Companies become conservative in their IPO valuations

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By Anna J. Park

As the country's benchmark KOSPI hovers below 3,000 points, more than a 10-percent fall from its highest level this year, companies with imminent initial public offerings (IPO) this month and next are lowering their corporate valuations, a cautious move to win over investors.

KTB Network, a first-generation venture capital firm, submitted a corporate valuation of 1 trillion won ($850 billion) in its prospectus, ahead of its upcoming IPO on the tech-heavy KOSDAQ market this month.

The valuation is based on a humble price-to-earning ratio (PER) of just 11.2 times (x). This figure is historically the lowest PER submitted by a local venture capital firm compared to others that went public. Most of the venture capital firms now listed on domestic stock markets had PERs of around 20x to 30x to calculate their market capitalization.

KTB Network also used all ten local venture capital firms as a peer group when calculating the appropriate corporate valuation. Despite applying the lowest PER ever, KTB's cumulative net profit of 88.9 billion won in the past four quarters will give the company the all-time high market cap among listed venture capital firms at the time of its IPO.

TV series production firm Raemongraein, which also aims to go public in December, is likewise estimated to come up with a lower market valuation in its prospectus. The company targets issuing new stocks at around 15,000 won, with its total market cap standing at between 72 billion won and 81 billion won.

Founded in 2007, the firm has been traded on the KONEX market ― a securities exchange exclusively for small- and medium-sized companies prior to listing ― since 2014, and it plans to transfer to the Kosdaq this month.

Although the production company's recent revenue and profits are not that impressive ― its year-on-year revenue increased by 28 percent, but operating profit fell 33.9 percent ― the firm's valuation of 70 billion won is still viewed as a conservatively-calculated one.

LG Energy Solution, a big-time player aiming for an IPO early next year, has also come up with a lower-than-expected valuation of around 70 trillion won in its prospectus. The secondary battery manufacturer's market cap was estimated to be over 100 trillion won by market analysts, yet the firm decided to take a more conservative route, considering the current market atmosphere. Market insiders say that it seems the company chose a safer path of securing a fast listing, rather than sticking to a targeted corporate valuation.

This situation is a contrast to some of more optimistic IPOs from early this year, when some companies came up with a buoyed valuation in their preliminary review requests submitted to the Korea Exchange (KRX). Both Krafton and Kakao Pay had to cut their estimated valuations in their prospectus, as the financial authorities asked them to resubmit their review requests.

As the local stock markets became more bearish during the second half, due to the negative impacts from disrupted global supply chains, the previously hyped IPO atmosphere has changed, resulting in the withdrawals of some companies' plans due to disappointing market responses.