Critique of Korea's Value-Up Index and Shareholder Returns

The Value-Up Index lacks genuine value, yet investors can still uncover profitable opportunities.

### Evaluating the Value-Up Index: Performance, Critiques, and Shareholder Impact
* 📈 The speaker expresses a commitment to **enhancing shareholder value** despite the company's small market capitalization and a **100% dividend payout**, which means **all profits are distributed to shareholders**.
* 📊 As of January 2nd, the value-up index has shown a **0.7% increase**, while the KOSPI index has dropped by **2.2%** and the KOSDAQ by **11%**, indicating that the value index has **not failed** as some critics suggest.
* 🔍 The value-up index includes 100 stocks, primarily focusing on market evaluations like **market capitalization and ROE**, but the speaker criticizes this comprehensive approach, advocating instead for a **more biased perspective that rewards high performers**.
* 📉 The speaker highlights that while the value-up index was created to showcase top-performing companies, many of the 100 selected have not made significant announcements regarding value increases, with **only about 40 actively doing so**.
* 💡 Companies like KB Financial and Hana Financial, which focus on **shareholder returns**, are notably absent from the index, raising concerns about the **representation and priorities of large corporations versus investors**.
* 🔄 The speaker emphasizes the importance of profitability and sustainable returns, noting that the average **ROE in the Korean market is around 5%**, significantly lower than the **over 10% average** seen in developed markets.
* 💰 The discussion includes the significance of dividend payout ratios, highlighting that some companies, like Wireball, have **high payout ratios but low dividend yields**, cautioning investors to **look beyond just the payout figures**.
* 📚 The speaker encourages viewers to utilize available resources for corporate value-up information and investment indicators, reinforcing the need for **thorough analysis to make informed investment decisions**.

I will enhance the value. I will work hard for the shareholders. Oh, the market cap is small. Eliminated, eliminated. Dividend payout, oh, 100%. Honestly, this is the first time I have heard of this company today. It means that all the money earned will be given to the shareholders. However, I'm interested in value-up. I'm interested in the value-up index. Let's not do that. I thought it would turn out this way. While preparing for this topic, I felt that it wouldn't get many views and that there wouldn't be people interested. After all, the idea that the value-up index has failed is something we only think. Only a small number of misguided people would think that the value-up index has failed. The value-up index has not failed. Should I show you? This is the situation as of January 2nd. It's around 1.97. It hasn't failed. Don't laugh. It's increased by about 0.7% compared to the beginning of the year. This is the current KOSPI index for the year 2024, as of October.

Today is the 11th, so until the second week of October, the KOSPI index has dropped by 2.2%, while the value index has held up. The KOSDAQ, on the other hand, has decreased by 11%. If you look at the value stocks in the KOSPI index and those in the KOSDAQ, at least they haven't shown a negative return; they have increased by about 0.7%. The KOSPI has decreased by 2%, while the KOSDAQ has dropped by 11%. Both indices have held up well. However, I’m not praising the value index just because it has performed well. Criticism should also be made where it's due. It's been almost a month since the value index was announced, and many of you might already be aware of it. You can find this information on the Korea Exchange (KRX) data system or the KIND website, which provides corporate value index information. There are about 100 stocks listed here, including Samsung Electronics, ranked by market capitalization.

Now that everyone can see this, I encourage you to take an interest in it, whether you want to or not. When creating such indices, we always validate them using historical data. The people from the Korea Exchange have structured it based on the relative returns over the past year, three years, and five years, suggesting that this model is effective. It feels like it has been validated when we look back at past data. However, the point of criticism is this: it has been constructed by comprehensively assessing market evaluations like market capitalization, shareholder equity, PBR, and capital efficiency such as ROE. Personally, I believe this approach is flawed. The value-up index should not be assessed comprehensively but rather with a biased perspective. We should reward those who are performing well and penalize those companies that are underperforming to achieve an overall increase in value. However, the so-called...

The Value-Up Index refers to selecting exactly 100 stocks while the remaining 2,500 companies are disregarded. It was created just for show, as if to say, We will make a pioneering index. What we are hoping for is that I am currently talking about around 500 companies. Look at this; there are really a significant number of failing companies. This represents the polarization in the K-shaped economy, right? However, in reality, there are only about ten companies that are doing well in the upper part of the K. The index was created based on just these. 

