Why Investors Should Watch High Buyback Ratio Value Stocks as KOSPI Approaches Its Peak

 The Korean stock market (KOSPI) has been on an impressive rally, hitting record highs and drawing increasing attention from domestic and foreign investors alike. With deposit rates falling to the 2% range and strict lending regulations slowing down the real estate market, large amounts of capital have been flowing into equities.

Yet market veterans caution that the current bull run will not last forever. As KOSPI eventually faces a “peak-out” phase—when the index reaches its top and begins to decline—investors will need to adjust their strategies. One of the most promising havens in such times? Value stocks with high treasury share (buyback) ratios.

What Are Treasury Shares and Why Do They Matter?

Treasury shares, or buybacks, refer to a company purchasing its own stock from the market and holding it in its account. This practice has historically served multiple purposes:

  • Protecting management from hostile takeovers,

  • Acting as a financial “insurance policy” during downturns,

  • Or reducing outstanding shares to boost per-share value.

More recently, Korean listed companies have begun using buybacks more actively for shareholder returns. When companies move from holding to cancelling (retiring) treasury shares, the number of shares in circulation drops. This increases scarcity and boosts the value of each remaining share, leading to a direct lift in Earnings Per Share (EPS) and often followed by higher analyst targets and rising stock prices.

In the U.S., this “buyback → EPS growth → price increase” cycle has long been an investment playbook. Korean investors are now expecting similar shareholder-friendly moves.

The Surge of Buybacks in Korea

Between January and July 2024 alone, Korean listed companies retired more than 18 trillion won worth of shares—15 times higher than five years ago. Pressure from investors and regulators is intensifying, with the National Assembly even discussing a legal mandate for buyback retirements.

If such reforms pass, firms will no longer be able to stockpile treasury shares indefinitely. Instead, they will be compelled to use them for shareholder return strategies, fueling further expectations of stock price appreciation.

The “Sweet Spot”: 10%–30% Buyback Ratio

Analysts generally view a treasury share ratio of 10% to 30% as the most attractive range:

  • Below 10%: The buyback effect on price is minimal.

  • Above 30%: It often signals underinvestment in growth or potential governance risks.

Firms within this “sweet spot” face healthy pressure to retire shares while maintaining financial flexibility, making them prime candidates for long-term value investors.

Case Studies: Korean Companies with High Buyback Potential

1. Daishin Securities – Buyback Ratio 25.1%, PBR 0.68x

Daishin has long been known as the “bond powerhouse,” and its bond issuance business is thriving again. The firm also stands out in alternative investments such as REITs and mid-cap IPOs.

  • 2024 revenue forecast: ₩768.5 billion (+28.4% YoY)

  • 2024 net income forecast: ₩256 billion (+77.5% YoY)

  • Valuation: PBR just 0.68, making it deeply undervalued.

With such growth and a sizable treasury share base, Daishin offers both stability and upside for patient investors.

2. KCC – Buyback Ratio 17.2%, PBR 0.61x

KCC is Korea’s No. 1 industrial paint maker, competing head-to-head with Noroo Holdings. Recently, it acquired a 9.9% stake in Noroo, raising speculation about potential control moves.

The firm has also expanded globally, acquiring U.S. chemical group Momentive Performance Materials in 2019, boosting its specialty silicone and materials business.

  • 2024 net income forecast: ₩730.8 billion (+149% YoY)

  • Dividend: ₩10,000 per share in 2024, up from ₩8,000.

Even after an 80% stock price jump this year, KCC remains attractively valued relative to its assets.

3. CJ Logistics – Buyback Ratio 12.6%

CJ Logistics dominates the Korean third-party logistics (3PL) market, handling end-to-end supply chain services for giants like Samsung, LG, and Hyundai.

Though short-term profits are under pressure from rising automation costs and weaker parcel demand, the outlook beyond 2026 is promising. As CJ fully secures dominance in 3PL, margins are expected to expand.

  • 2025 operating profit forecast: ₩483.5 billion (-8.9% YoY)

  • 2026 forecast: ₩544 billion (+12.5% YoY)

  • 2027 forecast: ₩602.9 billion (+10.8% YoY)

Dividend yields remain low at just 1%, but analysts believe treasury share cancellations will substitute for low dividends as a key shareholder return driver.

⚠️ The Cautionary Example: Hanssem

Hanssem, Korea’s leading interior design company, holds a massive 29.5% treasury share ratio, but struggles with weak earnings.

  • 2024 revenue forecast: ₩1.82 trillion (-4.5% YoY)

  • 2024 operating profit forecast: ₩22.7 billion (-27.3% YoY)

  • PBR: 1.7x (not undervalued).

Despite a high buyback ratio, lack of earnings momentum means its stock is unlikely to deliver outsized long-term returns. This illustrates the crucial point: buybacks alone are not enough—earnings growth and valuation matter.

How Value Investors Are Positioning Themselves

Korean value investors are already preparing for the post-peak KOSPI environment. Their formula for success emphasizes:

  1. Buyback ratio in the 10–30% range,

  2. Consistent earnings growth over the next few years,

  3. Low valuations (PBR under 1.0 preferred).

Stocks that check all three boxes can outperform even if the broader market corrects. Investors are shifting capital—the so-called “money move”—from high-flying growth stocks into these more resilient, undervalued names.

Why This Matters for Individual Investors

For everyday investors navigating a volatile market:

  • Buybacks create scarcity → higher per-share value.

  • Retirements show commitment → signals management’s shareholder-friendly stance.

  • Low PBR + earnings momentum → strong upside potential with less downside risk.

In short, companies that combine buyback pressure with improving fundamentals are well positioned to deliver steady long-term returns, regardless of where the KOSPI index itself goes.

Final Thoughts

Korea is entering the “share buyback era”, where shareholder return policies are no longer optional but essential. The shift from stockpiling to cancelling treasury shares is transforming the market landscape.

For investors, this means one thing: rather than chasing short-term rallies in speculative names, it’s time to identify undervalued value stocks with strong earnings outlooks and healthy buyback ratios. These will likely be the true winners once the KOSPI tide begins to turn.

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