[Deep Dive] Entering Phase 2 of the 2026 Value-up Program: Re-evaluation of Low PBR Financial and Holding Companies and Capital Efficiency Analysis

2026 Value-up Program: Proving Fundamentals Beyond Policy Expectations

The Korean stock market in 2026 has entered the second phase of the 'Value-up Program', transitioning from a thematic rally to an institutional mandate forcing structural improvements in corporate fundamentals. In particular, financial stocks and large holding companies, which have long stood at the core of the 'Korea Discount', are driving market re-evaluations through definitive capital efficiency improvements (ROE enhancement) and aggressive shareholder return policies.

Korean financial holding companies are currently tracking the trajectory of Japanese bank stocks, which successfully overcame trading below book value and normalized to a PBR level of 1.5x through rigorous governance reforms. Moving beyond simple disclosures or one-off dividends, the arrival of an era targeting a '50% total shareholder return rate', explicitly incorporating share buybacks and cancellations, is accelerating structural capital inflows from both foreign and institutional investors. This signifies an evolution of the Korean market from a value market reliant solely on dividend yields to one focused on Total Return.

Qualitative Changes in Capital Efficiency and Shareholder Returns

Diversification of Share Cancellation and Dividend Policies

The common denominator among companies currently attracting strong market buying interest is their possession of transparent and predictable capital allocation strategies. Breaking away from the past methodology of simply elevating cash dividend ratios, companies are now significantly expanding the proportion of share cancellations, effectively reducing the absolute number of outstanding shares. Share cancellations directly induce an increase in both EPS (Earnings Per Share) and BPS (Book Value Per Share), elevating the equity value of existing shareholders without dilution and providing a definitive incentive for long-term investors.

Furthermore, the emergence of shareholder return policies linked to tax benefits, such as tax-exempt dividends through the reduction of capital reserves, is forging a robust supply-demand foundation driven by high-net-worth individuals and retail investors who prioritize after-tax yields. This acts as a powerful cushion supporting downside risk during market pullbacks.

Net Interest Margin (NIM) Defense and Risk Management

The critical prerequisite for low-PBR financial stocks to transcend a short-term theme and achieve true valuation normalization lies in their ability to generate stable profits from their core operations. Currently, major financial holding companies are successfully defending solid Net Interest Margins (NIM) through loan portfolio diversification and funding cost optimization, despite heightened volatility in domestic and international interest rates.

Additionally, they have succeeded in diversifying their profit structures, historically skewed towards interest income, by steadily increasing the profit contribution of non-banking sectors (securities, insurance, asset management, etc.). Amid shifting macroeconomic environments dictated by the trajectory of global monetary policy and inflation indicators in the second half of 2026, the fundamentals of the financial sector are assessed as robust, maintaining core soundness metrics like the BIS capital adequacy ratio at high levels.

Advancement of Corporate Governance and Future Investment Strategies

Resolving Dual Listings and the Board's Fiduciary Duty

Market scrutiny and discussions surrounding institutional remedies for the 'split listing' (dual listing) of core subsidiaries—frequently cited as the chronic cause of the holding company discount—serve as crucial catalysts for elevating the intrinsic value of these entities. Recent debates, including the expansion of the board of directors' fiduciary duties via amendments to the Commercial Act, align with the broader trend of protecting minority shareholders' rights and reinforcing governance transparency.

As the institutional framework allowing subsidiary value to be fully reflected in the parent company's stock price takes shape, it is highly probable that a 'rotation market' and 'gap-filling' trend will persist. This momentum will likely spread liquidity not only to large financial holding companies that have announced leading shareholder return policies but also to previously marginalized small and medium-sized financial stocks and general holding companies.

The Criterion for Differentiation: Capital Buffers and Sustainable Policy Execution

At this juncture, 'blind value investing'—making investment decisions based solely on the fact that the absolute PBR figure is below 1.0x—should be strictly avoided. A certain portion of market expectations regarding the Value-up policy has already been preemptively priced into current valuations. The sustained upward trajectory of stock prices going forward relies entirely on the 'sustainability' and 'actual execution' of the Value-up program roadmaps announced by each respective company.

Investors must meticulously analyze the targeted financial or holding company's Free Cash Flow (FCF) generation capabilities, Risk-Weighted Assets (RWA) management efficiency, and capital buffers reserved for contingencies. Only those entities where management unequivocally proves their commitment to governance improvement, strengthens communication with the market, and translates shareholder returns into concrete action will be granted the appropriate valuation premium comparable to their global peers.