Value Up Index: What’s Behind the Selection Criteria – A Closer Look at Hynix and KB Financial

The ‘Korea Value Up Index’ was unveiled on the 24th, but KB Financial Group, considered a high representative dividend stock, was not included, while SK Hynix, which recorded a loss last year, was listed, raising questions in the market.

On the 26th, the Korea Exchange announced that KB Financial Group and Hana Financial Group were not included in the ‘Korea Value Up Index’, and that companies that meet certain requirements such as shareholder return but are insufficient in qualitative requirements may others be substandard. content. This is because the Value Up Index is selected primarily for companies that meet various qualitative requirements such as profitability, market evaluation, and capital efficiency.

KB Financial Group and Hana Financial Group fell short of the return on equity (ROE) and price-to-book ratio (PBR) requirements, respectively.

There is also considerable debate regarding SK Hynix’s success in being included in the ‘Korea Value Up Index’. SK Hynix recorded an operating profit of KRW 6.8094 trillion in 2022, but recorded an operating loss of KRW 7.7303 trillion last year, failing to meet the standard for ‘combined two-year surplus’ set by the exchange.

The reason behind the inclusion of SK Hynix in the index is that the Value Up Index also operates a special system for stocks with a large index influence to maintain the continuity and stability of the index.

The exchange explains that, in the case of SK Hynix, it has decided to remain in the index by comprehensively considering the representativeness of the industry and the market, weight in the index (15%), recent performance and future performance forecasts, and industry opinion. As a result of simulations over the past five years from 2019 to last year, SK Hynix fulfilled the selection criteria for the entire period and was selected as a stock representative of the industry and market.

Additionally, the prediction that it will reap operating profits of 2.9 trillion won and 5.5 trillion won in the first and second quarters of next year, respectively, appears to have added strength to its content in the index.

Specifically, the exchange argued that it differentiated itself by introducing qualitative requirements and a weight cap system in response to the claim that the index lacked discrimination due to the large number of stocks included in the current representative index. By introducing various qualitative requirements that reflect the unique characteristics of the Value Up Index, even companies with high market capitalization can be excluded.

As the current representative market indices do not use a weight cap system, the Value Up Index reduced the weight of large cap stocks such as Samsung Electronics and SK Hynix in the index by introducing a weight cap system.

It was also explained that the main purpose of developing the Value Up Index is to discover dividend companies that are undervalued. Rather than just discovering high dividend companies, the aim is to compile an index of representative companies in the market and industry with excellent qualitative indicators (profitability, PBR, ROE, etc.) and actively participate in the value up program to improve’ r the overall value of the domestic stock market This is the explanation.

In the meantime, the exchange intends to actively review ways to change the constituent stocks within this year, taking into account the opinions of experts in different fields and the trend of revealing corporate value improvement plans in the future.