Coway: Doubling Total Shareholder Returns to 40% of Consolidated Net Income

• Coway announced a significantly higher total shareholder return plan, nearly doubling total shareholder returns of consolidated net income from current 20% to about 40% in the next three years.

• Coway has low valuation multiples. It is currently trading at EV/EBITDA of 4.1x, P/E of 8.1x, and P/B of 1.4x based on 2025 consensus earnings estimates.

• We believe that the combination of improved shareholder returns and low valuation multiples are likely to lead to outperformance of Coway versus the market in the next 6-12 months.

After the market close on 6 January, Coway Co Ltd (021240 KS) announced a significantly higher total shareholder return plan, nearly doubling total shareholder returns of consolidated net income from current 20% to about 40% in the next three years (2025 - 2027). The shareholder returns will be comprised of dividends and share buybacks/cancellations. In 2025, the company plans to cancel 1.89 million treasury shares, representing 2.56% of outstanding shares.

There have been many Korean companies announcing new shareholder return plans in the past several months. Some of them are just lip service while others are meaningful that could positively impact their share prices. We believe the new total shareholder return plan by Coway is the latter as there will be many more investors that could be interested in investing in this deep value stock as it is planning to provide much higher dividends and share buybacks/cancellations in the next three years.

Netmarble's acquisition of Coway - Netmarble acquired a 25.1% stake in Coway for 1.74 trillion won in February 2020, valuing Coway at 6.9 trillion won (100% stake). Coway's market cap is now at 4.7 trillion won, which is 32% below what Netmarble paid for nearly five years ago.

Source: Google Finance

Coway Dividend Yield and Dividend Payout

Coway's dividend yield averaged 2% and its dividend payout averaged 20.6% from 2020 to 2023. Its dividend payout and dividend yields from 2020 to 2023 were lower than the previous four years (2016-2019). Its dividend yield and payout averaged 3.6% and 75%, respectively from 2016 to 2019.

Prior to Netmable's investment in Coway, the latter company used to pay out decent amount of dividends but post Netmarble's investment, Coway's dividend payout has been much mor stingy. Therefore, Coway's sharp increase in its total shareholder return plan is an attempt to regain confidence among investors that seek higher shareholder returns.

Prior to Netmarble's investment in Coway in 2020, there were some concerns that Coway may not be investing enough R&D on its own business and that its shareholder returns are more than its free cash flow resulting in worsening of its balance sheet. However, after the acquisition, it appears that Coway has not provided adequate amounts of shareholder returns despite improvements to its cash flow and balance sheet.

Coway Earnings & Dividends (Source: Smartkarma)