[Reporter Reading Securities Registration] Why Were Overseas Companies with High PER Added to 'No Brand' IPO Price Calculation?

Clothing ODM Specialist Initiates KOSDAQ IPO Process
Offering Price Range 8,700~11,500 KRW with PER 11.33x Applied
5 Domestic Firms Average PER 5x, Plus 2 Overseas Firms Exceeding 20x

'Nobrand,' an Original Design Manufacturer (ODM) company specializing in apparel production, has officially begun the public offering process for its KOSDAQ listing. It is quite rare for an apparel manufacturing company to go public directly, with the last instance being Hojeon Industrial in 2017. The company plans to use the raised funds for new factory expansion and debt repayment.

However, there seems to be some disagreement regarding the selection of the desired offering price. When determining the offering price, five domestic companies were chosen as comparables, but two additional overseas companies were also included. The average Price-to-Earnings Ratio (PER) of the domestic companies was 5 times, while that of the overseas companies was 25 times.

"Operating a design platform business that directly plans client products"

Nobrand was established in 1994. It is a design platform house that directly designs apparel products for global fashion brands and exports them. Notably, since two years ago, it has been implementing the 'Pick & Buy' system, which manages all processes internally?from design and material selection based on a single concept image, to seasonal planning, market research, color, and fabric development. It is also characterized by directly planning client products.

Its clients include big-box retailer brands such as Target and Walmart, as well as various brands like Gap, J.Crew, Madewell, Rag & Bone, and Eileen Fisher.

Recent performance has been sluggish. Last year (preliminary settlement), sales amounted to 459.1 billion KRW, a 16.96% decrease compared to the previous year. Operating profit during the same period was 10.5 billion KRW, down 78%, and net profit plunged 86.30% to 660 million KRW. The poor performance was due to weakened demand and a tax audit that resulted in an additional corporate tax payment of 3.5 billion KRW.

A company representative explained, "Due to high interest rates and inflation in the U.S. leading to reduced consumption, along with the COVID-19 outbreak and subsequent global logistics difficulties, many buyers strategically reduced orders to deplete inventory accumulated over several years."

However, the company expects growth to resume this year. The representative said, "Orders for the spring/summer (S/S) season, which involves an increase in new design developments, have risen 24% compared to the previous year. We anticipate sales recovery and growth through expanding new buyer business for category expansion and launching a new business model where Nobrand fully takes charge of product design planning for buyers, which started at the end of last year."

Selected 7 comparable companies: 5 domestic with average PER 5.76x, 2 overseas with average PER 25.26x

Nobrand's desired offering price ranges from 8,700 to 11,500 KRW per share. However, there appears to be disagreement regarding the price selection. The lead underwriter, Samsung Securities, applied the PER method to determine Nobrand's offering price. The comparable companies selected were Shinwon, Hansae Co., Youngone Corporation, Taepyeongyang Industrial, and Hojeon Industrial. Additionally, Eclat Textile Company and Makalot Industrial, both listed on the Taiwan Stock Exchange, were included.

It is questionable why overseas companies were added when there were already five domestic comparables. The average PER based on the last year's third quarter annualized results for the domestic comparables?Shinwon (PER 10.68x), Hansae Co. (6.72x), Youngone Corporation (3.56x), Taepyeongyang Industrial (5.19x), and Hojeon Industrial (2.64x)?is 5.76x. However, with the inclusion of Eclat Textile (28.88x) and Makalot (21.64x), the average PER rose to 11.33x.

A company representative explained, "Nobrand's main customers are global brand companies. Since about 99% of sales occur overseas, including North America, the primary competitive market is not limited to Korea. Therefore, it is considered appropriate to review listed companies operating similar businesses overseas as the population for comparison, not just domestic ones."

Ultimately, Nobrand proposed a desired offering price of 8,700 to 11,500 KRW by applying a discount rate of 9.08% to 31.21% to the per-share valuation of 12,648 KRW. The company stated in its securities registration statement that it comprehensively considered the discount rates of companies listed on KOSDAQ last year. The average discount rate for companies listed last year ranged from 22.2% to 33.6%.

Nobrand is offering 1.2 million shares, raising a total of 10.4 to 13.8 billion KRW. Based on the lower end of the offering price, 7 billion KRW will be spent on new factory expansion and facility investment. This will secure additional apparel production capacity of approximately 1 million PCS (pieces). Another 2.5 billion KRW will be used to enhance the efficiency of the full-service platform, which provides hardware services such as manufacturing, facilities, and quality control, as well as software services including planning, materials, and design development. The remainder will be used to repay borrowings, reducing interest expenses and improving the financial structure.

This content was produced with the assistance of AI translation services.