Share prices of major Korean firms underestimated
By Choi Sung-jin
The share price of POSCO, Korea’s largest and the world’s fourth-largest steelmaker, has risen more than 30 percent this year. But its price book-value ratio (PBR) remains at 0.4 times.
On the other hand, the share prices of Nippon Steel and Hubei Steel have fallen this year, but their PBR stands at 0.8 times.
This is but one example of how the share prices of the Korean companies that represent the nation’s major industries are underestimated compared with their foreign counterparts, analysts said Thursday. The price book-value ratio is used to compare a company’s market price to its book value.
Situations are largely similar for IT, automobile and energy companies.
Samsung Electronics’ PBR on Monday, for example, was 1.2 times. This is far lower than Apple’s 4.4 times and that of China’s Yonyou Software, 5.2 times. Hyundai Motor’s PBR of 0.6 times also falls short of Toyota’s 0.9 times and SAIC Motor’s 1.2 times. A PBR below 1 times means a company’s share price hovers below its net asset value on the balance sheet.
SK Innovation’s PBR of 0.9 times belongs to that category, too, compared with ExxonMobil’s 2.2 times and Petro China’s 1.2 times. The 12-month PBR of the KOSPI 200 – 200 large-cap stocks in terms of the Korea Stock Price Index – is also estimated to be 0.9 times.
The analysts attribute the low PBR of Korean businesses to the fall in their return on equity (ROE). ROE divides current net income by equity capital and it measures the efficiency of a firm at generating profits.
The ROE of large-cap Korean companies’ has dropped because their net profits fell or stagnated while their capital increased thanks to swollen internal reserves, the experts said.
Samsung Electronics’ ROE is 11.2 percent, less than a quarter of Apple’s 46.2 percent. The ROE of the world’s largest smartphone makers had fallen from 22.8 percent in 2013 to 15.06 percent in 2014 and 11.15 percent last year.
The ROE of Hyundai Motor, POSCO and SK Innovation is 10 percent, 3.5 percent and 5.2 percent, respectively, compared with Toyota’s 13.4 percent, Nippon Steel’s 5.7 percent and ExxonMobil’s 9.4 percent.