In the domestic stock market recently, holding company shares have been on a steep rally. On top of policy expectations such as the Commercial Act revision and separate taxation of dividend income, expectations are being priced in that, ahead of the March shareholder meeting season, strong shareholder-return measures, including share cancellations, will pour out.
According to the Korea Exchange (KRX) on the 3rd, over the past month (Jan. 2–Feb. 2), Hanwha rose 32.84%. Major holding companies such as Korea Investment Holdings (23.56%), Samsung C&T (21.5%), HD Hyundai (18.3%), and SK (16.76%) also rallied across the board. This outpaced the KOSPI index's gain (17.45%) over the same period.
Policy momentum underpins the strength in holding company shares. In particular, as the ruling party speeds up handling of the third Commercial Act amendment centered on mandating the cancellation of treasury shares, expectations are growing that holding companies with large treasury share positions will directly benefit.
According to Leaders Index, as of the end of 2024, the average treasury share ratio for corporations holding treasury shares (73.6% of all listed companies) stood at 3.3%. Given this, major holding companies' treasury share ratios are relatively high, including Hanwha (7.4%), Korea Investment Holdings (5.3%), HD Hyundai (10.5%), and SK (24.8%).
If the cancellation of treasury shares materializes, the number of shares in circulation will decrease, and existing shareholders can expect a simultaneous increase in dividends per share (DPS) and per-share value.
Kim Jong-yeong, a researcher at NH Investment & Securities, said, "A reduction in the number of shares improves the supply-demand environment by cutting share supply and structurally accelerates the rise of earnings per share (EPS) and book value per share (BPS)," adding, "If the treasury share cancellation bill passes, holding companies that prefer stocks with high treasury share ratios relative to listed shares and also offer valuation appeal are highly likely to benefit."
Separate taxation of dividend income is also cited as a factor lifting holding company valuations. Holding companies generate revenue through dividends from subsidiaries, among other sources, so they have relatively high payout ratios and have been regarded as representative high-dividend investment destinations.
A researcher in charge of a holding company said, "While the controlling shareholder's dividend income tax burden has acted as a constraint on dividend increases, the introduction of separate taxation has eased the tax burden, increasing the likelihood that holding companies' capacity to pay dividends will translate into shareholder returns."
Meanwhile, the February–March shareholder meeting season is also boosting investor expectations. Typically, as activist funds step up their activities ahead of shareholder meetings, corporations are more likely to roll out value-up policies more aggressively. There is also the effect of shareholders' expectations for shareholder returns having risen recently.
In fact, the U.K.-based activist fund Palliser Capital has signaled shareholder mobilization regarding LG Chem ahead of next month's shareholder meeting, and Align Partners is also conducting shareholder campaigns targeting Coway, among others. Palliser Capital demanded a tender offer for treasury shares, while Align Partners called for capital structure optimization and a board overhaul, among other measures.
In the securities industry, some also forecast that holding companies will reemerge not only through a stock re-rating but as "head companies" leading their groups as a whole.
An Yeong-jun, a researcher at Kiwoom Securities, said, "Holding companies no longer stop at controlling subsidiaries as in the past; they have come to play a central role in the group's overall management activities, such as raising funds and returning cash to shareholders."
As grounds, he cited: ▲ in major groups, most inheritance and gift issues have been resolved, weakening the perception that a rise in holding company share prices is disadvantageous to controlling shareholders; and ▲ with higher holding company equity stakes, a structure is forming in which expanding shareholder returns directly translates into increased economic efficiency for controlling shareholders.