Although both companies shared the name "spin-off," their evaluations diverged sharply. On August 25, Hanwha’s stock price surged after completing its spin-off and resuming trading. Over two days, including a 17.4% jump on the 25th, Hanwha’s stock rose by 18.2% by August 26. However, Kakao’s stock fell by 7.5% on August 21 when it announced its split plan. Although it slightly recovered afterward, it still declined by 6.1% by August 26.
Analysts in the securities industry interpret that Hanwha removed factors causing stock price declines through its spin-off, while Kakao faced newly emerging factors that drove its stock price down. Since market reactions to spin-offs can vary as such, experts advise investors to carefully examine each case individually when investing in spin-off stocks.
◇Hanwha Reduces Discount Factors by Narrowing Focus to Defense Holding Company
On August 1, Hanwha split into the surviving entity Hanwha and the newly established Hanwha Machinery & Service Holdings (Hanwha M&S). The surviving entity retained defense, shipbuilding, energy, and financial affiliates, including Hanwha Aerospace, Hanwha Ocean, Hanwha Solutions, and Hanwha Life. Hanwha Vision, Hanwha Galleria, Hanwha Hotels & Resorts, Hanwha Momentum, and Hanwha Robotics were transferred to the new entity.
Investors appear to have valued the simplified structure. According to Korea Investment & Securities, the company’s structure, which previously operated 11 listed affiliates across nine sectors, was reduced to nine listed affiliates in seven sectors.
When businesses with differing characteristics are mixed under one company, a "conglomerate discount" occurs, where the investment value is assessed lower than the sum of individual businesses. This is because underperforming businesses can overshadow profitable ones, or profits from growth sectors may flow into loss-making sectors. Defense, shipbuilding, and mature sectors like distribution and leisure also have different valuation metrics (PER, PBR), meaning bundling them under one stock price prevents either from receiving fair valuation.
Categorizing these businesses by similar characteristics reduces undervaluation. Mirae Asset Securities raised Hanwha’s target stock price from 100,700 Korean won to 185,000 Korean won. This adjustment reflects a reduced discount rate applied when comparing Hanwha from a conglomerate holding company to a defense-focused holding company. The net asset value (NAV) discount rate, previously 54.75%, is expected to drop to 50.85% in 12 months.
Additionally, the correlation between the parent company’s stock price and its subsidiaries’ performance strengthens. Approximately 80% of the listed subsidiaries’ value held by Hanwha comes from Hanwha Aerospace, a high-growth defense stock.
◇Kakao Faces Increased Holding Company Discount
On August 21, Kakao’s board decided to split into Kakao AI, a new entity handling KakaoTalk, AI, advertising, and commerce, and the surviving entity KakaoX, which will hold stakes in subsidiaries and investment assets. The split ratio based on net assets is 0.635 for KakaoX and 0.365 for Kakao AI.
The split date is set for January 1, 2027, with the revised listing and relisting scheduled for January 27 of the same year. Chung Shin-a, the current CEO, has been appointed as the head of Kakao AI, while Kim Do-yeong, the head of Kakao Investment, is set to lead KakaoX.
However, the market reaction contrasted sharply with Hanwha’s. KakaoX, nearing a pure holding company with higher stake value than operational value, faces a "holding company discount." This occurs when subsidiaries are separately listed, leading to double-counting of profits in both parent and subsidiary stock prices. KakaoX’s key assets will be stakes in listed subsidiaries like KakaoBank and KakaoPay. A holding company typically only receives dividends and trademark fees, not the full profits of subsidiaries.
Samsung Securities applied a 30% discount rate to KakaoX, valuing it at 10.8 trillion Korean won, and estimated that if the discount rate rises to 50%, Kakao’s fair stock price could drop to 33,000 Korean won. The burden of an increased discount rate may outweigh the benefits of clearer subsidiary valuations. Essentially, a holding company discount replaces the previously criticized conglomerate discount.
AI profitability also poses risks. Kakao aims to grow Kakao AI’s revenue from 2.8 trillion Korean won to over 6 trillion Korean won by 2030, with AI revenue exceeding 1 trillion Korean won. However, Meritz Securities noted, "Kakao’s AI monetization strategy has yet to yield results."
Kakao presented a combined potential value of 34.2 trillion Korean won for its business units. However, its average market capitalization over the past three months was 16.8 trillion Korean won—less than half. Analysts question whether the spin-off can bridge this gap.
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