Top Pick: SK Holdings
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
With the NPS having decided to expand ESG investments to 50% of total assets, the size of publicly offered funds focused on ESG stocks in Korea is growing rapidly. The final corporate governance restructuring is underway ahead of changes in the regulatory environment, including the implementation of the revised Fair Trade Act and the expiration of tax benefits for holding company transition. After the announcement of plans to gradually make the disclosure of Corporate Governance Reports (G) and Sustainable Management Reports (E, S) mandatory, ESG management strategies (eg, the establishment of ESG committees) are spreading, and companies have begun to overhaul their overall ESG commitments, including expanding their numbers of female registered executives with the implementation of the revised Capital Market Act. Amid such developments, we believe that investors will expand their consideration of non-financial information going forward
Holding company valuation figures have emerged from the extreme undervaluation seen in the immediate aftermath of the Covid-19 outbreak, but they are still outside of their historical band ranges. Rather than the absolute level of discount to NAV, it is our view that sustainability of enhancing shareholder value based on superior cash flow and capacity to strengthen business portfolios should be used as the key investment criterion for holding companies. We suggest SK Holdings as a promising play, as it has entered a virtuous cycle as an investment holding company, and as it is strengthening its business portfolio (centering upon four major business areas)
Top pick: SK Holdings (034730.KS); TP of W400,000
SK Holdings has reorganized its business portfolio into four areas—advanced materials, bio, green, and digital.
The company has achieved a virtuous cycle as an investment company (stake acquisition → EV expansion → disposal of stake/IPO and secondary offering → stake acquisition). Of note, in addition to acquiring French gene therapy CMO Yposkesi, investing in hydrogen business, and selling an 11% stake in SK Biopharm, the firm is planning IPOs for SK Siltron and SK Pharmteco.
We expect the firm’s strengthening cash flow to positively impact shareholder value moving ahead.
SK Telecom’s plan to transition into an intermediate holding company should also beef up SK Holdings’ EV.