[Value-Up Success Factors] ⑤ Meritz Financial Group to Share 50% of Net Income with Shareholders

Shareholder Return Rate Reached 51% Last Year
Maintaining Principle of Over 50% Net Profit This Year
General Shareholders' Questions Also Accepted in May Conference Call

Editor's NoteThe corporate value-up program has been unveiled. It is a policy promoted at the pan-government level to resolve the 'Korea Discount' (undervaluation of the Korean stock market). The core of the program is to provide incentives without penalties to encourage voluntary participation by listed companies. However, the market has expressed disappointment over tax support and doubts about the success of the corporate value-up program. Is that really the case? Capital market experts emphasize that the success of the corporate value-up program depends not on tax policy but on the 'will of the listed companies.' The return on equity (ROE) of domestic companies is similar to that of Japan, but the dividend payout ratio is about 10% lower than Japan's. Unlike CEOs in the U.S. who meet shareholders directly, Korean listed companies hold formal investor relations (IR) meetings. It is not the listed companies who should demand incentives but those who must respond. It is now time for listed companies to promise shareholders through disclosures what and how they will do to enhance corporate value.

Meritz Financial Group is a model case of the 'corporate value-up policy' praised by domestic securities firms and activist funds. Following a net profit of 2 trillion KRW last year, it successfully kept its promise to achieve a 'shareholder return ratio of over 50%' through share buybacks and cancellations. This year, it has also quickly executed share disposals ahead of market expectations and announced new share repurchase plans.

Both share buybacks and dividends are funded from net profit. This means that companies must perform well in their core business first. Meritz Financial Group recorded a net profit of 2.05 trillion KRW last year, a 47.1% increase from the previous year. The securities industry forecasts this year's net profit to reach 2.225 trillion KRW, an 8.6% increase from last year.

Meritz Financial Group plans to maintain its shareholder return policy stance of 'a shareholder return ratio of over 50% based on consolidated earnings' this year as well. The shareholder return ratio is the proportion of money spent on dividends and share buybacks divided by net profit. Fifty percent is the highest level among domestic financial holding companies. Kim Yong-beom, Vice Chairman of Meritz Financial Group, stated during the February conference call that "share buybacks exceeding the 50% limit are possible," raising expectations for shareholder return policies beyond forecasts. Indeed, on March 22, Meritz Financial Group announced another share buyback plan through a trust contract worth 500 billion KRW. The buybacks will be conducted sequentially from the disclosure date until March 21, 2025.

It is also positive that the program goes beyond simple share buybacks to include cancellations. Share buybacks aim to increase stock prices to return wealth to shareholders, as the value per share increases, raising the stock value for existing shareholders. However, many companies do not dispose of repurchased shares. Often, repurchased shares are sold to third parties to create friendly stakes for management. Cancellations are the true meaning of shareholder return policies. This is why Meritz Financial Group received positive feedback from securities research centers. The shares bought last year were canceled in portions of 400 billion KRW in March and 240 billion KRW in April this year. Currently, the total number of outstanding shares is approximately 190.7 million.

Meritz Financial Group will also undertake a new shareholder communication experiment during the first-quarter conference call scheduled for the 14th of this month. The management will directly answer the questions most frequently asked by ordinary shareholders. This signifies a departure from the limitations of domestic listed companies that have so far opened limited communication channels mainly to securities firms and institutional investors, showing that they are listening to individual investors' voices. This aligns with the company's principle that "the value of one share held by a major shareholder is equal to that of one share held by an ordinary shareholder."

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