[Practical Asset Management] KOSDAQ Finds Its Bottom... Four Stocks to Watch

Growing Optimism Over KOSDAQ Supply-Demand Improvement and Policy Shifts
Spotlight on Stocks With Growth, Financial Stability, and Strong Shareholder Returns

KOSDAQ is drawing renewed attention. Signs that capital inflows are no longer being concentrated solely on large-cap KOSPI stocks, alongside policy changes such as the strengthening of delisting requirements and the introduction of a promotion and relegation system, are raising hopes for a fundamental improvement in the market. As a result, experts advise investors to focus on fundamentally robust yet undervalued stocks.

KOSDAQ Looks More Affordable...Profit Outlook Remains Solid

This month, the KOSDAQ Index corrected down to around 803 points, which is near its 120-month moving average, a long-term trend indicator. The price-to-earnings ratio (PER) has also fallen back to historical averages, easing concerns about overvaluation. In contrast, the speed of downward adjustment in annual operating profit consensus (the market's average outlook) has been more solid than in the past. Analysts believe that the index's decline has been driven primarily by supply-demand dynamics and investor sentiment rather than deteriorating earnings forecasts.

There are also early signs of change in fund flows. This year, retail investors made net purchases of leveraged Exchange-Traded Funds (ETFs) totaling KRW 14.6 trillion, but they were net sellers of KRW 7.5 trillion in the KOSDAQ market. The gap in average daily trading value between KOSPI and KOSDAQ expanded to about 2.9 times, contributing to a supply-demand vacuum in KOSDAQ that led to further index declines. However, since July, retail investors have shifted, with net purchases of KRW 2.6 trillion in KOSDAQ stocks.

Policy changes are also affecting KOSDAQ. With stricter delisting criteria now in place, the final version of KOSDAQ's promotion and relegation system and the introduction of an ETF linked to the 'Select' segment are scheduled for announcement in the fourth quarter of this year. This policy momentum is expected to simultaneously expedite the removal of insolvent companies and encourage the selection of high-quality firms.

Kim Dongyoung, researcher at Samsung Securities, said, "The KOSDAQ Index has become more attractive from both a valuation and a fundamentals perspective. The unwinding of concentrated fund flows and policy momentum are expected to be the key variables for a rebound going forward."

Focus on Profitable and Financially Sound Undervalued Companies

Samsung Securities analyzed that small and mid-cap KOSDAQ stocks should not be selected based on simple figures alone, but that growth potential, financial soundness, and shareholder returns should all be taken into account together. For growth, they prioritized companies with both revenue and operating profit growth rates above 20%, and an operating margin above 15%. For financial stability, they looked for a return on equity over 15% and a debt ratio below 70%. In terms of shareholder returns, a dividend yield over 4% and a payout ratio over 30% were considered.

By these standards, InBody was selected for growth, Suprema and Taekwang for financial stability, and Megastudy Education for shareholder returns. Recognizing the high volatility characteristic of KOSDAQ small and mid-caps, Samsung Securities noted that they combined different investment concepts rather than focusing on a single criterion.

InBody stands out for focusing on the specific field of body composition analyzers while expanding its global market presence. The company has set new record sales for 10 consecutive quarters and, in the second quarter of this year, re-entered a 20% operating margin even excluding the benefits from tariff refunds. In the U.S., hospital demand related to the expanding prescription of obesity treatments (GLP-1) is a growth driver, and base expansion is in progress in Europe as well. As of the first half of this year, overseas sales accounted for 87% of total revenue, with direct sales making up 85%. Samsung Securities explained that InBody is targeting average annual sales growth of 15% and an operating margin of 20% over the medium term.

Suprema is benefiting from increased security demand due to expanded investment in data centers and global infrastructure. Integrated security systems accounted for 81% of consolidated sales in the first half of this year, with the company supplying hardware terminals and software for access control and attendance management. A particularly positive outlook is expected as demand for high-spec security products rises, driving both higher selling prices and volumes. The global launch of its AI camera is planned for early 2027.

Megastudy Education's key factors are shareholder dividends and policy changes in education. With a revamp of the college admission system for the 2028 academic year—reducing the number of high school internal grade tiers from 9 to 5—school grades are expected to become more important. This could drive greater demand for offline education and boost the market share of the MegaPass product. Samsung Securities also pointed out that the rising significance of integrated social studies and science, and the abolition of math electives, could have further business impact. Should the company maintain dividend per share at last year's level, the annual dividend yield is projected to reach about 8.3% this year.

Taekwang manufactures industrial fittings used in liquefied natural gas (LNG), shipbuilding, and power generation & plant industries. With growing investment in North American LNG and combined-cycle power plants, export volumes are expected to rise; around 80% of total sales currently come from exports. Analysts believe profitability could improve further as the product mix shifts toward higher value-added goods, such as stainless steel and alloy steel. If geopolitical risks in the Middle East subside, postponed project demand could also be revived.

This content was produced with the assistance of AI translation services.