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Small and Mid-Cap Stocks Expected to Benefit from Government’s Stock Market Stimulus Program: Analysis and Predictions

[비즈니스포스트] There is a prediction in the securities market that small and mid-cap stocks may benefit from the government’s stock market stimulus plan, the ‘Corporate Value Up Program’.

Currently, the benefits of the value up program are concentrated on large-cap stocks, but judging from the Japanese case where a similar program was previously implemented, the warmth could transfer to small- and mid-cap stocks.

▲ There is a possibility that the warmth of that PBR theme will lead to small and mid-cap stocks.

On the 29th, the KOSPI and KOSDAQ indices closed down 0.37% and 0.05%, respectively, from the previous day.

The two indices rebounded the day before when Lee Bok-hyeon, head of the Financial Supervisory Service, said there was a need to impose a mandatory value-up program, but turned weak again a day later.

The domestic stock market is showing an overall weakness due to disappointment after the details of the value up program were announced on the 26th.

Nevertheless, securities researchers agree that it is necessary to pay attention to the long-term effects of the value-up program.

The Value Up Program is based on the government requesting that listed companies with low price-to-book ratios (PBR) improve their PBR in order to resolve the undervaluation of the Korean stock market.

However, the Value Up Program has broader goals beyond improving PBR, including improving corporate governance and improving investor awareness.

In addition to measures to improve PBR, there are still measures to address stock market undervaluation in the future, so it is necessary to look at it from a long-term perspective.

There is also a possibility that the warmth will transfer to small and mid-cap stocks in the future.

The benefits from the value up program have been concentrated on large KOSPI stocks with a high possibility of PBR improvement.

After the government first announced the introduction of the value up program on January 17, KRX Automobile and KRX Bank, representative low PBR large-cap stock indices, soared 21.04% and 18.23%, respectively, until this day.

On the other hand, the KOSDAQ increase rate during the same period was only 0.95%. The growth rate of small and medium-sized low PBR stocks with a market capitalization of less than 1.5 trillion won and a PBR of less than 1x was only 3.9%.

However, looking at the case of Japan, which was benchmarked by the Korean Value Up Program, the warmth gradually spread to small and medium-sized stocks over time after the Value Up Program was implemented early last year.

Last year, among the four sub-indices of TOPIX, Japan’s representative index, the Small Value Index showed the highest annual return (28% increase).

Topix Small Cap Value Index is an index composed of companies with low market capitalization and low PBR.

The Topix small-cap value stock index has also surpassed the overall Topix index growth rate since the second half of last year.

The growth rate in the first half of last year was 4.2 percentage points higher than the Topix small value stock index, but in the second half of the year, the small value stock index rose 6.19 percentage points more. Even this year, the Topix small-cap value stock index is outpacing the overall index growth rate.

Japanese companies’ settlement of accounts is concentrated in March, and the general shareholders’ meeting season is in June. At the beginning of last year, right after Japan implemented the value-up program, expectations for large-cap stocks were high, but as the general shareholders’ meeting season approached and small- and mid-cap stocks responded to the value-up policy, expectations were analyzed to have grown.

Therefore, there is an opinion that Korea, which is currently approaching the general shareholders’ meeting season, can also expect small and medium-sized companies to proactively strengthen shareholder returns.

In Japan, expectations for small and mid-cap stocks have grown as private equity funds have put pressure on companies with low shareholder return rates, and domestic private equity funds are also predicting a similar general shareholders’ meeting.

Choi Seung-hwan, a researcher at Shinhan Investment & Securities, said, “The strength of undervalued stocks will spread to small and mid-cap stocks,” adding, “Preemptive investment in small and medium-sized undervalued stocks is necessary.”

Although the current PBR level is low, expectations are likely to increase for small and medium-sized stocks that have shown an active will to return shareholders until recently.

The securities industry selects Asia Paper, Samyoung Trading, and Korea Alcohol as small and mid-cap stocks with high expectations.

Asia Paper is an undervalued stock with a PBR of 0.4 times. In July of last year, it announced a shareholder return policy and announced that it would increase the dividend payout ratio to 25% of separate net profit by 2026. The company is also planning to purchase and cancel 20 billion won worth of shares this year.

Samyoung Trading (PBR 0.4x) is a company whose main business is spectacle lenses and is evaluated as an active company in shareholder return. In 2020, the dividend per share was increased from 300 won to 500 won in response to investors’ demands for increased shareholder value. Reserved cash is expected to reach 100% of market capitalization by 2025, and stable shareholder returns are expected to continue.

▲ Samyoung Trading is expected to continue providing stable shareholder returns based on abundant cash flow.

Korea Alcohol (PBR 0.5 times) is a company that produces refined alcohol, the raw material for soju, and has a 10% market share.

It significantly increased the dividend per share in 2023 from 50 won to 285 won, and announced in January this year that it would use 20% of operating profit based on separate financial statements as a dividend source.

In addition, Nice Information & Communication and Kotech are evaluated as small and medium-sized stocks with a low PBR and a strong will to return to shareholders. Reporter Kim Tae-young

2024-02-29 07:59:14
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