Acquittal of Lee Jae-Yong and Impact on Samsung C&T

• Now that Lee Jae-Yong's legal problems appear to have finally have been resolved, it could positively impact Samsung C&T, Samsung Electronics, and Samsung Biologics.

• Given the fact that Samsung Electronics and Samsung Biologics are the two most important drivers of Samsung C&T, this could positively benefit the valuation of Samsung C&T.

• Our NAV analysis of Samsung C&T suggests NAV of 38.7 trillion won or NAV per share of 217,747 won which is 84% higher from current levels.

In the past several days, Samsung's Lee Jae-Yong was finally acquitted in a high court ruling over his alleged involvement in the merger between Samsung C&T and Cheil Industries in 2015. The Seoul High Court judges upheld a district court ruling that cleared Lee Jae-Yong of all 19 charges, including breach of trust and violation of the Financial Investment Services and Capital Markets Act. Although the prosecution can continue to appeal the case to the Supreme Court, it is unlikely for the Supreme Court to overturn the high court ruling because the Supreme Court only reviews the legal interpretation of rulings by lower courts, not new facts.

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End of Lee Jae-Yong's Legal Problems Could 'Positively Impact Samsung Electronics, Samsung C&T, and Samsung Biologics

Now that Lee Jae-Yong's legal problems appear to have finally have been resolved, it could positively impact major Samsung Group companies including Samsung C&T (028260 KS), Samsung Biologics (207940 KS), and Samsung Electronics (005930 KS) since the potential legal problems facing Samsung's heir Lee has been mostly resolved and there are reduced uncertainties associated with this issue.

In the high court ruling, it found no grounds to conclude that the merger ratio between Cheil Industries and Samsung C&T was unfair or caused losses to shareholders. Furthermore, the high court mentioned that it is hard to conclude that there was intentional accounting fraud at Samsung Biologics as financial authorities can impose administrative measures, but this cannot constitute criminal punishment.

Given the fact that Samsung Electronics and Samsung Biologics are the two most important drivers of Samsung C&T, this could positively benefit the valuation of Samsung C&T. Lee Jae-Yong remains the largest shareholder of Samsung C&T with a 19.1% stake in the company.