[Inside Chodong] Beware of Bonus Stock Issues Aiming for the "Notus Syndrome"

Stock Prices Surge Without Fundamental Changes in Companies
Major Shareholders and "Super Ant" Investors Cash In on Bonus Stock Issues
Investor Education Needed by Organizations Like the Korea Financial Investment Association

In the domestic stock market, a series of amusing incidents related to bonus stock issues continue to unfold. Just the news of considering a bonus stock issue caused stock prices to soar, and a "super ant" investor even appeared who demanded bonus stocks and then sold off shares after the price rose.

Notus, a non-clinical contract research organization (CRO), held a board meeting on May 9 and resolved to issue 8 new shares for every 1 share owned as a bonus stock issue. Considering that the previous bonus stock issue ratio was between 100% and 200%, this was an unprecedented level of bonus stock issuance. As a result, the number of issued shares increased from 7.81 million to 70.26 million.

After the news of the bonus stock issue was announced, Notus's stock price surged 133% within 8 trading days. Following the ex-rights date for the bonus issue, the stock price hit the upper limit for 6 consecutive trading days. Compared to the day before the board resolution, the stock price increased about 7.5 times. However, as selling pressure for profit-taking emerged with the listing of the new shares, the previously soaring stock price plummeted and fell below the reference price.

The learning effect that bonus stock issues can lead to stock price surges remained, and subsequently, the stock prices of listed companies that resolved bonus stock issues also began to rise. Gonggu Woman, which resolved a 500% bonus stock issue, saw its stock price soar to a similar level. Even just the news of considering a bonus stock issue caused stock prices to surge.

BTuen's stock price hit the price limit after the CEO revealed that various measures, including bonus stock issues, were being considered to activate trading. Chosun Wire & Cable, with a capital of only 630 million KRW but retained earnings of 134.3 billion KRW, was regarded as a company with a high possibility of a bonus stock issue. Its stock price, which had been below 100,000 KRW, even surpassed 170,000 KRW. Shinjin SM saw a "super ant" investor who secured a 10% stake demand a bonus stock issue, and the stock price surged immediately after the news. The super ant sold all held shares and realized a profit of about 1 billion KRW.

While bonus stock issues can increase the number of issued shares and activate trading, they are far from fundamentally increasing corporate value. As the right to receive new shares disappears, the stock price decreases according to the bonus stock issue ratio. The market capitalization temporarily shrinks until the new shares are listed. Although stock price surges due to optical illusions on the ex-rights date have occurred in the past, the recent surge in stock prices is excessive.

While some speculative funds are trying to exploit investor sentiment, the lack of understanding among novice individual investors who entered the stock market during the rise over the past 1-2 years is also a cause. Many individual investors invest in bonus stock issues simply understanding it as "getting free additional shares."

Unrefined information is flooding through leading chat rooms and YouTube. It is urgent for related organizations such as the Korea Exchange and the Korea Financial Investment Association to expand investment to establish a proper investment culture. As the number of novice individual investors increases, the average daily stock trading volume has also surged. Not only securities firms but also the wallets of the Korea Exchange and the Korea Securities Depository have grown fat. The Korea Exchange's revenue surpassed 1 trillion KRW for the first time last year. Although various efforts are being made to reduce information asymmetry, it is still insufficient. It is necessary to strengthen efforts to provide diverse educational opportunities and improve information accessibility through channels mainly used by individual investors.

Park Hyung-su, Deputy Head of Capital Markets Department

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