EcoPro shares drop 29% in May on chairman’s arrest, MSCI Korea Index

EcoPro Co. Chairman Lee Dong-chae [Courtesy of EcoPro]

Shares of EcoPro Co., the holding company of battery materials manufacturer, have fallen 29 percent this month after the arrest of the group’s chairman and failing to be included in the Morgan Stanley Capital International (MSCI) Korea index.

According to the Korea Exchange, EcoPro stocks closed at 521,000 won ($388.66) on Monday, down 4.23 percent, and a 36 percent plunge from an intraday record high of 820,000 won on April 11. Looking just at May, the company saw a downtrend on seven out of nine trading days since the beginning of the month, losing 28.6 percent. Over the same period, the group’s affiliates EcoPro BM Co. and EcoPro HN Co. have also been down, losing 16.3 percent and 6.7 percent, respectively.

On Thursday, the group’s Chairman Lee Dong-chae was taken into custody after his appeals trial at the Seoul High Court sentenced him to two years in prison, holding him accountable for his involvement in the abuse of the group’s undisclosed information for unfair trading and earning illegitimate gains of 1.1 billion won. On the following day, MSCI Korea index announced new companies to be included into its index and EcoPro wasn’t on the list. EcoPro had been considered as a strong candidate for inclusion.

EcoPro rose 406 percent in the first four months of the year, raising concerns among analysts that its valuation was too high in a short period of time. The target stock price for the shares at Samsung Securities Co. and at Hana Securities Co. this year was an average of 427,000 won per share, lower than the company’s current stock price. Their recommendations are neutral, which in effect means sell.

A recent report from Samsung Securities said that the group’s holdings company had been enjoying a 50 percent premium over the net asset value of its affiliates, calling it a “significant overvaluation” of the holding company. Hana Securities analyst Kim Hyun-soo also said earlier last month that the current market capitalization of EcoPro had already exceeded its expected enterprise value for five years.

Retail investors, however, have not stopped buying EcoPro stock, entering buy orders worth 257.3 billion won for the company this month alone. Individual investors were the largest net buyer of EcoPro during that period. Foreign investors, in the meantime, sold a net 219.0 billion won and institutional investors have sold a net 43.7 billion won. Over the same period, individuals sold a net 1.3 billion won of EcoPro BM and 12.5 billion won of Ecopro HN.