Hyundai Elevator Expands Dividend Payout to 40%... Enhancing Shareholder Value Amid Improved Performance

[Korea Financial Times, Shin Haeju] Hyundai Elevator (CEO Cho Jae-cheon) has been showing an expanding dividend trend since late last year. Market interest is growing in how long Hyundai Elevator will maintain this trend beyond its initial promise of 2027. An investor said, "We will see in the future whether it is a show-off dividend only for controlling shareholders or a true shareholder return considering minority shareholders."

Hyundai Elevator, which previously only provided year-end dividends, has diversified its dividend cycle starting this year. In June, the company decided to pay its first-ever interim dividend of KRW 1,800 per common share. The total dividend paid to Hyundai Elevator shareholders through August amounts to KRW 54.2 billion.

This interim dividend follows the "Corporate Governance Policy for Enhanced Shareholder Value" announced in November last year. According to the five-year mid-to-long-term dividend policy announced at the time, the company decided on dividends of more than 50% of net profit, treasury stock acquisition and cancellation, returning one-time profits to shareholders, and a minimum dividend of KRW 500.
Previously, in May last year, Hyundai Elevator canceled 1.72 million treasury shares worth KRW 50 billion, and four days later, signed a 100 billion won treasury stock acquisition trust contract with Korea Investment Securities. In July, they added a KRW 30 billion contract, and in September, signed a KRW 50 billion treasury stock acquisition trust contract with Mirae Asset Securities.

A treasury stock acquisition trust contract refers to entrusting a certain amount to a financial company to purchase company shares on their behalf. This can have the effect of stabilizing stock prices and enhancing shareholder value. However, the company can terminate the contract midway and receive back shares or cash.

Hyundai Elevator terminated KRW 50 billion of the KRW 100 billion contract with Korea Investment Securities last November, and extended the remaining KRW 50 billion before terminating it in May this year. The 30 billion won contract from July last year was terminated this January, and the contract with Mirae Asset Securities was terminated this March. Also, in November last year, it sold 1.16 million shares of its own stock worth KRW 50 billion to the employee stock ownership association in the name of revitalizing employee stock ownership.

However, the rise in Hyundai Elevator's stock price seems to be slower than expected, considering the shareholder return policy such as expanding dividends and acquiring and burning treasury stocks. The dividend per share of Hyundai Elevator increased more than 400% from 800 won in 2021 and 500 won in 2022 to 4,000 won last year, but the stock price rose only 8.44% over the past three years.

The stock price, which reached KRW 57,400 in June 2021, began falling from September of that year. It dropped to the KRW 30,000 range at the beginning of 2022 and plummeted to the KRW 20,000 level within six months. It exceeded 40,000 won in May last year and has maintained this level until now. The stock price recorded KRW 44,200 at closing on the 22nd.
This was influenced by Hyundai Group Chairwoman Hyun Jeong-eun's final loss in March last year in a damages lawsuit filed by Schindler Holdings, Hyundai Elevator's second-largest shareholder, resulting in a total compensation of KRW 281.5 billion, including delay interest on the principal of KRW 170 billion.

Previously, Chairman Hyun lost the second trial, paid KRW 100 billion in advance to Hyundai Elevator and deposited KRW 20 billion to the court, and the additional amount had to be paid was around KRW 150 billion.

Immediately after the Supreme Court ruling, Hyun paid off part of the compensation in substitutes with Hyundai Mubex shares worth about KRW 86.3 billion, and received a KRW 230 billion stock mortgage loan from M Capital. Since then, in November last year, he completed attracting KRW 300.7 billion in investment from H&Q Korea, the first-generation private equity fund (PEF) management company in Korea, and cleared all remaining debts.

However, as Hyundai Elevator increased dividends, the dividend payout ratio, which had maintained around 20%, expanded to over 40% last year. The dividend payout ratio indicates how much dividend is paid out of net profit. A 40% dividend payout ratio means that a company that made KRW 1 million in profit paid more than KRW 400,000 in dividends.

The ratio increased from 28.9% in 2021 and 25.4% in 2022 to 43.5% last year. The interim dividend in the first half of this year recorded 170.7%. The dividend yield also rose accordingly. The dividend yield, which remained at 1.9% in 2021 and 1.7% in 2022, rose to 8.8% last year and recorded 3.2% in the first half of this year alone.

Hyundai Elevator plans to announce its "Corporate Value Enhancement Plan" in November or December. Regarding this, a company official said, "It is difficult to disclose the content in advance as it is scheduled for public announcement."

Hyundai Elevator's performance is improving. Annual sales have increased by nearly 10 per cent on average, from KRW 1.97 trillion in 2021 to KRW 2.13 trillion in 2022, and KRW 2.6 trillion in 2023. Operating profit is recovering. After falling from KRW 129 billion in 2021 to KRW 43 billion in 2022, it recorded KRW 82.6 billion last year. In the second quarter of this year, sales were KRW 739.5 billion and operating profit was KRW 49.9 billion, increasing by 10.80% and 217.83% respectively compared to the same period last year.

Shin Haeju (hjs0509@fntimes.com)