"Major Shareholder Stake Purchases Seen as Positive"...Undervaluation Signals Stir Stock Prices

Stock Prices Rise for The Nature Holdings, Aroot, and Sejong Telecom
Undervalued Appeal Highlighted as Performance and Shareholder Return Strategies Align

Recently, there has been an increasing number of cases in the stock market where the purchase of treasury shares by the largest shareholder is perceived as a positive signal. This is interpreted as the largest shareholder, who knows the company best, viewing the company as undervalued. In addition, expectations for the new government's value-up policy are further boosting stock prices.

According to the Financial Supervisory Service's electronic disclosure system on June 9, a related party of the largest shareholder of The Nature Holdings acquired a total of 18,056 shares of treasury stock on the market from May 26 to 29. Previously, on May 21, other related parties also purchased shares, raising the largest shareholder's stake from 39.06% to 40.27%.

As a result, The Nature Holdings' stock price rebounded. After the disclosure that the largest shareholder and related parties had purchased treasury shares, the company's stock price rose by about 10% through June 5. The increase in the largest shareholder's stake appears to have played an effective role in reassessing the undervalued corporate value. Currently, The Nature Holdings' price-to-book ratio (PBR) stands at 0.46 times.

In particular, this increase in the largest shareholder's stake stood out even more as it coincided with improved performance. In the first quarter of this year, The Nature Holdings posted consolidated revenue and operating profit of 128.8 billion KRW and 9.5 billion KRW, respectively, up 1.2% and 35.2% year-on-year. During the same period, net profit also increased by 10.4% to 8.6 billion KRW.

Furthermore, The Nature Holdings has been implementing various shareholder-friendly policies such as treasury share purchases and increased dividends since the introduction of the corporate value-up program. The company already completed the purchase of 4 billion KRW worth of treasury shares last year, and last year's year-end dividend was also raised to 5.34% based on market dividend yield, the highest level in the industry. In addition, The Nature Holdings has begun offering 'shareholder preferential services' such as discount coupons for brand products to shareholders.

KOSDAQ-listed Aroot has also seen its undervaluation highlighted following the disclosure of a market purchase by its largest shareholder. On May 27, Aroot's largest shareholder announced a plan to purchase about 330,000 shares of treasury stock on the market. After the disclosure of the stake increase, Aroot's stock price rose by about 10% through June 5. Recently, Aroot's PBR has been at 0.45 times, indicating undervaluation.

Sejong Telecom also saw its stock price rise after the largest shareholder increased its stake. On May 28, Sejong Telecom disclosed that its largest shareholder, Sejong, had purchased 970,000 shares on the market, raising its ownership ratio to 58%. Sejong also injected 4.9 billion KRW of its own funds. After this disclosure, Sejong Telecom's stock price rose by about 25% through June 5.

The Korea Capital Market Institute analyzed in a research report that the acquisition of treasury shares can be interpreted as a signal of undervaluation and that a rise in stock price can be expected. In fact, an analysis of companies that disclosed treasury share acquisitions from January 2015 to May 2022 found that 94.1% experienced a stock price increase after the disclosure. Specifically, compared to the market return, the excess returns after six months and one year were 19.7% and 47.9%, respectively.

An official from the financial investment industry stated, "It is common to increase one's stake when performance improves, but as in these cases, taking proactive action during undervaluation periods is highly positive for market confidence." The official added, "Stake increases can be seen not only as a simple defense of management rights but also as a message of growth and responsibility for the company."