Cheil Industries correct recent gains

Analysts mixed about outlook for share prices

By Yoon Ja-young

Cheil Industries has been on a roller coaster ride for the past couple of days.

The company that holds key to the governance restructuring of Samsung Group closed sharply lower Tuesday, correcting recent steep gains. It closed at 138,500 won, down 4.81 percent. It fell for two consecutive days after closing at 171,000 won Friday, the highest ever.

Cheil has been at the center of attention even before its debut on the bourse on Dec. 18. The stock was 195 times oversubscribed when it took subscriptions for the IPO, with deposits totaling 30.06 trillion won.

The stock continued soaring, once touching 179,500 won on Monday’s trading, which is 3.4 times its IPO price of 53,000 won, but it started sliding after hitting the ceiling.

Analysts have mixed prospects.

Park Joong-sun, an analyst at Kiwoom Securities, said the current market cap of Cheil is hard to rationalize.

“Cheil’s competitiveness lies in its potential to outpace its peers by applying Samsung’s DNA in construction, leisure, fashion, catering and bio industries,” Park said.

“We expect its sales to double to 9.6 trillion won in 2020 from 5 trillion won in 2014, and operating profit to 585.7 billion won in 2020 from 183.6 billion won in 2014. Even if we apply this calculation, the current market cap is excessive,” the analyst said.

He noted that Cheil holds a 19.34 percent stake of Samsung Life Insurance and 45.65 percent stake of Samsung Biologics. Even when considering the value of these stakes and dividends from the stakes, Cheil is still over evaluated, according to Park.

Based on the net asset value, he suggested 100,000 won as its target price. He lowered down his evaluation for Cheil to “underperform,” as current stock price is far above the target price.

Some analysts had expected Cheil to fall after its inclusion in the Financial Times Stock Exchange (FTSE) and Morgan Stanley Capital Investment (MSCI) indices Monday. With the inclusion of the company in the two indices that work as a benchmark for global funds, those following the indices as a benchmark will naturally be buying Cheil Industries' shares. With the completion of this event, however, stock price began to fall.

Hyundai Securities analyst Jun Yong-ki, meanwhile, says there is room for additional rise. “When considering the scenario where Cheil merges with Samsung Electronics Holdings amid Samsung Group’s transition into a holding company, the value of Cheil can be far higher,” he said. The analyst suggested 200,000 won as the target price of Cheil.