By Yoon Ja-young
Shares of Cheil Industries, which debuted on the stock market in December, are continuing to soar.
Strong demand has pushed the stock way above the target price suggested by analysts, but they now have a problem estimating how far it will go as the price is not based on fundamentals.
Cheil Industries closed at 171,000 won, Friday, rising over 8 percent from the 2014 closing price on Dec. 30.
The stock, which debuted on bourse on Dec. 18, drew huge attention from investors even before its debut. When it took subscriptions for the IPO, it set a record by being 195 times oversubscribed, with deposits totaling 30.06 trillion won.
So far, those who bet on Cheil Industries have made the right decision, as its shares have risen by 3.2 times its IPO price of 53,000 won.
Cheil Industries has become the ninth biggest company in terms of market cap, now standing at 22.1 trillion won. It has already surpassed SK Telecom and Samsung Life Insurance, and is expected to surpass Hyundai Mobis soon.
Before the IPO, analysts suggested between 70,000 won and 100,000 won as the target price. Many of them then raised it to above 100,000 won, but now they have to consider whether to raise it even more.
“Cheil Industries has already surpassed our target price of 125,000 won. We can see that investors have huge expectations on the future of Samsung Group and Cheil Industries’ role within the group,” said Han Byung-hwa, an analyst at Eugene Investment and Securities.
“The demand factor is also very positive as there is expected to be considerable demand by foreign investors over the issue of its inclusion in the Financial Times Stock Exchange (FTSE) and Morgan Stanley Capital Investment (MSCI) indices. The downside risk seems to be limited for the time being,” he added. The indices, which work as a benchmark for global funds, are scheduled to include Cheil Industries on Jan. 5. It means funds following the indices as a benchmark will be buying Cheil Industries’ shares. The company is also scheduled to be included in KOSPI 200 index in March.
However, another analyst said the stock price may fall after this event. “When the inclusion by the indices is complete, the stock price will go through moderation,” said a Seoul analyst who refused to be named.
Analysts say the current stock price is not based on fundamentals. “From the perspective of valuation, it takes at least three years for Cheil Industries’ growth momentum to become a reality and justify the current valuation,” said Kim Young-woo, an analyst at HMC Investment and Securities.
“To sum up, there is risk if one decides to invest in Cheil Industries based on short-term issues. It would be better to bet on mid-to-long term factors, such as its transition into a holding company,” he said.