[IPO Spotlight] SK Shieldus Changes Peer Group Amid Overvaluation Debate but Keeps IPO Price Unchanged

[Asia Economy Reporter Jang Hyowon] SK Shieldus, a major IPO candidate listed on the KOSPI, changed its peer group amid controversy over an overvalued offering price, but its desired offering price remained the same as before. This is because the method of calculating the offering price and the discount rate were applied differently. Additionally, details regarding the sale of existing shares and internal transactions within the SK Group were specifically included in the securities registration statement, drawing attention to how the market will evaluate these factors.

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On the 21st, SK Shieldus changed its peer group for determining the desired offering price from U.S. security companies to Taiwanese security companies. Previously, the peer group included five companies: S-1, AhnLab, Alarm.com, Qualys, and ADT Inc. Now, only domestic companies S-1 and AhnLab remain, with the addition of KOSDAQ-listed CyberOne and Taiwanese security company Taiwan SECOM.

The change in peer group is analyzed to be due to controversy over the overvaluation of the offering price. SK Shieldus calculated the offering price using the enterprise value to EBITDA (EV/EBITDA) method. They multiplied the average EV/EBITDA multiples of peer companies by SK Shieldus's EBITDA to estimate the enterprise value.

The EV/EBITDA multiples of the U.S. companies were 28.31x for Alarm.com, 35.89x for Qualys, and 8.33x for ADT Inc. Including these and domestic companies, SK Shieldus applied a weighted average EV/EBITDA multiple of 16.13x based on business segments.

Applying this, SK Shieldus valued its enterprise at KRW 6.155 trillion and calculated an average market capitalization excluding net debt at about KRW 4.7016 trillion. This valuation is more than 80% higher than competitor S-1’s average market capitalization of KRW 2.5 trillion, which operates in a similar business area.

Consequently, SK Shieldus excluded the U.S. companies and included Taiwan SECOM and CyberOne in the peer group. Their EV/EBITDA multiples are 11.7x and 17.66x, respectively. Nevertheless, SK Shieldus’s desired offering price range (KRW 31,000 to KRW 38,800) and the total offering amount remained unchanged.

The reason is that SK Shieldus changed the discount rate applied and did not use a weighted average by business segment when calculating EV/EBITDA.

SK Shieldus’s business segments are divided into physical security (59.17%), cybersecurity (21.62%), and convergence security & safety and care (19.2%). Previously, when comparing with U.S. companies, ADT Inc and S-1 were classified as physical security companies, Qualys and AhnLab as cybersecurity companies, and Alarm.com as convergence security and Safety & Care companies. The EV/EBITDA averages were calculated by segment and weighted by SK Shieldus’s revenue proportions to arrive at 16.13x.

However, after changing the peer group, the EV/EBITDA multiples of the four companies were averaged arithmetically, resulting in 14.86x. Accordingly, the evaluated market capitalization was set at KRW 4.217 trillion, with a per-share valuation of KRW 46,679. Applying a discount rate of 16.88% to 33.59%, the desired offering price range of KRW 31,000 to KRW 38,800 was derived.

Currently, SK Shieldus’s competitor S-1 operates both physical security and convergence security businesses. If Taiwan SECOM and S-1, classified as peer companies, were categorized as physical and convergence security companies, and AhnLab and CyberOne as cybersecurity companies, and the EV/EBITDA was weighted accordingly, the multiple would be 11.4x. In this case, the evaluated market capitalization would be around KRW 2.9 trillion, and the per-share valuation would drop to approximately KRW 32,092.

Regarding this, an SK Shieldus official explained, “Considering the business proportion and capabilities in convergence security, it seemed reasonable to classify S-1 and Taiwan SECOM as physical security companies. SK Shieldus also has a high proportion of convergence security due to the internalization of cybersecurity.”

Besides the offering price calculation, the market is also focusing on the sale of existing shares. Blue Security Investment, a special purpose company (SPC) of Macquarie Asset Management, plans to sell 12,647,639 shares out of the 27,982,239 shares (36.87%) it currently holds in SK Shieldus. Calculated at the lower end of the offering price, this amounts to approximately KRW 475.4 billion. This represents 46.7% of the total offering shares as existing share sales.

A large sale of existing shares by major shareholders typically acts as a burden in an IPO. This is because major shareholders, who are relatively more familiar with the company, sell their shares at the offering price without expecting higher returns after listing. In fact, companies like Hyundai Engineering, which had existing share sales of 75%, and Simone Accessory Collection, with about 80%, withdrew their IPOs due to deteriorating investor sentiment during the offering process.

Another point of attention is the sharp increase in internal transactions with the SK Group last year. SK Shieldus’s operating revenue (sales) last year was KRW 1.5497 trillion, an increase of KRW 222.5 billion (16.8%) compared to the previous year. About 65% of this increase, KRW 145.8 billion, came from internal transactions with the SK Group. Sales to SK Telecom, SK Broadband, SK Ecoplant, SK Hynix, and others surged. Sales to SK Group companies increased by 58.4%, while sales excluding these increased by only 7.1%.

In response, an SK Shieldus official stated, “Internal transactions increased last year due to many business projects conducted in collaboration with group companies such as SK Telecom.”

Meanwhile, SK Shieldus plans to conduct a demand forecast for institutional investors on May 3-4, followed by a general subscription on May 9-10.

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