[At a Crossroads: DYD① Suspicious Stock Surge Before Management Change Disclosure]

Stock Price Doubled Before Public Announcement Date
Half-Year Review Opinion Rejected Due to Investment in Sambutogeon

DYD, a KOSDAQ-listed company, announced on the 6th that it had signed a contract for a change in its largest shareholder and management rights. However, the stock price had already been on the rise before the announcement, doubling in just a few days. This has raised suspicions in the market about the cause of the sharp increase in the stock price prior to the disclosure.

According to the Financial Supervisory Service's electronic disclosure system on the 7th, DYD announced the day before that it had decided on a third-party allotment capital increase worth 12 billion KRW. The recipients are Reverse Aging Holdings (7 billion KRW), ELF No.1 Investment Association (2.5 billion KRW), and ELF No.2 Investment Association (2.5 billion KRW). The largest shareholder of the ELF associations is also Reverse Aging Holdings, meaning that Reverse Aging Holdings will effectively become DYD's largest shareholder.

The payment date is set for December 3. Once the capital increase funds are paid, Reverse Aging Holdings and others will secure a total of 20,725,391 shares (20.9%). The shareholding ratio of the existing largest shareholder, Chairman Iljun Lee of DYD, will decrease to 10%.

Along with this, Chairman Iljun Lee also signed a management rights transfer contract with Reverse Aging Holdings. Specifically, the contract includes ▲the resignation of all existing directors and auditors of DYD as of the transaction closing date ▲making maximum efforts to approve the agenda requested by the acquirer after holding an extraordinary general meeting of shareholders.

Typically, news of a change in the largest shareholder and management rights acts as a positive factor for the stock price, as the company is expected to seek new businesses and undergo structural changes.

In particular, DYD has continued to incur losses for several years and was designated as an investment caution and investment stimulation stock after receiving a disclaimer of review opinion from the audit firm at the end of the first half of this year, making it especially sensitive to the issue of a change in the largest shareholder.

The auditor pointed out in the first half review report, “DYD has recorded 37.1 billion KRW in equity-method investments related to Sambutogen and 6.1 billion KRW in short-term loans as of the end of the first half, which account for 65% of total assets,” and added, “Sambutogen has significant uncertainties that raise substantial doubt about its ability to continue as a going concern in the first half of this year, resulting in a disclaimer of review opinion.” The reason for the disclaimer is that reasonable evidence to estimate the resulting asset, liability, and profit and loss items from these uncertainties could not be obtained.

If this issue is not resolved by the end of this year, DYD may receive a disclaimer of opinion in its 2024 audit report. A disclaimer of audit opinion is grounds for delisting. Despite this situation, DYD announced a large-scale capital increase, which is analyzed to have caused the stock price to rise.

However, DYD's stock price had been on an upward trend even before the announcement. Over the past month, DYD's stock price, which had been trading in the 500 KRW range, began to strengthen from the 29th of last month and hit the upper limit on the 30th. Trading volume also increased more than tenfold compared to usual. The price continued to rise afterward, reaching 1,000 KRW during trading the day before. On the day the announcement was made, the stock closed with a gain of over 3%.

If the capital increase funds are paid while the stock price is elevated like this, Reverse Aging Holdings can immediately realize an unrealized gain. The subscription price for Reverse Aging Holdings' capital increase is 579 KRW per share. Compared to the current stock price, an estimated gain of about 70% is expected.

Meanwhile, inquiries were made to DYD regarding the reason for the stock price increase before the announcement of the management rights transfer contract and capital increase decision, but no response was given.