IPO Market Feeling Overheated Pressure, Need for Careful Selection

Since the expansion of price fluctuations on the day of listing in the second half of last year, the overheating trend in the initial public offering (IPO) market has continued. This year as well, market funds are pouring into public offering subscriptions, with Woojin Entec, the first listed company of the year, recording a 'double-double' (4 times the offering price) on the first day. However, concerns about the bubble in the offering price are growing, and the average return on the first day of listing is gradually decreasing. Market experts advised that the expectations for IPO investments will gradually lower, and investors should steadily develop their ability to discern promising IPO stocks.

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According to the financial investment industry and DS Investment & Securities on the 4th, the average first-day increase rate of six newly listed companies on the domestic stock market last month was 99.4%, down 82.3 percentage points from 181.7% in January.

In January, Woojin Entec and Hyundai Hims recorded a 'double-double' on the first day of listing, achieving a 300% return based on the offering price. Among the six companies listed last month?Inix, Studio Samik, K-Weather, Kosem, E8, and APR?Inix rose 165%, and K-Weather increased by 137%. APR, which attracted attention as it entered the KOSPI market for the first time this year, started trading at an opening price of 445,500 KRW on the first day but closed at 317,500 KRW. The increase rate on the day of listing was only 27%.

Jodaehyung, a researcher at DS Investment & Securities, analyzed, "While the market overheating continues, concerns about valuation are beginning to emerge," adding, "The burden of valuation can be partially confirmed from the demand forecast results conducted last month."

All six companies listed last month set their offering prices above the upper limit of the expected price range. Inix, which was listed on the 1st of last month, had an offering price of 14,000 KRW, 27.3% higher than the upper limit of 11,000 KRW. APR also set its offering price at 250,000 KRW, 25% higher than the upper limit of 200,000 KRW.

Judging by the results, it appears that many investors still aim to receive the offering shares and sell them on the first day of listing to make a profit rather than being burdened by valuation. However, subtle changes can be detected in the process. In January, no stocks had more than 1% of institutions submitting underwriting prices within the expected offering price range during demand forecasting. In February, E8 (8.1%), Studio Samik (2.8%), and APR (1.1%) had more than 1% of demand forecast participation within the expected price range. As market funds flood into the IPO market and concerns about offering price bubbles grow, a rational approach to underwriting prices is emerging among institutional investors. Although the proportion is still low and the average first-day return rate has relatively decreased compared to January, considering that the absolute figures remain high, it is unlikely that the enthusiasm for IPO investments will cool down in the short term.

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The influx of market funds is expected to continue until newly listed companies record negative returns compared to the offering price on the first day of listing. Market experts advised that selective investment is necessary from the perspective of expected returns when allocating limited investment funds.

Companies such as KNR System, Osang Healthcare, Samhyun, IMBDX, Angel Robotics, Cochip, and Mintech are preparing to enter the domestic stock market in March. KNR System, a developer of hydraulic robot systems, conducted a public offering subscription for general investors over two days from the 26th to the 27th of last month. It attracted about 8.048 trillion KRW in subscription deposits, recording a competition rate of 2,266.7 to 1. Osang Healthcare, a company specializing in in vitro diagnostics, set its offering price at 20,000 KRW, 33.3% higher than the upper limit of the expected price range of 15,000 KRW during demand forecasting.

An NH Investment & Securities official in charge of Osang Healthcare's listing explained, "While participation in public offerings by pharmaceutical and bio companies has been somewhat sluggish recently, many institutions participated in the demand forecast, highly evaluating Osang Healthcare's business competitiveness and potential."

Intense competition in demand forecasting and subscription does not necessarily mean high returns on the day of listing. In demand forecasting, the more intense the competition, the higher the offering price tends to be, which may burden the stock price movement after listing. A financial investment industry official advised, "IPO public offering subscription investments will not guarantee high returns indefinitely," adding, "It is necessary to decide whether to participate in subscriptions by considering the company's growth potential and the level of the offering price."

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