[La Deok-yeon Gate] '8 Stocks Hitting Lower Limit' Show Stagnant Prices... Seoul Gas and Samchully Overvalued

Market Capitalization of 8 Stocks Drops by 8.5 Trillion KRW in a Month
Average Purchase Price by Individuals Over 20% Higher Than Current Stock Price

On the 24th of last month, a flood of forced sell orders poured in through the Soci?t? G?n?rale (SG) Securities counter, causing eight stocks?Seoul Gas, Daesung Holdings, Samchully, Harim Holdings, Dow Data, Seonkwang, Sebang, and Daol Investment & Securities?to hit their daily limit down. Allegations arose that La Deok-yeon, CEO Hoan, and their associates manipulated stock prices by gathering investors and using Contracts for Difference (CFD) accounts, delivering a significant shock to the domestic stock market. It has been about a month since then. While prosecutors continue their investigation into La Deok-yeon and his group, individual investors have taken the sharp declines in these stocks as buying opportunities at low prices, but a rebound has yet to materialize. Market experts remain cautious about the price outlook of these stocks involved in price manipulation.

Daesung Holdings down 83.0%, Seonkwang 82.7%, Seoul Gas 80.6%

According to the Korea Exchange Information Data System on the 22nd, the market capitalization of Seoul Gas, Daesung Holdings, Samchully, Harim Holdings, Dow Data, Seonkwang, Sebang, and Daol Investment & Securities shrank from a total of 12.1949 trillion KRW on the 21st of last month, just before the crash, to 3.7278 trillion KRW as of the 19th. In just four weeks, 8.4671 trillion KRW disappeared. By individual stock decline rates, Daesung Holdings fell the most at 83.0%. Following were Seonkwang (-82.7%), Seoul Gas (-80.6%), Samchully (-73.8%), Sebang (-63.6%), Dow Data (-62.4%), Harim Holdings (-44.4%), and Daol Investment & Securities (-20.1%).

Looking at the trading trends by investor type for these stocks, individual investors mainly bought during the initial phase when consecutive daily limit downs occurred. This appears to be speculative trading aiming for a temporary rebound after the short-term plunge. Individuals consecutively net purchased these stocks (combined for all eight) for eight trading days starting from the first daily limit down event on the 24th of last month. By the 19th, the total transaction amount purchased by individuals reached 291.2 billion KRW. Only Daol Investment & Securities recorded a net sale of 7.6 billion KRW, while the other seven stocks remained in a net buying state.

So far, individual investors’ low-price buying strategy has not yielded significant gains. The average purchase price per share for individuals buying Daesung Holdings was 29,954 KRW, about 26% higher than the current price of 22,100 KRW. Similarly, the average purchase price for Seonkwang by individuals is about 24% higher than the current price. This is likely because many individuals bought during the period of sharply increased trading volume right after four consecutive daily limit downs on the 28th of last month.

With ongoing investigations into CEO La Deok-yeon and his associates, and many claiming to be victims, it remains difficult to predict the price trends of these sharply fallen stocks.

However, for the city gas sector stocks like Samchully and Seoul Gas, whose profit scales can be estimated, it is possible to gauge appropriate stock prices by comparing them with other city gas companies not involved with CEO La Deok-yeon. As of February this year, Samchully’s city gas supply volume was 463.16 million cubic meters, the largest in the country. Based on last year’s cumulative supply volume, its domestic market share was 17%, ranking first. The second-largest domestic supplier is Kyungdong City Gas, with a supply volume of 192.05 million cubic meters and a 9% market share last year. As of the 19th, the market capitalizations of Samchully and Seoul Gas were 529.2 billion KRW and 454 billion KRW, respectively, significantly higher than Kyungdong City Gas’s 127 billion KRW. Of course, it is difficult to determine appropriate market capitalization solely by comparing supply volumes.

It is also worth considering that there were prior analyses cautioning about these stocks even before the crash. Earlier, Eugene Investment & Securities released an analysis report on Samchully on November 29 last year. At that time, Samchully’s stock price was 378,500 KRW, during a period of rising prices. The upward trend continued, and on the 3rd of last month, Samchully’s stock price reached an all-time high of 524,000 KRW.

