Value stocks gain traction ahead of corporate valuation program

[Photo by Yonhap]

There is growing interest in value stocks with low price-to-earnings ratios (PBRs) ahead of the anticipated Corporate Value-Up Program being introduced by the South Korean government.

Kim Jong-young, an analyst at IBK Investment & Securities, expressed optimism regarding expectations for the program policy announcement due Tuesday, saying that it is now considered an opportune time to buy domestic value stocks.

Drawing on Japan’s experience with a similar policy that led to a rise in stock prices, experts anticipate an influx of demand for low-PBR stocks in Korea and a strengthening of value stocks.

Structural undervaluation in the Korean market supports this judgment.

Yang Hae-jeong, an analyst at DS Investment & Securities, also analyzed that low-PBR stocks, previously overlooked, are experiencing a rebound due to expectations related to the government policy.

The overall PBR of the Kospi has remained below 1 for an extended period, with companies having PBRs below 1 constituting about two-thirds of the total.

However, beyond mere anticipation for the resurgence of value stocks, experts emphasize the need for investment strategies based on the background of undervaluation.

“Initially, there is an expectation for a primary rebound in low-PBR stocks due to policy expectations,” Kim said.

Kim still emphasized the need to examine Japan’s policies, which are expected to be similar to Korean policies, in the medium to long term.

If similar criteria are applied domestically, Kim anticipates that initially, companies consistently undervalued despite sufficient profitability will receive attention.

The companies have the flexibility to announce shareholder return policies and future plans for corporate value improvement.

Looking forward, companies with low profitability relative to costs may garner attention by introducing various events, such as financial structure changes, for corporate value improvement.

“With continuous emphasis on dividend policies from the previous government, dividends have steadily increased,” said Yang, adding that a selective approach is necessary in the rebound of low-PBR stocks.

Yang also pointed out that companies with a low return on equity (ROE) may sustain undervaluation amid an overall low-growth trend and suggested selectively responding, focusing on sectors such as automobiles and banks where profit flows are robust.