The stock prices of subsidiaries of HD Hyundai Group rose significantly this year, but the stock price of HD Hyundai fell. Amid the rally of subsidiary stock prices, the issue of the so-called 'holding company discount' re-emerged, where the holding company is relatively sidelined.
According to the Korea Exchange on the 28th, from January 2 to April 28 this year, the stock prices of listed companies in HD Hyundai Group all rose. The three HD Shipbuilding companies each saw HD Hyundai Heavy Industries rise by 38.96%, HD Hyundai Mipo by 24.07%, and HD Korea Shipbuilding & Offshore Engineering by 16.89%. Additionally, the stock price increases of HD Hyundai Energy Solutions (43.56%), HD Hyundai Construction Equipment (14.92%), and HD Hyundai Infracore (18%) also reached double digits. While the KOSPI index rose by 6.08% this year, the stock price increase of HD Hyundai subsidiaries stood out significantly.
However, the stock price of the holding company HD Hyundai fell by 2.27%.
As the stock prices of subsidiaries rallied while the holding company's stock price actually fell, reactions emerged that highlighted the chronic issue of 'holding company discount' in the domestic stock market. The holding company discount refers to the phenomenon where the stock price of the holding company is excessively low compared to the value of the assets held by the subsidiaries.
The discount rate compared to the net asset value (NAV) of HD Hyundai stands at 69.5%, indicating a significantly undervalued state. The discount rate shows the difference between market capitalization and net asset value. A lower discount rate is considered indicative of a corporation being valued appropriately.
The reason the holding company discount occurs is that both the parent company and its subsidiaries are listed, leading to 'double counting' of equity value. In the stock market, the value of subsidiaries is assessed separately, while the equity value held by the parent company is reflected at a discount.
In particular, HD Hyundai has a 'roof-over-roof' structure, designating HD Korea Shipbuilding & Offshore Engineering and HD Hyundai XiteSolution as intermediate holding companies for the shipbuilding and construction equipment sectors, respectively. This has led the market to suggest that 'HD Hyundai is in a triple counting situation.'
Park Jong-ryul, a researcher at Heungkuk Securities, noted, 'The repeated duplicate listings of subsidiaries are making it difficult for the holding company's stock price to rebound.' He added, 'Recently, investors have shown increasing resistance to split listings, and the stock price of the holding company often falls whenever a listing issue comes up.' HD Hyundai transitioned to a holding company structure in 2018, subsequently listing its subsidiaries. Last year, HD Hyundai Marine Solution was listed.
Concerns among shareholders are growing as HD Robotics, in which HD Hyundai holds more than 90% equity, is set to escape the 'partitioning five-year rule' next month. The Korea Exchange applies strengthened listing examination standards when newly established subsidiaries from partitioning are listed within five years. Consequently, most partitioning companies prepare for listing five years after partitioning. However, HD Hyundai stated, 'Currently, there are no plans for listing HD Robotics.'
Experts advise that it is necessary to consider ways to enhance shareholder returns, especially in a situation where improving governance is not easy. They suggest that expanding dividends or stock buybacks could provide room for the holding company's stock price to be reevaluated.
Park emphasized, 'To raise the holding company's stock price, the combined shareholder return rate, including the dividend yield and stock buyback through the stock retirement rate, needs to be increased.' He also stated that during split listings, shareholder return measures should be considered, such as prioritizing new shares for existing shareholders or providing special dividends from capital surplus.
Some argue that there are fundamental limitations to investing in holding companies that have various business sectors. Jeon Woo-je, a researcher at KB Securities, said, 'In the case of holding companies like HD Hyundai, all business sectors must perform well simultaneously to be attractive for investment.' He noted that when a specific business sector grows significantly, it may be more advantageous to invest directly in that subsidiary rather than in the holding company.