"Baeck Jong-won Betrayed Trust, The Born Korea's Stock Halved in 4 Months [Business & Issues]"

Below the Offering Price All Month
'Baek Jong-won Risk' Weighs on the Stock

Baek Jong-won, CEO of The Born Korea, is attending The Born Korea IPO press conference held at Conrad Hotel in Yeouido, Seoul on the afternoon of the 28th, presenting about the future vision. Photo by Kang Jin-hyung

Last November, The Born Korea, which was spotlighted as a major IPO in the market, saw its stock price fall below the offering price just four months after listing. The recognition of CEO Baek Jong-won, who had driven The Born Korea's growth, has now become a risk factor, causing significant damage to the brand image. Vulnerabilities such as an overly high dependence on the Paikdabang brand in the sales structure have been highlighted, leading to forecasts that it will be difficult for the stock price to recover from its slump for some time.

Soaring to 60,000 KRW on the day of listing... Halved in 4 months

The Born Korea's stock price recorded 31,300 KRW on the 20th. Since hitting a new low of 29,800 KRW on the 3rd of this month, it has not recovered to the offering price of 34,000 KRW. Compared to the highest price of 64,500 KRW recorded on the first day of listing, November 6 last year, it has halved. It is also 39% lower than the closing price of 51,400 KRW on that day.

The Born Korea was considered a successful IPO with a general subscription competition rate of 772.80 to 1 and deposits totaling 11.8038 trillion KRW. On the first day of listing, it attracted more attention by trading at a higher price than Samsung Electronics (closing price 57,300 KRW). However, the stock price has continuously declined and is now struggling to rebound above the low 30,000 KRW range.

Regarding the stock price slump, it is evaluated that there is no problem with The Born Korea's actual performance. The Born Korea announced on the 12th that last year's sales increased by 13% year-on-year to 464.3 billion KRW, and operating profit rose by 40.8% to 36 billion KRW. Net profit also increased by 51.1% to 31.6 billion KRW.

'Baek Jong-won Risk' dragging down stock price... Brand image damage

Baekham Gift Set, discontinued by The Born Korea due to price controversy. The Born Mall

The main reason for The Born Korea's stock price slump is analyzed to be damage to the brand image due to owner risk rather than performance. CEO Baek, who plays a significant role in The Born Korea's growth and brand image, has been embroiled in various controversies, increasing investors' concerns about the business stability of The Born Korea.

Last month, ahead of the Lunar New Year holiday, CEO Baek promoted 'Paek Ham,' a canned ham sold by The Born Korea, on his YouTube channel, which sparked controversy. CEO Baek promoted the Paek Ham product as a cost-effective item, saying, "It uses 100% Korean pork, and the price is really good," but consumers criticized that the price was not cheap. At that time, a set of nine Paek Ham cans, originally priced at 51,900 KRW, was being sold at a 45% discount for 28,500 KRW ahead of the holiday.

However, the competing product Spam's nine-can set was priced between 18,500 and 24,000 KRW, cheaper than Paek Ham's discounted price, and Spam's pork content was 91.3%, while Paek Ham's was only 85.4%, which further fueled consumer dissatisfaction. When accusations arose that the regular price of Paek Ham was deliberately set high and then discounted as a marketing tactic, CEO Baek explained, "Since Paek Ham is a latecomer, the production volume differs from competing products, so the production cost is inevitably higher." Regarding the lower pork content, he said, "When developing it, seasoning was added to make it suitable for budaejjigae (army stew)," but public sentiment remains cold. Currently, Paek Ham sales have been suspended on The Born Korea's online shopping mall, The Born Mall.

Controversy surrounding CEO Baek intensified after it was revealed that he was fined for violating the Liquefied Petroleum Gas (LPG) Act. On the 20th, Yesan County in Chungcheongnam-do announced that it had imposed a fine of 1 million KRW on The Born Korea for violating LPG safety management and business laws. This was in response to a complaint filed on the 2nd via the National Petition System, alleging that CEO Baek violated safety regulations by cooking near an LPG gas cylinder indoors.

In fact, a YouTube video from May last year showed CEO Baek frying chicken in the kitchen of The Born Korea's Food Service Development Center located in Yesan County, with two gas cylinders placed right next to where he was frying the chicken. According to LPG safety regulations, gas cylinders must be installed outdoors in well-ventilated areas, and placing them indoors is illegal.

Half of sales depend on 'Paikdabang'... Was the offering price excessive?

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There are also criticisms that The Born Korea's offering price was excessively high, given the growth limitations as a franchise company. Before listing, The Born Korea faced controversy over overvaluation by selecting comprehensive food companies rather than franchise companies as comparables for setting the offering price.

The comparable companies selected by The Born Korea at the time were Pulmuone, CJ Seafood, Daesang, and Shinsegae Food. Based on these companies, the price-to-earnings ratio (PER) was set high at 17.6 times, resulting in a final offering price of 34,000 KRW and a market capitalization of 491.8 billion KRW. However, at the time of listing, 85.1% of The Born Korea's actual sales came from the franchise business, with other business sectors accounting for only about 11.8% in food distribution and 2.4% in hotels. The franchise business overwhelmingly dominated sales, yet the company was compared to comprehensive food companies in valuation.

The structure of relying heavily on the Paikdabang brand for a significant portion of sales is also cited as a risk factor. Paikdabang's sales reached 78.9 billion KRW in the first half of last year, accounting for 44.6% of The Born Korea's franchise sales. Even when combined with other business sectors, Paikdabang's sales accounted for 37.34% of total sales. This means that The Born Korea's overall sales could be significantly affected by volatility in the coffee market in the future.

Competition in the domestic low-priced coffee market is intensifying as brands aggressively increase the number of stores. Paikdabang competes in the low-priced coffee market with Mega Coffee and Compose Coffee. The number of stores ranks as Mega Coffee (3,469), Compose Coffee (2,361), and Paikdabang (1,771).