[IPO Spotlight] WCP, the Directional Indicator for KOSDAQ IPO Success in the Second Half

Offering Price Upper Limit Based on Market Cap of 3.4 Trillion KRW... Top 5 in KOSDAQ
Subscription Size 900 Billion KRW... Deposit May Surge Due to Put-Back Option
Appropriate Enterprise Value Calculated Using EV/EBITDA Valuation Method

[Asia Economy Reporter Hyungsoo Park] DoubleWCP, a secondary battery separator manufacturer, is set to be listed on the KOSDAQ market. With a market capitalization expected to rank within the top 5 on KOSDAQ based on the upper limit of the public offering price range, attention is focused on whether the subscription will be successful. If DoubleWCP, along with Socar, succeeds in the public offering subscription, it is expected to have a positive impact on the IPO market in the second half of the year.

According to the Financial Supervisory Service's electronic disclosure system on the 11th, DoubleWCP proposed a public offering price range of 80,000 to 100,000 KRW per share. The total number of shares offered is 9 million, including 7.34 million newly issued shares and 1.66 million existing shares. The expected market capitalization and offering size are 3.4 trillion KRW and 900 billion KRW, respectively, based on the upper limit of the price range.

Demand forecasting for institutional investors will be conducted on the 1st and 2nd of next month, with the final public offering price to be confirmed on the 4th. KB Securities and Shinhan Investment Corp., which are managing the listing, selected EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a key indicator to determine DoubleWCP's appropriate corporate value. They judged that the enterprise value (EV) is proportional to EBITDA, which represents the cash operating profit generated by the company's business activities. This is due to the characteristic of capital-intensive industries where large-scale depreciation, a non-cash expense, can cause a gap between cash profit and accounting profit.

As DoubleWCP is a company yet to realize profits, the underwriting consortium, including the joint lead managers, will grant a put-back option to general subscribers for three months after listing, allowing them to sell shares back at 90% of the offering price. The higher the offering price, the greater the burden on the underwriters.

For peer comparison, six companies listed on the domestic stock market were selected: SK IE Technology, EcoPro BM, POSCO Chemical, Chunbo, L&F, and Cosmo Advanced Materials, along with two companies listed on the Shenzhen Stock Exchange in China. The average EV/EBITDA multiple of these eight companies was calculated at 45.85 times. Based on this, DoubleWCP's market capitalization and per-share valuation were estimated at 4.8885 trillion KRW and 143,739 KRW, respectively. Applying a discount rate of 30.4% to 44.3%, the public offering price range was set at 80,000 to 100,000 KRW.

Sales recorded a compound annual growth rate of 130.85% from 2019 to 2021. In the first quarter of this year, consolidated sales reached 54.7 billion KRW, an increase of approximately 50.8% compared to 36.3 billion KRW in the same period last year. Operating profit recorded a loss of 5.1 billion KRW in 2019, then rose to 9.8 billion KRW in 2020 and 40.5 billion KRW in 2021. In the first quarter of this year, operating profit was 3.3 billion KRW, a decrease of 54.6% compared to the same period last year.

Profitability deteriorated in the first quarter due to increased cost of sales. The company explained that this was due to increased transportation and depreciation expenses. To meet delivery deadlines for a Hungarian customer in the first quarter, products were transported by air. Since air transport has not been used from the second quarter onward, the increase in cost of sales due to transportation expenses is considered temporary.

On a separate basis, EBITDA increased from 6 billion KRW in 2019 to 36.5 billion KRW in 2020 and 72.5 billion KRW in 2021. In the first quarter of this year, EBITDA was 14.3 billion KRW, with an EBITDA margin of 26%.

Since 2019, funds for facility investment to secure production facilities were raised externally through borrowings or convertible bonds issuance. The debt ratio rose from 122.1% in 2019 to 220.3% in 2020. Subsequently, thanks to some convertible bond conversions and profitable management, the debt ratio decreased to 55.3% last year. During the first quarter of this year, all remaining convertible bonds were converted into common shares, lowering the debt ratio to 30.0%.

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