Samsung corporate governance stocks on a rollercoaster ride…The Samsung SDS and Cheil Industries stocks have ‘zero visibility’

The stock prices of Samsung SDS and Cheil Industries, which attracted public attention as beneficiaries of Samsung corporate governance shake-up and successfully debuted on the bourse, got lost in 2015. They kept going up and down, and now there are many people talking about ‘bubbles.’ The securities experts, who used to be certain of an additional upward momentum, now have zero visibility.

On January 7 the stock prices of Samsung SDS and Cheil Industries fell by more than 7% and 19% respectively on the stock market from their closing prices of the first trading day of 2015. Their stock prices dropped by 5.16% and 4.81% respectively on the first trading day, and fell again by 1.19% and 2.17% respectively on the second trading day.

The stock price of Samsung SDS, which increased by more than 8% on January 2, the first trading day of this year, continued to decline sharply for 3 consecutive days afterwards. The stock price of Cheil Industries, which exceeded KRW170,000 thanks to the steep rise on January 2, kept falling for 3 consecutive days, and is now about KRW130,000. The stock price of Cheil Industries, which rose for 8 consecutive days except for one day, December 24, after it was listed on the stock market on December 18, fell to the price limit (-14.91%) on January 5. On the same day its stock price recorded a day high (KRW179,500), further increasing instability.

The volatility in stock prices is too big considering the downward pressure due to the investors selling their stocks to realize their profits after incorporation into the Morgan Stanley Capital International (MSCI) index.

There is even concern that Samsung SDS and Cheil Industries may follow the precedent of Samsung Life Insurance whose stock price stagnated after listing on the stock market. The stock price of Samsung Life Insurance fell below the offer price (KRW110,000) only a few days after the IPO, and has stayed near the IPO price for a few years.

Some argue that the bubbles are gone and the prices are finding their rightful places. Those who argue that their stock prices will be adjusted are backed up by the fact that the PER of Samsung SDS and Cheil Industries, which drew public attention because of the corporate governance shake-up, rather than business value and outlook, is 60~70 times and over 120 times respectively.

Investors are still very interested in them. The daily average Cheil Industries transaction amount of up to KRW500 million is double that of Samsung Electronics, and more than 10% of that of KOSPI.

There are mixed views in the securities industry. Some securities companies expect that their stock prices will rise further mentioning the good performance of Samsung SDS and the corporate governance reshuffle of Cheil Industries. Others say that Cheil Industries is over-valuated.

“Last year their sales are forecast to be KRW7.930 trillion and operating profit KRW582.6 billion, up 12.5% and 15.2% respectively year on year,” said Yoon Hyeok-jin, researcher in charge of the electric and electronics segment at Eugene Investment & Securities. “The sales of the Logistics BPO Division increased by 29.5%.”

Kyobo Securities said that there is a sufficient upward momentum in terms of corporate governance, and maintained the target price of KRW95,000. On the other hand, Kiwoom Securities said the aggregate market value of Cheil Industries as of January 6 is excessive and downgraded the stock to ‘Underperform.’

“The growth of the key businesses of Cheil Industries will be highlighted after 2017,” said Park Joong-seon, Kiwoom Securities researcher, in a report. “Its sales will about double from KRW5 trillion in 2014 to KRW9.6 trillion in 2020, and its operating profit during this period is forecast to sharply increase from KRW183.6 billion to KRW585.7 billion, but even if this prediction is reflected in advance, the current aggregate market value of KRW20 trillion is excessive.”