Everyone Has Been Waiting for the Split: "Daelim Industrial Will Escape Chronic Value Stock Status"

In the Mid to Long Term Focus on Chemistry, Short Term Focus on Construction Expected

[Asia Economy Reporter Minwoo Lee] Daelim Industrial is expected to achieve substantial growth through its transition to a holding company system and the separation of its business divisions. It is analyzed that the corporate value will increase after reevaluation in each sector, including chemicals and construction.

On the 13th, Korea Investment & Securities evaluated that although the separation of Daelim Industrial's business divisions was not a complete 'surprise announcement,' the pace of implementation exceeded market expectations. It is analyzed that the company can escape the undervaluation it had received as a conglomerate.

On the 10th, after the market closed, Daelim Industrial announced plans for a physical and personnel split. The core of the plan is the transition to a holding company system and the separation of business divisions. Starting January 1 next year, the company will be divided into DL Corporation as the holding company, DL Chemical as the chemical company, and DL E&C as the construction company. Prior to the announcement, Daelim Construction merged its construction subsidiaries Samho and Goryeo Development and sold Daelim C&S, which is interpreted as a precursor to these changes.

Changes in the governance structure before and after the human and physical division of Daelim Industrial (Source: Korea Investment & Securities, as of September 2020)

The transition to a holding company system is expected to strengthen the owner's group control and resolve the conglomerate discount. Kiho Kim, a researcher at Korea Investment & Securities, explained, "Recently, there has been relative strength within the industry due to expectations of governance restructuring, but historically, Daelim Industrial has remained a chronic 'value stock' compared to other construction companies. Although the petrochemical sector was undervalued due to concerns about COVID-19 and oversupply, the assessment that it still has an advantage over the construction sector in terms of profit improvement remains valid." It is analyzed that if the petrochemical division is reevaluated, it could lead to an increase in the overall corporate value of Daelim Industrial.

In the mid to long term, the focus will be on the chemical sector, but in the short term, group-level attention is expected to be concentrated on the construction sector. Researcher Kim stated, "To strengthen DL Corporation's control over the holding company DL, which is the main goal of the corporate split, it is essential to exchange shares between DL E&C, secured through the personnel split, and DL. At this time, to secure more shares of the holding company, it is advantageous for the value of DL E&C to be evaluated higher, so in the short term, increasing the value of DL E&C is beneficial from the owner's perspective."

He added, "Meanwhile, the fact that 100% stable ownership of the chemical division's shares was secured between DL E&C and DL Chemical, and that a more specific and aggressive business expansion strategy was presented from the DL Chemical side, suggests that the group's mid to long-term focus is more concentrated on chemicals than construction."

This content was produced with the assistance of AI translation services.