[Exclusive] "Forecasts of Over 10 Billion, but Only 100 Million Earned"... 95% Followed This Pattern: Why Are KOSDAQ Special Exception IPOs Inflated? [KOSDAQ Inflated IPOs]①

Last Year, 95% of KOSDAQ Special Listings Inflated Earnings Estimates for the Same Year
Only 2 out of 37 Special Listings Matched Projected and Actual Figures
Authorities Issue Repeated Warnings, but "Overhyped Earnings" Persist

Among the 69 companies newly listed on the KOSDAQ market last year (excluding SPACs), only 2 out of the 37 companies that set their public offering price based on future estimated performance achieved their projected 2025 performance. Getty Images

Listings based on inflated projections of future earnings to drive up offering prices continue in the KOSDAQ market. Critics say that when companies list at high prices based on unrealistic earnings estimates and their stock prices subsequently fall, individual investors who bought shares later may bear the entire loss, making proactive institutional reform necessary.

Analysis of 37 KOSDAQ companies that listed last year and based their offering prices on projected future earnings

According to data submitted by the Financial Supervisory Service (FSS) to the office of Kang Jun-hyun of the Democratic Party of Korea on October 6, of the 69 companies newly listed on the KOSDAQ market last year (excluding special purpose acquisition companies, or SPACs), only 2 of the 37 companies that set their offering prices based on projected future earnings achieved their projected 2025 results. Even those two companies had listed after November last year, when most of their results for the year had already been tallied, which appears to have enabled them to meet their projections.

There are allegations that most companies that reported expected future earnings at the time of listing overstated their forecasts in their securities registration statements. All 37 companies had in common that they successfully listed on the KOSDAQ through special listing programs (34 under the technology track and 3 under the track for companies yet to turn a profit). Introduced in 2005, the technology-based special listing program relaxes listing requirements so innovative companies with strong technological capabilities and growth potential, but without stable earnings yet, can list on the KOSDAQ and raise funds.

Because most companies qualifying for special listings are loss-making, their value is assessed based on projected future earnings, which are then used to determine their offering prices. The problem is that, because listing decisions are based on future growth potential rather than past results or whether a company is profitable, companies have repeatedly overstated projected earnings and set higher offering prices for many years.

The FSS previously analyzed 105 companies that set their offering prices based on projected earnings out of 213 companies listed on the KOSDAQ from 2022 through 2024, excluding SPACs. It found that only six companies (5.7%) achieved their earnings estimates for the year of listing. As companies continued to overstate their earnings projections, the FSS strengthened disclosure requirements in October 2023 for the gap between projected and actual earnings at the time of listing. But the situation remained unchanged in 2025.

The gap between earnings projected at the time of listing and actual results was also substantial. Among the 35 companies that failed to meet their projections, the average discrepancy between projected and actual operating profit was 196.5%, while the discrepancy for net income was 209.5%. The average discrepancy for revenue was also 27.9%.

Among last year's newly listed companies, biotech firm Orum Therapeutics had the largest gap between projected and actual earnings. In its securities registration statement at the time of listing, Orum Therapeutics forecast revenue of KRW 36.9 billion and an operating loss of KRW 9.5 billion for 2025. In reality, its revenue for the year was just KRW 23 million, while its operating loss reached KRW 51.7 billion. The discrepancy between projected and actual operating profit reached 440%. The company said its results fell short of projections because of changes to development schedules among its biotech partners and a rise in the won-dollar exchange rate.

Artificial intelligence (AI) agent company WISEnut also significantly missed its projections. At the time of listing, WISEnut disclosed projected revenue of KRW 54.3 billion and operating profit of KRW 10.8 billion for 2025. But actual revenue was KRW 34.7 billion, and operating profit was just KRW 100 million. The company said its results fell short of projections because political turmoil surrounding martial law at the end of 2024 led public institutions and private companies to scale back information technology project orders in the first quarter of 2025.

