[Click eStock] "Samsung Heavy Industries, Fundamentals After Capital Increase Are Important"

[Asia Economy Reporter Song Hwajeong] Meritz Securities completed a free capital reduction on the 10th and resumed trading of Samsung Heavy Industries from that day. The firm maintained a 'Hold' investment rating and a target price of 5,000 KRW, emphasizing that the fundamentals following the upcoming rights offering will be crucial.

At an extraordinary general meeting on June 22, Samsung Heavy Industries approved a free capital reduction plan to reduce the par value of common and preferred shares from 5,000 KRW to 1,000 KRW, and a plan to increase the total number of issued shares from 800 million to 1.5 billion. As a result, the total capital was reduced from 3.15 trillion KRW to 630 billion KRW based on common shares, with the difference transferred to capital surplus, causing no change in total equity. Analyst Kim Hyun of Meritz Securities stated, "The total equity as of the end of 2020, the reference point for the free capital reduction decision, was 3.72 trillion KRW, but due to large operating losses in Q1 and Q2, the estimated total equity at the end of Q2 is 2.9 trillion KRW," adding, "The risk of partial capital erosion has been eliminated."

The opening price on the day is expected to be determined within the range of 3,270 to 9,810 KRW. Trading was suspended from the 23rd of last month until the day before due to the change in listing following the free capital reduction. Analyst Kim explained, "The reference price for resuming trading will be the closing price on July 22, 6,540 KRW, and the opening price will be set within a range of -50% to +50%, i.e., between 3,270 and 9,810 KRW. Since the initial price determined by the single-price trading method after the suspension becomes the reference price, there is a possibility that event-driven trading will concentrate depending on the opening price level."

However, there is no valuation appeal. Kim noted, "Based on the closing price of 6,540 KRW on the 22nd of last month, the market capitalization is 4.12 trillion KRW. Considering the operating loss of 437.9 billion KRW and net loss attributable to controlling interests of 445.9 billion KRW in Q2, which reflect the expected increase in steel prices, the estimated total equity at the end of Q2 is 2.9 trillion KRW. The price-to-book ratio (PBR) at 6,540 KRW is about 1.42 times, based on a book value per share (BPS) of approximately 4,600 KRW at the end of Q2," adding, "Given that the current PBR for peers ranges from 0.85 to 1.4 times, there is no valuation attractiveness."

The fundamentals after the rights offering are expected to be important. Kim said, "If the rights offering, expected to be around 1 trillion KRW in Q4, is successfully completed and the uncertainties surrounding the five undelivered inventory drillships are gradually resolved, it is reasonable to expect that the fundamental improvements after the rights offering will be gradually reflected in the stock price."

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