Kiwoom Securities on the 29th said it expects the combined market capitalization after the spin-off taking effect on the 1st of next month for Hanwha(000880) to increase from before. It added that a pre-partitioning buying strategy remains valid. It maintained a "Buy" investment opinion and a target price of 169,000 won. Hanwha's previous day's closing price was 86,800 won.
Hanwha will be spun off on the 1st of next month into Hanwha and Hanwha Machinery & Service Holdings (tentative name). As a result, trading will be suspended from the 30th until the day before the change of listing on the 24th of next month.
The surviving holding company, Hanwha, will control Hanwha Aerospace, Hanwha Solutions and Hanwha Life Insurance, while the new holding company will control Hanwha Vision, Hanwha Galleria and Hanwha Hotel & Resort.
The partitioning ratio is 0.756 to 0.244 for the surviving and new companies, respectively, and considering the change in par value of the new company's shares, the allocation ratio of the new shares of the partitioning company is projected to be 1.22 shares per 1 share.
Kiwoom Securities expected Hanwha's combined market capitalization after the partitioning to increase from the existing level.
Ahn Young-jun, an analyst at Kiwoom Securities, said, "Recently, Hanwha's share price has been swayed by the movement of Hanwha Aerospace, which accounts for about 90% of the net asset value (NAV), and the NAV discount rate has remained steady in the mid- to high-60% range," adding, "The surviving company, which will take control over Hanwha Aerospace, is expected to apply a discount rate similar to the existing level to the NAV including Hanwha Aerospace."
In this case, the surviving company's proportion of NAV transferred (over 90%) is higher than the partitioning ratio (75.6%), so it was explained that the post-partitioning share price is likely to be higher than the theoretically derived price.
Ahn added, "In addition, we can expect an increase in per-share NAV due to the decrease in the number of shares and a share price rise based on that."
Kiwoom Securities also judged that the new company's NAV has room to be higher than before.
Ahn explained, "This is because the value of unlisted corporations, such as Hanwha Hotel & Resort, which have been assessed at book value, could come to the fore."
The book value of Hanwha's 49.8% equity stake in Hanwha Hotel & Resort is only 249.1 billion won, but the corporation's capital as of the end of last year amounts to 5.7 trillion won. Also, last year it acquired a 58.7% stake in OURHOME for 869.5 billion won.
Ahn explained, "Such value had been diluted due to its low weight, but after the partitioning it is more likely to be reflected with greater precision," adding, "With price discovery in that segment, we expect the combined market capitalization of the two companies after the partitioning to increase from the existing level."
After the partitioning, in the short term, a rise in the surviving company's share price and a decline in the new company's share price could be expected, depending on the proportion of NAV transferred.
However, applying a conservative view such as a price-to-book ratio (PBR) of 0.5 times and a discount rate of 70%, the new company's market capitalization was projected to find at least minimal support in the 500 billion to 600 billion won range.