Concerns that KOSDAQ companies using special listing programs will continue to overstate earnings projections this year

This practice among KOSDAQ companies listed through special programs is continuing this year. The Asia Business Daily analyzed 10 companies that newly listed on the KOSDAQ in the first half of this year and set their offering prices based on projected earnings. It found that many are expected to have difficulty meeting their forecasts for the year. Kanaph Therapeutics, which listed in March, forecast revenue of KRW 4.9 billion for this year, but its revenue in the first half was only in the KRW 100 million range. Its offering prospectus projected an operating loss of KRW 10.6 billion for the year, but its operating loss in the first half alone reached KRW 10.1 billion.

Cosmo Robotics, which listed in May, projected revenue of KRW 12.9 billion and an operating loss of KRW 5.9 billion for this year. However, its revenue in the first half was just KRW 2.5 billion, and its operating loss had already reached KRW 5.9 billion.

The company is also under police investigation over allegations that it inflated its revenue last year to facilitate its listing. On September 29, the Seoul Metropolitan Police Agency's Financial Crime Investigation Unit sent investigators to search and seize materials at Cosmo Robotics' office in Guro-gu, Seoul, over suspected violations of the Capital Markets Act, including fraudulent trading. Police suspect that Cosmo Robotics made it appear as though it had sold its robots for hundreds of millions of won, inflating its revenue by about KRW 3.5 billion. The company's share price hit the daily limit down on the day news of the police investigation became public. The company, however, denied the allegations, saying, "The revenue in question was lawfully earned."

Individual investors ultimately bear the cost when companies list with inflated earnings forecasts

There are several reasons why KOSDAQ companies listed through special programs inflate their earnings forecasts. First, inflated earnings projections can raise a company's valuation, resulting in a higher offering price and potentially increasing the investment funds raised by the company. In the process, fees and the value of equity held by lead underwriters, such as securities firms and venture capital (VC) firms, may also rise. This alignment of interests between listed companies and early investors is one reason why there are allegations that the practice recurs every year.

The problem is that when stock prices, which are overvalued relative to actual results, fall after listing, individual investors who bought shares later bear the brunt of the losses. A 2024 paper by Choi Seong-ho, a professor in the Department of Business Administration at Chosun University, titled "The Effect of Overvaluation of Technology-Growth Listed Companies and Major Shareholders' Sale of Shares on Stock Price Plunges," found that inflated earnings projections by KOSDAQ companies, followed by actions such as the expiration of lock-up periods for major shareholders, contributed to sharp stock price declines.

Professor Choi explained, "The more a company's projected earnings are overstated relative to its actual results, the more sharply the risk of a stock price plunge increases when a major shareholder also sells shares. When optimistic future projections fall through and a major shareholder sells shares as well, the market interprets it as a severely negative signal about the likelihood of technological success, causing confidence in the company to collapse." An FSS official also noted, "Excessive short-term earnings projections can directly harm investors who buy shares after the listing date."

Structural distortions in the "applied price-to-earnings ratio (PER)," a key indicator used to set offering prices, are another factor behind inflated listings. A paper titled "A Study on the Overvaluation of Offering Prices of Companies Listed Through Technology-Based Special Programs," analyzed last year by Kwak Young-min, a professor in the Department of Accounting at the University of Ulsan, and Baek Jeong-han, a professor in the Department of Business Administration at Dong-A University, found that many companies listed through technology-based special programs had presented excessively optimistic projected earnings in their securities registration statements, with a substantial gap between projections and actual results.

The paper also found a tendency for applied PERs to be set excessively high because the peer groups used to determine offering prices included financially strong companies with little financial similarity to the companies preparing to list. It said there was a need to improve the PER-focused method of setting offering prices for companies listed through special programs by incorporating a wider range of valuation methods.

Professor Kwak emphasized, "Currently, the expected offering prices of companies listed through technology-based special programs are generally determined using the relative valuation method, which compares metrics such as PERs with those of comparable companies. This process can lead to bias from excessive future expectations and arbitrary selection of peer companies. Therefore, we need to establish an institutional environment that enables the development and application of new valuation models that adequately reflect the characteristics of technology-based special listing companies, rather than relying solely on traditional relative valuation methods."

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