South Korean household care maker Aekyung Industry’s has recently announced plans to go public on March 22, set to become the first company to make debut on Kospi exchange this year.

According to Korea Exchange on Tuesday, Aekyung Industry’s initial public offering price was decided at 29,100 won ($27.30) per share, the lowest in the expected price band, because the company’s profit relied heavily on a single product category, cosmetics. A total of 506 institutional investors participated in the demand forecast, leaving predictions that the market capitalization after the IPO could reach 760 billion won.


The company aims to reach 1 trillion won in sales by 2020, by raising capital for new products and expanding into foreign markets through the listing.

Despite such high hopes, analysts also point to negative factors including the company’s involvement in the humidifier disinfectant scandal, in which hundreds of consumers died.

Aekyung Industry was founded in 1954 as Aekyung Oil Industry, a soap and detergent manufacturer. The household care division spun off from the parent company in 1985 as a separate entity. Some of its best brands include 2080 toothpaste, Kerasys shampoo and Trio dishwashing soap. As of last year, Aekyung ranked second in the local household products market with a 20.7 percent share, following LG Household & Health Care’s 35.2 percent.

As of the third quarter last year, Aekyung made 440.5 billion won in sales and net profit of 32.9 billion won, a 21 percent increase from 2016.

Behind this growth was the expansion of its cosmetics business, which rose to account for 36 percent of the company’s sales last year, up from 14.3 percent in 2015.

Its most recent cash cow has been Age 20s, a cosmetics line launched in 2012 targeting women in their 30s and 40s.

Age 20s’ best-selling moisture essence foundation -- dubbed Kyun Mi-ri Pact -- raked in over 139 billion won from home shopping channels in the last year alone. Aekyung said the brand’s sale jumped by 239 percent in four years.

Another cosmetics line, Luna, has also seen gradual sales growth since 2013, buoyed by expansion of distribution channels venturing into home shopping channels, online malls and duty free stores.

“At the moment, the sales ratio of daily goods to cosmetics is 6-to-4, but we are expecting this figure to reverse by 2020,” said Aekyung Industry CEO Lee Yun-kyu at a news conference on March 6.

The company expects its cosmetics business to grow in international markets, as it seeks to enter retail channels in Japan and Southeast Asian countries. In June, it will begin selling its products on Japan’s home shopping channels QVC and TSV. It will also sell products through Amazon in the US. Currently, there are sales channels already secured in China, Mongolia and Russia.

Industry analysts, however, note that IPO may be also affected by the humidifier sterilizer scandal, which led Aekyung’s to halt its first attempt to go public on the Kospi two years ago.

Between October 2002 and April 2013, Aekyung, along with Oxy Reckitt Benckiser, had manufactured and sold humidifier cleansers using toxic chemicals including CMIT and MIT. Those chemicals have been held responsible for more than 100 deaths, mainly from respiratory problems.

In 2016, the South Korean prosecution launched an investigation into the companies. While most cases were linked to Oxy’s products, Aekyung was also found to be responsible for 27 deaths in an epidemiologic investigation by the Environment Ministry in 2016.

As of 2017, over 5,900 people have filed lawsuits with the government’s investigative unit to seek damages related to the sterilizers.

It has been a steadfast position of Aekyung Industry that health risks of the main components used for its product “Humidifier Mate” have not yet been confirmed. It also adds that the firm was not directly engaged in manufacturing and that it only purchased the contents from SK Chemicals.

In a previous round of investigation by the prosecution in April of 2016, Aekyung was excluded from questioning and was later cleared of suspicion by the prosecution citing lack of evidence.

But last month, the Fair Trade Commission picked up the case and fined Aekyung along with other companies 88 million won for advertising the products as safe on the labels and exaggerating them as having forest or aromatherapeutic effects.

With the fine, the FTC also filed charges against the firm and its former chief for concealing or omitting information related to safety and falsely advertising the products. Aekyung’s statute of limitations is set to end in April 2018.

Another issue involves its parent company’s negative cash flow.

“Due to financial distress, it may not get as much valuation with premium as do Aekyung Industry’s competitors such as homecare and cosmetics giants LG Household and Healthcare and Amorepacific,” an analyst from Mirae Asset Global Investments told The Korea Herald.

Currently, Aekyung has a 38 percent stake in Aekyung Industry. AK Holdings has a 48 percent stake in Aekyung Industry. Aekyung Group Vice Chairman Chae Hyung-seok and his close associates are in control of the entire Aekyung, which also operates AK Plaza shopping malls. Chae is the eldest son of Aekyung Chairwoman Chang Young-shin.

By Kim Da-sol (ddd@heraldcorp.com)