So, we have two options: either we pull the companies on the lower end up to the upper end, or we need to create more companies that can perform well. But will the introduction of this one Value-Up Index with its 100 companies change anything? The answer is no. Indicators like PBR or ROE are lacking. Companies like KB Financial or Hana Financial, which offer high dividends, quarterly dividends, and are trying to increase shareholder returns, are not included.

There was a controversy regarding representation as companies like Doosan and others tried to take away shareholders' interests. Investors were questioning how these companies, like Doosan, could enter the market. Additionally, LG Energy Solution went public through a physical division, which caused further frustration among those connected to the LG Group. It raised concerns about how these large groups could prioritize their own interests. For example, Hanwha is also criticized for not caring about shareholders, focusing instead on their own family members. The perspective of the authorities is completely different; they look at the index. Samsung Electronics and SK Hynix each account for 15%, and so on, as they aim to create an index that outperforms with 100 companies in both KOSPI and KOSDAQ.

The debate is that this is not important, and their perspective is different from that of the investors. So, what choice should investors make? Even so, it might be better than the KOSPI index or the KOSDAQ index. If you want to benchmark, the Value-Up index might be a better option. Alternatively, investing in companies that outperform that and provide better shareholder returns might be a wiser choice. In Korea, the financial authorities have mandated that companies disclose their Value-Up plans. They create these Value-Up disclosures and even seek consulting to announce, We will implement Value-Up. However, if they fail to meet profitability requirements or if their market capitalization is too small, they get disqualified. For example, Colmar Holdings, FN Guide, S Traffic, DKND, and DB Financial Investment were disqualified, while others that did not disclose their Value-Up plans were accepted.

More than half of the companies, right? So what does this mean? This is about fairness and common sense. I will work hard to increase value for our shareholders. We will become an excellent company. Tala, the market capitalization is small, right? Recently, in the past year, there have been announcements regarding value increase. Well, to say a year might be too much; rather, in the past six months, several announcements have been made. However, among the 100 companies, only 56 have announced a value increase. That's still a majority, but it's a misconception. This is evident here as well. After Kangwon Land made its announcement, each company made one or two announcements, so in reality, only about 40 companies have actually made announcements regarding value increase. Among the 100 companies, nearly 60 have not made any significant changes. Lately, I've caught a cold and have been blowing my nose often. Oh, how I envy those who can do it without touching their hands!

I want to do that; it's a reality. But we will work hard. We raised our hands and even received consulting, working tirelessly with our employees, staying up all night to disclose the value of a company. That's the reality. But what's important to the authorities is the index. The Blackpink index. So, I was actually worried. Before the value-up index came out, I thought, what if this essentially becomes a banking index? Most of the places that do well in value-up are banks, right? It's a financial index. So I was concerned about what would happen if it turned into a financial index, but that worry turned out to be completely unnecessary. In the information technology sector, there are 24 companies; in the industrial sector, there are 20 companies; in healthcare, there are 12 companies; and in consumer discretionary, there are 11 companies. In fact, there are only 10 companies in finance, which is the sector that does the best in value-up, limiting it to that.

I really don't understand this. There are so many top students, like those who attend foreign language high schools and science high schools. But you guys, only ten people from Seoul National University come. No matter how much you study, it's useless. So, KB Financial and Hana Financial are missing from here. It's frustrating. And if you look at the materials, essential consumer goods are included evenly. The stocks included in the Value-Up Index are a lot, right? Why is that? Why is it? I'm asking the subscribers because I don't know. Please leave a comment and let me know. However, the Korea Exchange says that if the number of stocks is too small or the market capitalization is too low, it can be burdensome for large institutional investors like pension funds to invest. So, the stock group needs to be diverse and have a large market capitalization for pension funds to invest steadily and securely, which is why they included 100 stocks in the Value-Up Index.

It is important that the market capitalization is not too small. Companies like Samsung Electronics and SK Hynix are involved. Of course, there may be differences in market capitalization, but having fewer stocks does not necessarily mean it is a bad index. If we consider that, there is indeed a bad index: the Dow Jones Industrial Average in the United States, which consists of only 30 stocks. It is considered a poor index because it has only 30 stocks. However, those are large-cap companies representing the U.S. market. Still, there are only 30 stocks, and having fewer does not mean it is bad. It should not be a comprehensive judgment; rather, there should have been a balanced approach, providing both encouragement and criticism to the companies. For those doing well, it should have been, You are doing great! Share this success with your shareholders! For those struggling, it should have been, You really need to step up!

