[Click eStock] "Orion's Acquisition of LegoChem Bio Shares Causes Stock Valuation Volatility"

Kiwoom Securities on the 16th anticipated that Orion's acquisition of LegoChemBio's shares could cause volatility in the stock price valuation (stock price level relative to earnings). This is because future earnings forecasts may vary depending on whether consolidated accounting treatment is applied.

Orion announced the previous day that it would secure a 25% stake in LegoChemBio by investing 550 billion KRW. This share acquisition will be carried out through a third-party allotment of new shares and the purchase of existing shares. The acquiring entity is Pan Orion Corporation, an Orion affiliate based in Hong Kong, which is the holding company of seven subsidiaries in the China region.

Orion will participate in the third-party allotment of new shares, receiving 7,963,283 shares at 59,000 KRW per share, and will purchase 1.4 million existing shares from founder CEO Kim Yong-joo and President Park Se-jin at a base price of 56,186 KRW per share, securing a total of 9,363,283 shares, thereby becoming the largest shareholder with over 25% of the total stake.

Since the share acquisition date is March 29, it is estimated that Orion's consolidated profit and loss will reflect this from the second quarter of this year. Currently, LegoChemBio's recurring operating loss, excluding one-time gains or losses, is estimated to be around 40 to 50 billion KRW.

Kiwoom Securities predicted that this share acquisition would cause volatility in stock price valuation from two perspectives. Researcher Park Sang-jun of Kiwoom Securities explained, "Due to the expansion of bio-business investments by a confectionery company, the investment point regarding the earnings stability of a food and beverage company may be diluted, and doubts about synergy effects from investing in unrelated businesses may increase."

He also noted that existing investors' investment points might conflict with the direction of this new share investment. This is because volatility in stock price valuation could increase during the process of changes in shareholder composition.

Regarding earnings forecasts, consolidated accounting treatment is expected to be a key factor. Future earnings forecasts could be primarily influenced by whether consolidated accounting treatment is applied, determining the extent of downward revisions.

Although Orion's stake in LegoChemBio is less than 50%, the decision on whether to apply consolidated accounting treatment to LegoChemBio's profit and loss will likely depend on Orion's actual control over LegoChemBio.

Researcher Park Sang-jun analyzed, "If consolidated accounting treatment is applied to LegoChemBio, the company's consolidated operating profit is expected to be revised downward by more than 10%, significantly reducing the visibility of overall earnings, due to the reflection of LegoChemBio's annual operating losses and the potential occurrence of PPA amortization expenses."

Park estimated, "If equity method accounting is applied to LegoChemBio, there will be no adverse impact on the company's consolidated operating profit, and the consolidated controlling shareholder net income will be revised downward by about 2-3%, minimizing the negative impact on earnings compared to consolidated accounting treatment."

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