Korea’s Socar gets pushback for high valuation ahead of IPO

South Korea’s mobility unicorn Socar Inc. faces controversy over its valuation after the car-sharing startup set the price guidance for its initial public offering by comparing it with global players engaged in broader mobility businesses.

Given Socar’s heavy reliance on the car-sharing sector, which generates 97% of its sales, it may be inappropriate to estimate its value by likening it to the world’s leading mobility platform operators, whose businesses include taxi, logistics, delivery, and e-commerce, investment banking sources said.

Socar is seeking to raise up to 205 billion won ($158 million) through an IPO in August at a price guidance of between 34,000 and 45,000 won apiece. Based on that range, its market capitalization was estimated at up to 1.6 trillion won.

The unicorn aims to develop itself into a full-service mobility platform covering all methods of transportation using an integrated app for services ranging from electric bikes to parking.

But such ambition has yet to persuade financial market players, who perceived its valuation as excessively high. 

“It is problematic for Socar to ask (the market) to evaluate its corporate value by comparing it with companies in the e-commerce and smart-car sectors, which Socar has yet to launch,” said one of the IB sources. “If it sets the IPO price at the top end of the guidance, it will list with a valuation double those of global mobility platforms such as Uber and Lyft.”

US-based Uber Technology Inc. is the world’s largest ride-sharing company, while Lyft Inc. is its chief competitor in North America.

OVERVALUED

Socar applied enterprise value-to-sales (EV/sales) ratios to estimate its corporate value. EV/sales ratios, which measure how much it would cost to purchase a company’s value in terms of its sales, are widely used in sectors with strong growth potential due to industry paradigm shifts.

Price-to-earnings ratios are commonly applied to set an IPO price, but Socar had to use an EV/sales ratio because it has been in the red. Its operating loss jumped 43% to 21 billion won in 2021 over the previous year, although its on-year sales increased 31% to 289 billion won.

Mirae Asset Securities Co., the listing's bookrunner, estimated Socar’s valuation at 2.4 trillion won, applying an EV/sales ratio of eight times, the average of 10 companies worldwide whose businesses are similar to Socar's. The Korean brokerage set the price guidance after discounting the estimated value by 33.9-50%. Socar’s EV/sales ratios were 3.9-5.2 times, based on the range.

The 10 companies not only included Uber, Lyft and Grab Holdings Inc, Southeast Asia’s top ride-hailing company, but also PT GoTo Gojek Tokopedia Tbk, Indonesia’s No. 1 delivery app operator, and Aurora Innovation Inc., a US self-driving vehicle technology developer.

That more than doubled Socar’s corporate valuation compared with those of existing car-sharing companies. Uber’s EV/sales ratio was 2.3 times, while the ratios of Lyft and Grab were 1.1 times and 2.3 times, respectively. On the other hand, the ratios of GoTo and Aurora were far higher than theirs at 17.1 times and 17.8 times, respectively, amid hopes for surging sales due to their business expansion potential. 

'COMPARE WITH CAR RENTAL COMPANIES'

GoTo is the top tech company in Southeast Asia’s largest economy, formed through a merger of the most valuable local startups – ride-hailing-to-payment firm Gojek and e-commerce leader Tokopedia – in 2021. GoTo provides a range of services including food delivery, online shopping, logistics and fintech. Aurora has strong growth potential, given its specialty in smart-car software, industry sources said.

But Socar has been leaning heavily on the car-sharing business; sales from that sector accounted for 97.4% of its first-quarter revenue. Its dependence on the business has been growing in recent years with the sector’s sales making up 98.9% of total revenue in 2021, up from 71.5% in 2029. Its sales from the micro-mobility and parking lot businesses accounted for a mere 2%.

The industry sources say the startup’s valuation must be estimated in comparison with those of car rental companies, given the similarity of their core business.

The market cap of Lotte Rental Co. was 1.4 trillion won, lower than Socar’s maximum forecast, even as the country’s No. 1 car rental firm reported an operating profit of 245.5 billion won with 2.4 trillion won in sales last year.

Write to Ye-Jin Jun at ace@hankyung.com
Jongwoo Cheon edited this article.