[AK Value-Up Evaluation] 'Value-Up Model Student' Financial Holding Companies... SK Square Stands Out Among Non-Financial Firms

Value-Up Disclosure Analysis of 18 Listed Companies
Meritz Financial Group and Other Financial Holdings Rated Best
Chairman Lee Namwoo: "Shareholder Returns Do Not Equal Value-Up"

In an evaluation conducted by the Korea Corporate Governance Forum and Asia Economy, which selected 18 major listed companies in South Korea that announced 'corporate value enhancement plans,' Meritz Financial Group was recognized as the 'Value-Up Model Student.' Financial holding companies, including Meritz Financial Group, generally received high scores, while SK Hynix and Hyundai-Kia Motors were rated somewhat disappointing. Lee Nam-woo, chairman of the Korea Corporate Governance Forum who conducted this evaluation, pointed out that domestic listed companies lack understanding of value-up, emphasizing that shareholder returns alone do not equate to value-up. Shareholder returns are merely one means to increase corporate value; the essence of value-up lies in understanding the cost of capital and rationally allocating capital based on this to corporate growth or dividends.

Value-Up Model Student ‘Meritz Financial Group’... Strong Will to Increase Corporate Value, Big Difference Whether Controlling Shareholder Exists or Not

On the 16th, Asia Economy, together with the Korea Corporate Governance Forum, evaluated the corporate value enhancement plans announced by 18 major domestic listed companies. Meritz Financial Group scored the highest with 24 points, followed by KB Financial Group (23 points), SK Square (23 points), Shinhan Financial Group (21 points), Woori Financial Group (19 points), and JB Financial Group (18 points).

This evaluation was comprehensively conducted by the Governance Forum considering five categories: ▲board of directors’ recognition of cost of capital (shareholders’ required rate of return) and capital allocation principles ▲total shareholder return (TSR) and shareholder-centric management ▲board composition and accountability ▲plans for automatic treasury stock cancellation and debt reduction ▲and the status of treasury stock holdings by executives and the board. Each item was scored from 1 to 5 points, with a perfect score of 25. Chairman Lee explained that the evaluation criteria were selected considering that successful value-up requires understanding of cost of equity (COE), efficient capital allocation, shareholders’ trust in management, and responsible activities of the board. Also, since alignment between employees and shareholders should be achieved through executive stock-linked compensation and employee stock ownership, the status of treasury stock holdings by executives and the board was included as an evaluation indicator.

After analyzing the value-up disclosures of the 18 listed companies, Chairman Lee emphasized that listed companies, financial authorities, and the Korea Exchange all need a proper understanding of value-up. He said, "Many CEOs and CFOs mistakenly believe that shareholder returns are value-up," and pointed out, "Shareholder returns are just one means and method for value-up."

He further explained, "Value-up means rationally allocating capital to corporate growth or dividends/treasury stock based on the cost of equity from the company’s perspective, or the required rate of return (approximately 9-11% in Korea) from the shareholders’ perspective." This is also why financial holding companies overwhelmingly received high scores in this evaluation. Except for SK Square, all top-ranked listed companies were financial holding companies, sharing the commonality of having no controlling shareholder. Chairman Lee specifically explained, "The difference lies in whether there is resistance to corporate value increase due to the presence of a controlling shareholder or not." For example, including treasury stock cancellation in a corporate value enhancement plan is positive for stock price, but controlling shareholders may feel burdened by canceling treasury stock due to concerns about threats to management rights from stock price increases.

Meritz Financial Group, which topped the value-up disclosure rankings, was the first among listed financial companies to disclose a mid-to-long-term corporate value enhancement plan. The Governance Forum praised Meritz Financial Group, saying, "It includes all key indicators such as total shareholder return (TSR), shareholder return rate, cost of capital, excess capital earnings, and valuation."

Financial holding companies classified as value-up model students, such as KB Financial Group, Woori Financial Group, and Shinhan Financial Group, received good scores for presenting specific and rational mid-to-long-term goals, board-centered value-up plans, and treasury stock cancellation plans. However, even financial holding companies were evaluated as lacking in the area of treasury stock holdings by executives and the board.

Chairman Lee said, "Alignment among employees, shareholders, and the board is the core of governance, but most of the listed companies evaluated scored low in this area," adding, "Especially, large Korean conglomerates have low alignment through stock-based compensation. Attention is needed in this area."

SK Square Tops Non-Financial Sector... Hyundai-Kia Motors Also Rated Above Average

SK Square, which was spun off from SK Telecom and classified as a telecommunications stock, received the highest score in the non-financial sector. The Governance Forum evaluated SK Square’s value-up plan and shareholder returns as an exemplary holding company case that keeps promises to shareholders.

On the other hand, SK Hynix received only 12 points, placing it in the lower-middle tier due to insufficient consideration for shareholders. Hyundai Motor and Mobis (16 points), Kia Motors (15 points), and SK Telecom (15 points) scored slightly above the overall average (13.8 points). Chairman Lee commented, "One of Korea’s chronic Korea discount problems is the misalignment of interests between controlling shareholders and general shareholders, but among large companies with controlling shareholders, Hyundai Motor, Kia Motors, and Mobis have announced relatively progressive value-up plans."

LG Electronics, LG Chem, and LG Energy Solution, three LG affiliates, received the lowest evaluation among the 18 listed companies with a total score of 5 points. Chairman Lee criticized LG affiliates, saying, "They show neglect or ignorance regarding value-up," and pointed out, "Compared to Hyundai and SK, their value-up plans lack sincerity." The Governance Forum gave LG Electronics a historically lowest grade of D for its value-up plan disclosed last October, criticizing, "LG Electronics’ corporate value enhancement plan lacks the core elements of value-up such as cost of capital and capital allocation."

Additionally, Kiwoom Securities, SK, and Shinsegae all scored below 10 points, recording failing grades. Mirae Asset Securities also fell short of the average. Chairman Lee urged CEOs and management who think that costs are zero after listing to change their attitude toward general shareholders. He said, "Management should keep in mind that shareholders expect about 10% annual returns," and evaluated, "Only most financial holding companies like Meritz Financial Group understand this concept."

Meanwhile, according to the Korea Exchange, since the implementation of value-up disclosures at the end of May last year, a total of 94 companies have made official value-up disclosures, including 83 KOSPI companies and 11 KOSDAQ companies. Samsung Electronics, the largest KOSPI company by market capitalization, has not yet announced a value-up disclosure plan.

This content was produced with the assistance of AI translation services.