SK Square's value-up plan earns an A;
holding company that keeps promises
“Other SK affiliates, as well as holding companies across the country, should take note and follow suit”
SK Square, an investment-focused holding company, has a W32 trillion net asset value (NAV), with its 20% stake in SK Hynix contributing 80% to this figure. While SK Inc. holds a 32% stake, foreign investors are the largest shareholders with a 52% ownership. SK Square's total shareholder return (TSR) of 57% in 2023 and 61% during the first 10 months of 2024, solidifies its position as the most shareholder-friendly holding company in Korea.
The board's thoughtful and engaging approach to value enhancement is evident in its comprehensive value-up plan, which we award an A grade. It's surprising yet commendable that the company has acknowledged a somewhat high cost of equity (COE), estimated at 13-14%. For shareholders, COE represents required rate of return. The plan to aggressively buyback and cancel shares during periods of equity undervaluation is a particularly positive aspect, in our view.
Over the past two years, SK Square has demonstrated a strong commitment to shareholder value by buying back and canceling W410 billion worth of treasury shares, representing 5% of its issued shares and approximately 50% of its free cash flow. The company has further reinforced this commitment by announcing the buyback of an additional W100 billion and the cancellation of W90 billion on the same day it unveiled its value-up plan. This consistent execution, even amid a change in CEO, underscores the board and management's dedication to fulfilling their promises to shareholders.
The company has set three ambitious yet achievable goals: 1) reduce the NAV discount rate to below 50% by 2027 (vs. current 66% discount); 2) boost ROE so that it exceeds COE (vs. current 10% ROE); and 3) achieve a price-to-book ratio (PBR) of at least 1.0x by 2027 (vs. current 0.7x). The board's proactive approach to address the NAV discount issue by implementing a capital allocation policy linked to management KPIs and compensation is commendable and in line with global best practices. To sustain the hard-earned gains in corporate value, it is essential to uphold the strict cost of capital principle when evaluating and investing in new business and managing the ICT portfolio.
SK Square's value-up plan sets a new benchmark for other holding companies.
Other SK affiliates should take note and follow suit.
November 24, 2024
Korean Corporate Governance Forum Chairman,
Namuh Rhee
SK Square's value-up plan earns an A;
holding company that keeps promises
“Other SK affiliates, as well as holding companies across the country, should take note and follow suit”
SK Square, an investment-focused holding company, has a W32 trillion net asset value (NAV), with its 20% stake in SK Hynix contributing 80% to this figure. While SK Inc. holds a 32% stake, foreign investors are the largest shareholders with a 52% ownership. SK Square's total shareholder return (TSR) of 57% in 2023 and 61% during the first 10 months of 2024, solidifies its position as the most shareholder-friendly holding company in Korea.
The board's thoughtful and engaging approach to value enhancement is evident in its comprehensive value-up plan, which we award an A grade. It's surprising yet commendable that the company has acknowledged a somewhat high cost of equity (COE), estimated at 13-14%. For shareholders, COE represents required rate of return. The plan to aggressively buyback and cancel shares during periods of equity undervaluation is a particularly positive aspect, in our view.
Over the past two years, SK Square has demonstrated a strong commitment to shareholder value by buying back and canceling W410 billion worth of treasury shares, representing 5% of its issued shares and approximately 50% of its free cash flow. The company has further reinforced this commitment by announcing the buyback of an additional W100 billion and the cancellation of W90 billion on the same day it unveiled its value-up plan. This consistent execution, even amid a change in CEO, underscores the board and management's dedication to fulfilling their promises to shareholders.
The company has set three ambitious yet achievable goals: 1) reduce the NAV discount rate to below 50% by 2027 (vs. current 66% discount); 2) boost ROE so that it exceeds COE (vs. current 10% ROE); and 3) achieve a price-to-book ratio (PBR) of at least 1.0x by 2027 (vs. current 0.7x). The board's proactive approach to address the NAV discount issue by implementing a capital allocation policy linked to management KPIs and compensation is commendable and in line with global best practices. To sustain the hard-earned gains in corporate value, it is essential to uphold the strict cost of capital principle when evaluating and investing in new business and managing the ICT portfolio.
SK Square's value-up plan sets a new benchmark for other holding companies.
Other SK affiliates should take note and follow suit.
November 24, 2024
Korean Corporate Governance Forum Chairman,
Namuh Rhee