[Practical Finance] "Catch the Gongmoju"... IPO Market Buzzes with the Arrival of Big Players

SK Biopharm General Subscription Draws 6 Trillion Won on First Day... IPO Fever 'Heats Up'
Price Can Rise Up to 260% of IPO Price on Listing Day
Big Names Like 'BTS' BigHit, Kakao Games Awaiting in Line

[Asia Economy Reporter Minwoo Lee] As the stock market recovers from the slump caused by the novel coronavirus disease (COVID-19), the initial public offering (IPO) market is also gaining momentum. Starting with SK Biopharm, major players such as Big Hit Entertainment, home to the idol group BTS, and Kakao Games are lined up. In theory, the stock price can rise up to 260% of the offering price on the first day of listing, fueling investors' high expectations for IPO stocks.

◆SK Biopharm, unprecedented IPO expectations= According to the financial investment industry on the 24th, SK Biopharm, considered this year's biggest IPO, will be listed on the KOSPI market on the 2nd of next month through a public offering this month. The offering price was set at 49,000 KRW on the 19th, and subscription for the IPO shares began the day before. The total number of shares offered is 19,578,310. Excluding the 20% allocated to employee stock ownership, 80% is available for general public offering. Of this 80%, 60% is allocated to institutions and 20% to individual investors.

The signs of a 'big hit' have already appeared. During the demand forecast for institutional investors on the 17th and 18th, SK Biopharm recorded the highest competition rate ever among public offering companies at 835.7 to 1, attracting 575 trillion KRW. The average participation price suggested by 1,076 participating institutions was 58,617 KRW, nearly 20% higher than the top offering price of 49,000 KRW. This indicates that even paying a premium to secure shares is considered profitable. With the offering price fixed at 49,000 KRW, the total offering amount was calculated at 959.33719 billion KRW. The market capitalization based on the offering price is about 3.8 trillion KRW, but the industry expects the corporate value to exceed 5 trillion KRW after listing. On the first day of general subscription, 910,120 applications were received for 3,915,662 shares. The number of shares subscribed was 242,500,297, and the subscription deposit amounted to 5.9413 trillion KRW.

Researcher Kyung Choi from Heungkuk Securities said, "SK Biopharm's competitiveness is highlighted by nine new drugs specialized in central nervous system diseases such as cenobamate. Considering the relatively small circulating shares, estimated at around 5% of total shares, the market value is expected to increase further. Given its market and industry representation, inclusion in the KOSPI 200 index in the future is also positive."

The reason IPO stocks are attracting investors' attention is that they can yield high returns from the early stages of listing. The pre-market opening price on the first day of listing is determined within a range of -10% to +200% of the offering price. Assuming the stock hits the daily upper limit during trading, the price can theoretically rise up to 2.6 times on the first day. For SK Biopharm, this means the offering price of 49,000 KRW could rise to as high as 127,400 KRW on the first day.

According to the Korea Exchange's electronic disclosure system (KIND), the average increase rate on the first day compared to the offering price (based on closing price) for eight newly listed stocks on the KOSPI and KOSDAQ markets this year was 27.5%. Excluding JNTC and NPD, which fell on the first day, the average increase rate surged to 42.7%. DreamCIS, which conducts clinical trials and post-marketing surveillance (PMS) and statistical analysis of pharmaceuticals, saw its stock price rise to 204.7% of the offering price on the first day. Seonam, a producer of high-temperature superconducting wire products, and Lemon, a chemical fiber manufacturer, also showed upward trends, with closing prices on the day rising 53.2% and 44.4% respectively compared to the offering price.

[Image source=Yonhap News]

◆From Big Hit to Kakao Games, waiting in line= The IPO market is expected to become even more active starting from the third quarter this year. Companies that postponed their IPOs due to COVID-19 despite receiving listing approval and IPO candidates who filed for listing review in the second quarter are lined up. Forty-two companies (including SPACs and transfers) filed for preliminary review in April and May. This month, nine companies including Senko, SoluM, AnyOne, and Nextin submitted review requests, and recently Kakao Games, which is attracting significant attention in the second half, also joined.

Considering that the Korea Exchange generally takes about two months to conduct reviews, results are expected to be announced in earnest from the third quarter. Additionally, companies that had already undergone review but postponed listing due to COVID-19 are expected to join the IPO competition, signaling the opening of a full-fledged IPO market. Researcher Sojung Lee from SK Securities said, "As the stock market has largely recovered compared to the COVID-19 period, concerns from companies that the public offering amount would fall short of expectations or that stock prices would perform poorly after listing have diminished. We expect more companies to begin the public offering process in earnest from the third quarter."

The biggest players are Big Hit Entertainment, the agency of the idol group BTS, and Kakao Games, a gaming subsidiary of Kakao. Big Hit filed for preliminary listing review on the 28th of last month, and Kakao Games on the 11th of this month, both aiming for listing in the second half. Big Hit Entertainment, which posted record-high sales of 587.2 billion KRW and operating profit of 98.7 billion KRW last year, is expected to have a corporate value of up to 4 trillion KRW. Its creation of new revenue models such as 'untact' (contactless) concerts during the COVID-19 situation has been highly evaluated. Kakao Games' corporate value is also expected to exceed 2 trillion KRW. Unlike before, when it was only involved in game distribution, it has recently expanded into golf, virtual reality (VR), and blockchain, establishing itself as a beneficiary of COVID-19. Additionally, Kakao's financial subsidiary KakaoBank and HK Innoen (formerly CJ Healthcare) are also reportedly coordinating their IPO schedules for the second half.