[Click e-Stock] "Holding Company Stock Prices Surge... Valuation Appeal Remains"

On June 10, SK Securities commented on the recent sharp rise in holding company stocks, stating, "Although there is some fatigue due to the short-term surge, a strategy of increasing weight in companies with high valuation appeal remains valid, considering this as the starting point for a mid- to long-term revaluation of stock prices."

On this day, Choi Kwansoon, a researcher at SK Securities, said, "Market interest in holding companies is intense, as 31 out of 99 general holding companies, excluding financial holding companies, have recorded all-time highs."

Recently, Hanwha's stock price has risen by 242.0% compared to the beginning of the year. Other holding companies, such as LS (88.9%), SK Square (62.2%), CJ (53.1%), and SK (48.8%), have also recorded higher returns than the KOSPI's 19.0% increase.

This is interpreted as a result of expectations that the factors causing stock price discounts will be reduced. Choi explained, "The main reasons for holding company stock price discounts have been overlapping listings of subsidiaries, stock price declines during inheritance and gift processes, and passive share buybacks and cancellations. As the campaign pledges to improve corporate governance transparency announced during the presidential election are expected to be implemented, a long-term revaluation of holding company stock prices is anticipated."

In particular, expectations are rising as the amendment to the Commercial Act, which was scrapped in April due to the exercise of the right to request reconsideration (veto power), has been reintroduced. Choi pointed out, "The Commercial Act amendment, reintroduced on June 5, includes provisions to codify directors' duty of loyalty to shareholders, thereby protecting the interests of all shareholders, as well as introducing electronic general meetings of shareholders. The ruling party is reportedly speeding up the process of amending the Commercial Act, with the possibility of submitting and passing it as early as this month under consideration."

Choi stated, "As holding company stock prices have surged in a short period, it is time to review their valuations." However, he analyzed, "Currently, the price-to-book ratios (PBR) of holding companies?SK at 0.41x, LG at 0.42x, and Hanwha at 0.75x?are more attractive than the KOSPI average of 0.95x."

He further explained, "In particular, despite recent stock price increases, SK and LG are still below their historical average PBRs since 2020 (COVID-19 period). Even in terms of discounts to net asset value (NAV), the valuation attractiveness remains sufficient?SK at 60.1%, Hanwha at 58.8%, and SK Square at 55.4%." He added, "SK's valuation appeal is maintained by its decreasing net debt, while Hanwha and SK Square benefit from rising subsidiary stock prices."