Will HB Invest and Capstone Partners Overcome Stock Slump to Achieve Subscription Success?

1st Generation VC to Go Public in January Next Year... Demand Forecast from January 8 to 12
Capstone's Stock Price Continues to Fall After Last Month's Listing

Venture capital (VC) firm HB Investment is pursuing a listing on the KOSDAQ market. As newly listed stocks recently have shown a pattern of surging on their first day of trading, the public offering price is expected to be set above the upper end of the desired price range. However, the sluggish stock performance of Capstone Partners, which was listed on December 15 last month, could negatively impact the determination of the public offering price.

According to the Financial Supervisory Service's electronic disclosure system, HB Investment will issue 6,667,000 new shares for its initial public offering (IPO). The desired price range is 2,400 to 2,800 KRW per share, with a total offering size between 16 billion and 18.7 billion KRW. Demand forecasting will be conducted for institutional investors from January 8 to 12 next year, after which the public offering price will be finalized. The company plans to list on the KOSDAQ market in January, with NH Investment & Securities acting as the lead underwriter.

Founded in 1999, HB Investment is a first-generation venture capital firm. Including the investment fund formed last month, its assets under management (AUM) total approximately 619.7 billion KRW. The firm selects investment targets based on financial stability, cash flow, and technological entry barriers. It diversifies investments across high-tech, software, and bio (healthcare) sectors.

In the first half of this year, HB Investment recovered 97.3 billion KRW through investments in HPSP, Vuno, Bioplus, and others, ranking first among domestic VCs in terms of recovery performance. It achieved operating revenue of 17.7 billion KRW and operating profit of 10.9 billion KRW through the third quarter of this year.

NH Investment & Securities selected three companies?Company K, Now IB, and TS Investment?as comparable companies to estimate HB Investment’s fair corporate value. These comparables were chosen among VCs with four consecutive quarters of net income and total assets under 200 billion KRW. An average price-earnings ratio (PER) of 11.34 times was applied. Using HB Investment’s net income of 9.511 billion KRW over the four quarters from Q4 last year to Q3 this year and the average PER of the comparables, a fair corporate value of 107.858 billion KRW was calculated. The per-share value, divided by the total number of shares after listing, is 3,816 KRW, and applying a discount rate of 26.6% to 37.1% resulted in the suggested public offering price range.

NH Investment & Securities also served as the lead underwriter for the previously listed VC Capstone Partners. At that time, three comparables?Lindeman Asia, Stonebridge Ventures, and Company K?were selected. Since the total assets of Capstone Partners were under 100 billion KRW, Now IB and TS Investment, which were comparables for HB Investment, were excluded.

The PER applied to Capstone Partners was higher than that for HB Investment. NH Investment & Securities referenced an average PER of 14.45 times based on last year’s results and 17.67 times based on annualized net income for the first half of this year. Capstone Partners’ fair corporate value was estimated at 88.5 billion KRW and 33.2 billion KRW based on last year’s results and half-year net income, respectively. The average of these two values, 60.9 billion KRW, was taken as the fair corporate value, and the public offering price range was set at 3,200 to 3,600 KRW. Due to strong demand in the book-building process, the final public offering price was set at 4,000 KRW, above the upper end of the desired range.

Capstone Partners closed at 9,180 KRW on its first day of trading and reached an intraday high of 11,220 KRW the following day. Since then, the stock price has declined, recording 4,635 KRW on the 6th. Compared to the public offering price, this is a 15.9% increase, but it is a 58.7% decrease from the peak price after listing.

The sluggish stock performance of Capstone Partners after listing may dampen investor sentiment toward newly listed VCs. However, considering the performance differences between Capstone Partners and HB Investment this year and the recent IPO market environment, HB Investment is likely to receive recognition for its desired corporate value.

HB Investment recorded operating revenue of 15.9 billion KRW and net income of 7.5 billion KRW last year. Through the third quarter of this year, it achieved cumulative operating revenue of 17.7 billion KRW and net income of 8.8 billion KRW, showing improved performance compared to last year.

In contrast, Capstone Partners recorded operating revenue of 3.4 billion KRW and net income of 900 million KRW in the first half of this year, decreases of 66% and 85%, respectively, compared to the same period last year. Most of last year’s operating revenue of 12.2 billion KRW and net income of 6.1 billion KRW were achieved in the first half. The IPO market contraction in the second half of last year led to weaker performance compared to the first half of last year.

This explains why the process of estimating Capstone Partners’ fair corporate value became more complex than that of HB Investment. Applying the same method based on net income over four quarters from Q3 last year to Q2 this year would reduce the fair corporate value. Although both are VCs, NH Investment & Securities had to apply different valuation criteria due to Capstone Partners’ poor performance in the four quarters immediately before listing.

An investment banking (IB) industry official explained, “Even within the same industry, company-specific characteristics differ, so the process of estimating fair corporate value can vary. For VCs, it is also important to consider that performance volatility can be significant depending on the timing of investment recoveries.”