This is my personal opinion. What criticisms is the value-up index facing these days? It is often referred to as a value-up index without any value. Regardless of the criticisms aimed at the value-up index, individual investors can find ideas here and invest to achieve higher returns. This is the Korean Exchange's corporate disclosure site, Kainra. If you enter this site, you can find corporate value-up information, investment indicators, and sector-specific investment indicators. It allows you to view things like PBR, PER, ROE, dividend payout ratio, and dividend yield in order. Many people usually check these on sites like Naver Finance or other paid platforms, but this information is now available here. So, you can look at it by PBR rankings. Wow, what is this PBR? S-Bio is at 20 times, Vuno at 41 times, and Pepton at 40 times. But if we flip it around...

PBR is 0.1 times. It's difficult to pinpoint specific companies like Hanshin Construction, E-Mart, HDC, and Shinsegae Construction. These stocks can be seen as graveyards for value investors. Now, if we look at the PER in order, there can be a visual illusion when it shifts from a slight deficit to a small profit, like making a profit of about 500 won. Conversely, a very low PER, like 0 point something, may also have some distortions. You need to analyze this both quantitatively and qualitatively. You should conduct a study, just like in our Wise Club or Nodaji Lot. Please refer to the fixed comment below. 

Now, this is important: how much profitability is being generated with the money invested by shareholders? Do you know the average ROE of the Korean domestic stock market? It's around 5%. So, if shareholders invest 1 million...

Invest in the company. If you invest 50,000 won, you can earn that much. If you invest 10 billion won, you can earn 5 billion won. However, you have to bear the risk of losing that high principal and the volatility that comes with it. You also have to take on the risk that the largest shareholder might embezzle funds or engage in a material division. If you invest under those conditions, the return on equity (ROE) might only be 5%. In contrast, overseas, the average ROE is over 10%, both in developed and emerging markets. Compared to that, our country is not able to generate proper returns on the funds that shareholders have invested, which makes it undervalued to some extent. Ultimately, we need to improve profitability, but that is not something I can control. Therefore, companies with high ROE are emerging. For example, VT has an ROE of 46%, which is very high. Air Busan has an ROE of 52%, and Silicon 2 has an ROE of 53%. However, we need to consider how sustainable these figures will be in the future.

What is the key point? Isn't it dividends? Dividends. How does the payout ratio come out to 9,860? The payout ratio, in fact, is that if you pay out all your profits, it would be 100%. So, the payout ratio refers to how much of the profits you distribute. If you earn 1 million won and decide to keep 500,000 won and pay out 500,000 won, then the payout ratio is 50%. How does it come out to 98,000? This means that if you leave a profit of about 500 won, but you pay dividends like you used to, say, a few billion won, then it could result in such a figure. There can be an optical illusion with this. Therefore, you need to screen it first and then study both quantitative and qualitative aspects. People in the Wise Club do it this way. However, please consider this as just one example. This is just a reference for the payout ratio.

I just searched and found a company called Wireball, for example, which has a payout ratio of over 100%. They distributed more in dividends than their earnings. The good thing about this site is that the average payout ratio over the past five years is 96%, and in 2023, it was also 100%. In the previous year, it was 98%. This means that they distribute almost all of their profits to shareholders. 

Now, what we need to look into further is this: corporate value-up information, investment indicators, and stock-specific investment indicators. To be honest, this is the first time I've heard of the company Wireball. However, their payout ratio indicates that they distribute almost all of their earnings, close to 100%. The dividend yield is currently less than 3%, which means that the dividend compared to the current stock price is low. So, I went to the FN Guide site to look up corporate information. Cash DPS—what does DPS mean? It stands for Dividends Per Share.

The dividends are consistently 50 won, 50 won, 50 won, 50 won. The earnings per share are 571, 548 won, 546 won, and 544 won. This means that the dividend payout ratio is bound to be high. However, the stock price is not low compared to these figures, which is why the dividend yield is only around 1% to 2%. So, if someone just buys shares thinking about the dividend yield, which is around 100%, they might be mistaken. 

This is the stock chart of a company called Wirebra, which has been steadily rising from 5,400 won in 2020 to now 14,400 won. The dividend yield is currently around 2% something, but if it were to be around 6% or 7%, there would be some degree of stock price rigidity. If it drops further, the dividend yield would exceed 10%, which is three times the bank interest. At that point, the stock might not drop as much. However, it could still be a bit high for now.

