Mando Prepares for Split, What Is the Stock Outlook?

'Announcement of Physical Division' Alone
Stock Price Shows Short-Term Correction Trend

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Mando's stock price is fluctuating after announcing a physical division. Although it is a decision aimed at future growth in the autonomous driving (ADAS) business, there are concerns that the physical division may harm the interests of existing shareholders.

At 1:30 PM on the 10th, Mando traded at 66,200 KRW, down 9.81% from the previous trading day. This decline is interpreted as reflecting worries about the dilution of existing shareholders' equity following the announcement after the previous day's market close that Mando Mobility Solutions, a new company focusing on ADAS and mobility businesses, will be established through a physical division.

Mando stated that the decision was made to eliminate overlapping areas between the chassis division (the surviving company) and the ADAS business unit and to accelerate growth in the autonomous driving division. Since the surviving company will hold 100% of the shares of the newly established company, there is expected to be no volatility in performance.

The stock price is likely to face further declines in the short term. Given that the asset split between the surviving company and the new company will be on a 9 to 1 basis, if the new company issues shares to raise investment funds, the equity value of existing Mando shareholders will inevitably be diluted. In a physical division, the ownership of the divided company remains 100% with the company, meaning existing shareholders can only directly invest in the chassis division, which excludes the ADAS business. In contrast, in a spin-off where ownership of the divided business is equally held by existing shareholders, if the new company goes public, existing shareholders can own shares of that company, but this is not the case with a physical division.

A recent example is LG Chem. When it decided last year to physically divide its petrochemical business as the surviving company and the secondary battery division as the new company, its stock price dropped nearly 15% on the day. Recently, CS Securities, a foreign securities firm, suggested that if LG Energy Solution goes public through an IPO, a discount should be applied to LG Chem, causing its stock price to fall below 800,000 KRW. Currently, the Mando shareholder board is filled with complaints about the division decision. One investor sharply remarked, “If the high-growth ADAS business unit is gone, aren’t we investing in a shell company?”

Researcher Yongkwon Moon of Shin Young Securities analyzed, “The reason Mando has been able to receive a high PER (over 15 times) compared to other parts suppliers is due to ADAS, as the surviving company’s items are relatively low-profitability brake and chassis parts.” He added, “Since it has not disclosed when or how it will raise funds, if the new company is listed on the stock market in the future, Mando’s equity value will decrease, reducing the basis for the valuation premium.”

However, mid- to long-term expectations are presumed to remain intact. Considering performance trends, some opinions suggest using the price drop caused by the physical division as a buying opportunity. Along with the announcement of the physical division, Mando presented a growth strategy for the surviving company targeting an average annual growth rate of 9% through product growth acceleration and customer diversification, while the new company aims for an average annual performance growth of 14% by responding to the advancement of autonomous driving stages. The securities industry's annual operating profit estimate is 318.5 billion KRW, expected to grow 260% compared to last year’s 89 billion KRW. Researcher Junseong Kim of Meritz Securities evaluated, “Looking at cases of divided companies, after short-term adjustments, stock prices have eventually followed the mid- to long-term performance trends of each company.” He also noted, “The acquisition of Mando Hella Electronics earlier this year has enhanced autonomous driving capabilities, increasing the possibility of new orders.”

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