Block Deal Sale of 3.6% Shares of Enchem

• After the market close on 14 June, it was reported that Woori PE/other investors will be selling 705,384 shares of Enchem in a block deal, representing 3.6% of outstanding shares.

• The block deal discount rate ranges from 6.9% to 8.92%, resulting in potential block deal sale price of 270,500 won to 276,500 won.

• We would not subscribe to this block deal and we are concerned about the valuations of Enchem after a sharp share price appreciation this year.

Block Deal Sale Details

After the market close on 14 June, it was reported that a private equity firm will be selling 705,384 shares ofEnchem (348370 KS), representing 3.6% of outstanding shares in a block deal sale. The block deal discount rate ranges from 6.9% to 8.92%, resulting in potential block deal sale price of 270,500 won to 276,500 won. Enchem's share price closed at 297,000 won on 14 June.

At these levels, the block deal size amount ranges from 191 billion won to 195 billion won. The block deal sale is expected to be completed prior to the market open on 17 June (Monday). It appears that the private equity firm is trying to unload some shares of Enchem prior to the listing of new CB shares.

Enchem has been one of the best performing stocks in Korea this year. Its share price has surged 257% YTD. Enchem currently has a market cap of 5.7 trillion won. It is the fifth largest stock in KOSDAQ.

This deal is led by NH Investment & Securities and Korea Investment & Securities. In addition, it appears that Woori Capital PE is trying to unload its shares after a sharp share price appreciation and prior to the 24 July date where the major insiders need to pre-announce their block deal sales prior to the actual block deal sales taking place.

For further details, see our insight Mandatory Block Deal Pre-Announcement Requirement in Korea Starting 24 July: Impact on Block Deals.

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Conclusion First

We would not subscribe to this block deal and we are concerned about the valuations of Enchem after a sharp share price appreciation this year. Enchem is currently trading at P/E of 68x, EV/EBITDA of 46x, and P/B of 14x based on next year (2025) consensus estimates.

Despite the company's excellent progress of its business expansion in the U.S. market, we believe these valuation multiples are too high. We are also concerned about the upcoming CB shares conversion which will dilute total outstanding shares.

New CB Shares Listing

Enchem will have new CB shares listing. A total of 972,657 shares, including 2,754 shares of the 11th CB and 969,903 shares of the 12th CB, will have their conversion claim rights exercised and be listed as new shares on the 19 June. This represents 5% of Enchem's outstanding shares. The CB conversion price is approximately 68,000 won. With this block deal, the sellers (including Woori PE and other financial investors) is expected to achieve a return of close to 200%.

In May 2023. Enchem issued CBs worth 191.5 billion won for facility investment. At that time, Woori PE Asset Management, Paratus Investment, KDB Capital, and Synaptic Investment purchased CB worth about 110 billion won.

Enchem Share Price Performance (1 year)

Source: Google finance