[Journalist's Securities Filing Review] Will S2W Overcome Security Sector Limitations and Justify a PER of 21?

Currently Operating at a Loss Under Technology Exception Track...
2027 Projected Performance Used for IPO Pricing
Big Data Analytics and AI Security Firm...
Peer Group Includes Non-Security Companies as Well

S2W has submitted its securities registration statement and officially begun its initial public offering (IPO) process. S2W is a big data analytics and artificial intelligence (AI) security company, and it applied a price-to-earnings ratio (PER) of 21 times in its IPO price calculation.

Given that security companies are typically undervalued in South Korea, this can be considered a relatively high valuation. The company is currently operating at a loss, making future growth prospects all the more important.

S2W was founded in 2018. Its strengths lie in domain-specific AI technology and unstructured big data collection and analysis, accumulated through various hidden channels such as the dark web and Telegram. The company develops and supplies a range of AI-based solutions that support national security agencies in enhancing security competitiveness, as well as helping enterprises improve information security operations and data management efficiency. Notably, S2W has maintained a cooperative relationship with INTERPOL for six consecutive years since 2020 to strengthen public safety in the international community.

S2W is preparing to list on the stock exchange through the technology exception track. In 2022, it recorded operating revenue of 4.1 billion KRW and an operating loss of 6.2 billion KRW. Last year, it posted operating revenue of 9.6 billion KRW and an operating loss of 4.5 billion KRW. In the first quarter of this year, operating revenue was 2.2 billion KRW, with an operating loss of 1.3 billion KRW. However, revenue is increasing and the scale of operating losses is decreasing.

S2W’s desired IPO price range is between 11,400 and 13,200 KRW. The IPO price was calculated based on projected future performance. According to the securities registration statement, S2W projects operating revenue of 9.6 billion KRW and an operating loss of 4.3 billion KRW for this year. The company expects to turn a profit in 2026, with projected operating revenue of 25.4 billion KRW and operating profit of 5.0 billion KRW that year. For 2027, it forecasts 41.0 billion KRW in operating revenue and 16.2 billion KRW in operating profit.

For peer comparison, S2W cited companies such as Cocone, Genience, MRO, and BIMatrix. The average PER of these companies was 21.57. Based on this, the calculated per-share valuation was 19,477 KRW. After applying a discount rate of 32.15% to 41.65%, the desired IPO price range was determined. For reference, the average discount rate for companies listed on the KOSDAQ through the technology evaluation track after 2024 has ranged from 25.74% to 38.23%.

A PER of 21 times can be considered relatively high. This is because the security sector is generally undervalued in South Korea. Typically, security industry revenues are concentrated in the fourth quarter, as public institutions and large enterprises focus their IT infrastructure security investments during this period. Due to this seasonality, revenue tends to be skewed, making performance forecasting challenging. For reference, 40% of S2W’s revenue last year was generated in the fourth quarter. Additionally, domestic companies are generally reluctant to invest in security, which is another reason why the sector tends to be undervalued.

Although not ultimately selected as final peer companies, the PER for database security specialist Sinsiway was 10.58 times, and for information security solution provider MOCOMSIS, it was 13.15 times, with most peers remaining around 15 times.

To justify a PER of 21 times, S2W will need to demonstrate future performance and growth potential. However, the current environment is favorable. During his presidential campaign, President Lee Jaemyung pledged to make the country safe from cyber threats. As a result, the industry is expected to benefit from strengthened government security policies.

Additionally, S2W holds multiple patents related to virtual assets, including methods and systems for analyzing virtual asset transactions, tracking virtual assets and related devices, and electronic devices and control methods for implementing NFT reliability evaluation systems. As expectations for the growth of the virtual asset industry, including stablecoins, rise in South Korea, S2W is expected to benefit from this trend as well.

In this IPO, S2W will issue a total of 1.58 million new shares, raising between 18.012 billion and 20.856 billion KRW. Based on the lower end of the desired IPO price range, 5.0 billion KRW will be allocated to facility investments, such as strengthening AI research and development infrastructure and building overseas IDCs. Additionally, 10.55 billion KRW will be used as working capital for overseas expansion in Japan, Asia, and the Middle East.