The author is an analyst of KB Securities. He can be reached at moonjoon.chang@kbfg.com. -- Ed.
Daelim Industrial announces demerger
Daelim Industrial has decided to spin off into a surviving entity and two business entities (effective from Jan 1, 2021): (1) The surviving entity will be a holding company named DL (to remain listed). (2) The Construction business will be spun off to form a new entity tentatively named DL E&C (to be listed). (3) The Petrochemical business will be split off as a wholly owned subsidiary of DL tentatively named DL Chemical (unlisted). Based on BVPS, the DL/DL E&C spin-off ratio will be 44%/56%. The demerger aims to optimize strategies for each business and remove the discount inherent to conglomerates so as to maximize enterprise value.
Corporate governance position of largest stakeholder to be strengthened
The ultimate goal of the demerger is for the largest stakeholder, Daelim Corporation (21.7% stake), to strengthen its corporate governance position. In the long term, Daelim Corporation could provide its DL E&C stake to DL.
DL E&C market value to affect stock performance
The value that the market gives DL E&C will be crucial to Daelim Industrial stock performance and to the total enterprise value of each company. The Construction business, though it has been generating massive profits, has been weighed down by (1) severely curbed stock performance across its industry, (2) the absence of concrete plans for new business (e.g., eco-friendly and low carbon) and (3) no plans set for shareholder returns. We note that the nearly 20% surge in stock price since Aug 24 implies there is limited room for upside potential. DL E&C stock momentum should depend on new business plans and shareholder policy.