[Column] Will Nara Space Break the Aerospace IPO Slump?

Small Satellite Specialist Eyes Capital for Satellite Development
PER of 46 Applied... Pressure from Halved Stock Prices of Earlier Aerospace IPOs

Nara Space Technology (Nara Space), a company specializing in small satellites, has submitted its securities registration statement and is proceeding with the KOSDAQ initial public offering (IPO) process. Nara Space plans to use the funds raised through the listing for future-oriented projects, such as launching ultra-small satellites. However, there are concerns, as previously listed aerospace stocks have shown disappointing performance.

Founded in 2015, Nara Space focuses on the development and mass production of ultra-small satellite platforms. It is a total solution provider for ultra-small satellites, offering high-frequency Earth observation imagery and related image-based services.

The most notable feature of Nara Space is its vertically integrated value chain, covering everything from satellite manufacturing and operation to data processing, analysis, and platform provision. Furthermore, by owning its own satellites, the company secures satellite image data as both the primary owner and supplier, enabling it to offer a variety of related services.

Nara Space’s desired offering price is between 13,100 and 16,500 KRW per share. The offering price was determined using the price-to-earnings ratio (PER) method. However, as the company is currently operating at a loss, projections for future performance were used. In 2023, Nara Space recorded sales of 1.6 billion KRW and an operating loss of 3 billion KRW. Last year, sales were 4.3 billion KRW with an operating loss of 4.4 billion KRW.

The lead underwriter, Samsung Securities, and Nara Space projected this year’s sales and operating loss at 13.3 billion KRW and 6.9 billion KRW, respectively. For next year, they expect a turnaround to profitability, forecasting 34.8 billion KRW in sales and 7.5 billion KRW in operating profit. By 2027, they anticipate sales of 44.3 billion KRW and operating profit of 10.4 billion KRW.

The performance used to calculate the offering price is from 2027. For comparison, Satrec Initiative and AP Satellite were used as peer companies. The final average PER for these companies is 45.74 times. Based on this, the per-share valuation was calculated at 21,054 KRW. A discount rate of 21.63% to 37.78% was then applied. Considering that the average discount rate for newly listed firms under the technology exception since 2022 has been between 26.82% and 39.63%, this discount rate is relatively low.

One concern is that the applied PER is quite high. Typically, a PER of 20 is already considered high, but Nara Space applied a PER of 46. In addition, the disappointing performance of previously listed peers is a burden.

Lumir, a company specializing in synthetic aperture radar (SAR) Earth observation satellites, saw its stock price rise to 19,180 KRW on its KOSDAQ debut on October 21 last year, but as of October 1 this year, the closing price had fallen to 8,700 KRW, effectively halving.

Innospace, a space launch vehicle company, also saw its debut-day high of 41,609 KRW drop to 15,920 KRW currently. The company also conducted a paid-in capital increase this year. For reference, the PERs applied in the offering price calculations for these two companies were 28.35 and 42.30, respectively.

Given these circumstances, it is necessary for Nara Space to demonstrate that a PER of 46 is justified in the market.

The decreasing stake of the largest shareholder is another concern. Currently, CEO Park Jaepil holds a 24.02% stake. However, after the IPO, this will drop to 20.33%. There is a high likelihood that the stake will fall below 20% if additional capital is raised through future paid-in increases, which could negatively impact management stability.

Meanwhile, Nara Space plans to raise a total of 22.5 billion to 28.4 billion KRW through this IPO. Of the funds raised, 2.3 billion KRW will be invested in research and development (R&D) for a prototype optical satellite. Additionally, 7 billion KRW will be used for mass production costs, while 9.4 billion KRW and 3.2 billion KRW will be allocated to the mass production of environmental monitoring satellites and environmental testing, respectively.

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