[科技] 20080626-Mirae Asset-Holdings

Time For a Bottom-up Approach
Cash flow and growth drivers are key investment points
A conservative view is increasingly encouraged towards investment in holding
companies as subsidiaries value has been stabilized and major conglomerates
have already been converted into holding companies. As such, before
investing in holding companies, cash flow and growth drivers should be
regarded as key investment indicators. Positives in the cash flow of holding
companies are limited cash outflow and strong cash inflow potential.
Contributors to the cash inflow are dividend income (largest proportion), brand
royalty, and rental income.
NAV valuation is at a discount to subsidieries
Korean holding companies are, on average, trading at approximately a 20%
discount to the NAV of subsidiaries (based on market price). If we assume all
subsidiaries are listed, share the same investment opportunities, and have a
stable dividend payout ratio, the share price of holding companies should be at
least equivalent to the combined share prices of its subsidiaries (based on
market value). A premium will be added to the combined value of subsidiaries
if the company has its own growth driver and a discount will be applied if it
does not.
Largest shareholder’s firm management control
Another key investment point for holding companies is stable management
control through the largest shareholder. A holding company is placed on top of
a group’s ownership structure with the largest shareholder dictating
management control of the group. The holding company may implement
policies to stabilize corporate governance that may infringe on the rights of
minority shareholders. Issues regarding minority shareholders rights are
important as most stock prices respond sensitively to these issues.
Our Top Picks are LG and Doosan
Potential conversion into holding companies no longer serves as a catalyst for
rallies in the share prices of holding companies. Holding companies share
prices had increased on newly identified drivers of their unlisted subsidiaries,
but now holding companies’ share prices fluctuate depending on the value of
all their subsidiaries. In the long term, we have positive view on holding
companies that have appropriate long-term growth strategies and solid
subsidiaries. As our Top Picks, we recommend LG (003550. KS, BUY, TP:
W104,000) as it boasts robust cash flow and growth potential and Doosan
(000150.KS, BUY, TP: W250,000) as it possesses a strong growth driver
backed by the group’s consistent growth strategy.