▲ Korea Exchange
Attention is focused on whether corporate efforts to enhance value will lead to tangible results as the Korea Exchange released a list of 151 listed companies with low price-to-book ratios (PBR) for the first time today (November 1).
Experts point out that follow-up measures beyond just releasing the list are necessary to encourage active corporate participation and strengthen efforts to boost corporate value.
According to the financial investment industry, the low-PBR company disclosure system was introduced to encourage value improvement in companies that neglect or suppress low stock prices through a "naming and shaming" approach that publicly identifies them.
The intent is to intensify market pressure to change the practice of not striving to enhance shareholder value for the benefit of controlling shareholders, such as expanding control, despite low PBRs.
A PBR of less than 1 means a company's market capitalization falls short of its liquidation value, which is interpreted as a sign that the market valuation relative to its assets is excessively low.
Although the value-up disclosure system was implemented in May 2024 to enhance the corporate value of listed companies, it has been evaluated that corporate participation has been lower than expected because it is based on voluntary participation.
The low-PBR companies disclosed this time are those whose PBR ranked in the lower tiers for six consecutive half-years or six out of the last seven half-years.
The criteria by market are the bottom 25% within industries for the Kospi and the bottom 10% for the Kosdaq.
Initially, financial authorities proposed "being in the bottom 20% for two consecutive quarters" as an example of targets for disclosure last March, but extended the application period and adjusted the ratio criteria considering industry boom and bust cycles and the period for visible performance.
The disclosed companies will be posted on the "Value-Up Page" within the Korea Exchange's electronic disclosure system until the day before the next disclosure date, and their stock names viewed on each securities firm's home trading system (HTS) and mobile trading system (MTS) will carry a "Low PBR" label.
The next disclosure date is May 4 of next year.
The list of low-PBR companies is published on the first trading day of May and November every year.
However, companies that have disclosed corporate value enhancement plans including "low-PBR improvement plans" but no longer meet the low-PBR requirements will be exempt from disclosure for one year.
The securities industry expects that this list release will have the effect of initially prompting corporate management to participate in the value-up program.
Kim Joon-seop, an analyst at KB Securities, said, "The value of the list lies not in being a list of undervalued companies, but in prompting management that is conscious of stock prices, meaning management that participates in the value-up program." He added, "For investors, it will serve as an opportunity to expand the basis for judging target companies for investment centered on value-up disclosures rather than whether they are included on the list."
Na Seung-doo, an analyst at SK Securities, noted, "PBR is calculated amid changes in stock prices and total capital. Since it is difficult to easily predict the direction of stock prices moving with the market, it is highly likely that focus will shift slightly more to improving the quality of capital (net assets), which corresponds to the denominator." He expected this to likely lead to measures such as an increase in treasury stock purchases and retirements or expanded dividends.
In fact, Na mentioned that in Japan, following the implementation of improvement measures for companies with a PBR of less than 1, some companies broke out of the low-PBR phase as treasury stock purchases increased.
He also stated, "There will be limited movement in paid-in capital increases or the issuance of convertible bonds (CBs), which are highly likely to act as factors that further lower PBR."
Jung Da-som, an analyst at Korea Investment & Securities, said, "Given that the government and investors are consistently demanding low-PBR improvements and interest in shareholder returns has grown, we can expect changes from companies with the capacity for shareholder returns or those expanding communication with shareholders."
However, she pointed out that some companies that disclosed corporate value enhancement plans to receive special exceptions did not include practical and specific plans.
Jung stated, "In order to actually receive the special exception and be excluded from the list, companies must disclose their compliance status with ten core indicators in accordance with the 'low-PBR improvement plan' format in addition to the corporate value enhancement plan," adding that only a fraction of companies have aligned with this.
Noting that the implementation date of the guidelines containing the disclosure format was September 11, she said, "There was not enough time to prepare disclosures," and added, "Because the low-PBR improvement plan requires identifying low-PBR factors by PER (price-to-earnings ratio) and ROE (return on equity) components in detail and establishing improvement plans, the disclosure burden seems high, causing companies to be slow in responding."
Some also pointed out that attention should be paid to plan implementation to enhance the effectiveness of the system.
Ryu Je-hyun, an analyst at Mirae Asset Securities, said, "Going forward, after the list is released, plan implementation will play a greater role in the discount rate (of net asset value) than disclosure."
In response, the Korea Exchange stated that it plans to provide 1-on-1 customized consulting and encourage active shareholder engagement activities by institutional investors who invested in low-PBR companies to achieve substantive PBR improvements for corporations.
It added, "We plan to ensure that the disclosure of the low-PBR company list does not end as a one-time measure but leads to continuous corporate value improvement."
(Photo: Yonhap News)
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