[Click e-Stock] "Korea Zinc, Management Dispute Ongoing...Possibility of Prolonged Conflict"

On July 10, Yuanta Securities analyzed Korea Zinc, stating, "Due to the ongoing management rights dispute, factors beyond those that can be reasonably estimated are affecting the stock price." The company did not provide a separate investment opinion.

On this day, Lee Hyunsoo, a researcher at Yuanta Securities, said, "At present, it is difficult to say that either side has fully secured management control."

Korea Zinc's board of directors, whose term expires in March next year, consists of six members: five from Chairman Choi Yunbum's side and one from Jang Hyungjin, advisor at Young Poong. Lee explained, "Of the total 19 board members, 15 are classified as being on Choi Yunbum's side and 4 on Jang Hyungjin's side. However, four directors from Choi Yunbum's side are currently involved in lawsuits related to suspension of duty. Effectively, this means there are 11 from Choi Yunbum's side and 4 from Jang Hyungjin's side."

He added, "As of the previous day, neither side appears to have made additional stock purchases this year. As of the end of March, the shareholding ratio, excluding treasury shares, was calculated as 47.0% for Jang Hyungjin's side and 39.6% for Choi Yunbum's side. However, the board situation favors Choi Yunbum's side. It is not easy for either side to dismiss directors from the opposing side."

He also pointed out, "Since multiple lawsuits are ongoing, the outcomes need to be finalized. Depending on the decisions of both sides, the dispute could end within a few months, but if not, it could continue for much longer."

Korea Zinc's operating profit for the second quarter is expected to be KRW 270 billion, which is 4.5% below the market consensus. Lee stated, "Revenue is expected to reach KRW 3.759 trillion, up 22.9% year-on-year, and net income attributable to controlling interests is projected at KRW 188 billion, which is 27.1% above the market consensus."

Lee noted, "Since 2023, prices of precious and rare metals have risen significantly compared to base metals, resulting in a change in the revenue composition. Based on first-quarter revenue, silver surpassed zinc and gold surpassed lead in terms of sales."

He said, "The gross profit margin (GPM) for rare metals reached 80% in the first quarter and is expected to remain high in the second quarter. However, due to the provisional tariff agreement between the United States and China in the second quarter, rare metal prices have turned weak. The profit margin for rare metals in the second half is expected to be lower than in the first half."

The strong Korean won is also contributing to a decrease in revenue. Metal sales are 100% exposed to exchange rates, and all of the main raw material, concentrate, is imported.

The total shareholder return ratio is expected to rise due to the cancellation of treasury shares. Since November 2023, Korea Zinc has conducted four treasury share acquisitions and two cancellations. Lee explained, "The cancellations scheduled for the second half of this year (June, September, December) will involve shares acquired through a public tender offer, with an acquisition amount of approximately KRW 1.8 trillion. The total shareholder return ratio is projected at 51% in 2022, 57% in 2023, 231% in 2024, and 297% (estimated) this year. Considering the scale of treasury share cancellations, the dividend per share (DPS) for this year is estimated at KRW 15,000."