Expensive stocks lose momentum in Korean market

[Courtesy of EcoPro]

Expensive stocks, once characterized by high share prices and impressive earnings growth, tumbled from their leading positions in South Korea as stagnant profits and corporate splits halt the stocks’ momentum.

According to the Korea Exchange on Thursday, there are currently no stocks on the stock market trading at over 1 million won ($752) per share as of the latest data. The highest-priced stock is now EcoPro Co., a secondary battery manufacturer, whose shares are trading at 904,000 won. The company’s stock surged to 1.59 million won per share in July thanks to the battery industry’s rapid growth but has since declined, falling below 1 million won per share.

Just two years ago, several companies, including LG Household & Health Care, NCSoft Corp., and Samsung Biologics Co., were dominant players in the Korean stock market, with their stock trading at over 1 million won per share. But with the market undergoing a slump from mid-2021 and facing challenges including high interest rates and inflation, these pricy stocks failed to sustain their share prices or generate substantial earnings growth to relinquish their leading status.

Other pricy stocks, including Samsung Electronics Co. and Ottogi Corp., have opted to change their position by lowering their par values, making shares more accessible to a broader range of investors. This strategic move was driven by the desire to attract more shareholders and enhance corporate value.

Apart from spin-offs, stocks that saw their price fall below the 1 million won threshold generally exhibited weak stock price performance, often due to stagnant earnings growth. For instance, NCsoft, a gaming company that saw explosive growth with its popular Lineage series, saw its share price hit 1,048,000 won per share in February 2021 which has since plummeted to around 250,000 won, a 76 percent decline from its peak. Financial analysts projected a 26 percent drop in estimated sales and a 64 percent drop in operating profit for the company this year.

LG Household & Health Care, known for its strong presence in China’s cosmetics market, saw its share price soar to 1,784,000 won in July 2021 but the price has since fallen to 457,500 won, a 74 percent decline from its peak. Although the stock recently rebounded after China allowed its citizens to travel to Korea, the securities industry anticipates a 5 percent decline in duty-free channel sales for the cosmetics division in the second half of the year.

LG Chem Ltd. is another company whose valuation has suffered due to the spin-off of its core unit, LG Energy Solution Ltd. While LG Chem retains an 81.84 percent stake in LG Energy Solutions, the separation of the core business unit disrupted investor supply and demand. The chemical firm has also been hit by oversupply in the industrial dynamics, which prevented it from achieving the same rate of stock price growth as in the past.

However, Samsung Biologics has experienced a relatively modest stock price decline of 29 percent from its peak and is currently the sole company in the securities industry with a price target exceeding 1 million won. This year, the company is expected to achieve sales and operating profits of 3.53 trillion won and 1.03 trillion won respectively, or a 17.7 percent and 5.2 percent year-on-year increase.

Meanwhile, secondary battery stocks, part of the high-growth sector, have been deemed as the potential next generation of pricy stocks. The stocks with the highest share prices on the Korean stock market are in the secondary battery industry, including EcoPro at 904,000 won per share and POSCO Holdings Inc. at 553,000 won.