SK, a Holding Company Skilled in Investment, Needs Revaluation

Establishing a Virtuous Cycle of Investment Recovery, Additional Investment, and Shareholder Returns in Promising Companies
"Stock Price Undervalued... Especially Underreflecting Unlisted Equity Value"

[Asia Economy Reporter Minwoo Lee] An analysis suggests that a revaluation of SK, the holding company of SK Group, is necessary. It is evaluated that SK has established a virtuous cycle structure that leads to shareholder returns and stock price investment through successful investments.

On the 3rd, KTB Investment & Securities judged that SK's stock price is excessively undervalued. Han Lee Kim, a researcher at KTB Investment & Securities, explained, "It is an investment holding company with a virtuous cycle structure where profits realized from investing in growth companies and recovering investments become resources for additional investments and shareholder returns," adding, "The value of unlisted shares has increased annually by about 700 billion to 1.4 trillion KRW since the merger."

Nevertheless, unlike in the past, the stock price hardly reflects the value of unlisted shares, leading to an undervaluation analysis. The market capitalization combined with net debt (EV) is already exceeded by the listed share value alone, which is about 21 trillion KRW. In addition to the SK E&S semi-annual dividend announced on the 9th of last month, SK secured approximately 480 billion KRW in additional resources by selling 4.6% of its 11.0% stake in the global logistics company ESR as of the 17th of last month before tax. ESR is a logistics infrastructure company with clients such as Amazon and was listed on the Hong Kong Stock Exchange last year. Researcher Kim emphasized, "Although it is difficult for the stock price dividend per share (DPS) to reflect a sudden increase at once, the investment performance has been realized, and the mid-to-long-term shareholder return resources have increased, so a stock price revaluation is necessary."

Following the increase in resources for investment and shareholder returns, investment performance is also being highlighted. With the announcement of SK E&S's semi-annual dividend on the 9th of last month, SK's dividend income increased by 454 billion KRW. SK is investing in promising future sectors such as mobility and logistics infrastructure and is fostering them as core businesses in the future. If not feasible, it is executing large-scale investments annually with a policy of recovering capital income.

Accordingly, SK has been a company that significantly reflected the value of unlisted shares in its market capitalization among holding companies. Researcher Kim said, "The difference between the sum of market capitalization and net debt and the value of listed shares can be seen as the amount of operating value and unlisted share value reflected in the market capitalization. In SK's case, this size was about 11.5 trillion KRW on average in 2017, 13 trillion KRW on average in 2018, and 11.4 trillion KRW on average last year," adding, "Even considering the expectations for the revaluation amount of SK Biopharm's share value at that time, at least 7 to 8 trillion KRW has been reflected annually, but the current stock price shows almost no difference between EV and listed share value, indicating that the value of unlisted shares is hardly reflected."

Against this background, KTB Investment & Securities presented a 'Buy' investment opinion and a target stock price of 270,000 KRW for SK. The closing price on the previous trading day was 197,500 KRW.

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