No. of Undervalued Stocks Surges in Korea

The main stock price index has nosedived in Korea, but more domestic companies have seen share values fall so drastically that they can secure cash larger than their market capitalization via immediate liquidation.

This means the stock prices of domestic companies have plummeted too sharply if their actual value is calculated, a phenomenon which cannot and should not continue for a prolonged amount of time.

The Dong-A Ilbo and Shinyoung Securities conducted a joint survey yesterday to analyze the stock prices of 1,978 companies listed on the main index KOSPI and the tech-heavy KOSDAQ.

The survey found that 95 companies have a smaller market capitalization than their net cash as of Tuesday, up from eight companies in late 1997 when the foreign currency crisis hit Korea and the KOSPI plunged to 376.31.

Eleven companies had a smaller market capitalization than net cash late last year, when the KOSPI soared to 1,897.13.

Thirty-one KOSPI-listed companies such as car part manufacturer Samsung Climate Control and 64 on the KOSDAQ such as interior design company Kukbo Design showed a market capitalization smaller than their net cash.

Net cash refers to funds including short-term investment and cash assets but excludes long- and short-term debts. In short, net cash means the amount of money available at any time.

Jo Yong-jun, the head of Shinyoung’s research center, said, “When we conducted the analysis, we did not consider operating value and fixed assets such as land, equipment and facilities, and buildings. In other words, the stock prices of the companies having a market capitalization smaller than their net cash are seriously undervalued.”

Investment guru Warren Buffet has preferred the method of comparing net cash with stock prices.

At the end of the second quarter, Samsung’s net cash of 122.5 billion won (85.8 million U.S. dollars) was 3.38 times larger than its market capitalization of 36.2 billion won (25.3 million dollars). Hyundai Mipo Dockyard’s net cash of 2.3 trillion won (1.6 billion dollars) was 1.67 times bigger than its market capitalization of 1.38 trillion won (967 million dollars). Similarly, Hankuk Electric Glass (2.11 times), PangRim (1.92 times), Namyang Dairy Product (1.36 times), and Korea Cast Iron Pipe Industry Co., Ltd. (1.28 times), had net cash bigger than their market capitalization.

KOSDAQ-listed companies whose net cash surpassed their market capitalization included Kukbo (2.13 times), inkjet printer manufacturer Digital Graphics Inc. (1.17 times), online payment gateway service Inicis (1.98 times), and semiconductor equipment manufacturer PSK Tech Inc. (1.46 times).

Korea Value Asset Management Vice President Lee Chae-won said, “In the United States, undervalued corporations have not appeared since the 1970s, when the U.S. stock market was undervalued. It seems clear that Korea’s stock market faces a historical moment in which many stocks are undervalued.”

jefflee@donga.com