Aekyung Industry to launch IPO for parent company

Aekyung Group’s new headquarters in Seoul / Courtesy of Aekyung

By Park Hyong-ki

Aekyung Industry, a local household care and cosmetics maker, is expected to be the first company this year to make a debut on the benchmark KOSPI exchange in late March.

However, it remains uncertain whether it will be a successful one as it has been embroiled in a scandal involving the sales of its humidifiers with toxic chemical materials.

Also, its cosmetics business is still exposed to geopolitical risks stemming from a diplomatic row between Korea and China over an anti-missile battery here.

Those two issues caused the company to suspend its initial public offering (IPO) last year and the year before.

Aekyung Industry has indicated the country’s disciplinary measures following the scandal will not affect its finances.

However, it would “have a negative impact on its corporate image,” which could affect its stock floatation.

The purpose of Aekyung Industry’s IPO fundraising is to help improve the finances of Aekyung, the parent company, which is in distress.

Aekyung Group Vice Chairman Chae Hyung-seok

Aekyung Group Vice Chairman Chae Hyung-seok and his close associates wholly own Aekyung, which operates AK Plaza shopping malls. Chae is the eldest son of Aekyung Chairwoman Chang Young-shin.

Aekyung has a 38 percent stake in Aekyung Industry, which is known for its toothpastes and shampoos. AK Holdings has a 48 percent stake in Aekyung Industry, whose close competitor is LG Household & Health Care (LG H&H).

The parent company has a negative cash flow _ it does not have enough money coming in from its operations to cover its debt.

Aekyung Industry’s underwriter Daishin Securities will be measuring institutional investors’ demand for its pre-IPO shares next week.

The company is looking to float 6.8 million shares at between 29,000 won and 34,000 won each, according to a regulatory filing.

Analysts forecast it may not get as much valuation with a premium as Aekyung Industry’s peers, LG H&H and AmorePacific, Korea’s two homecare and cosmetic giants.

Aekyung Industry will likely be valued 25 percent less than LG H&H, said Park Jong-dae, an analyst at Hana Financial Investment.

Aekyung has had a good run with its household care products, but the market has become saturated with a slew of similar products.

Its cosmetic business is showing promising signs, growing tenfold over the last three years, thanks to its hit product called Age 20’s.

But that is the only cosmetic product the company can rely on for profits.

“It would be difficult to keep on growing only with one product. It would need a new meaningful lineup,” Park said.

Also, its Chinese business is another factor that could get in the way of its shares receiving investors’ attention.

Besides the diplomatic tension, the Chinese cosmetics market has become highly competitive with a growing number of global and local brands.

Therefore, the analyst said it is “difficult to say whether China would offer a positive outlook.”

Aekyung Industry is the No. 2 household care product maker here, following LG H&H.