Hanwha Investment & Securities said on 15th that Nongshim Holdings' share price is undervalued relative to its intrinsic value and could have more upside than Nongshim going forward. It did not present an investment opinion or a target price. Nongshim Holdings' previous closing price was 88,000 won.
Nongshim Holdings is a pure holding company that does not conduct independent business activities and relies mainly on dividend income and service and brand royalties from subsidiaries as revenue sources. Its major subsidiaries include Nongshim, YoulChon Chemical, Nongshim Development, Nongshim Engineering, and Nongshim Taekyung. In particular, Nongshim, the core of the Nongshim group, and YoulChon Chemical are not included as consolidation subsidiaries of Nongshim Holdings.
Han Yu-jeong, an analyst at Hanwha Investment & Securities, said, "We believe a larger holding-company discount has been reflected in Nongshim Holdings because the earnings of key subsidiaries are not directly consolidated and flow in only through dividends."
The analyst assessed that even if a 50% discount rate is applied to the equity value of Nongshim and YoulChon Chemical, which are not included through consolidation, Nongshim Holdings' net asset value (NAV) comes out to 901.7 billion won based on the 12th closing price.
The analyst said, "While the separate basis net cash position, the rise in corporate value of listed subsidiaries, and cash accumulation at unlisted subsidiaries have continued to lift net worth, Nongshim Holdings' share price remains deeply undervalued relative to its underlying strength amid indifference." Nongshim Holdings' price-to-book ratio (PBR) is only 0.2 times.
It also analyzed that the holding-company discount could narrow going forward. This is because of the potential for ▲ Nongshim's overseas growth ▲ Nongshim's dividend expansion ▲ discussions on Nongshim's consolidation inclusion.
The analyst said, "Because all members of Nongshim's board of directors serve as inside and outside directors of Nongshim Holdings, there is room to interpret that, although the nominal equity ratio falls short of a majority, Nongshim Holdings effectively controls Nongshim's management," adding, "If Nongshim becomes eligible for consolidation inclusion, Nongshim Holdings' consolidated revenue, operating profit, and net profit could all increase sharply, and it is highly likely to be re-rated from a simple holding company dependent on dividends to a holding company that directly reflects the core food business."