[Click eStock] "CJ Olive Young, Is a Change in Shareholding Structure Imminent?"

DS Investment & Securities released a forecast report on the changes in CJ Olive Young's shareholding structure on the 18th.

After Glenwood's exit, the external shareholder of CJ Olive Young is SPC (Korea Beauty Pioneer) with a stake of 11.3%. According to media reports, this SPC stake was acquired through a parking deal, where Shinhan Bank provided the purchase funds to SPC in the form of a secured loan using the shares as collateral. This stake can later be repurchased by Olive Young through exercising a call option as treasury stock.

The issue lies in the dividends paid by Olive Young. If Olive Young pays a dividend payout ratio of 30% in 2024, 17 billion KRW will be paid to SPC alone. Considering the interest as well, the annual cost is estimated to exceed 35 billion KRW.

Therefore, Olive Young has an incentive to repurchase the 11.3% stake held by SPC as treasury stock as soon as possible. Kim Suhyun, a researcher at DS Investment & Securities, said, "In conclusion, if a dividend payout ratio of over 40% is planned, it is difficult to say that the treasury stock repurchase limit is sufficient." The treasury stock repurchase limit (dividend distributable profit) at the end of Q4 2024 is estimated to exceed 640 billion KRW.

Assuming a dividend payout ratio of 30%, the treasury stock repurchase limit is expected to be around 500 billion KRW. Assuming a dividend payout ratio of 40-50%, the treasury stock repurchase limit is 400 to 450 billion KRW. If the 390 billion KRW stake held by SPC is repurchased as treasury stock, most of the retained earnings will effectively be depleted. Considering treasury stock repurchases and other investments, it appears necessary to increase the scale of retained earnings. Except for 2023, when Olive Young repurchased Glenwood's stake, Olive Young has paid dividends of over 30-70% of net income annually. Olive Young's dividends are now an important source of income for CJ.

After a temporary notice of an extraordinary shareholders' meeting was briefly posted on Olive Young's website, CJ's stock price rose by 20% in a short period. This is the same level of stock price increase strength as earlier this year when merger rumors between Olive Young and CJ circulated. Despite the regular shareholders' meeting scheduled for March next year, the market speculates that the agenda of this extraordinary Olive Young shareholders' meeting is related to an increase in retained earnings.