This article was published on Jan. 2, 2025, at 5:32 p.m. on the CHOSUNBIZ MoneyMove (MM) site.
Asterasys, a company specializing in beauty medical devices, is facing criticism over its high valuation ahead of its initial public offering (IPO) on the Korea Securities Dealers Automated Quotations (KOSDAQ). Despite reporting a net profit of 1.7 billion won until the third quarter of last year, it submitted a market cap of around 170 billion won based on the assumption that it would achieve a net profit of 4.7 billion won in just the fourth quarter.
There are even suspicions of 'inflated valuations' in the market, as Asterasys reported a net profit of only 400 million won in its preliminary financials for November last year. Concerns have arisen that if Asterasys's demand forecast, scheduled for next week, performs poorly, the initial positive effects expected in the IPO market may diminish from the start.
According to the financial investment industry on the 2nd, Asterasys is set to conduct a demand forecast aimed at institutional investors over five trading days from the 6th to the 10th. Previously, it submitted a securities registration statement to the Financial Supervisory Service (FSS) on Nov. 6, but the schedule for the public offering was delayed due to correction requests from the FSS and a contraction in the IPO market.
Asterasys plans to raise a total of 3.65 million shares as new stock through this IPO. The lead underwriter, DB Financial Investment, has set a preferred offering price range of 4,000 to 4,600 won. The upper limit of the offering amount is estimated at about 16.8 billion won, with the post-listing market capitalization estimated to reach a maximum of 168 billion won.
The company, which specializes in manufacturing and selling beauty medical devices, was established in 2015. Its flagship product is the high-intensity focused ultrasound (HIFU) device 'Liftera,' which has generated cumulative sales of 18.1 billion won until the third quarter of last year. The operating profit stood at 3 billion won, while the net profit was 1.7 billion won.
Rapid growth in overseas markets is considered one of Asterasys's strengths. In particular, based on the investment from the convertible bonds (CB) issued at the end of 2020, it has expanded its business to regions such as South America and Asia, with sales growing from about 8.1 billion won in 2020 to 15.6 billion won in 2022 and 17.5 billion won in 2023.
However, the market sees Asterasys's desired valuation as excessive, given that it is a general listing corporation drawing on future earnings estimates to set its value. Typically, the valuation based on estimated earnings is mainly used for valuing companies applying for technology-based listings with unrealized profits.
The valuation of Asterasys used the price-to-earnings ratio (PER) from relative valuation methods. Specifically, it assumed a discount of the estimated net profit of 6.4 billion won for the previous year to 6.1 billion won, comparing it to peer companies including CLASSYS, WONTECH, and HIRONIC, applying the average PER multiple of 31.89 times.
The estimated net profit of 6.4 billion won per year also seems excessive. Asterasys's cumulative net profit until the third quarter stood at 1.7 billion won. Although the company explained that the profitability concentrates in the second half of the year and it considered the results of newly launched beauty medical devices in September, the reality appears different.
Analysis of the securities registration statement submitted by Asterasys on Dec. 20 last year indicated that the company reported a net profit of around 400 million won for November. To reach the estimated annual profit of 6.4 billion won, it would have to average over 1.5 billion won per month in net profit from the fourth quarter, spanning October to December.
When Asterasys submitted its amended securities registration statement on Dec. 3 last year, suspicions of inflated valuations had not yet surfaced. At that time, the financial figures up to October were reflected, and Asterasys recorded a net profit of 1.8 billion won due to increased sales of its new product.
The representative of an asset management company primarily focused on IPO investments noted, "If this continues, Asterasys would need to record a net profit of 2.5 billion won for the entire month of December, which means it needs to generate more net profit in December alone than the combined profit of 1.1 billion won achieved until the third quarter along with November's profit."
Asterasys made efforts to maximize its valuation even in discount rates. While utilizing the assumed net profit values, it applied a discount rate of only 24.95% to 13.70% compared to the market capitalization. This is more than 8 percentage points lower than the discount rates of 21.91% to 33.38% observed among general KOSDAQ listing corporations last year.
If Asterasys lists with a valuation of 170 billion won, investors in convertible bonds, including Premier Partners and Qdoss Ventures, are expected to yield more than three times their investment returns. These financial investors are noted to have invested in the convertible bonds at valuations of around 51.1 billion won in 2018 and at the end of 2020.
Some market participants express their disappointment that Asterasys's inflated valuation may dampen the initial positive effects in the IPO market. Typically, at the start of the year, institutional investors deploy funds with new books, resulting in a favorable wind for the IPO market.
A source in the securities industry remarked, "Since the IPO market cooled rapidly in the second half of last year, the inflated valuations of companies seeking listings have played a significant role. If the demand forecasts are lackluster due to overstated corporate values from the start of the year, it will be difficult for the IPO market to regain warmth."