[Underwriters Seen Through IPO Price] ① Competency Differences in IPO Discovery, Growth Story Adaptation, and Peer Company Selection

32 KOSDAQ-listed Companies This Year See Average 79.6% Increase in Stock Price on First Day Compared to IPO Price
New Stocks Underwritten by Kiwoom Securities Average 149% Rise

The price fluctuation range on the first day of listing for public offering shares undergoing an Initial Public Offering (IPO) will be expanded to 60-400% starting from the 26th. This is a follow-up measure to the 'Measures to Prevent False Subscription and Enhance the Soundness of the IPO Market' announced by the Financial Services Commission at the end of last year. The purpose is to enhance the rapid price discovery function on the listing day by expanding the price limit range for newly listed companies entering the domestic stock market.

As the authorities have introduced various measures to improve the soundness of the IPO market, interest in the appropriate corporate value of newly listed companies has increased. IPO underwriters estimate the appropriate corporate value and present a desired price range for the public offering based on this. They conduct demand forecasting targeting institutional investors and finalize the public offering price. The capability of the underwriter is one of the important factors in determining the public offering price. If the public offering price is high, the expected return for public offering investors may decrease. Conversely, if the public offering price is low, the company's fundraising scale shrinks. It is important to calculate an appropriate public offering price that satisfies both the company and investors.

Asia Economy compiled the stock price returns of newly listed stocks this year by underwriter. A large price increase suggests that the public offering price was relatively low compared to the appropriate corporate value. Conversely, if the stock price continues to decline, it can be seen as the public offering price being set too high.

IPO Market Performs Unexpectedly Well... Public Offering Investors 'Smile'

This year, the stock price on the first day of listing for 32 companies directly listed on the KOSDAQ market rose by an average of 79.6% compared to the public offering price. Six companies, including Mirae Semiconductor, Studio Mir, Kkumbi, Obzen, Innojin, and Manyeogongjang, recorded 'Ttah-sang' (forming an opening price at twice the public offering price and then hitting the upper limit). Three companies, including CU Box, Nara Sella, and Tomato System, closed the first day below the public offering price.

Currently, the opening price on the first day of listing for newly listed companies is determined within the range of 90-200% of the public offering price. The opening price is set based on the price determined by receiving bids before the market opens at 9 AM, and this price is used as the reference price on the listing day. For example, if a company with a public offering price of 10,000 KRW has an opening price of 20,000 KRW on the listing day, and then rises by the upper limit of 30%, it reaches 26,000 KRW. This is called 'Ttah-sang.'

The average return for public offering investors this year (79.6%) is relatively high compared to the past. According to the Korea Capital Market Institute, the average first-day returns for 2020 and 2021 were 53.8% and 48.1%, respectively. From 2010 to 2019, there was no year when the average first-day return exceeded 50%. The IPO market has been reorganized mainly around small and medium-sized stocks this year, which seems to have increased returns. Due to low expectations for the IPO market at the beginning of this year, the public offering price was conservatively estimated, leading to high returns on the first day of listing.

Among securities firms that handled underwriting for two or more newly listed companies this year, Kiwoom Securities recorded the highest average first-day price increase at 148.6%. They underwrote Sands Lab and Kkumbi. Sands Lab recorded a competition rate of 1,326 to 1 in demand forecasting and finalized the public offering price at the upper limit of the desired range, 10,500 KRW. In the subscription for general investors, 4.2155 trillion KRW was deposited as subscription money, resulting in a competition rate of 868 to 1. Kkumbi also succeeded in attracting interest with a competition rate of 1,773 to 1 in the general investor subscription. Based on the subscription success, Sands Lab and Kkumbi rose 137.1% and 160%, respectively, compared to the public offering price on the first day of listing.

Korea Investment & Securities (average increase 109.6%), Shinhan Investment Corp. (76.4%), Samsung Securities (72.9%), Mirae Asset Securities (65.1%), and Shin Young Securities (40.8%) followed. Manyeogongjang and Obzen, underwritten by Korea Investment & Securities, recorded 'Ttah-sang,' and Nanoteam also rose more than 100% compared to the public offering price on the first day. Microtunano and J.O. rose 33.2% and 65.4%, respectively.

CU Box, underwritten by Shinhan Investment Corp., declined compared to the public offering price, but Mirae Semiconductor surged 160% on the first day, raising the average increase. Gigavis and Financial Green Power, underwritten by Samsung Securities, rose 83.7% and 62.0%, respectively. Studio Mir, underwritten by Mirae Asset Securities, recorded 'Ttah-sang.'

