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Mixed Opinions about Samsung C&T Merger Effects
Muddy Outlook
Mixed Opinions about Samsung C&T Merger Effects
  • By Jung Suk-yee
  • October 2, 2015, 01:30
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The Seoul High Court ruled on May 31 that the stock price of Samsung C&T had failed to reflect the value of the corporation in an objective way.
The Seoul High Court ruled on May 31 that the stock price of Samsung C&T had failed to reflect the value of the corporation in an objective way.

 

Samsung C&T, which has been continuously going downhill since going public, is bouncing back. However, there are mixed opinions about the effects of the merger with Cheil Industries in the securities industry.

In the stock market on Oct. 1, the stock price of Samsung C&T closed at 153,500 won (US$130.42), up 4.78 percent from the previous day. The market capitalization at the closing on the day was 29.12 trillion won (US$24.74 billion).

The new Samsung C&T has been expected to become the third largest company on the stock market in terms of market capitalization even before the launch. In fact, the company’s market capitalization started from 30.92 trillion won (US$26.23 billion) on Sept. 15, its first day of trade after the business combination, and rose to 31.20 trillion won (US$26.51 billion) on Sept. 16, narrowing the gap between number three Korea Electric Power Corporation by about 60 billion won (US$51 million). However, Samsung C&T’s market cap went downhill since then, and the gap between the two companies was widened by 3.67 trillion won (US$3.12 billion) on Sept. 30, 15 days after being listed on the stock exchange.

The short-term factor of the slump is the increase in profit taking trading and distribution volumes. Foreign investors had massively sold stocks of the new Samsung C&T until now, except for the first day of trading and Sept. 21. The stock price started at 163,000 won (US$138.15) on the first day of trading but it decreased 10.12 percent to 146,500 won (US$124.47) on Sept. 30.

Accordingly, there are different views on the outlook for Samsung C&T in the stock industry. In the long term, the synergy effects from the merger are expected in the future, and there is a possibility that the Samsung Group will come up with plans to increase shareholder returns. Daishin Securities forecasted that there will be higher expectations that laws related to governance structure, including the introduction of intermediary financial holding companies, to be passed when the One-shot Act, which will be proceeded within this month, passes. Accordingly, it will provide an opportunity for Samsung C&T to stand out. In particular, research and development firm Samsung Bioepis will be listed on the NASDAQ, while manufacturing firm Samsung Biologics will be listed on the securities market in the future. So, that can be a momentum for the stock price rise if the production facilities start operating in earnest in the second half of the year.

On the other hand, there are negative views as well. This is because the synergy effects of business, which is put up by the Samsung Group, is still in question. Results for the third quarter, which will be announced soon, also cause concerns. Generally, the fact that companies close down overlapped business and business reshuffles incur human resource and material costs when companies are merged has adverse effects on results. The performance consensus in the stock industry has been slightly improved, but it has a long way to go before achieving the group’s 2020 annual sales target of 60 trillion won (US$50.98 billion). For the Q3 result consensus in the securities industry, sales have slightly increased from 1.35 trillion won (US$1.15 billion) in June 30 to 1.65 trillion won (US$1.4 billion) a week before Sept. 30, while operating profits have grown from 69.9 billion won (US$59.39 million) to 70.5 billion won (US$59.9 million). Net profits are expected to rise from 40.2 billion won (US$34.15 million) to 43.6 billion won (US$37.04 million).