[Into the Stocks] The Blooming Art Auction Market... Focus on 'Seoul Auction'

Seoul Auction Partners with Dunamu to Enter NFT Market
Focused on Art Tech for the MZ Generation

[Asia Economy Reporter Ji-hwan Park] The domestic art auction market has truly blossomed. It is experiencing a boom like never before due to its emergence as a financial investment tool, the influx of the MZ generation (born early 1980s to early 2000s), and the activation of online auctions. As the only listed art auction company in Korea and the market leader, Seoul Auction is expected to greatly benefit from the market expansion.

Record-high Winning Bid Rates... MZ Generation Joins In

Seoul Auction recorded a winning bid rate of 95% at its regular auction held in March this year. This marks over 90% winning bid rates for two consecutive months, following February. The 95% winning bid rate is the highest ever recorded in auctions, and this is the first time a rate above 90% has been maintained for two consecutive months. Considering that the usual auction winning bid rate is around 75%, this confirms how high the recent auction demand is. Eun-ae Jo, a researcher at Ebest Investment & Securities, explained, "The number of auctions held by Seoul Auction this year will expand to at least 40 online auctions in 2021 from 25 in 2020, along with 7 offline auctions. Since the scheduled number of auctions has clearly increased compared to the previous year, there is a high possibility of a performance turnaround this year."

The broadening consumer base is also positive. With more time spent at home due to COVID-19, interest in interior decoration has increased, leading to art purchases. Additionally, the expansion of online auction methods has clearly made the consumer base younger than before. Especially with the increase in MZ generation consumers, bids for reasonably priced contemporary art pieces have surged rather than expensive artworks. Last year, Seoul Auction recorded 6,236 winning bids for items priced under 2 million KRW, a 47% increase compared to the previous year.

The view of art as a financial investment tool is also accelerating market expansion. The revision of the Income Tax Act in November last year further highlighted the formula that art auctions are financial investments. Capital gains from art sales are classified as other income with a fixed tax rate of 20%, regardless of the number of transactions, which significantly reduces the taxes individuals must pay on auction profits compared to before. Previously, the tax rate could reach up to 42% depending on the number of transactions, but with this revision, the tax rate is fixed at 20%.

Sang-heon Lee, a researcher at Hi Investment & Securities, emphasized, "Art has emerged as a financial investment tool for the general public. In the past, art prices were high, so the main consumers were a few collectors or wealthy individuals, but recently, with the activation of art co-purchasing platforms, the consumer base has diversified."

Clear Performance Growth... Stock Price Soars

Seoul Auction posted an earnings surprise in the first quarter of this year with sales of 17.4 billion KRW and operating profit of 3.2 billion KRW. The performance growth is expected to strengthen further as each quarter passes. According to Yuanta Securities, the annual forecast for this year is sales of 72.7 billion KRW, a 151.9% increase from the previous year, and operating profit of 13.3 billion KRW, marking a return to profitability.

Supported by the performance growth, the stock price has more than doubled since the beginning of the year. Seoul Auction’s stock price jumped from the 7,000 KRW range at the start of the year to around 16,000 KRW recently. Seoul Auction’s biggest boom was in 2014-2015 when the government announced a mid- to long-term plan to promote the art market, leading to a surge in art transactions. Accordingly, Seoul Auction’s stock price rose by 331.4% in 2015 alone. Joo-won Ahn, a researcher at Yuanta Securities, stated, "With the full-scale performance rebound, we expect the stock price to reach the mid-20,000 KRW range as it did in 2015."

New market development is also active. Seoul Auction plans to enter the NFT (Non-Fungible Token) content market by partnering with Dunamu, a blockchain specialist company. Seoul Auction intends to introduce blockchain technology from Lambda256, a blockchain company subsidiary of Dunamu, into artworks.

Performance Volatility Vulnerable to External Shocks Remains a Key Issue

After achieving its highest sales of 62 billion KRW in 2018, Seoul Auction’s sales declined to 45.1 billion KRW in 2019 and 28.9 billion KRW in 2020. This was due to the Hong Kong auction, one of the main auctions, experiencing lower winning bid amounts because of the Hong Kong protests that began in the first half of 2019. Furthermore, last year, the COVID-19 pandemic compounded the situation, severely restricting offline auctions to just one per year and significantly shrinking business activities, causing a sharp drop in performance. Soo-kyung Lee, a researcher at KB Securities, said, "There is a clear correlation between Seoul Auction’s auction market contraction and performance deterioration caused by economic recessions and political/social unexpected variables. If offline auction schedules are delayed due to worsening COVID-19 conditions, it could impact performance volatility."

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