High Public Offering Price Raises Concerns of Failure, Low Price Dissatisfies Issuers

A high increase rate compared to the public offering price on the first day does not necessarily mean that the underwriter's ability to estimate corporate value is excellent. An IPO industry insider said, "We cannot always view the phenomenon of a rapid rally immediately after listing positively," adding, "Issuers may feel regret that the public offering price was set too low." He continued, "Not only individual investors but also institutional investors plan to exit their investments early after listing," and "Even if the appropriate corporate value is estimated, it is difficult to predict the stock price trend in the early stages of listing."

Underwriters mostly use a comparative method when estimating appropriate corporate value. They select multiple comparable companies considering the characteristics of the company preparing for listing, financial status, and management performance, and calculate the average Price-to-Earnings Ratio (PER).

Samsung Securities, the underwriter for Gigavis, which had the largest public offering scale this year, explained that among relative valuation methods, the PER method is the most common and is a model that can well reflect the industry, growth, profitability, and risk of the company. Samsung Securities selected KoYoung Technology, Park Systems, Nextein, and Intech Plus as comparable companies for Gigavis. The average PER was 21.8 times, and applying this, Gigavis's corporate value was calculated at 825 billion KRW. They applied a discount rate and presented a desired public offering price range of 34,400 to 39,700 KRW. Institutions participating in demand forecasting expressed willingness to underwrite even at prices outside this range, and the final public offering price was set at 43,000 KRW. The stock price rose 83.7% on the first day of listing. The market capitalization exceeded 1 trillion KRW, surpassing the appropriate corporate value estimated by the underwriter. An investment banking (IB) industry insider said, "When selecting an underwriter, the ability to estimate a high public offering price is one of the important evaluation factors," explaining, "The underwriter's capabilities are revealed in discovering public offering stocks, crafting growth stories, and selecting comparable companies."

Earlier, Shin Young Securities selected overseas companies such as Pernod Ricard, Louis Vuitton Mo?t Hennessy (LVMH), and Laurent-Perrier as comparable companies when preparing Nara Sella for listing. The average PER of domestic food and beverage companies like Lotte Chilsung and Hite Jinro was 15 times, but by including overseas companies, the applied PER rose to 23 times. This sparked controversy over overvaluation, and some overseas companies among the comparables were excluded. The desired public offering price range was adjusted from the original 22,000-26,000 KRW to 20,000-24,000 KRW. The competition rate in demand forecasting by institutional investors was 178 to 1, and the public offering price was set at 20,000 KRW. Nara Sella, which was listed on the 2nd, closed at 17,500 KRW on the first day.

It appears that financial investors (FIs) were considered in the process of estimating Nara Sella's public offering price. Venture capital (VC) A Ventures participated in pre-IPO investment in Nara Sella in June last year. The purchase price per share was around 20,000 KRW, and A Ventures holds 19.92% of Nara Sella's shares, making it the second-largest shareholder.

Proteomtec, which was listed on the KOSDAQ market on the 16th, also faced controversy over overvaluation and lowered its desired public offering price range. Proteomtec initially proposed a desired price range of 7,500 to 9,000 KRW when deciding to transfer from KONEX to KOSDAQ in April. Two months later, it revised its estimated net income for 2025 from 13.6 billion KRW to 10.6 billion KRW and lowered the desired price range to 5,400 to 6,600 KRW. This was due to growing doubts about the previously announced earnings forecast after releasing first-quarter results this year. Proteomtec recorded sales of 1.6 billion KRW and an operating loss of 200 million KRW in the first quarter. Although sales increased by 24% compared to the same period last year, the operating loss widened. The company explained that it purchases its main product, allergy diagnostic equipment, manufactured overseas through OEM, and that the cost ratio increased due to exchange rate effects.

Kiwoom Securities, the underwriter, reduced the sales forecast for this year from 12.8 billion KRW to 11 billion KRW. Starting with this year's forecast and adjusting the estimate for 2025, the per-share valuation dropped by 22% from 10,020 KRW to 7,797 KRW. The public offering price was finalized at 4,500 KRW through demand forecasting, which is 40% lower than the initially proposed lower limit of 7,500 KRW.

An IB industry insider said, "Although investor opinions are reflected through demand forecasting, the underwriter's capability has a considerable impact on the public offering price," but added, "If the public offering price is too low and the listing is withdrawn, all the efforts so far will be wasted." He continued, "Underwriters inevitably have to consider the issuers who pay fees," and "If rumors spread that the underwriter is too strict in setting the public offering price, it becomes difficult to attract new clients."