[At a Crossroads] Wooyang HC ① 'Earnings Shock' Sparks Overvaluation Controversy After IPO

Operating Profit Soared Before Listing, Plunges 72% in Q1
Gap Widens Between Actual Results and Prospectus Estimates... Stock Price Plummets

Wooyang HC reported disappointing results in its first earnings announcement since going public in March. The company, which had shown rapid growth until last year, saw its performance drop sharply immediately after its listing. There is growing skepticism in the market regarding the company's performance trends before and after its IPO.

According to the Financial Supervisory Service's electronic disclosure system on May 23, Wooyang HC posted sales of 30 billion KRW and operating profit of 3.4 billion KRW in the first quarter of this year. These figures represent a decrease of 41.5% and 72.8%, respectively, compared to the same period last year.

Wooyang HC operates two main businesses: the 'chemical plant business,' which provides core oil and gas-based plant facilities, and the 'energy plant business,' which supplies high-efficiency balance of plant (BOP) systems for power plants. The company was listed on the KOSDAQ market on March 28 through a merger with KB No. 26 SPAC.

In December last year, Wooyang HC submitted a securities registration statement for its KOSDAQ listing, disclosing its performance up to the third quarter of last year. According to the registration statement, as of the end of the third quarter last year, the company had posted cumulative sales of 146.7 billion KRW and operating profit of 32.5 billion KRW. Operating profit was up 102% year-on-year.

Over the past two years, Wooyang HC's performance had surged. Operating profit, which was 5.2 billion KRW in 2022, jumped to 25.2 billion KRW in 2023, an increase of 384.6%. By the third quarter of last year, operating profit had already exceeded the full-year operating profit of 2023 by about 30%. The operating margin also grew rapidly, from 4% in 2022 to 13% in 2023, and 22% in the third quarter of last year.

However, this strong performance began to reverse in the fourth quarter of last year. According to the business report released two days before the KOSDAQ listing, the company recorded sales of 183.2 billion KRW and operating profit of 31.1 billion KRW last year. After posting high profits through the third quarter, Wooyang HC recorded an operating loss of 1.4 billion KRW in the fourth quarter.

These results differ from the estimates presented in the final amended securities registration statement on February 5. Wooyang HC had projected full-year 2024 operating profit at 33.7 billion KRW as a basis for evaluating the company's earnings potential. The company had also estimated operating profit of 1.2 billion KRW in the fourth quarter, following the third quarter. However, the company actually posted a loss.

With continued weak performance in the first quarter of this year, skepticism in the market regarding the discrepancy in performance before and after the listing is growing.

In fact, an analysis of last year's results shows that while sales decreased by 8.4% compared to 2023, operating profit increased by 23%. The increase in operating profit is attributed to the decrease in cost of goods sold being greater than the decrease in sales. Last year, Wooyang HC's cost of goods sold was 131.4 billion KRW, a 17.6% decrease from the previous year.

The largest reduction in cost of goods sold was in 'inventory assets recognized as expenses.' Wooyang HC recognized 54.9 billion KRW in inventory assets as cost of goods sold last year, a 33.3% decrease from 82.4 billion KRW in 2023. This rate of decrease is about four times greater than the rate of decline in sales. In 2022, when sales were 120.7 billion KRW, inventory assets recognized as cost of goods sold were 55.5 billion KRW, but last year, with sales of 183.2 billion KRW, the company recognized even less expense.

In response, a Wooyang HC representative stated, "Last year, exports accounted for 91% of total sales, so the effect of a stronger exchange rate was reflected. In addition, sales of high value-added equipment increased, allowing us to achieve a high operating margin while using less inventory." The representative added, "In the first quarter of this year, delays in orders due to the US presidential election last year also affected our results."

Meanwhile, Wooyang HC's share price plummeted after the first quarter earnings announcement. On May 14, the share price was 19,400 KRW, but as of the previous day, it closed at 14,290 KRW.