Korea’s resort operator Daemyung eyes IPO, prospects murky amid tepid appetite

2019.11.06 11:23:17 | 2019.11.06 15:06:34

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South Korea’s leading resort operator Daemyung Sono Hospitality Group is seeking to go public to raise funding for new growth engines beyond the stagnant hospitality business.

The group has invited six investment bankers to hand in their proposals for the initial public offering of the holding entity Daemyung Sono by Friday, according to investment banking sources. The decision of whether to go public on the main Kospi or junior Kosdaq will be determined later.

Founded in 1979, Daemyung Group has been one of the pioneers of Korea’s resort industry. Together with Hanwha Group, which operates Hanwha Hotels & Resorts, it commands 60 percent of the country’s resort and leisure market. It currently owns a broad portfolio of hotels, resorts, water parks and golf clubs, including Sol Beach Hotel & Resort, Vivaldi Park and Ocean World.

Daemyung Sono became the group’s de-facto holding company in 2005 after spinning off its resort condominium and golf club membership businesses. Chairperson Park Chun-hee owns 38 percent and her son, Seo Jun-hyeok, 36 percent in the company. When combining the shares of other related persons, the owner family holds a controlling interest of 78.09 percent.

The IPO attempt is widely seen as a move to fund new businesses and aid the group’s hereditary succession. Industry observers, however, are raising questions about the value of the company, given its lackluster financial performance and grim market prospects.

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Daemyung in recent years has been seeking to broaden its business portfolio beyond leisure to food dining, retail and audiovisual equipment. While revenue has jumped threefold over the past decade, its bottom line has suffered, with operating margin at 2.59 percent in 2017 and 0.84 percent in 2018.

Last year, Daemyung Sono’s operating profit on a consolidated basis shriveled by nearly one third from a year ago to 7.96 billion won ($6.87 million), while revenue slipped 0.7 percent to 941.7 billion won. It booked a net loss of 9.43 billion won during the same period. When excluding the net profit of 39.7 billion won posted in 2017, the company has been stuck in the red for the past four years.

Shares of its local rival Yongpyeong Resort, which debuted on Kospi in 2016 at an IPO price of 7,000 won, were trading at 6,810 won as of Wednesday morning, suggesting tepid appetite for the resort and hotel industry.

An industry source said institutional demand for Daemyung is cold, with some banks having already turned away the invitation, and added that the key to a successful IPO would be presenting “a persuasive roadmap for growth.”

Some experts see the IPO as an attempt to facilitate the succession from the 65-year-old chair to her 39-year-old son. Taking the company public would put a market value on the company shares, which would help sort out inheritance and other tax-related issues.

By Kang Woo-seok and Kim Hyo-jin

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