SK stock price dips to nine-year low as subsidiaries struggle

SK Group headquarters in Seoul. [Photo by Han Joo-hyung]

SK Inc., the holding company of South Korea’s SK Group, has seen its stock price retrace to the price seen nine years ago amid deteriorating performance of the group’s key subsidiaries.

According to the Korea Exchange on Tuesday, shares of SK finished 1.36 percent higher at 142,000 won ($106.01). The stock price rose slightly over the past two trading days, but it plunged 24.87 percent this year, falling to the price seen in 2014.

Compared to its peak in 2021, the holding company’s stock price is now about 60 percent lower. During the same period, SK’s market capitalization has diminished to 10.39 trillion won from around 25 trillion won, resulting in a loss of about 15 trillion won.

Domestic institutional investors are the primary sellers of SK, having net sold about 3.42 trillion won this year.

Brokerage houses estimate the fair value of SK to be around 22 trillion won. This means that SK’s current stock price is discounted by more than 50 percent from the estimated fair value.

“Local institutional investors have been questioning the company’s investment performance and financial soundness during the company’s briefing sessions, calling for more aggressive shareholder return policies,” said Yang Il-woo, a researcher at Samsung Securities Co.

The cause of the weak stock performance is the deterioration in financial results. According to the semi-annual report for this year, SK’s second-quarter revenue amounted to 31.92 trillion won and its operating profit was 695 billion won. Although revenue saw a relatively modest decline of about 2 percent from a year ago, operating profit plummeted by about 80 percent.

For holding companies like SK, it is customary to consider the controlling shareholders’ net profit, which reflects the net income of subsidiaries in proportion to their equity shareholding ratios, rather than using operating profits as a gauge to assess performance.

According to Samsung Securities, the net profit of SK’s controlling shareholders for this year is estimated to be around 290 billion won, down 73.6 percent from the previous year.

The underperformance of the group’s key subsidiaries is negatively affecting the profitability of the holding company.

In the second quarter, SK hynix Inc. reported an operating loss of 2.88 trillion won, while SK innovation Co. 106.8 billion won. SK E&S Co., the group’s unlisted subsidiary, saw a decline of more than 40 percent in operating profit in the second quarter compared to the same period the previous year.

Market insiders believe that a potential rebound in SK’s stock price will depend on the profitability of SK E&S, a subsidiary it owns 90 percent in, and SK hynix, which is included in the net income of the 100 percent controlling shareholder. The profitability of SK on Co., the group’s secondary battery business, is also taken into consideration.