[Practical Finance] Big IPOs Coming in the Second Half... Interest in Public Offering Funds Rises

Expectations for IPOs including SK Ecoplant, Doosan Robotics, and EcoPro Materials
Check institutional demand forecast competition rates and lock-up agreements before investing

In the second half of the year, a mega-sized company worth trillions of won is expected to appear in the initial public offering (IPO) market, increasing interest in public offerings. Experts advise that as the IPO market enters a recovery phase in the second half of this year, more investment opportunities may arise.

Expectations for Large-Scale New Listings on KOSPI

According to the financial investment industry, the number of newly listed companies in the first half of this year was 31, similar to the 30 companies in the first half of last year. The total public offering size was 800 billion won, a sharp decrease compared to 13.7 trillion won last year. However, excluding LG Energy Solution's 12.8 trillion won public offering amount in January last year, the difference is not significant.

Heungkuk Securities forecasts that the total number of new listings on KOSPI and KOSDAQ will reach 78 this year. Choi Jong-kyung, a researcher at Heungkuk Securities, said, "Looking only at the first half, the rebound in the IPO market is not strongly felt yet, but considering that the IPO market shrank from the second half of last year and that the number of new KOSPI listings is still zero this year, the second half of this year is expected to show a recovery starting with new KOSPI listings."

Large-scale companies expected to be listed in the second half include SK Ecoplant, Doosan Robotics, and EcoPro Materials. Their market capitalization is expected to range from 1 trillion won to as much as 6 trillion won.

The largest company mentioned this year is SK Ecoplant. SK Ecoplant is responsible for SK Group's construction and eco-friendly business sectors. It changed its name from SK Construction in 2020 and acquired water treatment and waste management companies worth about 1 trillion won, including environmental management facilities and waste incineration companies. The market expects SK Ecoplant's valuation to reach up to 10 trillion won.

Another large-scale company is Doosan Robotics. Doosan Robotics, a subsidiary of Doosan, manufactures industrial robots. It filed for preliminary listing review on the 9th of last month. Doosan has identified the robotics industry as one of the group's three major future businesses. Doosan Robotics aims to become the global No. 1 collaborative robot manufacturer by raising funds entirely through new shares. The market estimates Doosan Robotics' market capitalization to be between 1 trillion and 3 trillion won.

EcoPro Materials, part of the EcoPro Group, which has recently been a key player in the secondary battery boom, is also considered a promising IPO candidate in the second half. EcoPro Materials manufactures high-nickel precursors, one of the core materials for battery cathodes. Its sales last year reached 665.2 billion won, about double the previous year, showing strong growth. The market expects its valuation to soar to 4 trillion won after listing.

Although these large companies are preparing for listing, not all guarantee successful returns on public offering investments. If the initial public offering price is set higher than the company's value, investors may incur losses. In fact, among the newly listed companies this year, eight have stock prices below their offering price.

Therefore, before investing in public offerings, several factors should be considered. First, attention should be paid to the demand forecast competition rate. Companies that have passed the preliminary listing review first predict demand for their shares among institutional investors. A high competition rate indicates strong institutional interest in purchasing the company's shares.

The market considers a demand forecast competition rate exceeding 1000 to 1 as a sign of favorable evaluation by institutions. If the competition rate is high, the offering price may be set at or above the top of the company's desired price band. However, it is important to note that market liquidity or themes may cause overvaluation of the offering price.

The mandatory lock-up ratio of listed companies is also a factor that can affect stock prices after the offering. A lock-up agreement is when major shareholders or existing investors agree not to sell their shares for a certain period after listing. When major shareholders commit to not selling shares for a long time, it is interpreted as a sign of stable management control, which is viewed positively by the market. It also creates a perception of stability as there is less chance of a large volume of shares flooding the market in the short term.

'Public Offering Funds' When It Is Difficult to Pick Winners

While it is possible to invest directly in public offerings, it can be difficult to distinguish the winners. Also, for popular companies, the subscription competition rate may be high, making it difficult to receive many shares. In such cases, using public offering funds can be a good option. Public offering funds primarily use participation in IPOs as their main strategy.

About 90 public offering funds have been established domestically. Looking at returns, after LG Energy Solution's listing in January last year, the market showed a downward trend but shifted to an upward trend from the fourth quarter of last year. As of the first half of this year, the overall return of public offering funds is around 5.5%. Individual funds show a wide range of returns from 2% to 31%.

Funds with relatively high returns tend to have a large stock proportion and actively secure allocation by making lock-up agreements on promising stocks during public offerings. Recently, some funds have added other strategies besides public offerings, which tend to show higher volatility than pure public offering investment funds.

Oh Kwang-young, a researcher at Shin Young Securities, said, "The IPO market environment is expected to improve in the second half compared to the first half, so investors interested in public offering investments are recommended to consider investing in public offering funds. However, since performance varies greatly depending on detailed management strategies, it is essential to check the management strategy in advance."