Trusstone Asset Management, the second-largest shareholder of Taekwang Industry, has sharply criticized the company's value enhancement plan, demanding a comprehensive review by the board. The firm pointed out that the plan only outlines long-term goals without specific shareholder return measures such as increased dividends or stock buybacks.
On July 1, Trusstone assessed Taekwang's announced "2026 Value Enhancement Plan," stating it "fails to meet even the minimum requirements of the Korea Exchange guidelines and lacks quantitative goals and commitment to resolve extreme undervaluation, rendering it a deficient report."
Trusstone particularly took issue with Taekwang's capital allocation policy. The total dividend for the 2025 fiscal year is set at 1.5 billion won, but after excluding the controlling shareholders and related parties, only about 500 million won (0.06% of market capitalization) will be distributed to general shareholders.
Trusstone argued, "With a debt ratio of 13.5% and retained earnings exceeding 4 trillion won, it is contradictory to cite a deficit environment as a reason for limiting dividends to general shareholders while pursuing aggressive new business investments."
They continued, "In a situation where dividends have been frozen for 32 consecutive periods, merely stating that 'reasonable adjustments will be considered' is tantamount to maintaining the existing dividend policy without any concrete quantitative targets."
Concerns were also raised regarding the plan to utilize treasury shares. Taekwang intends to use its 271,769 treasury shares (24.4%) as funding for strategic mergers and acquisitions, with specific plans to be determined at the 2027 annual shareholders' meeting.
Trusstone criticized this approach, stating, "By diagnosing its own stock as being undervalued at a price-to-book ratio (PBR) of 0.22, proposing to use treasury shares as a means of M&A implies disposing of shareholder assets at a price below intrinsic value."
They added, "The condition of '2027 shareholders' meeting approval' effectively serves as a post hoc justification to avoid stock buybacks, which could be interpreted as an attempt to maintain favorable shares for the major shareholder while evading shareholder return obligations."
Trusstone also deemed Taekwang's goal of achieving 5 trillion won in sales and an 8% return on equity (ROE) by 2030 as lacking effectiveness, likening it to the company's previously announced 12 trillion won investment plan for the next decade, which was not effectively implemented.
They pointed out that the large-scale investment plan announced in 2022 did not materialize, and the company's focus on generic products has led to a 36 billion won operating loss last year, indicating a decline in core competitiveness. With sales dropping to around 1.8 trillion won, they criticized the lack of capital procurement standards or execution pathways while only presenting long-term goals again.
Furthermore, they noted that Taekwang's 8% ROE target for 2030 falls short of the average cost of equity (COE) of 8-10% for domestic chemical and industrial companies.
Trusstone has called for a comprehensive review of the value enhancement plan by the board, insisting that any revised proposal must include: two or more quantitative targets such as dividend payout ratio and total shareholder return (TSR); a formal principle for the gradual buyback of 24.4% of treasury shares; and a reassessment of ROE targets exceeding the cost of capital.
They also urged the four independent directors on the board to directly address the plan's shortcomings based on their fiduciary duty to all shareholders.
A Trusstone representative stated, "Even if laws and regulations are improved, if companies continue to operate in a circumstantial manner, the advancement of the capital market will be difficult," adding that a public letter to shareholders addressing the decision-making process of the value enhancement plan and the independence of the board will be sent next week, initiating a formal public discourse.
* This article has been translated by AI.
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