratio (PBR) is 2.52 times, and its price-to-earnings ratio (PER) is 43.54 times (as of the 24th). Although it may be somewhat overheated, it is not a 'bubble.' According to data released by the Korea Exchange last May, the average PBR for 23 advanced countries was 3.2 times, and for emerging markets, it was 1.7 times. The KOSPI 200 stood at 1 time.

The feeling that Korea Zinc’s stock price is expensive may stem from being accustomed to the 'Korea discount'?where companies with a PBR below 1 are so common they are everywhere. Even without management rights disputes, it is hoped that more companies will find their 'real price.' If the mandatory tender offer system and directors’ fiduciary duties are introduced soon, that day could come a little sooner.