"The Key to Resolving the Undervaluation of the Korean Stock Market Is Long-Term Shareholder Returns"

Efforts Needed to Enhance Long-Term Shareholder Returns at Listed Companies
Expanding Shareholder Returns Could Resolve KOSPI's Undervaluation

It has been analyzed that the key factor for resolving the chronic undervaluation of the Korean stock market is long-term shareholder returns.

On August 26, Myunggan Yu, a researcher at Mirae Asset Securities, stated in a report, "The high valuation of the U.S. stock market is not only due to its profit-generating capability but is also the result of the cumulative effect of active shareholder return policies over a long period of time." He added, "The Korean market should also implement long-term shareholder return policies to eliminate the so-called 'Korea discount.'"

According to Mirae Asset Securities, the average shareholder return yield of the U.S. S&P 500 is about 3–3.5%, and the price-to-book ratio (PBR) exceeds 5 times. Apple was cited as a representative example of a company practicing shareholder returns. Last year, Apple spent approximately 90 billion dollars on share buybacks. The total cumulative amount over the past 10 years amounts to 710 billion dollars. Including dividends, Apple returned more than its net profit during the same period. As a result, its shareholders' equity decreased from 134 billion dollars in 2017 to 73.7 billion dollars now, which is roughly half the previous level, and its PBR reached about 40 times.

In contrast, Korea’s shareholder return rate versus net profit is less than half of the U.S. rate (30% vs. 75%). There is also a large gap in shareholder return yields.

However, researcher Yu evaluated that Korean companies are developing an environment where their shareholder return amounts can continuously increase, driven by rising profits, increased cash, and policy incentives. For example, if SK hynix’s current shareholder return policy is maintained over the long term, through share buybacks and cancellations, the number of shares outstanding could be reduced by about 28% by 2030. This would result in an average annual earnings per share (EPS) increase of 15.5%.

Researcher Yu emphasized, "The market's focus, which had previously been concentrated solely on growth, is now expanding to include shareholder returns." He noted, "Although a slowdown in semiconductor profit growth is inevitable, the absolute size of profits and cash flows is now at an unprecedented level compared to the past."

He added, "Given Korean companies’ second-half earnings momentum and the uncertain macro environment, it appears valid to pay attention to shareholder return strategies." He also noted, "In the short term, it is necessary to focus on companies that are proactive in buying back their own shares, as well as those that have strong capacity to do so."

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