[Click eStock] KT's Transition to a Holding Company through Physical Division is a Major Boon

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment announced on the 8th that it maintains a buy rating and a target price of 45,000 KRW for KT. This is based on the judgment that the stock price could rise significantly due to smooth restructuring and the rising value of subsidiaries.

There have been many inquiries about KT's governance restructuring following the spin-off of five IDC national offices. Considering the high likelihood of CEO Koo Hyun-mo's reappointment, a transition to a holding company through a physical spin-off is expected in 2023. Unlike SKT (SK Telecom), KT is a company without a controlling shareholder, so there is no reason to pursue a spin-off involving changes in major shareholder stakes. It is anticipated that the current extensive business structure will be reorganized into core businesses by dividing the headquarters into several divisions, merging subsidiaries, and merging business departments within the headquarters and subsidiaries. This is considered an appropriate timing as results from new businesses are expected, and excessive profit increases at the headquarters could lead to regulatory issues.

KT has a variety of business sectors, ranging from the traditional telecommunications business PSTN, which is a cash cow, to the wireless business with growth potential, and currently low-profit but high-growth sectors such as cloud, AI, metaverse, blockchain, fintech, and IoT. The headquarters alone has 4 to 5 business units, and there are 48 subsidiaries, resulting in a vast business structure that causes unnecessary operating costs and slow decision-making.

Kim Hong-sik, a researcher at Hana Financial Investment, stated, "If each organization is accurately separated and consolidated through a physical spin-off, and growth and profitability are distinguished through accounting separation, it will greatly help improve corporate value."

Some investors express concerns about KT's physical spin-off by citing the case of LG Chem. However, the judgment is that the situation will be quite the opposite. Among KT's subsidiaries, there are no companies highly valued, and the wireless business has a low possibility of re-listing but is valued with a lower multiple compared to competitors. Rather, as new business companies attempt to go public, new value will be assigned, and there is a high possibility that asset value will be proven in the stock market, which is expected to be a great boon for minority shareholders.

Even if KT is subject to a high discount rate as a subsidiary, there is a high possibility that its market capitalization will increase significantly compared to the current level. Real estate and line values are already traded at a 70% discount, and considering taxes, dividend payout ratios, and dividend payment capacity, the total DPS increase potential is higher, and it is advantageous in terms of rate regulation. Also, unlike SKT, there is no possibility of power struggles between companies after the spin-off, and the 49% foreign ownership limit may be excluded. Researcher Kim emphasized, "This method fundamentally blocks shareholder profit leakage along with profitability improvement, which raises great expectations."

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