There’s little that can dent the world’s top performing stock this year, not even its founder being sent to prison for insider trading.
(Bloomberg) — There’s little that can dent the world’s top performing stock this year, not even its founder being sent to prison for insider trading.
South Korean battery material producer Ecopro Co.’s blistering run has seen the shares up 919% this year, the biggest gain for any company with a market capitalization of at least $10 billion.
That rise, courtesy of an army of Korean retail investors, has also created massive wealth gains for Lee Dong-chae, its former chairman and chief executive officer. He and his family have seen their fortune swell by about $4.5 billion this year to $4.9 billion, according to the Bloomberg Billionaires Index.
These gains have largely happened while Lee has battled insider-trading charges that resulted in him receiving a two-year prison term and a fine of 2.2 billion won ($1.7 million) for violating capital markets law.
His imprisonment, which South Korea’s Supreme Court upheld last month, has focused attention on Ecopro’s governance at a time when concerns are mounting that its share price growth is unsustainable and has run ahead of fundamentals.
“I don’t think even Lee expected the company to grow so fast,” Park Ju-gun, head of corporate research firm Leaders Index in Seoul. “Their internal infrastructure may not have developed at the speed of their growth.”
The company is feeling Lee’s absence, with a spokesperson saying in a written comment to Bloomberg that it’s in “desperate need” of his “forward-looking insight and spirit to challenge.”
Retail Army
Behind Ecopro’s rally are South Korean retail investors, who are a dominant force in the nation’s equity market. Electric vehicle-related stocks are the hot trade and companies that provide components or materials used in car production are having a bonanza this year. Ecopro BM Co., Ecopro’s listed subsidiary that provides cathodes used in lithium-ion batteries for customers like Samsung SDI Co. and SK On Co., is also up 227%, and is the biggest company on the country’s tech-heavy junior exchange Kosdaq followed by its parent.
While Ecopro’s rapid ascent is a testament to investors’ growing demand for firms that will benefit from the booming EV market, there are concerns about whether the growth has gone too far, too fast. Market commentators caution that the speculative bets placed by the pandemic-induced flood of new retail investors are capable of creating brutal losses as well as dizzying gains.
“The rechargeable battery market undoubtedly has future growth potential but it’s not normal to see only certain players have huge gains,” said Park, adding that because of its popularity among retail investors, Ecopro has become overheated.
Ecopro saw its revenue jump 64% to 2 trillion won in the second quarter from a year earlier, while its operating profit went up less than 1% to 170.3 billion won. Rising metal prices and currency fluctuations affected profitability despite strong sales of EV cathodes, the company said in its earning release. Most of its revenue is generated by Ecopro BM.
Environmental Inspiration
Lee, who comes from a poor family in the southeastern port city of Pohang and who studied business management at night college, founded Ecopro in 1998 after he was inspired by the 1997 Kyoto Protocol’s aim to reduce greenhouse gas emissions.
The 63-year-old, who had previously worked as an accountant and had another business selling furs that didn’t take off, initially focused Ecopro on making environmentally friendly products before switching 20 years ago to developing materials for EV batteries.
He stepped down as CEO in March last year after an allegation that several employees, including Lee, committed insider trading. A statement from the Supreme Court last month said Lee used his account under a different name, and those owned by his children, to trade Ecopro BM stocks, with the undisclosed information about the company’s cathode supply deals in 2020 and 2021. By doing so he made some 1.1 billion won, it said.
Lee remains the company’s largest shareholder, holding about 25% directly and indirectly. He and his family own the minimum stakes to maintain their management control, according to the spokesperson.
Governance Improvements
After the allegations against Lee were made, the company set up a monitoring system for insider trades, including those in non-listed subsidiaries, the Ecopro spokesperson said. It also ramped up compliance efforts by introducing a practice of reporting stock transactions by high-profile executives and employees.
Earlier this year, the company joined the Fair Trade Commission’s list of large business groups with more than 5 trillion won in asset size. The inclusion makes the holding company with 26 affiliates a subject of more regulations and oversight.
Still, it remains to be seen whether Ecopro can continue living up to investor expectations, with its sky-high valuation giving rise to cautious views.
“There’s a big discrepancy between the current price and the company’s value,” wrote Hyunsoo Kim, an analyst with Hana Financial Investment Co. in Seoul.
–With assistance from Jeffrey Hernandez.
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