South Korean securities firms have identified several companies that could become targets of activist investors in the upcoming annual general meeting season. These companies, including Humedix, POSCO International, Pharmarion, Dongjin Semichem, and Dongwon F&B, share similarities with Coway, which has recently faced an activist campaign by Align Partners Asset Management.

According to a report by IBK Investment & Securities, companies with stable earnings but low dividend payout ratios are more likely to be targeted by activist funds. Align argued that Coway's undervaluation was primarily due to a significant decline in its dividend payout ratio following a change in control, from around 91% when MBK Partners was the largest shareholder to about 20% after Netmarble took over in 2020.

Align, a well-known activist fund, has previously launched campaigns against companies such as SM Entertainment, listed bank holding companies, and Doosan Bobcat. The fund initiated its campaign against Coway on January 16 by sending a public letter to the company's board of directors.

IBK Investment & Securities researcher Kwon Soon-ho noted that companies with consistently high return on equity (ROE) but declining dividend payout ratios are more likely to face demands for increased shareholder returns. He added that investors should pay close attention to companies with similar trends to Coway.

The report identified potential target companies with a market capitalization of at least 300 billion won, ROE of 5% or higher from 2019 to 2023, a dividend payout ratio of less than 30% in 2023, and a declining dividend payout trend since 2015.

The increasing activity of activist funds highlights the growing importance of dividend payout ratios in corporate governance and investor returns. As these funds continue to target companies with low dividend payouts, investors should be prepared for potential changes in corporate strategies and stock prices.