So, we need to look not only at the dividend payout ratio but also at the cash dividend yield. If a company cannot grow, and as our teacher, Suhyang, mentioned last time, dividend stocks should not see a decline in profits. We need to find companies that can at least maintain their profits and either keep or increase their dividends. Okay, if you have a personal expectation that the stock price is unlikely to fall any further, then we need to assess whether this company can consistently pay dividends in the future. Therefore, we should also consider soundness indicators like the capital retention ratio and debt ratio. Additionally, we need to examine the cash flow from operating activities. I should have highlighted this earlier, but I forgot. As you saw earlier, those who are watching our Nodaji iNote or Wise Club would naturally look at these factors.

We are actively supporting those who are studying and reminding you that if you subscribe to Wise Club, you can access free resources. For those who are diligently studying, we also provide office space for you to use as a study room. Sometimes, people come in to enjoy some chicken and beer while studying hard. We are committed to providing support for those who are working hard. If today's Wise Street and late-night snacks were even a little helpful, please subscribe, like, comment, and check out other videos. Thank you!

개스피 개스닥 덕분에 돋보이는 밸류없 지수 근데 이제 밸류업 아니고 / [야식잡썰 EP.176] / 이대호 기자

"지식과 자산의 복리효과" 그 길을 복길이 여러분과 함께 걷습니다.
( 업로드 : 오전 11시45분, 오후 4시, 오후 7시 )
제휴 문의 : ystreet2021@gmail.com

인터넷 언론사 제호 : 와이스트릿 / 등록번호 : 서울 아53714 / 등록일자 : 2021.05.24
주소 : 서울시 영등포구 국제금융로8길 27-9 여의도 동북빌딩 910호
대표번호 : 02-6949-1701 / 팩스 : 02-6949-1702
이메일 : ystreet2021@gmail.com
발행인 : 이대호
Copyright © 와이스트릿  YSTREET ALL RIGHTS RESERVED. 와이스트릿의 모든 콘텐츠는 저작권법의 보호를 받으며, 무단 전재·복사·배포 등을 금지합니다.


와이스트릿 - 지식과 자산의 복리효과

The speaker emphasizes the importance of enhancing shareholder value and discusses the company's 100% dividend payout.

Despite initial skepticism, the value-up index has shown a 0.

7% increase since the beginning of the year, outperforming the KOSPI and KOSDAQ indices.

The speaker criticizes the index's construction method and suggests that a biased approach, rewarding high performers and penalizing underperformers, would be more effective in increasing overall value.

The Value-Up Index selects 100 stocks, ignoring the remaining 2,500 companies, and was created to showcase a pioneering approach.

Despite its intention, the index's impact on improving company performance is questionable, as it primarily focuses on a small number of successful firms.

The index has faced criticism for its representation and the prioritization of large groups' interests, leading to a debate on its effectiveness for investors.

The Value-Up Index and Company Announcements

More than half of the 100 companies have announced a value increase in the past six months, but only 40 have actually made significant changes.

The speaker expresses concern about the potential for the Value-Up Index to become a financial index, but it is limited to 10 companies in the finance sector.

The Korea Exchange emphasizes the need for a diverse stock group with a large market capitalization to attract steady and secure investments from institutional investors.

The Importance of Market Capitalization and Corporate Disclosure

Market capitalization is crucial, with companies like Samsung Electronics and SK Hynix playing a significant role.

The Dow Jones Industrial Average, despite its large-cap companies, is criticized for having only 30 stocks.

The Korean Exchange's corporate disclosure site, Kainra, offers valuable investment indicators and corporate value-up information, helping individual investors find opportunities for higher returns.

Investing in Companies: Key Considerations

Investing in a company can yield significant returns, but it also comes with high risks, including potential embezzlement by shareholders.

The return on equity (ROE) in the domestic market is low compared to overseas, making local companies undervalued.

High ROE companies, like VT, Air Busan, and Silicon 2, are emerging, but their sustainability is a key concern.

The payout ratio is crucial, as it indicates how much of the profits are distributed to shareholders, with some companies, like Wireball, having a payout ratio over 100%.

Analyzing Wirebra's Dividends and Stock Performance

Wirebra's dividends have been consistently 50 won, leading to a high dividend payout ratio, but the stock price remains high, resulting in a low dividend yield of 1% to 2%.

The company's stock price has steadily risen from 5,400 won in 2020 to 14,400 won, with a current dividend yield of around 2%.

To assess the company's ability to maintain or increase dividends, it's important to consider factors like the capital retention ratio, debt ratio, and cash flow from operating activities.