TK Corporation: A Cheap Korean Fittings Maker Keeps Cancelling Its Own Shares

A Korean company most U.S. investors have never heard of just made a small announcement that says a lot about the bigger change happening underneath it. TK Corporation (also known as Taekwang, KOSDAQ: 023160), a Busan-based maker of industrial pipe fittings, has moved to cancel 406,602 of its own shares — the roughly 10 billion won of stock it just finished buying back through a broker trust.

The number looks tiny, and mechanically it is. Measured against about 25.9 million shares outstanding, cancelling 406,602 lifts earnings per share by only a little more than 1.5%. That is not the kind of jump that moves a stock on its own. What makes the announcement worth reading is not the arithmetic but the pattern it sits inside: a manufacturer that returned almost nothing to shareholders three years ago now promises to hand back 45% of its net income every year, and it keeps canceling the shares it buys. This is one step in that turn, not the turn itself.

What cancelling a share actually does

A share buyback buys stock and holds it on the company's books as treasury shares. Those shares stop voting and stop collecting dividends, but the purest version — the one that provably raises the value of what you already own — is to then cancel them, deleting them permanently. The same profit is then spread across fewer shares, so earnings per share rise. Cancel 1.57% of the count and EPS rises by roughly that same 1.57%; the money is just shifted from the denominator.

There is also a regulatory reason the timing is unremarkable. South Korea changed its Commercial Act so that listed companies must cancel treasury shares within about a year of buying them back. Cancel-then-buyback is now the standard loop in Seoul, not a special act of generosity. So TK Corporation is partly doing what the law now requires — the distinctive part is that it chose to buy back the shares in the first place, and repeatedly, rather than hold them the way many Korean chaebols once did to lock in founding-family control.

A payout that went from 10% to 45%

The interesting number is the payout. Three years ago TK Corporation's return to shareholders stood near 10% of net income. Under its first three-year "Value-Up" plan it committed to 30%, and it paid 2024's slice through final and interim dividends worth about 13.8 billion won. Then, after pressure and engagement from Dalton Investments, a value fund known for pushing Korean small-caps to improve capital allocation, the company raised the commitment to 45% of net income per year for the next three years.

This cancellation is the payout commitment in share form. In January the board retired 632,758 shares — about 2.4% of the count — and the 406,602 now being cancelled follows the roughly 10 billion won trust buyback that wrapped up in July. Combined, the company has retired something like 4% of its shares in roughly seven months while also raising dividends. A dividend yield around 2% plus a shrinking share count is a factual description of a company that used to sit on its cash.

The fittings business under the shares

The capital returns matter only if the business is real, and here it is. TK Corporation is one of two domestic producers of the forged pipe fittings — elbows, tees, reducers — that carry oil, gas, and steam through LNG terminals, offshore platforms, and the ships that haul it, a domestic duopoly with Sungwang Bend. Middle East plant work is coming back, U.S. LNG export terminals and floating LNG projects are expanding the market, and Korean shipbuilders such as Hanwha Ocean, HD Hyundai and Samsung Heavy are ordering again. Fittings for LNG ships are higher-value stainless products, which is why the export mix skews to material the company can price.

The 2025 standalone scorecard shows 265.6 billion won of revenue, up 14%, an operating margin near 16% — and a net profit of 70.7 billion won, up 59%. Note the gap between those last two: net profit is roughly two-thirds higher than operating profit. The difference is non-operating. Favorable exchange-rate moves and returns on financial-investment holdings padded the net line, not the fittings business itself.

The test behind the 45%

That gap is the gate the whole story runs into. The 45% payout is defined as a share of net income, and a big part of net income in 2025 was currency and investment gains that will not recur on a fixed schedule. A payout promise rests on operating cash flow through the cycle, not on a windfall in any single year. The company's own margins are also under a real cost: a 50% U.S. steel tariff has raised its input costs just as North America becomes a larger share of sales, and the business remains tied to the lumpiness of LNG project spending.

Strip the non-operating gains out and TK Corporation still looks cheap on its own terms — it trades around or just above book value, roughly the "PBR of 1" the company itself set as the goal of its Value-Up plan, on an earnings multiple of roughly ten. The valuation gap is the thesis. But a single 1.57% cancellation does not close that gap; it is evidence that management is finally trying to. Whether the turn is real shows up in cash flow over the next few years: enough operating earnings to fund both the buybacks and the 45% payout through the down years, not just the good ones. If that holds, a profitable duopoly trading at book with a shrinking share count is a coherent value setup. If the payout has been riding on FX and investment gains, it is a promise waiting on a market that will not stay favorable forever.