This article was published on March 25, 2025, at 5:58 p.m. on the ChosunBiz MoneyMove site.
DN Solutions, the world's third-largest special machine tool manufacturing company, has been embroiled in controversy over overvaluation as it embarks on its KOSPI listing challenge. This is due to the estimated market capitalization jumping to more than double compared to when it raised investment exactly a year ago, based on the upper range of the desired offering price.
While its value has roughly doubled, its performance has deteriorated. Net income has decreased. The operating environment has worsened due to the global economic downturn. There are already observations in the market that DN Solutions' public offering will not be easy. The nearly 57% proportion of existing share sales is also seen as a negative factor.
According to the financial investment industry on the 25th, DN Solutions submitted its securities registration statement on the 14th, proposing a maximum post-listing market capitalization of 5.6634 trillion won. It aims to list 63,137,073 shares at a price range of 65,000 to 89,700 won per share, estimating the value at the lower end to be about 4.1039 trillion won.
The shares planned for public offering consist of approximately 28% of the shares to be listed, totaling 17,537,000 shares (including 9,960,406 shares from existing share sales). The company plans to finalize the offering price through institutional investor demand forecasts in April and aims to list on the KOSPI in May as scheduled.
The consortium of underwriters is impressive. Mirae Asset Securities, Samsung Securities, and UBS Securities are taking on the role of lead underwriters. Additionally, Korea Investment & Securities and Merrill Lynch International LLC are listed as co-underwriters. They also plan to begin roadshows for overseas institutional investors from early April.
Despite having a luxurious group of underwriters, market reactions are negative. This is because the offering structure is favoring existing shareholders rather than new investors, particularly financial investors who participated in the pre-IPO fundraising last April.
Immediately, the company's valuation soared twofold. DN Solutions raised funds from the Industrial Bank of Korea and STIC Investments in a pre-IPO investment last April, with the valuation then set at 2.5833 trillion won. The issue price per share for the convertible preferred stock was identified as 46,496 won.
A representative from an asset management company that primarily invests in public offerings noted, “The stock that was 46,496 won per share has reached 89,700 won in just a year,” adding, “Considering the influx of funds from the new share issue, it has effectively applied almost a 100% IPO premium based on the upper range of the desired offering price.”
When DN Solutions raised investments in the pre-IPO last April, the valuation was based on a price-to-earnings ratio (PER) multiple of eight times net income. However, the valuation of 5.6634 trillion won for this stock listing is based on a PER multiple of 25.18 times. Even accounting for the discount rate, a top-end basis of 19 times was applied.
While the PER multiple increased from eight times to 19 times, there has been no change in the operating environment. DN Solutions is considered the top domestic special machine tool manufacturer with annual sales exceeding 2 trillion won. However, last year's sales only increased by 0.5% compared to the same period the previous year, while net income decreased by 6.7%.
The market environment is also challenging. Due to ongoing U.S.-China tensions leading to a decline in global investor sentiment and a manufacturing recession, sales of their main product, cutting machines, have decreased. Additionally, last year's operating profit for DN Solutions fell by 5.9% compared to the same period last year due to increased logistics costs.
The company presents machine tool automation solutions as a key future business area, but the global research firm Infinity Research estimates that the global factory automation market size is projected to be about $97 billion in 2024 and is expected to grow at an average annual rate of 7% until 2028.
Last year, money earned by DN Solutions from machine tools and automation solutions accounted for 95.64% of its sales. Assuming a net income margin of around 15% and annual growth of 7%, DN Solutions' net income is projected to reach 402.5 billion won by 2028. The valuation applied with a multiple of eight times reaches only 3 trillion won.
A source in the securities industry stated, “Since the value at the lower end of the desired offering price exceeds 4 trillion won, it cannot be dismissed that DN Solutions has high ambitions for its valuation,” adding, “The fact that existing share sales account for 57% is also likely to be a burden on the public offering's prospects.”
Meanwhile, DN Solutions is expected to raise between 492.5 billion and 679.6 billion won through this public offering. After excluding related expenses, a net inflow of 488.8 billion to 675 billion won is anticipated, and the funds from the offering will likely be used to establish a global research and development (R&D) network for expanding automation solution business.