Eugene Investment & Securities set a target price of 110,000 KRW for Samchully despite the rising trend. Researcher Hwang Seong-hyun of Eugene Investment & Securities, who authored the report, explained, "Samchully’s stock price rose more than threefold due to the elimination of one-time costs incurred in 2021, solid core city gas business performance, and improvements in the performance of power generation and other subsidiaries." He added, "With the expansion of eco-friendly policies in the U.S. and Europe and expectations for the hydrogen business, Samchully’s valuation also expanded." However, he noted, "The city gas industry is a business like REITs (Real Estate Investment Trusts) that recovers tunnel tollgate costs rather than undergoing rapid business portfolio changes," and "both performance and stock price will revert to past levels."

The report reminded that although the stock price rose excessively amid the hype, considering the performance and characteristics of the city gas industry, the stock price could decline. On the 19th, Samchully’s stock price closed at 130,500 KRW, falling to a level close to Eugene Investment & Securities’ target price of 110,000 KRW.

In the first quarter, Samchully recorded consolidated sales of 1.5942 trillion KRW and operating profit of 77.1 billion KRW, increases of 25.7% and 41.2% year-on-year, respectively. Sales of residential city gas declined due to rising average temperatures. Industrial city gas sales also decreased as some demand sites reduced operating rates amid economic recession and inventory adjustments. However, sales increased due to higher selling prices.

Around the same time, SK Securities released a report on Seoul Gas titled "Dangerous Stock Price." Researcher Na Min-sik of SK Securities pointed out in the report, "The current stock price appears to strongly reflect expectations of improved performance alongside rising natural gas prices," but "the operating profit margin of the city gas business is unrelated to natural gas prices." He emphasized, "Since the city gas purchase and selling prices are linked to natural gas prices, it is difficult for operating profit leverage to occur."

Although concerns were raised in November last year during the period of continuous price increases, the stock price continued to rise steadily. The upward trend lasted more than four months until forced sell orders from some CFD accounts triggered a sharp decline.

Researcher Hwang Seong-hyun explained, "City gas companies have minimal annual operating profit changes due to regional closed markets and low industry growth rates," and "due to limited profit growth, cash dividends have been paid at the same scale for 5 to 10 years." He added, "Considering that bond prices are determined by interest rates, city gas stock prices can also be gauged at appropriate levels." Taking dividends per share into account, he calculated appropriate stock prices for Samchully and Seoul Gas at 91,000 KRW and 53,000 KRW, respectively. It may still be too early to buy at low prices.

Dow Data’s Strong Q1 Performance, New Second Largest Shareholder Emerges in Daol Investment & Securities

Dow Data, which was embroiled in controversy due to a block deal by former Dow Kiwoom Group Chairman Kim Ik-rae, recorded an operating profit of 411.6 billion KRW (consolidated basis) in the first quarter, ranking among the top in KOSDAQ-listed companies. However, its market capitalization stood at only 627 billion KRW as of the closing price on the 19th. Despite perceptions of undervaluation, the stock price remains sluggish.

Among the stocks affected by the SG Securities-triggered crash, Daol Investment & Securities experienced the smallest decline and attracted attention as a new second-largest shareholder appeared during the plunge. According to a disclosure on the Financial Supervisory Service’s electronic disclosure system on the 9th, Kim Ki-soo, who introduced himself as a "businessman," along with relative Choi Soon-ja and the real estate rental corporation Soonsu Asset, collectively held 6,970,949 shares of Daol Investment & Securities as of the previous day. They purchased about 4.02 million shares on the market during the stock price’s sharp fall from the 6,000 KRW range to the low 3,000 KRW range. This is the second-largest holding after Chairman Lee Byung-chul of Daol Financial Group (24.82% stake).

※ This SG Securities-triggered stock price crash has sounded an alarm for capital market order. Readers’ reports will be a great help in uncovering the truth. We welcome any reports regarding investment damage cases, suspicions of price manipulation and asset concealment by La Deok-yeon’s group, details about large-scale sales by major shareholders of Dow Data and Seoul Gas, or any other related information (jebo1@asiae.co.kr). Asia Economy is committed to establishing transparent capital market order.