Mirae Asset Value-up Plan receives C grade due to four shortcomings
Chairman Park Hyeon Joo must assume role of director for better accountability Higher exposure
to global business could lead to de-rating of its shares
Mirae Asset Securities disclosed its "Value-up plan” on August 22nd. Meritz Financial, Shinhan Financial, and Woori Financial, which announced Value-up Plans in July, have all been highly rated with A ratings. Unfortunately, Mirae Asset, like Kiwoom Securities in May which presented a value-up plan with no detail, receives a C grade.
Mirae Asset Securities' value-up plan exhibits commendable features such as a comprehensive analysis of its competitive environment, recognition of a 10% theoretical cost of equity, and a clear commitment to enhance book value per share (BPS). Nevertheless, there are four key reasons why we have assigned it a C rating.
First, the founder, controlling shareholder, and Global Strategy Officer (GSO), Park Hyeon Joo does not hold a position on the board of directors or even in management team, even though he is alleged to make key management decisions. Some company materials refer to him as the Chairman, as shown below. In fact, Park does not serve on the board of Mirae Asset Capital, a privately held company that owns 31% of Mirae Asset Securities, as well. Park and his related parties have an 84% controlling stake in Mirae Asset Capital.
Despite this significant controlling ownership, Mirae Asset Securities' disclosures position Park as merely a "non-full-time, non-board consultant with a focus on global business.” Despite his title as GSO, the company website indicates that Park is deeply involved in the company's day-to-day operations and strategic decision-making. Park should be made accountable for key corporate decisions that he makes. In our view, Park has escaped legal liability for questionable decisions, such as excessive real estate investments, by not serving as a director. To remedy this situation and ensure responsible management, the Mirae Asset Securities board should promptly appoint Park as a director without delay.
Second, it's value-up strategy is notably lacking in a clear articulation of its capital allocation principles. The company has acknowledged the burden of its excessive shareholder equity, amounting to hefty W11.5 trillion. While understand their frankness, this plan favors controlling shareholder at the expense of minority shareholders. Free float including the 5% stake held by the National Pension Service(NPS), represents only 37% of the total outstanding shares. Their plan to cancel 100 million shares (equivalent to 13% of outstanding shares) by 2030 would merely decrease free float, suggesting a hidden agenda on boosting controlling shareholder interests rather than genuine value creation for minority shareholders. To truly demonstrate a commitment to enhancing shareholder value, we propose that the company immediately cancel all treasury shares equivalent to 25% of outstanding shares and acquire the 8% stake held by NAVER for immediate cancellation. This proposal should be on the board's agenda this fall.
Third, scaling up global business as the company suggests may actually lead to lower valuation (share de-rating). As seen in the Japan’s case, despite being a far superior financial institution compared to Daiwa, Nomura has consistently exhibited a lower PBR. Even now, Nomura's PBR stands at 0.7x, while Daiwa's is at 1.0x. This outcome reflects the market's concern over Nomura's global business, particularly after its acquisition of Lehman Brothers' Asia and European businesses. Mirae Asset Securities is currently trading at only 0.4x PBR which reflects the market’s concerns about its global business model, risk management capabilities, and transparency in decision-making processes.
Finally, there is an urgent need to upgrade the board. Neither the top management nor the external directors have any experience in working at top global investment banks. Despite emphasizing global business as its future growth engine, Mirae Asset Securities has filled its board with academics who lack the hands-on experience necessary for navigating the complexities of the global financial market. This raises serious concerns about the company's governance practices and its commitment to effective oversight.
September 9, 2024
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Mirae Asset Value-up Plan receives C grade due to four shortcomings
Chairman Park Hyeon Joo must assume role of director for better accountability Higher exposure
to global business could lead to de-rating of its shares
Mirae Asset Securities disclosed its "Value-up plan” on August 22nd. Meritz Financial, Shinhan Financial, and Woori Financial, which announced Value-up Plans in July, have all been highly rated with A ratings. Unfortunately, Mirae Asset, like Kiwoom Securities in May which presented a value-up plan with no detail, receives a C grade.
Mirae Asset Securities' value-up plan exhibits commendable features such as a comprehensive analysis of its competitive environment, recognition of a 10% theoretical cost of equity, and a clear commitment to enhance book value per share (BPS). Nevertheless, there are four key reasons why we have assigned it a C rating.
First, the founder, controlling shareholder, and Global Strategy Officer (GSO), Park Hyeon Joo does not hold a position on the board of directors or even in management team, even though he is alleged to make key management decisions. Some company materials refer to him as the Chairman, as shown below. In fact, Park does not serve on the board of Mirae Asset Capital, a privately held company that owns 31% of Mirae Asset Securities, as well. Park and his related parties have an 84% controlling stake in Mirae Asset Capital.
Despite this significant controlling ownership, Mirae Asset Securities' disclosures position Park as merely a "non-full-time, non-board consultant with a focus on global business.” Despite his title as GSO, the company website indicates that Park is deeply involved in the company's day-to-day operations and strategic decision-making. Park should be made accountable for key corporate decisions that he makes. In our view, Park has escaped legal liability for questionable decisions, such as excessive real estate investments, by not serving as a director. To remedy this situation and ensure responsible management, the Mirae Asset Securities board should promptly appoint Park as a director without delay.
Second, it's value-up strategy is notably lacking in a clear articulation of its capital allocation principles. The company has acknowledged the burden of its excessive shareholder equity, amounting to hefty W11.5 trillion. While understand their frankness, this plan favors controlling shareholder at the expense of minority shareholders. Free float including the 5% stake held by the National Pension Service(NPS), represents only 37% of the total outstanding shares. Their plan to cancel 100 million shares (equivalent to 13% of outstanding shares) by 2030 would merely decrease free float, suggesting a hidden agenda on boosting controlling shareholder interests rather than genuine value creation for minority shareholders. To truly demonstrate a commitment to enhancing shareholder value, we propose that the company immediately cancel all treasury shares equivalent to 25% of outstanding shares and acquire the 8% stake held by NAVER for immediate cancellation. This proposal should be on the board's agenda this fall.
Third, scaling up global business as the company suggests may actually lead to lower valuation (share de-rating). As seen in the Japan’s case, despite being a far superior financial institution compared to Daiwa, Nomura has consistently exhibited a lower PBR. Even now, Nomura's PBR stands at 0.7x, while Daiwa's is at 1.0x. This outcome reflects the market's concern over Nomura's global business, particularly after its acquisition of Lehman Brothers' Asia and European businesses. Mirae Asset Securities is currently trading at only 0.4x PBR which reflects the market’s concerns about its global business model, risk management capabilities, and transparency in decision-making processes.
Finally, there is an urgent need to upgrade the board. Neither the top management nor the external directors have any experience in working at top global investment banks. Despite emphasizing global business as its future growth engine, Mirae Asset Securities has filled its board with academics who lack the hands-on experience necessary for navigating the complexities of the global financial market. This raises serious concerns about the company's governance practices and its commitment to effective oversight.
September 9, 2024
Korean Corporate Governance Forum
Chairman, Namuh Rhee