[Post-IPO]⑥ Asia Jongmyo, What Remains After Listing Is Not Performance but the Theme of 'Daebukju'

Amid the aftermath of the novel coronavirus infection (COVID-19), funds are flowing into the frozen initial public offering (IPO) market. This year’s largest IPO, SK Biopharm, attracted subscription deposits amounting to 31 trillion won, marking the largest scale ever. The internet-only bank KakaoBank is also preparing for its listing, aiming for the second half of this year. As the domestic stock market has shown significant volatility due to COVID-19, the number of individual investors newly starting stock investments has increased. With growing interest in IPO investments, it is necessary to make judgments about the appropriate offering price when investing in public offerings. Asia Economy reviews the prospectuses presented by newly listed companies on the domestic stock market and examines the appropriateness of the offering prices.

[Asia Economy Reporter Yoo Hyun-seok] Asia Seed is a company that produces vegetable seeds and similar products. At the beginning of its listing, it was expected to grow through expanding domestic market share and strengthening overseas expansion, but its performance remained stagnant, and it became a North Korea-related stock that moved whenever there were North Korea-related issues. Contrary to initial expectations, Asia Seed became one of the theme stocks, but this year, as the fruits of past investments are emerging, the company is determined to achieve profitability.

Asia Seed was established in 2004. It produces and sells various seeds, including more than 1,000 types of vegetable seeds. It also holds plant variety protection registrations for various crops and varieties. Among companies listed through the technology listing special case, it received AA ratings from two external evaluation agencies.

The company’s desired offering price range was 4,200 to 5,200 won. As a result of demand forecasting targeting institutional investors, the offering price was fixed at 4,500 won. A total of 409 institutions participated in the demand forecast, recording a competition rate of 239.52 to 1. The public subscription for general investors showed a competition rate of 243.2 to 1.

At the time of its KOSDAQ listing in 2018, Asia Seed announced plans to increase its export ratio to over 50% and raise its domestic seed market share to 15% by 2021. At that time, the underwriter, Daishin Securities, expected Asia Seed, a September fiscal year company, to record sales and operating profit of 26.3 billion won and 1.1 billion won, respectively, for the 15th fiscal year (October 1, 2017 ? September 30, 2018). Asia Seed had recorded sales of 21.3 billion won and operating profit of 750 million won on an individual basis in the 14th fiscal year (October 1, 2016 ? September 30, 2017), and it was forecasted that sales and operating profit would increase by 24% and 46%, respectively, compared to the previous year.

However, actual sales for the 15th fiscal year were 17.9 billion won, with an operating loss of 1.8 billion won. Sales decreased, and operating profit turned negative. This was due to a decline in seed sales and increased costs from the KOSDAQ transfer listing. The following year, the 16th fiscal year (October 1, 2018 ? September 30, 2019), also showed poor performance. Sales were 17.9 billion won, similar to the previous year, and operating loss continued at 1.6 billion won. The forecast had been sales of 34.7 billion won and operating profit of 4.3 billion won. The continued slump in seed sales and increased costs from acquiring Dosin Agricultural and Fishery Department Store and business investments were the causes.

Due to poor performance, the domestic market share of vegetable seeds, which was 6.17% in 2017, and the export share of 12.12%, decreased to 5.26% and 10.05%, respectively, in 2018. In 2019, the shares were 5.90% and 8.46%, respectively.

Despite poor performance, Asia Seed’s stock price performed well. It more than doubled compared to the offering price. In February last year, it reached 11,850 won, a 163.33% increase from the offering price. This was thanks to being categorized as a North Korea-related stock. The 2018 summit between President Moon Jae-in and North Korean Supreme Leader Kim Jong-un raised expectations for inter-Korean economic cooperation. The expectation that fertilizer and agricultural materials businesses would benefit due to North Korea’s poor food and medical environment fueled investor sentiment. In fact, Asia Seed has supported North Korea with seeds through the International Agricultural Development Foundation since 2011. It also sent various seed items to North Korea in 2017 and 2018.

Although the market strongly perceives it as a theme stock, Asia Seed is confident about turning profitable this year. This is because the investments made so far are bearing fruit. In the first half of the current fiscal year (October 1, 2019 ? March 31, 2020), Asia Seed improved both sales and operating profit. It recorded sales of 12.5 billion won and operating profit of 1.5 billion won, representing a 29.41% increase in sales and a turnaround to profitability compared to the same period last year. However, these figures fell far short of the estimated sales of 44.5 billion won and operating profit of 8 billion won. A company official explained, "Due to increased investments over the past two years, losses continued. In the first half, business expansion and the fruits of past investments led to improved performance." He added, "Regarding the second half, the impact of COVID-19 is neither significantly positive nor negative."

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