My Yahoo!Stock Focus: Korean Comeback
NEW YORK - South Korea's economic crash in the late 1990s shattered the formerly cozy relationship between the Korean government, the country's banks and industrial conglomerates, known as chaebols.
A painful restructuring is far from over, but Korea's economy is now reaping rewards from some of the reforms that have been put into place. After having negative growth in its gross domestic product in 1998 (-7%), South Korea's GDP gained 11% in 1999 and an additional 9% in 2000.
Giant Hyundai, for example, is still cutting costs under government orders to reduce its long-term debt. All of Hyundai's automotive operations were spun off in 1998, shortly after Hyundai Motor took a majority stake in Kia Motors, which was bankrupt at the time.
The Kia deal made Hyundai the largest automaker in South Korea. Thanks to its 46% stake in Kia, a broader product line and the production of higher-quality vehicles, revenue at Hyundai Motor jumped from $8.2 billion in 1998 to $21.6 billion in 1999 to $30.3 billion in 2000. Hyundai's yearly U.S. sales (excluding Kia) jumped 49% to 244,000 units last year.
In June 2000, DaimlerChrysler (nyse: DCX - news - people ) took a 10% stake in Hyundai Motor for $428 million. Although its stock price has climbed 79% year-to-date, Hyundai Motor has a relatively low valuation of just six times estimated 2001 earnings.
Samsung is also selling off assets and cutting costs. Its most profitable former subsidiary, Samsung Electronics, is the number-one electronics manufacturer in Korea and the world's top producer of color computer monitors. With $30.3 billion in annual sales, Samsung Electronics makes everything from microwave ovens to digital cameras and DVD players.
Samsung Electronics trades at eight times projected earnings for this year. In contrast, Sony (nyse: SNE - news - people ) of Japan is priced at 34 times estimated 2001 profits.
Despite a surge in Korean stock prices since the beginning of the year, the eight stocks in the table below still seem cheap. As a group they sell for nine times estimated 2001 profits. With the exception of Korea Thrunet, all of these companies are currently profitable and have a market value of at least $200 million.
Korea Electric Power (nyse: KEP - news - people ), also known as Kepco, is still 52%-owned by the South Korean government, but revenue at the company climbed to $14.1 billion in 2000 from $7.7 billion in 1997. The firm's recent forays into other markets, such as China, North Korea and the Philippines, have enormous potential but also present new risks.
Another big corporation in which the Korean government owns a large stake (59%) is Korea Telecom (nyse: KTC - news - people ), the nation's phone company. As with many of its counterparts around the world, shares of Korea Telecom are off sharply from previous levels. Investors looking for a telecommunications stock with greater growth potential might consider Korea Thrunet, Korea's primary Internet service provider, or wireless service provider SK Telecom (nyse: SKM - news - people ).
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| Prices as of July 24. EPS: Earnings per share. P/E: Price-to-earnings ratio. NM: Not meaningful. Sources: Bloomberg Financial Markets; FT Interactive Data, Market Guide and Thomson Financial/IBES via FactSet Research Systems |
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