2H22 Insights: Holding Company: Investment Strategy for Holding Companies in the Era of Responsible Investment

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The author is an analyst at NH Investment & Securities. He can be contacted at [email protected] — Ed.

Assets applied to responsible investment for the National Pension Service (NPS) represented 13.7% of its total assets at the end of 2021. The share of responsible investment in domestic equities already exceeded 50% at the end of 2020. From 2021, NPS began applying its responsible investment guidelines to national bonds. The size of publicly available funds focused on ESG equities has exceeded the W2tn mark since 2021, growing steadily despite bear market conditions. Changes to the regulatory environment, including revisions to the Fair Trading Act and the postponement of the expiry of the sunset clause on the tax benefits for the transition of holding companies, are not expected to have a significant impact on governance restructuring efforts. While the corporate governance report (G) disclosure target is extended to listed companies with total assets above W1tn, an increase in the compliance rate of newly disclosed companies and benchmarking effects reinforced with the expansion of the population are expected. Consequently, the consideration of investors for extra-financial information should also become widespread.

Holding company valuations have long been undervalued. But, rather than the absolute level of discount to NAV, we believe that the sustainability of improved shareholder value based on superior cash flow and capacity to strengthen business portfolios should be utilized. as a key investment criterion for holding companies. As it becomes possible for holding companies to hold corporate venture capital (CVC), the role of holding companies in coordinating business portfolios needs to be further highlighted, and valuations of individual companies should differentiate based on their HVAC investment results. We suggest SK Holdings as a promising play, noting that it has entered a virtuous cycle as an investment holding company, and also noting that it is strengthening its business portfolio (focused on four main business areas) . We also like Samsung C&T for its continued earnings momentum and accompanying expansion of its investment portfolio.

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