IPO market comeback begins

Finance

Published: 28 Jun. 2023, 16:36

IPO market comeback begins

An illustration representing IPO market [SHUTTERSTOCK]

The initial public offering (IPO) market is gaining momentum as the Kospi rallies back to 1-year highs and authorities ease regulations on public listing.

This is a sharp turnaround from last year, when a slew of companies, including SK shieldus and Hyundai Engineering, canceled offerings due to market weakness.

Companies are returning to the market, as the Kospi recovers and as some listings have done well in recent months.

The benchmark index bounced back above 2,600 points earlier this month for the first time in a year. The recovery was helped by foreign investors that purchased a record $11.43 billion of Korean stocks and bonds last month, which was more than double the total $5.63 billion last year.

Of the stocks that went public this year, six managed to hit the upper trading limit on the day they were listed, though the prices flopped days later. The list includes cosmetics seller Manyo Factory, Mirai Semiconductors and Studio Mir, an animation studio.

"The IPO market for small- and medium-sized companies made a meaningful recovery in the first half of the year compared to last year, as evidenced by the rise of stock prices," said Choi Jong-kyung, an analyst at Heungkuk Securities. "But the market for bigger companies hasn't yet fully recovered as there wasn't a single company that was listed as a Kospi stock in the first half."

IPO funds shrunk around 17 percent from the beginning of the year to 2.99 trillion won ($2.2 billion) in June, according to data by FnGuide.

Four companies are expected to be listed as Kospi stocks in the second half, which is less than half the annual average of 10.

The four, which applied for a listing eligibility review with the Korea Exchange, are Doosan Robotics, a collaborative robot manufacturer, EcoPro Materials, a manufacturer and distributor of industrial batteries, state-run Seoul Guarantee Insurance and steel manufacturer Nexteel.

Notification of the outcome is usually within 45 business days. Companies that receive the green light have to complete the IPO procedure within six months of getting approved.

Their valuations are estimated to exceed at least a trillion won, according to analysts.

"Stocks related to reusable batteries and artificial intelligence are currently leading the IPO market," Choi added.

The expected valuation for Doosan Robotics, 90.91 percent owned by Doosan Corporation, is around 1.5 trillion won, according to Sean Kim, an analyst at DS Investment & Securities.

Shortages of workers in the future and corporate cost cuts are expected to raise demand for collaborative robots in the future.

The collaborative robot market is expected to grow at a compounded annual growth rate of 32.0 percent through 2030, according to San Francisco-headquartered Grand View Research.

Doosan Robotics reported an 11.4 billion won operating loss on 45 billion won of revenue last year.

The expected valuation for EcoPro Materials, 52.78 percent owned by EcoPro, stands around 3 trillion won, according to local media reports, citing investment banking sources.

It reported 15.58 billion won in net profit on 665.25 billion won in revenue last year. But more than 90 percent of the revenue was generated through transactions with related companies, like EcoPro BM.

Proper valuations of the companies will be important for upcoming IPOs in the gradually recovering market, as some IPOs flopped due to overvaluation, said Kim Soo-yeon, a market analyst at Hanwha Investment & Securities in a report on June 7.

Some overpriced stocks plunged below the price at which they were initially offered.

Wine importer Nara Cellar, which was offered at 20,000 won on June 2, closed the first day at 17,500 won. The company, which posted 8.94 billion won in net profit last year, included the French luxury brand LVMH as a comparable when setting the IPO price.

Companies that may apply for the eligibility review to go public include e-commerce operators Kurly and Oasis and health and beauty store operator CJ OliveYoung. They scrapped the IPO plans last year citing weak equity markets.

A view of buildings in Yeouido, western Seoul, where most major brokerage firms are located [YONHAP]

Relaxed regulations on IPOs are also expected to affect the market.

Financial authorities raised the limit of the quotation price for newly-issued stocks to a range between 60 and 400 percent of the price that was initially offered on the first trading day.

Before, the limit ranged between 63 and 260 percent.

The new rule went into effect on Monday.

"Problems before the change were that there were some stocks that hit the upper daily trading limit for consecutive days, making it difficult to find the price for the stocks," said Han Sam-man, a PR spokesperson for Korea Exchange.

Kakao Games and SK Biopharmaceuticals are just a few of the stocks that hit the daily trading limit for consecutive days upon listing in 2020. This year, shares for baby products seller Ggumbi hit the upper limit for two consecutive days.

The relaxed regulations are expected to bring down volatility in stock prices.

"At times of market rallies, people take it as a sign the price will rise further when a stock price hits the daily trading limit," said Lee Jeong-hwan, an associate professor at the College of Economics and Finance at Hanyang University. "That could form price bubbles and encourage the price to hit the ceiling again."

"Stock prices are expected to grow stable in the long run once the revised regulation settles," said analyst Choi. "But price volatility may be big in the initial stage."

BY JIN MIN-JI [jin.minji@joongang.co.kr]