KOSDAQ Segment Star "Naya Na"... The Corps Stepping Up to Resolve Undervaluation

[Asia Economy Reporter Lee Seon-ae] The Korea Exchange (KRX) is set to implement a system that selects companies with excellent financial performance, market evaluation, and corporate governance within the KOSDAQ market and designates them as 'KOSDAQ Global Segment Companies.' There is significant interest in the companies that will be designated as the first recipients. With over 1,500 companies listed on KOSDAQ over the past 20 years, being selected as the so-called top 5% 'blue-chip companies' is expected to resolve the discount (undervaluation) caused by some underperforming companies that harm the entire market.

According to the Korea Exchange and related industries on the 16th, if a company is confirmed as a target on the 20th, it will be classified as a KOSDAQ Global Segment Company on the 21st, and an index will be calculated. The Exchange had accepted designation applications until the 1st of this month. Unlike existing Exchange indices, the KOSDAQ Global Segment requires companies that meet the designation criteria to apply first, and then the Exchange selects them through a review process. Going forward, applications will be accepted every early April, and designations will be made collectively on the first business day of May.

For this initial designation, the review reference date is based on the end of August 2022. As of this date, about 60 companies meet the new designation criteria set by the Exchange. Currently, 1,515 companies are listed on the KOSDAQ market based on common stock, excluding special purpose acquisition companies. Since the Exchange initially set the goal of the KOSDAQ Global Segment to select representative blue-chip companies corresponding to the top 5%, the number of companies meeting the criteria is not large. Furthermore, since designation is made through prior application rather than automatic inclusion or exclusion, the number of designated companies may be even smaller than those meeting the criteria.

For general companies, those with an average daily market capitalization exceeding 500 billion KRW over the past year, sales of 300 billion KRW or operating profit of 30 billion KRW or more, and a corporate governance evaluation grade of B or higher from the Korea ESG Standards Institute can be designated as Global Segment Companies. Additionally, they must meet other requirements such as no designation as an unfaithful disclosure company in the past year and maintaining accounting transparency. For bio companies, the criterion of 'average daily market capitalization of 1 trillion KRW or more over the past year' is highly discriminative. Accordingly, only about one-tenth of companies in the related industry can apply.

The difference between companies meeting the criteria and the KOSDAQ's representative index, KOSDAQ150, lies significantly in the proportion of the healthcare sector. When comparing the market capitalization proportions by industry between KOSDAQ150 and companies meeting the Global Segment criteria, IT is the largest sector in both. However, the second-largest sector differs: healthcare is second in KOSDAQ150, while communication is second among companies meeting the Global Segment criteria.

Choi Jae-won, a researcher at Kiwoom Securities, noted, "Although items related to the technological capabilities of bio companies were added to compensate for the possibility of bio companies not meeting the criteria during the segment's preparation stage, a certain reduction in the healthcare sector's proportion compared to the market's representative index seems inevitable."

Despite being composed of a small number of companies, the effect brought by the KOSDAQ Global Segment is viewed positively by the securities industry. In a situation where financial market uncertainty is increasing, creating a small group of blue-chip companies considering sector characteristics is seen as beneficial.

Until now, KOSDAQ blue-chip companies have been relatively discriminated against and lacked passive fund inflows, leading to a perception that their value was not properly recognized, which intensified avoidance of KOSDAQ. This is why companies move to list on the KOSPI market. Therefore, considering that stocks included in this segment can benefit from passive demand effects due to derivative product development and internal and external information support from the Exchange, it is expected that small and medium-sized companies will have a high incentive to participate.

Researcher Choi said, "In a market environment where liquidity is shrinking and it is difficult to receive high valuations based solely on growth potential without actual sales, a segment composed of a small number of blue-chip companies can provide investors with a more stable environment."

Major companies meeting the designation criteria include Celltrion Healthcare, EcoPro BM, L&F, EcoPro, Pearl Abyss, Chunbo, Lino Industrial, JYP Entertainment, Studio Dragon, CJ ENM, Dongjin Semichem, Alteogen, SM, Paradise, Wonik IPS, SFA, Dongwha Enterprise, Classys, TCK, PNT, AfreecaTV, POSCO ICT, Duksan Neolux, Com2uS, Koyoung, Megastudy Education, Harim Holdings, Recochem Bio, BH, and EO Technics.

An Exchange official emphasized, "The introduction of this system will strengthen the sense of belonging of blue-chip companies to the market and is expected to promote the listing of promising innovative companies. If investment demand expands across the KOSDAQ market and the corporate value of listed companies increases, it will create an environment where investors can invest in the KOSDAQ market stably and long-term."

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