Holding Companies' Stock Performance Report This Year... 'Doosan' Stands Out as Top Performer

Significant Improvement in Financial Structure
Market Capitalization More Than Doubled
Hyosung, Hanwha, LG, GS in Order
Subsidiary IPOs to Accelerate Next Year
Holding Companies' Stock Volatility Expected to Increase

[Asia Economy Reporter Song Hwajeong] This year, the stock prices of holding companies generally showed a favorable trend. In particular, Doosan's stock price surged significantly due to the effect of financial structure improvement. Next year, as the listing of subsidiaries following physical division is expected to accelerate, the stock price volatility of holding companies is anticipated to increase.

According to financial information firm FnGuide on the 24th, Doosan's stock price has risen more than 140% this year, showing the largest increase among major holding companies. The stock price, which was 52,400 KRW at the end of last year, has soared past the 120,000 KRW mark. Market capitalization also more than doubled from 1.0956 trillion KRW at the end of last year to 2.4958 trillion KRW.

Hyosung followed with a 27.09% increase, then Hanwha (16.25%), LG (6.22%), GS (6.13%), and SK (3.12%) rose in that order. On the other hand, CJ, Lotte Holdings, and LS recorded declines, falling 4.56%, 8.64%, and 21.85% respectively compared to the end of last year.

The improvement in financial structure drove Doosan's stock price strength. In June last year, Doosan Group signed a financial structure improvement agreement with creditors including the Korea Development Bank with a three-year maturity and received emergency funds of 3 trillion KRW. Accordingly, they improved their financial structure by selling assets such as Doosan Tower, Doosan Solus, and Doosan Infracore. On the 19th, Doosan Heavy Industries sold 54% of its stake in Doosan Construction to a private equity fund consisting of Q Capital Partners and others, marking the final stage of financial structure improvement.

Industry insiders expect that the sale of Doosan Construction will allow an early graduation from the financial structure improvement agreement in about one and a half years. Kim Han, a researcher at KTB Investment & Securities, analyzed, "The background of Doosan's stock price rise is due to the spotlight on Doosan's hydrogen fuel cell business under its subsidiaries, the expectation of nuclear power plant restart leading to a slowdown in the adjustment of subsidiary Doosan Heavy Industries and its revaluation, and financial structure improvement. Especially, the strong rise in November was based on expectations that the sale of Doosan Construction was being re-pursued and that graduation from creditor management was becoming more concrete."

Choi Namgon, a researcher at Yuanta Securities, said, "Creditors including the Korea Development Bank are known to decide on early graduation from the self-help plan within the year after reviewing the sale plan of Doosan Construction. If Doosan Group graduates from the self-help plan within this year, it will be about one and a half years since entering the creditor management system in June last year, which is the shortest period ever for graduating from a financial structure improvement agreement."

LS's stock price has been sluggish due to concerns such as a decline in copper prices. According to Samsung Securities, the average copper price in the third quarter of this year fell about 2.9% compared to the previous quarter, and due to the negative lagging effect, LS I&D's operating profit was 16.6 billion KRW, significantly below market expectations. Yang Ilwoo, a researcher at Samsung Securities, explained, "At a recent domestic institutional investor-targeted corporate presentation (NDR), investors expressed concerns about LS Cable & System's weaker-than-expected sales growth, LS Cable & System's future order competitiveness, and the sensitivity of LS I&D's operating profit to copper prices," adding, "There is a need to resolve the uncertainty regarding sensitivity."

Next year, as the listing following the physical division of core business units of major subsidiaries begins in earnest, it is expected that preparations will be needed for a decrease in net asset value (NAV) due to a reduction in the market capitalization of subsidiaries. LG's subsidiary LG Chem's battery business division spun off to establish LG Energy Solution, which is scheduled to be listed at the end of January 2022. SK Innovation's battery business SK On, Hanwha Solutions' advanced materials division, and CJ ENM's content production division are also expected to follow similar paths in the future.

Researcher Yang said, "Companies that physically divide subsidiaries do not have dividend yields higher than competitors, nor are their debt ratios considered very high, so the listing after the physical division of core business units is likely to disperse investment points and lower corporate value. Also, the value of shares held by companies that are not holding companies is likely to be discounted more than the value of shares held by holding companies, so the decrease in market capitalization of major subsidiaries, i.e., the decrease in NAV of holding companies, may be greater than the market expects." Accordingly, Samsung Securities lowered the target stock prices of SK, LG, Lotte Holdings, and CJ by 12%, 18%, 24%, and 6%, respectively.

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