SK Square: Updated NAV Valuation Post Recent Share Price Decline

• Our NAV analysis of SK Square suggests NAV of 15.6 trillion won or 115,605 won per share, representing 48% higher than current share price.

• SK Square's market cap is only 39% of SK Square's stake in SK Hynix. SK Square's share price has declined by 27% since reaching its recent peak on 11 July.

• SK Square had excellent results in 2Q 2024, driven by improving results of its affiliates including SK Hynix.

In this insight, we provide an updated NAV valuation of SK Square (402340 KS) post recent share price decline. SK Square reached its recent peak share price of 106,700 won on 11 July 2024. Since then, its share has declined by 27% to 77,900 won.

SK Square NAV Valuation Analysis

SK Square (402340 KS) owns a 20.07% stake in SK Hynix which is now worth 26.6 trillion won. SK Square's market cap is 10.5 trillion won. In other words, SK Square's market cap is only 39% of SK Square's stake in SK Hynix.

Our NAV analysis of SK Square suggests NAV of 15.6 trillion won or 115,605 won per share, representing 48% higher than current share price. The biggest component of the NAV valuation is SK Hynix's 20.1% stake in SK Hynix which is worth 27 trillion won. We estimate that the remaining portion of the company's other investments are worth about 3.5 trillion won.

• Holding company discount could be reduced further - We have used a holding company discount of 50% which is fairly large. If the company is more aggressive in returning capital to its shareholders in the form of share buybacks/cancellations and dividends, this large holding company discount of 50% could be reduced further.

• Reduction in total outstanding shares through cancellation - SK Square currently has 134.7 million outstanding shares. At end of June 2024, it had 1.42 million treasury shares, accounting for 1.1% of outstanding shares. At end of 2023, SK Square had 138.98 million outstanding shares and 3.5 million treasury shares (2.5% of outstanding shares). The company has reduced total outstanding shares by 3.1% from end of 2023 to end of 1H 2024 by share cancellation.

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