It is rare for a securities firm's research center to issue a "sell" opinion on a covered stock, but it turned out that even those sell calls, likely issued after much deliberation, more often missed the mark. Unforeseeable events such as unexpected mergers and outside equity investment decisions affected share prices. Because of this, some say active "after-service" is needed following a sell report.
A prime example is Morgan Stanley, the global investment bank (IB) that issued a sell call under the title "semiconductor winter theory," but recently presented a view on the semiconductor sector that is the exact opposite of a year ago, saying "the winter will be warm." Although it drew ridicule from investors, it nonetheless reanalyzed and conveyed why views diverged and what the outlook is.
According to FnGuide on the 8th, Korean securities firms issued a total of six reports this year with a "sell" opinion on covered companies. Three of them were analysis reports on SOOP, and the rest were investment opinions on HD Hyundai Construction Equipment, NEXON GAMES, and SD BIOSENSOR.
It is very rare for a securities firm to issue a sell opinion on a listed company. That is because of a work environment that must be mindful of relationships with corporations. For this reason, when a sell call emerges in the securities market, share prices often swing sharply.
However, there were quite a few cases where the outlook missed after a rare sell call. In the case of SOOP, for which Im Hee-seok, a researcher at Mirae Asset Securities, issued three reports with sell opinions, the share price fell as projected afterward, but the situation was different for the other corporations.
In February, DS Securities issued a "sell" on HD Hyundai Construction Equipment, which was then heavily affected by absorption mergers and unexpected global relationship factors. At the time, DS Securities lowered its investment opinion, assessing that "hopes for an end to the Russia-Ukraine war are being excessively priced into the stock," and set a target price of 74,000 won. The share price, which was 82,800 won the day before the report came out, began to move sideways in the 70,000-won range and fell to the 56,000-won range on 4th.
Then, when the decision for an absorption merger between HD Hyundai Construction Equipment and HD Hyundai Infracore was announced on Jul. 1, the share price rebounded. In addition, as analysis emerged that HD Hyundai Construction Equipment would benefit from Ukraine's reconstruction, the stock rose further. The share price of HD Hyundai Construction Equipment climbed into the 100,000-won range in early August, and is now trading in the low 90,000-won range.
NEXON GAMES also saw a sell report in March. Meritz Securities downgraded its investment view, saying NEXON GAMES had no new titles scheduled for the time being and was expected to post an annual loss in the 50 billion won range. The target price at the time was set at 10,000 won.
Afterward, NEXON GAMES posted a loss of more than 23 billion won in the second quarter, continuing weak results. However, the share price did not fall as much as feared. In June, news that Chinese information technology (IT) giant Tencent was reviewing an acquisition of Nexon sent NEXON GAMES shares up 10%. Since then, NEXON GAMES has held in the 13,000 to 14,000 won range.
SD BIOSENSOR, a diagnostics company on which DAOL Investment & Securities issued a sell opinion, likewise did not fall enough to warrant reducing investment exposure. At the time, DAOL Investment & Securities was concerned that the company's losses were continuing and that its expense burden would grow as it pursued a merger and acquisition (M&A) of U.S. subsidiary Meridian Bioscience. The target price was lowered from 11,000 won to 9,000 won.
However, SD BIOSENSOR's share price did not drop much. It appears to have been affected by SD BIOSENSOR receiving a corporate tax refund of about 338 billion won this year, which swung results from a loss to a net profit.
As cases emerged where a "sell" outlook, likely issued after careful consideration, missed the mark, industry voices are advising that sell reports need active after-service. An industry official said, "A research report does not have to predict the direction of a stock perfectly, but because a 'sell' opinion draws particular attention from investors, there needs to be sufficient follow-up management."