Korea Exchange Low-PBR List Puts 62 Plans Under Scrutiny

How the Korea Exchange’s Low-PBR Disclosure Changes the Investment Test

With the Korea Exchange (KRX) preparing to disclose its list of low-PBR companies, investors should look beyond the size of the discount itself. Among the 62 listed companies that had disclosed improvement plans by the 22nd, the starting point for a rerating is whether they merely explained the causes or set numerical profitability and dividend targets with clear deadlines. Investors must distinguish between low PBRs already known to the market and execution capabilities that may not yet be fully priced in.

According to Maeil Business Newspaper’s securities coverage, 62 companies—34 listed on the KOSPI and 28 on the KOSDAQ—had disclosed low-PBR improvement plans by the 22nd. The Korea Exchange (KRX) plans to begin publishing the names of low-PBR companies on the 2nd of next month. Submitting a plan before disclosure is both a way to avoid being placed on the list and a mechanism that pressures companies to explain how they intend to deploy capital.

How Are Low-PBR Companies Identified?

PBR compares a company’s market value with the book value of its net assets. A PBR below 1 means the company’s market value is lower than its book value, and the 62 companies that filed plans had an average PBR of about 0.3 as of that date. A multiple of 0.3 means the market values a company at roughly 30% of its book value.

Companies are subject to disclosure if their PBR ranks in the bottom 25% of the KOSPI or the bottom 10% of the KOSDAQ within any of the 11 Global Industry Classification Standard (GICS) industry sectors for six consecutive half-year periods, or three years. Companies that submit improvement plans at least seven trading days before the effective date may be excluded from the list for one year, and the 22nd was the final day for meeting that requirement. Long-term low-PBR companies that have remained below the threshold for 12 half-year periods, or six years, cannot avoid disclosure even by submitting a plan.

The Cause of a Discount Is Not the Same as Its Solution

DB Securities cited the gap in capital scale compared with larger firms as a cause of its low PBR. Dongkuk Steel pointed to Chinese oversupply, the construction downturn and the burden of U.S. tariffs, while KG Steel highlighted the steel industry’s structural discount. SD Biosensor cited declining revenue since COVID-19, and Gwangju Shinsegae noted that the department-store business had entered maturity.

These explanations show why the discounts emerged, but they do not guarantee that the discounts will narrow. If industry conditions and business structures are the cause, any path to a higher valuation must produce verifiable results such as improved profitability or greater shareholder returns. A plan that states only “improving ROE through internal restructuring and enhanced profitability” provides neither a method nor a completion date, leaving investors with limited criteria for assessing execution.

Dongkuk Holdings and BioNote Set Numerical Targets

• Dongkuk Holdings said it would raise its PBR from 0.17 this year to at least 0.3 by 2028 and pay a minimum dividend of 80 won per share beginning with next year’s dividend. By providing both a deadline and a dividend floor, the company has established clear benchmarks against which subsequent disclosures can be assessed.
• BioNote set a target of reaching a PBR of 1 by 2029. It outlined a path to higher ROE through expansion of its diagnostic platform and construction of a U.S. production base, although whether it will achieve the target remains unknown.
• F&F Holdings and GS Global disclosed targets of achieving 8% ROE within the next two to three years. Their plans directly link their targets to return on equity, a prerequisite for a PBR rerating.

Why the 62 Disclosures Must Be Assessed Stock by Stock

Even among low-PBR companies, differing causes and remedies make it difficult to treat them as a single group of beneficiaries. For Dongkuk Steel and KG Steel, which cited structural industry pressures, the improvement plans alone may not eliminate the basis for their discounts if those pressures persist. Companies that specify PBR, ROE and dividend targets, by contrast, allow investors to compare their commitments with subsequent results.

In July, financial authorities estimated that as many as 220 low-PBR companies could be identified. About 120 were expected to be long-term low-PBR companies, while roughly 100 others were considered potentially eligible for exemption by submitting improvement plans. Because the final number and complete list of companies to be disclosed have not been confirmed, investors should not assume at this stage that any particular company will be included.

Three Sets of Metrics for Investors to Monitor

• List due on the 2nd of next month: Investors should first confirm the number and names of companies actually disclosed by the Korea Exchange (KRX). The difference between the estimated scale and final result will show the scope of the program’s application.
• Specificity of targets: Investors should distinguish between plans that attach both figures and deadlines to PBR, ROE and dividend targets and those limited to broad statements about improving profitability.
• Follow-up disclosures: Investors should check whether subsequent disclosures maintain Dongkuk Holdings’ minimum dividend of 80 won per share next year and its 2028 PBR target, BioNote’s 2029 target, and the two-to-three-year ROE plans of F&F Holdings and GS Global.
• Alignment between causes and remedies: Investors should assess whether the improvement measures address the stated causes of the discount, such as oversupply, an economic downturn, tariff pressures, declining revenue or business maturity.

Execution, Not the List, Will Determine Valuations

In the optimistic scenario, companies maintain and execute their numerical profitability and dividend plans in subsequent disclosures. Investors could then look beyond low PBRs and verify a path toward improved capital efficiency and shareholder returns. The more specific the plan, the clearer the basis for an investment assessment.

The downside scenario is one in which companies provide only explanations of structural causes and fail to meet their targets. An average PBR of 0.3 indicates the scale of the discount, but it does not automatically mean that undervaluation will be resolved. The next inflection point will be the final list released by the Korea Exchange (KRX) on the 2nd of next month. After that, a rerating will depend on whether each company’s PBR, ROE and dividend targets translate into actual disclosures and results.

This article was automatically summarized and analyzed from the original news report. View Original Article (Maeil Business Newspaper Securities)