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Samsung SDS to list, Samsung C&T’s asset value to be highlighted

May 12, 2014 08:45|May 12, 2014 08:45
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▶ On May 8, Samsung SDS held a board of directors’ meeting and voted to list in 2014 to raise funds to expand overseas business. According to press reports, a lead manager will be chosen in 2Q14, and the company will begin IPO efforts in 3Q14.
Major shareholders are Samsung Electronics (22.6%), Samsung C&T (17.1%), Jae-Yong Lee (11.3%), Bu-Jin Lee (3.9%) and Seo-Hyun Lee (3.9%)
▶ We believe the value of Samsung C&T’s stake in Samsung SDS should be highlighted as the assets can be fairly valued and easily disposed after the IPO. Samsung SDS shares rallied in the OTC market after the IPO plans were announced, with the stock’s market cap surging from W11.6tn on May 7 to W17.4tn. We believe Samsung SDS shares gained excessively yesterday due to the IPO expectations. Based on the May 7 price, we estimate shares traded at 35x 2013 PE and 23-27x 2014 PE (based on 2014 sales guidance announced at general shareholders’ meeting and 2013 margins). Accordingly, Samsung C&T’s BPS should grow 9.7% reflecting the higher asset value, or 7.4% based on after-tax gains if shares are disposed. As such, fair value per share should increase W3,000 (3.8%).
▶ Samsung C&T has traditionally been considered an asset stock, but shares were never attractive as assets were unlikely to be divested. However, assets are being highlighted on the growing possibility of IPOs and the recent governance changes
within the Samsung group. Concerns that the governance changes will be unfavorable for Samsung C&T should also fade.

Recent, ownership changes within the Samsung group have been positive for Samsung C&T. Although we assume the effects should be neutral in terms of corporate governance, shares are cheap as OP is forecast to grow 43.1% YoY in 2014.
Specifically, implied 2014 adjusted 2014F PE and PB, excluding major asset value, is only 6x and 0.9x, respectively. As such, we maintain Samsung C&T as our top pick.
*Source: Korea Investment & Securities Co.