KOSPI Hits All-Time High, but "Why Is My Account Like This?"... Numerous Companies with PBR as Low as 0.1

Yonhap News Agency

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Although the KOSPI index has reached an all-time high, it has been found that 6 out of 10 listed companies are trading below their liquidation value. This suggests that the chronic issue of the 'Korea Discount'-the persistent undervaluation of Korean stocks-remains unresolved in the domestic stock market.

According to the Korea Exchange on April 24, as of April 22, 63.5% of companies listed on the KOSPI had a price-to-book ratio (PBR) below 1. Out of a total of 804 companies (excluding preferred stocks, etc.), 511 companies were trading at prices even lower than the value of their assets if liquidated immediately. The companies recording the lowest PBR were KC Green Holdings (0.11) and TY Holdings (0.11). They were followed by Vivian (0.12), Aprogen Biologics (0.13), SUN&L (0.14), Hands Corporation (0.15), Dynamic Design (0.16), Dongkuk CM (0.17), Sungchang Enterprise Holdings (0.17), and UNID BT Plus (0.17).

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In the KOSDAQ market, 658 out of 1,692 companies (38.8%) had a PBR below 1. Looking at those with the lowest PBR, Ocean in the W (0.10), Aptochrom (0.11), KD (0.14), The Technology (0.15), Suseong Webtoon (0.16), Carry (0.18), SG&G (0.19), Woori Enterprise (0.19), Nexton & Roll Korea (0.20), and Newon (0.20) were among those listed.

PBR is an indicator that compares a company’s market capitalization to its net assets. A PBR below 1 means that the company is undervalued compared to its book value. The primary causes of undervaluation include declining profitability, low shareholder returns, and opaque governance structures. More fundamentally, it stems from investors’ uncertain outlook on the future of these companies. According to the Korea Capital Market Institute, as of the end of last year, sectors that are recognized for future growth such as pharmaceuticals (3.2 times) or electrical and electronics (2.3 times) had high PBRs, while stagnating sectors such as paper and wood (0.4 times), electric and gas (0.6 times), and construction (0.7 times) remained at about half of their book value.

Financial authorities will implement a 'Naming & Shaming' policy starting in the second half of this year, releasing a list of low-PBR companies every six months. The goal is to increase market pressure and improve the prevailing practice of major shareholders neglecting stock prices for their own benefit, even if the PBR is low. If a company’s PBR remains in the bottom 20% within its industry for two consecutive periods, it will be published on the Value-Up website, and a low-PBR tag will be attached to the stock. However, if a company discloses a value enhancement plan, it will be exempted from being listed for a certain period, thereby encouraging voluntary improvement.

In fact, more companies are participating in 'Value-Up disclosures.' As of the end of last month, 590 companies had submitted Value-Up disclosures, of which 307 were KOSPI-listed firms. On April 6, Assemblywoman Kim Hyunjung of the Democratic Party of Korea proposed a bill making it mandatory for listed companies with a PBR below 1 for two consecutive years to prepare and disclose a value enhancement plan. However, it remains uncertain whether this quantitative increase will lead to qualitative improvement.

Lee Hyoseop, Senior Research Fellow at the Korea Capital Market Institute, stated, "The penalty of naming and shaming is likely to help improve PBRs," but added, "Mandatory disclosure for companies with a PBR below 1 is unprecedented overseas, and there are differences by industry. Only a small number of companies intentionally suppress their stock prices." He further stated, "It is more desirable for pension funds to actively exercise their voting rights and for institutional investors to lead PBR improvements. Furthermore, incentives such as corporate tax reductions, inheritance and gift tax reductions, or increasing the weight of improved companies in indices should be considered."

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