Korean Corporate Governance Forum Opinion
Kiwoom Securities, first company to unveil “Value-up plan”, deserves C grade only
Costofcapitalmissing.. The board should take lead and think deeply
On May 28, Kiwoom Securities became the first Korean listed company to disclose its “Value-up” corporate value enhancement plan through the Korea Exchange’s corporate value-up integrated web page (kind.krx.co.kr). It has been two days since the financial authorities released the final version of the Value-up guidelines.
Kiwoom’s 14-page corporate value enhancement plan, available in both Korean and English, reflects the company's commitment to its significant foreign investor base, which holds a 27% stake. The company has set three- year mid-term targets of ROE above 15%, capital return above 30%, and PBR above 1x. We believe this is a meaningful goal setting compared to ROE of 8%, capital return of 47%, and PBR of 0.5x, respectively, in 2023.
However, the company's value enhancement plan lacks specific detail and appears to show no depth of consideration. Most of the contents of announcement overlap with the corporate value improvement plan announced by the company last March. It is unfortunate that cost of equity and total shareholder return (TSR), which are the core of the government's Value-up guidelines, were left out. Perhaps, management was shocked to see the substantial deficit between return on equity (ROE) and cost of equity and how this has eroded its value in the past. For that reason, despite the recent stock price rebound, the share remains at PBR of 0.7x. In light of this, management and the board of directors should focus on developing a strategy for generating stable earnings and establishing a plan to improve valuation through effective capital allocation.
One of the factors that contributed to the success of corporate governance reform in our neighbor Japan was the proactive approach of the board of directors in identifying and improving capital efficiency. We would like to ask CEO Eom Jusung and the four independent directors (Lee Gun Hee, Park Seong Soo, Chung Juryum, and Yoo Kwang Yeol) whether the board has discussed, deliberated, or decided on equity valuation, cost of capital, capital efficiency, capital return policy, and total shareholder return from the perspective of minority shareholders, as emphasized by the financial authorities and the Stock Exchange.
The board members of Kiwoom Securities, like those of most domestic listed companies, may have limited accounting and finance expertise and knowledge. The company could enhance the credibility of its Value-up plan and take the first step towards an independent board by inviting experts from consulting firms, investment banks, or accounting firms to educate the financial accounting knowledge on the BoD members. This initiative would not only enhance the board's decision-making capabilities but also demonstrate a commitment to transparency and accountability, which are essential attributes of an independent board.
We urge Kiwoom Securities to incorporate the following elements into its next Value-up plan announcement: i) disclose the details of low-yielding assets that hinder ROA and present actionable plans; ii) substantiate and implement equity- based incentive compensation scheme to ROE as previously announced last March; iii) emphasize the importance of alignment among shareholders, board of directors, and employees, as the foundation of good governance.
Finally, we strongly encourage Kiwoom Securities’ management team and independent directors actively engage with key shareholders – both foreign and local - by visiting their head offices and attentively listening to their concerns and perspectives. This proactive approach to shareholder engagement would demonstrate a commitment to transparency, accountability, and responsiveness, which are fundamental principles of good corporate governance. Undertaking all of these actions under the responsibility of the board of directors is good governance and value creation.
Rather than engaging in a rush to disclose, we urge other companies to prioritize the development of comprehensive and well-structured value-up plans that are reviewed and deliberated by the board of directors in accordance with the government’s guidelines before making public announcements.
May 31, 2024
Korean Corporate Governance Forum
Namuh Rhee, Chairman
Please note that original letter in Korean was distributed locally on May 29th, 2024.
Korean Corporate Governance Forum Opinion
Kiwoom Securities, first company to unveil “Value-up plan”, deserves C grade only
Costofcapitalmissing.. The board should take lead and think deeply
On May 28, Kiwoom Securities became the first Korean listed company to disclose its “Value-up” corporate value enhancement plan through the Korea Exchange’s corporate value-up integrated web page (kind.krx.co.kr). It has been two days since the financial authorities released the final version of the Value-up guidelines.
Kiwoom’s 14-page corporate value enhancement plan, available in both Korean and English, reflects the company's commitment to its significant foreign investor base, which holds a 27% stake. The company has set three- year mid-term targets of ROE above 15%, capital return above 30%, and PBR above 1x. We believe this is a meaningful goal setting compared to ROE of 8%, capital return of 47%, and PBR of 0.5x, respectively, in 2023.
However, the company's value enhancement plan lacks specific detail and appears to show no depth of consideration. Most of the contents of announcement overlap with the corporate value improvement plan announced by the company last March. It is unfortunate that cost of equity and total shareholder return (TSR), which are the core of the government's Value-up guidelines, were left out. Perhaps, management was shocked to see the substantial deficit between return on equity (ROE) and cost of equity and how this has eroded its value in the past. For that reason, despite the recent stock price rebound, the share remains at PBR of 0.7x. In light of this, management and the board of directors should focus on developing a strategy for generating stable earnings and establishing a plan to improve valuation through effective capital allocation.
One of the factors that contributed to the success of corporate governance reform in our neighbor Japan was the proactive approach of the board of directors in identifying and improving capital efficiency. We would like to ask CEO Eom Jusung and the four independent directors (Lee Gun Hee, Park Seong Soo, Chung Juryum, and Yoo Kwang Yeol) whether the board has discussed, deliberated, or decided on equity valuation, cost of capital, capital efficiency, capital return policy, and total shareholder return from the perspective of minority shareholders, as emphasized by the financial authorities and the Stock Exchange.
The board members of Kiwoom Securities, like those of most domestic listed companies, may have limited accounting and finance expertise and knowledge. The company could enhance the credibility of its Value-up plan and take the first step towards an independent board by inviting experts from consulting firms, investment banks, or accounting firms to educate the financial accounting knowledge on the BoD members. This initiative would not only enhance the board's decision-making capabilities but also demonstrate a commitment to transparency and accountability, which are essential attributes of an independent board.
We urge Kiwoom Securities to incorporate the following elements into its next Value-up plan announcement: i) disclose the details of low-yielding assets that hinder ROA and present actionable plans; ii) substantiate and implement equity- based incentive compensation scheme to ROE as previously announced last March; iii) emphasize the importance of alignment among shareholders, board of directors, and employees, as the foundation of good governance.
Finally, we strongly encourage Kiwoom Securities’ management team and independent directors actively engage with key shareholders – both foreign and local - by visiting their head offices and attentively listening to their concerns and perspectives. This proactive approach to shareholder engagement would demonstrate a commitment to transparency, accountability, and responsiveness, which are fundamental principles of good corporate governance. Undertaking all of these actions under the responsibility of the board of directors is good governance and value creation.
Rather than engaging in a rush to disclose, we urge other companies to prioritize the development of comprehensive and well-structured value-up plans that are reviewed and deliberated by the board of directors in accordance with the government’s guidelines before making public announcements.
May 31, 2024
Korean Corporate Governance Forum
Namuh Rhee, Chairman
Please note that original letter in Korean was distributed locally on May 29th, 2024.