[Weekend Money] "When Volatility Rises, Take Defensive Action... Add 'Low-PBR Asset-Rich Stocks'"

Soaring Inflation and Real Estate Prices,
Government Pressure Mounts
Expectations Rise for Undervalued Asset-Rich Stocks

The value of so-called 'asset-rich stocks'—companies holding tangible assets such as land and buildings—is steadily rising. As market volatility and uncertainty increase, securities firms are advising investors to pay closer attention to asset-rich stocks as defensive options to help support the downside of their equity portfolios.

"Spotlight on Government and Ruling Party Policies to Address Undervaluation"

Recently, Eom Sujin, a researcher at Hanwha Investment & Securities, stated, "When inflation intensifies and real estate prices surge, the appeal of asset-rich stocks that own tangible assets becomes increasingly apparent." She added, "Given the rollercoaster-like fluctuations in the domestic stock market and the sluggish economy, turning to asset-rich stocks characterized by low volatility and solid downside protection may not be a bad strategy."

Asset-rich stocks often possess real estate holdings with values high relative to their market capitalization, which is why the price-to-book ratio (PBR) tends to be low for these companies. Especially when there is a significant gap between market price and book value, the degree of undervaluation compared to actual corporate value can be even greater.

Government policies aimed at addressing undervaluation are also raising expectations for a revaluation of asset-rich stocks. The Financial Services Commission is currently pushing forward with a plan to publish, biannually, a list of companies in the bottom 20% by PBR within each industry sector. In the upcoming July tax reform proposal, there is a possibility that an amendment to the inheritance and gift tax law will be included, which would allow asset and earnings value, instead of share price, to be reflected for listed companies with a PBR below 0.8 when calculating inheritance and gift taxes. The goal is to prevent the practice of intentionally keeping share prices low during the succession process in order to reduce tax burdens.

Growing Demands for Asset Revaluation Amid Rising Activist Pressure

Changes in overall market sentiment are also having an impact. Researcher Eom noted, "We are increasingly seeing shareholder activities that encourage companies to conduct asset revaluations as a way to enhance corporate value." This reflects demands to narrow the gap between book value and actual market price and thereby resolve undervaluation.

There is also intensifying pressure from activist funds and alliances of minority shareholders. The minority shareholder group of Sajo Industries is calling for the market values of its subsidiary's golf course land and a building in central Seoul to be reflected in the company's valuation.

MK Asset, a shareholder of Manho Steel, has made a shareholder proposal to add provisions for land revaluation and regular asset revaluation to the company's articles of incorporation. In addition, other activist entities such as the Hantol platform for Korea Alcohol shareholders, as well as alliances of minority shareholders in Sambo Corrugated Board and Aurora, are also pressuring companies with demands for asset revaluation.

Sorting the Wheat from the Chaff: "Shareholder Return Commitment Is Also Key"

So, what types of asset-rich stocks should investors pay attention to? Researcher Eom explained, "We have not categorically excluded companies with a PBR below 1. Even if the PBR is close to 1, it still indicates undervaluation based on book value alone, and if some of the assets are revalued at current market prices, the actual degree of undervaluation could be even greater."

Specifically, companies holding non-operational real estate in key areas of Seoul, retailers with numerous stores nationwide, and leisure or logistics companies with company headquarters or terminals acquired decades ago that are likely to be revalued, are highlighted as examples.

However, experts caution against making investment decisions based solely on book value figures. If the land held is restricted from development or if the assets are difficult to dispose of, such as stakes held for management control, the actual investment appeal may diminish.

Researcher Eom emphasized, "Return on equity (ROE) and operating cash flow should also be considered. If the majority shareholder has no intention of boosting the share price, undervaluation will persist." She added, "Ultimately, there must be at least some hope for improvement, even if only semi-forced by minority shareholders or institutional investors, in order for undervaluation to be resolved."

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