[Exclusive] "Bought at 7,000 Won, Now at 1,600 Won"...76% Stock Plunge Shatters Big Dreams [KOSDAQ Inflated Listings]②

Of the 35 Companies with Overestimated Earnings Last Year, 25 Saw Share Price Declines

ITchem Faces Disclaimer of Audit Opinion Only 8 Months After Listing

KOSDAQ Tech Special Listings Return -37% vs. Hong Kong's 35%

More than 70% of the companies listed on the KOSDAQ market last year based on overestimated future earnings forecasts have seen their share prices decline. Many of these companies have experienced their stock prices fall to less than half of their IPO prices, and some even faced trading suspensions and are at risk of being delisted only eight months after going public due to a rejection of the auditor's opinion.

25 out of 35 KOSDAQ IPO companies with overestimated earnings last year—71%—have seen stock price declines

According to the financial investment industry on October 7, of 35 KOSDAQ-listed companies whose public offering prices were set based on estimated earnings, but whose actual 2023 results fell short, 25—or 71.4%—have seen their stock prices decline compared to their IPO prices. All of these 25 companies were special cases listed based on future potential rather than past performance. Companies whose share prices fell the most had one thing in common: a notable gap between their IPO-period earnings forecasts and actual results. Although these companies received high valuations during IPOs based on anticipated future earnings, their actual results failed to meet expectations after listing, negatively impacting their stock prices.

The company with the steepest share price decline was the insurance platform operator IGnet. IGnet's IPO price was KRW 7,000, but its recent share price hovers around KRW 1,600, marking a 76% drop. On its first trading day on February 4 last year, its closing price was KRW 4,355, already well below the IPO price. At the time of its listing, IGnet had projected sales of KRW 41.8 billion and operating profit of KRW 4.3 billion for 2023, but its actual results were sales of KRW 39 billion and operating profit of KRW 3.3 billion.

Physical AI security specialist Autocrypt also saw its share price fall by 71% from its IPO price. At the time of listing, Autocrypt projected 2023 sales of KRW 33.8 billion and an operating loss of KRW 8.5 billion, but actual sales were KRW 25.5 billion and the operating loss was KRW 16.5 billion. Autocrypt's IPO price was KRW 20,000, and on its first trading day, the stock soared to KRW 30,850, but it has since plummeted to the KRW 6,000 range.

The company explained, "Due to adjustments in major clients' investment schedules and changes in development timelines, some solution deliveries were delayed, resulting in reduced revenue." They added, "Along with the impact of short-term sales decline due to delayed revenue recognition, operating profit decreased versus plan due to proactive hiring of R&D and sales personnel to strengthen technology and prepare for new pipelines." In addition, several other listed companies, such as Splatform (69.1%), Quad Medicine (68.5%), and WiseNut (67.4%), are experiencing severe share price declines.

The most serious case is ITchem, a precision chemical materials company that went public on the KOSDAQ market on August 7 last year. ITchem, listed under a "Tesla" special provision for pre-profit companies, had its trading suspended on April 3 this year, just eight months after listing. Woori Accounting Corporation, which audited ITchem, issued a disclaimer of opinion, citing insufficient audit evidence and inadequate internal controls. Woori Accounting Corporation pointed out that due to insufficient internal control procedures related to ITchem's fund transactions and asset acquisitions, it was unable to provide an audit opinion.

As a result, the KOSDAQ Market Division of the Korea Exchange announced that ITchem had triggered delisting criteria and suspended trading of its shares. After ITchem filed an objection, it was granted a period for improvement until early April next year. At the time of the trading suspension, ITchem's market capitalization stood at KRW 268.4 billion, and as of the end of last year, it had 16,032 minority shareholders—many of whom suddenly found their assets locked overnight. ITchem had projected 2023 sales of KRW 76.9 billion and operating profit of KRW 8.4 billion at the time of its listing, but the actual figures were KRW 62 billion in sales and an operating loss of KRW 1.9 billion. This year, the scale of operating losses has increased further, with a loss of approximately KRW 4.49 billion posted in just the first half.

The case of ITchem demonstrates that the risk of investing in companies listed on the basis of future earnings potential can be more than just share price declines. When companies that had been highly valued at IPO subsequently report poor performance and even receive a disclaimer of audit opinion, the possibility emerges that trading could be suspended for an extended period. Should the trading suspension continue for a long time, investors may effectively be unable to liquidate their holdings and must bear the risk of their assets being tied up.

Hong Kong tech special listing companies post average post-listing returns of 34.5%

The weak performance of KOSDAQ special listing companies is even more notable when compared to some overseas markets. According to a report presented by Seoul Robotics CEO Lee Hanbin during the seminar "Why Can't Domestic Venture Capital Be Patient?" held at the National Assembly on September 10, there were 91 KOSDAQ technology special listings between 2024 and August this year, with an average post-listing return of minus 36.8%. This means a large proportion of early investors lost money. In contrast, during the same period, there were 24 Hong Kong tech special listings (HKEX 18C), with an average post-listing return of 34.5%.

CEO Lee analyzed, "In Korea, those who do not bear the risk are the ones evaluating future value, whereas in Hong Kong, it is the investors who have actually allocated capital that validate the company's value. This is the key factor behind the difference in post-listing returns." He added, "In Hong Kong, those who set the price also bear the risk, and the market, along with time, is responsible for screening companies." Furthermore, he said, "In Hong Kong, investors face an obligatory lock-up period of 12 months, but KOSDAQ does not have such a regulation, which is why share prices frequently fall on the first day of listing. If KOSDAQ were to introduce an institutional investor lock-up period of around 12 months, early price declines could be avoided."

Given these structural issues in KOSDAQ, financial regulators have also started to work on improving the system, but there have been no clear results yet. After the controversy surrounding Padoo's overstatement of results in 2023, the Korea Exchange introduced a measure requiring underwriters of technology special listing companies to provide a put-back option if a company underperforms within two years of its IPO. However, critics say this measure lacks effectiveness. The Financial Services Commission is also working to introduce a cornerstone investor system, which involves pre-demand forecasting by institutional investors before securities registration and allocating a portion of the IPO shares to institutions that commit to a lock-up of more than six months. Yet, there are disagreements over the detailed procedures. 

Efforts to speed up the elimination of underperforming companies at the exchange have also faced obstacles. On October 2, Civil Division 51 of the Seoul Southern District Court granted an injunction sought by Jooyon Tech and KM Pharm to suspend the effect of Korea Exchange's delisting decisions. Both Jooyon Tech and KM Pharm had received notice of delisting for failing to satisfy the minimum market capitalization requirement. However, the court found that the authorities' decision to move up the implementation of the new minimum requirements for KOSPI (KRW 30 billion) and KOSDAQ (KRW 20 billion) from January next year to July this year violated the principles of proportionality and predictability.

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