Rebellion of the 'Mannyeon Undervalued Stocks' Begins... 'Strong Holding Companies' in a Bear Market

[Asia Economy Reporter Lee Seon-ae] There is a forecast that the stock prices of holding companies, which have long been labeled as "perennially undervalued stocks," will soar within the year.

As interest rates rise and the market focus shifts from growth stocks to value stocks, an environment favorable to holding companies with relatively low valuation (stock price level relative to earnings) burdens is being created. Securities firms advise an investment strategy that preemptively buys holding companies, which are relatively free from inflation concerns.

According to the Korea Exchange on the 31st, LG closed at 81,900 won, up 9.64% from the previous day. Despite a continuous decline over the past year, dropping about 60% and showing extreme undervaluation, it surged sharply in a single day. This is interpreted as attracting market attention due to the decision to acquire 500 billion won worth of treasury shares to enhance shareholder value and the plan to improve dividend policies. LG plans to return more than 50% of net income based on separate financial statements to shareholders starting February 2020.

Choi Gwan-soon, a researcher at SK Securities, analyzed, "In the dividend policy announced in February 2020, the clause 'dividend income limit' was removed, opening the possibility of dividends not only from dividend income but also from trademark usage income and rental income," adding, "Simply paying 50% of separate net income as dividends results in a 37.5% increase in dividends."

The stock prices of holding companies have been on a downward trend since 2020. Negative issues such as physical division and simultaneous listing of parent and subsidiary companies have acted as factors lowering corporate value. The holding companies' net asset value (NAV) discount rate, which was only about 40% in early 2020, has recently risen to 60%. NAV refers to the sum of the operating value of the holding company and the value of listed and unlisted subsidiary shares. Typically, holding companies determine an appropriate stock price by applying a certain discount rate to NAV. However, shareholder-friendly management to remove the undervaluation label is now in full swing this year.

Kim Jang-won, a researcher at IBK Investment & Securities, explained, "The conditions for a strong holding company are diversification of core industries, improvement of unlisted subsidiaries, active shareholder returns, the role of the holding company, and superiority in ESG (environment, social, governance) activities," adding, "Attention should be paid to holding companies that can use their cash holdings for investment activities or shareholder returns." He named LS, SK, LG, and Harim Holdings as strong holding companies. LS is expected to see improved performance of affiliates due to the low listing ratio of its core subsidiaries' stocks. SK stands out for its excellent unlisted companies and the holding company's active investment activities and shareholder returns. LG has abundant cash holdings, providing ample capacity for investment activities or shareholder returns, and Harim Holdings is favored for its vertical integration of core businesses, improved performance, and upcoming large-scale asset development.

Daol Investment & Securities recommended SK and Samsung C&T as preferred stocks. Samsung C&T is expected to see operating profit increase by more than 55% this year, centered on construction, trading, and fashion sectors, which is considered highly favorable. Kim Han-i, a researcher at Daol Investment & Securities, explained, "Concerns about deteriorating corporate profitability due to cost increases from inflation are growing," adding, "Since the corporate value of holding companies is evaluated based on asset value, it is expected that stocks with high stability and sound financial structures will be revalued."

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