[비즈한국] Starting this November, a list of listed companies that have maintained a low Price-to-Book Ratio (PBR) for a long period will be made public. This follows the Financial Services Commission (FSC) and the Korea Exchange (KRX) unveiling the detailed criteria for the low-PBR company disclosure system. Based on the exchange's preliminary simulations, it is estimated that between 120 and 220 companies will be subject to this disclosure. Companies on the list will not only have their names published on the KRX disclosure website but will also be tagged as 'Low PBR' on securities firms' Mobile Trading Systems (MTS). In effect, companies that fail to present a corporate value enhancement plan will be labeled as "companies neglecting their undervaluation."
Bottom 25% for KOSPI, Bottom 10% for KOSDAQ Are the Criteria
On the 28th, the FSC and the KRX released the detailed criteria for the "Low-PBR Company Disclosure System" and initiated a period for collecting public feedback. The system aims to induce improvements in corporate value by disclosing companies that, despite having a low PBR, either make no effort to enhance shareholder value or leave their stock prices undervalued. Financial authorities described this as a "Naming & Shaming" policy.
The targets for disclosure are determined by market and industry. A KOSPI-listed company becomes subject to disclosure if it has been in the bottom 25% of PBR within its industry for six consecutive half-year periods over the past three years. For KOSDAQ-listed companies, the threshold is the bottom 10%. Industries are categorized into 11 sectors using the Global Industry Classification Standard (GICS).
The financial authorities opted for industry-specific criteria to reflect the characteristics of sectors such as finance or capital-intensive industries, which structurally have large asset bases and naturally form lower PBRs. Applying a uniform standard, such as a PBR below 1, would fail to account for differences between sectors.
However, safeguards have been put in place to prevent companies from escaping disclosure due to temporary stock price increases. In principle, companies are targeted if they remain below the threshold for six consecutive half-year periods; however, if a company exceeds the threshold in only one of those six periods, the seventh previous half-year's PBR is also checked. If that period is also below the threshold, the company remains subject to disclosure. Conversely, if a company stays above the threshold at least twice during the most recent six half-year periods, it is excluded.
One-Year Exemption for Presenting Corporate Value Enhancement Plans
Companies do have a way to avoid disclosure. If a company publishes a corporate value enhancement plan—including a plan to improve its low PBR—it will be exempt from disclosure for one year. The improvement plan must include an analysis of the causes of the low PBR, goal setting, improvement measures, and performance evaluation. To prevent companies from using purely formal disclosures to gain exemptions, the exchange will provide separate templates and guidelines.
There is an exception for companies that have remained in a low-PBR state for an extended period. Companies that have met the market- and industry-specific criteria for the past six years—meaning 12 consecutive half-year periods—cannot receive the exemption even if they publish a corporate value enhancement plan. Financial authorities have stated that for these companies, they are pushing for actual PBR improvement beyond just the publication of a plan.
According to the exchange's preliminary simulations, as of May this year, approximately 120 companies are ineligible for the special exemption (80 on the KOSPI and 40 on the KOSDAQ). If companies fail to submit corporate value enhancement plans, the total number of companies subject to disclosure is estimated to be up to 220 (130 on the KOSPI and 90 on the KOSDAQ). This means 5% to 10% of all listed companies could be disclosed as "low-PBR companies."
The first disclosure date is November 2. The KRX will begin pre-announcing revisions to relevant regulations and detailed rules from August 5, accepting feedback until August 24. After the Securities and Futures Commission and the FSC approve the revisions during their regular meetings in September, the first list will be made public on the first trading day of November.
‘Low-PBR’ Tags on MTS Increase Pressure for Corporate IR
The impact of this system extends beyond mere list disclosure. Once disclosed as a low-PBR company, the company will not only appear on the KRX disclosure website but will also have a 'Low-PBR' tag attached to its name on securities firms' HTS and MTS. Investors will be able to immediately identify that a company is on the low-PBR disclosure list while trading stocks.
For listed companies, this creates significant pressure. Although the 'Low-PBR' tag is not a direct evaluation of a company's profitability or financial stability, the market may interpret it as a signal that the company is passive regarding shareholder returns or capital efficiency. In particular, once both institutional and retail investors see this label on their MTS, the burden on the company’s investor relations (IR) department is likely to increase.
Investors' attention is shifting toward financial holding companies, general holding companies, and sectors that have traditionally maintained low PBRs, such as steel, retail, and construction. However, since this system uses a relative evaluation method by market and industry, simply having a PBR below 1 does not automatically make a company a target. The targets are those that have remained in the bottom tier within their respective sectors for a long period.
Financial holding companies have already been strengthening shareholder return policies in response to the pressure to address low PBRs. Major financial groups like KB Financial, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group are prioritizing share buybacks, cancellations, and dividend increases as part of their value-up efforts. However, since market evaluations of financial stocks depend on capital ratios, capacity for shareholder returns, and Return on Equity (ROE), the differentiation within the sector is likely to become even more pronounced after the low-PBR disclosure system is implemented.
Holding companies are also likely to face significant pressure. They are often undervalued relative to the value of their subsidiaries, and there has been criticism that the value of subsidiary stakes and net assets is not properly reflected in their stock prices. Whether major holding companies like SK, LG, Lotte Corp, GS, and Hanwha see a revaluation from the market will likely depend on subsidiary performance, dividends, share buyback policies, and business restructuring directions.
‘Value-Up Disclosure’ Pressure Intensifies
This system is expected to effectively pressure listed companies to disclose their corporate value enhancement plans. Companies at risk of being disclosed as a low-PBR entity must publish their enhancement plans before the PBR calculation reference date of October 22 to be exempt from the first disclosure in November. The exchange plans to build a system by September that will allow companies to check their past half-yearly PBRs and whether they fall under the industry's bottom-tier criteria.
Listed companies will now need to manage both their PBR ranking within their industry and their status regarding enhancement plan disclosures. Companies whose stock prices have remained below net asset value for a long period are particularly likely to be pressured to provide concrete measures for shareholder returns and capital efficiency, such as share cancellations, dividend expansion, disposal of non-core assets, or business restructuring.
The KRX also plans to facilitate management interviews, briefings, and consulting for companies disclosed as low-PBR. For companies below a certain size, it is also considering providing PBR improvement consulting through external experts. Additionally, the exchange plans to reflect shareholder value-related indicators, including PBR, in its guidelines for delisting review and stewardship codes. However, low PBR itself will not be added as an independent reason to trigger a delisting review.
The market views the low-PBR disclosure system as a catalyst to increase the intensity of corporate value-up policies. While corporate value enhancement plan disclosures were previously voluntary, there is now a practical incentive to avoid being publicly listed as a low-PBR company. Conversely, companies appearing on the list will find it difficult to deflect criticism that they have been passive in boosting stock prices or rewarding shareholders.
A securities industry official stated, "Once the 'Low-PBR' tag is displayed on MTS, individual investors will also perceive those companies as neglected, undervalued entities," adding, "Companies that have long faced undervaluation controversies, such as holding companies or asset-heavy stocks, will feel growing pressure to put forward corporate value enhancement plans before the first disclosure in November."