Improve Hyundai Home Shopping (Hyundai) Normalize Capital Allocation www.daltoninvestments.com
Disclaimer This presentation is published by Dalton Investments solely for informational purposes and is not, and may not be construed as, investment, financial, legal, tax or other advice. This presentation has been compiled based on publicly available information (which has not been separately verified by Dalton Investments) and does not: (i) purport to be complete or comprehensive; (ii) constitute an agreement, offer, a solicitation of an offer, or any advice or recommendation to enter into or conclude any transaction or take or refrain from taking any other course of action (wheth er on the terms shown herein or otherwise); or (iii) constitute proxy solicitation or any other similar form of activity, or any advice or recommendation to take or refrain from taking any action or do or refrain from doing any act which would otherw ise constitute proxy solicitation or any other similar form of activity. The market data contained in or utilized for the purposes of preparing this presentation is (unless otherwise specified) as at the end of trading hours on December 31, 2018. Changes may have occurred or ma y occur with respect to such market data and we are not under any obligation to provide any updated or additional information or to correct any inaccuracies in this presentation. The information herein contains “forward -looking statements. ” Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, witho ut limitation, words such as “may,” “will,” “expects,” “believes,” “submits,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “could” or the negative of such terms or other varia tions on such terms or comparable terminology. Similarly, statements that describe objectives, plans or goals are forward-looking. Any forward-looking statements are based on current intent, belief, expectat ions, estimates and projections. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actua l results to differ materially. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and actual results may vary materially from what is expressed in or indicated b y the forward-looking statements. Many of the statements in this presentation are our beliefs, which are based on its own analysis of publicly available information. Any representation, statement or opinion expressed or implied in this presen tation is provided in good faith but only on the basis that no reliance will be placed on any of the contents herein. You should obtain your own professional advice and conduct your own independent evaluati on with respect to the subject matter herein. We expressly disclaim any responsibility or liability for any loss howsoever arising from any use of or reliance on this presentation or its contents as a whole or in part by any person, or otherwise howsoever arising in connection with this presentation. In respect of the information and materials which have been prepared by us and contained herein, in the event of any inconsistency between the English language version and the Korean language version, th e meaning of the English language version shall prevail. Jan 2019 Page 1
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Executive Summary Our Recommendations to the Directors of Hyundai Home Shopping (“Hyundai”) Normalize Capital Allocation and Align Interests • Buyback and cancel shares (preferred) and/or increase dividends ; • $200M and $165M one- off for Hyundai and its de facto subsidiary Hyundai HCN (“HCN”), respectively – which is approximately half of each company’s net cash equivalents • Even if Hyundai pays out approximately $200M, it is estimated that Hyundai still would have approximately $200M of net cash equivalents and that Hyundai annually would generate approximately $180M of operating cash flow • Even if HCN pays out approximately $165M, it is estimated that HCN still would have approximately $165M of net cash equivalents and that HCN annually would generate approximately $85M of operating cash flow • Hyundai is the largest shareholder of HCN with an approximately 38% ownership, and other Hyundai Department Store affiliates additionally hold an approximately 30% ownership • If HCN pays out $165M, it is estimated that Hyundai’s share of the payout would be approximately $63M • Increase annual, regular total payout ratio to 60-80% for Hyundai and 80-100% for HCN • If the company faces a good investment opportunity that can create “economic value added” even after already making significant investments, the company may obtain the necessary capital through other means, such as the usage of remaining net cash equivalents, issuance/exchange of stock and/or capital increase or adopting a temporary and flexible approach with capital return to shareholders (share repurchase and cancellation) • Pay 40- 70% of senior management’s annual compensation in restricted shares to align interests of management with those of minority shareholders ; • Evaluate senior management’s performance primarily based on “economic value added” ; and • Split and merge companies to unlock value and streamline. (But this cannot substitute better capital allocations). Jan 2019 Page 3
Table of Contents • Background: Where did the Value Go? • Root Cause: Poor Capital Allocation • Our Recommendations Jan 2019 Page 4
Since Listing in 2010*, Hyundai’s Shareholders Have Lost Approx. 17% (Share Price Change + Dividend Yield) Hyundai’s Share Price (Sep. 13, 2010 to Nov. 30, 2018) ₩ 200,000 ₩ 180,000 ₩ 160,000 ₩ 140,000 ₩ 120,000 ₩ 100,000 ₩ 80,000 9/13/2010 9/13/2011 9/13/2012 9/13/2013 9/13/2014 9/13/2015 9/13/2016 9/13/2017 9/13/2018 Total Shareholder Return -17.0% Price Change -23.5% Assuming Dividends Reinvested in the Security 6.5% Source: Bloomberg; *From Sep. 13, 2010 to Nov. 30, 2018 Jan 2019 Page 5
…..While Hyundai Has Been Making Profits Cumulative net income of 70% since listing* 100% Cumulative 90% Net Income 80% since listing 70% Net cash equivalents*** 60% 100% 50% 40% 70% 30% 40% 20% 10% 0% Market Value Right After Listing (Sep. 13th, Cumulative Net Income from 2010 4Q to 2018 2010)** 3Q If net cash (40%) and cumulative net income (70%) were paid out to shareholders, total return would have been > 100% Source: Bloomberg; Korea Financial Supervisory Service DART-Annual Reports, etc. *From Sep. 13, 2010 to Nov. 30, 2018 **MV was approx. $1.4B ($1 = ₩1,120 applied for the entire presentation) based on share price of ₩130,500 at Sep. 13, 2010. ***We estimate that most ha s not been used. Jan 2019 Page 6
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