Activist Align Targets SK Over 75% Undervaluation

SK building in Seorin-dong, Seoul. (Photo courtesy of SK) With the activist fund Align Partners Capital Management (hereinafter referred to as Align) disclosing a 1.5% stake in SK Inc. and urging a re-evaluation of its corporate value, SK Inc.’s stock price has shown a sharp upward trend for two days. Align CEO Lee Chang-hwan attended the ‘13D Monitor Active-Passive Investor Summit’ held in New York, the United States, and announced that the fund holds 1,088,753 shares of SK Inc. (a 1.50% stake). Align pointed out that despite SK Inc. possessing excellent performance and an artificial intelligence (AI) business foundation, it is being excessively undervalued in the market. The core issue is the ‘double discount’ structure arising from the corporate governance. SK Inc. holds a 32.2% stake in SK Square, and SK Square in turn holds an approximately 20% stake in SK hynix. An analysis indicates that a contradiction is occurring where the massive equity value of SK hynix is discounted once at SK Square and then again at SK Inc., resulting in a situation where even the market value of the 6.5% stake in SK hynix indirectly held by SK Inc. (approximately 60 trillion won or  $45.27 billion) vastly exceeds the market capitalization of SK Inc. (approximately 25 trillion won). In fact, SK Inc.’s estimated net income for next year, calculated based on the earnings consensus of its major affiliates, is approximately 24.4 trillion won, which is on par with its market capitalization on Oct. 16 (24.9 trillion won), resulting in an estimated price-earnings ratio (PER) of a mere 1 time. The intrinsic value based on net asset value (NAV) is also evaluated at 100 trillion won, and the discount rate against the current stock price is estimated to reach 75%. Align presented the precedent of the subsidiary SK Square as an improvement measure to boost the stock price. SK Square previously lowered its NAV discount rate from 61.4% to 45.2% through the purchase and cancellation of treasury stocks and the improvement of its compensation system. Accordingly, there are expectations that SK Inc., which lacked an explicit discount rate target in its first value-up plan in 2024, will introduce more effective measures in the new corporate value enhancement plan to be announced within the year. The market reacted immediately as the activist fund’s targeting and expectations for shareholder value enhancement intertwined. Around the time of the news, SK Inc.’s stock price recorded a sharp upward trend, soaring over 15% during intraday trading.