20170919-三星证券-Research_Forum_takeaways_What_impact_will_the_stewardship_code_have__18页_1mb

Samsung Strategy Weekly Summary

Core Content Overview

This document provides a comprehensive analysis of the Korea Stewardship Code, its implications for institutional investors, and the current market and sector outlook. It is authored by Samsung's strategic team, including SeungMin You (Chief Strategist) and Hyein Ok, DongYeol Moon (Analysts).

Key Takeaways

1. Stewardship Code Overview

• Introduction: The stewardship code was introduced in December 2016 to improve corporate governance and transparency in Korea.
• Voluntary Participation: Institutional investors are not required to adopt the code but must either comply with its principles or explain why they do not.
• Comply or Explain Rule: If an investor selectively applies some principles, they must justify their decision.
• Non-Interference Principle: Engagement with companies should be constructive and not interfere with daily operations.
• Internal Guidelines: Investors must establish internal rules to ensure compliance with the code and to manage conflicts of interest.
• Disclosure Requirements: Clear policies on voting and stewardship activities must be disclosed to enhance transparency and trust.
• Expertise and Resources: Investors must have the necessary expertise and allocate resources to implement the code effectively.

2. Market and Sector Views

• Market Outlook: Despite geopolitical risks like the North Korean nuclear threat, the Kospi Thermometer models suggest a bullish trend. The market is becoming less sensitive to geopolitical issues.
• Sector Changes:
  • Banking sector: Moved from underweight to expensive.
  • Telecom Services sector: Moved from underweight to overweight.
• Kospi Performance:
  • 1W: 1.8%
  • 1M: 2.2%
  • 3M: 1.0%
  • YTD: 17.8%
• Kosdaq Performance:
  • 1W: 2.6%
  • 1M: 6.7%
  • 3M: 0.2%
  • YTD: 6.3%

3. Market Valuation (12m Fwd)

• Kospi:
  • P/E: 9.2
  • P/B: 1.0
  • ROE: 10.8
• Kosdaq:
  • P/E: 15.0
  • P/B: 2.2
  • ROE: 14.4

4. EPS Forecast Change (12m Fwd)

• Kospi:
  • 1M: 2.2%
  • 3M: 6.3%
  • 6M: 17.3%
• Kosdaq:
  • 1M: 1.1%
  • 3M: 6.6%
  • 6M: 12.8%

5. Sector VEM Model

• The model indicates bullish sentiment across most sectors, with a focus on telecom services and financials showing stronger performance.

Sector View Details

Key Highlights from Research Forum

• The stewardship code is not legally binding in Korea, but it encourages institutional investors to adopt best practices.
• The comply or explain principle is central to the code.
• Institutional investors must ensure that their engagement is constructive and not undue interference.
• Conflicts of interest must be managed through clear policies.
• The separation of ownership and management is emphasized, with asset owners like pension funds relying on asset managers for stewardship.

Stewardship Code Features

Best of Samsung (Sep 12-18)

• Samsung Electronics (005930): Maintained as BUY, with a 12-month target price of KRW2.8m.
• Hanon Systems (018880): Maintained as BUY, with a raised target price to KRW14,000.
• Retail Sector: Maintained as OVERWEIGHT, with a note on undervalued but lacking momentum.
• Lotte Shopping (023530): Maintained as BUY, with an expected 15% increase in 2017 operating profit due to the sale of Chinese stores.
• SK Hynix (000660): Maintained as BUY, with a raised target P/B multiple to 1.52x and target price to KRW96,000.

Q&A Highlights

• The stewardship code is not mandatory and will not be enforced by law.
• The government does not support the appointment of outside directors to represent certain shareholders.
• No guidelines exist for asset managers regarding shareholder proposals that might use undisclosed information.
• The code is not penalty-driven, but non-compliant institutions may face a market disadvantage.

Conclusion

The stewardship code is a voluntary framework aimed at improving corporate governance and investor engagement in Korea. While not legally binding, it sets a standard for institutional investors to enhance the value of investee companies. The market and sectors are showing signs of bullish momentum, with telecom services and financials being highlighted as overweight. The document also provides detailed insights into specific stocks and their valuation changes, emphasizing the importance of long-term growth and strategic engagement.