Hyosung's Transformation into a Holdco + Four Subsidiaries (Part 1)

Hyosung Corporation (004800 KS) announced on January 3rd that it will transform into a holding company and four subsidiaries. The company will spin-off four business units, including textile, heavy industries, industrial materials, and chemical. The Holdco will own a 39.3% stake in the new entity while the four subsidiaries will hold a combined 60.7% stake in the new entity. The potential change of Hyosung Corp into a Holdco structure has been speculated for many months but this was the first time that Hyosung has officially stated that it will change into a Holdco structure.

Overall, we believe this transformation into a Holdco and four subsidiaries structure will likely to have a POSITIVE impact on Hyosung Corp since it will enable a greater corporate transparency and investors will be able to better value the separate businesses. Although there could be some short term selling from investors that are playing the "buying on rumor, sell on news" (of the conversion to the Holdco), the Hyosung Group is likely to benefit from this change to a Holdco structure in the long run.

This transformation is very reminiscent of the breakup of Hyundai Heavy Industries Group to Hyundai Robotics (267250 KS) (Holdco) and its subsidiaries Hyundai Heavy Industries (009540 KS), Hyundai Electric & Energy (267260 KS), Hyundai Construction Equipment Corporation (267270 KS).

The following are the five new entities (including the split ratios) that will be created for Hyosung Group in this reorganization:

• Hyosung Corp - Holding company (0.3928)
• Hyosung TNC - Textile & trade (0.1232)
• Hyosung Heavy Industries - Heavy industries and construction (0.2655)
• Hyosung Advanced Materials - Materials related (0.1276)
• Hyosung Chemicals - Chemicals (0.0908)