[Post-IPO] ⑤ Nanobrick, Crying and Laughing Amid COVID-19

Expected to Turn Profitable in the First Year of Listing... Earnings Hit by Delayed Sales in China
Revenue from COVID-19 Diagnostic Kits Boosts Expectations for Profitability Improvement

Amid the aftermath of the novel coronavirus infection (COVID-19), funds are flowing into the frozen initial public offering (IPO) market. This year’s largest IPO, SK Biopharm, attracted subscription deposits amounting to 31 trillion won, marking the largest scale ever. Internet-only bank KakaoBank is also preparing for its IPO, aiming for a listing in the second half of this year. As the domestic stock market showed significant volatility due to COVID-19, the number of individual investors newly starting stock investments has increased. With growing interest in IPO investments, it is necessary to make judgments about the appropriate offering price when investing in public offerings. Asia Economy reviews the investment prospectuses presented by newly listed companies on the domestic stock market and examines the appropriateness of their offering prices.

[Asia Economy Reporter Yoo Hyun-seok] Nanobrick, a functional nano new material specialized company, is a newly listed company on the KOSDAQ market last year. At the time of listing, it was expected that operating profit would turn positive in the first year based on the growth of the materials business, but the deficit only increased. Although the deficit expanded in the first quarter of this year as well, the company expects performance improvement as bio-related materials are being used in COVID-19 diagnostic kits, increasing related sales.

Founded in 2007, Nanobrick possesses a technology called the 'Active Nano Platform.' This platform develops and produces functional new materials whose color and transmittance change by finely adjusting the position or spacing of nanoparticles according to external signals such as electric and magnetic fields.

Based on this technology, Nanobrick entered the anti-counterfeiting, genuine product authentication, and security printing markets. Its representative product is the genuine product authentication solution 'M-Tag,' launched in 2016. This product has been applied to domestic cosmetics companies exporting to China, such as the mask pack brand JM Solution and Abibybom. Additionally, the company launched 'M-Pac,' a product that directly prints nano new materials on packaging, reducing attachment and manufacturing costs.

Nanobrick, which was listed in August 2019, received 'AA' ratings in all technology evaluations, confirming its technological capabilities. The expected offering price range was 18,000 to 22,000 won. However, the final offering price was set at 16,000 won, below the lower end of the expected range. At that time, uncertainties in domestic and international markets, such as the Japan-Korea conflict and the US-China trade dispute, had a negative impact.

At the IPO briefing, Nanobrick confidently stated that it would turn profitable based on the expansion of sales in the materials business. In fact, according to the preliminary investment prospectus at the time of listing, Nanobrick expected to achieve sales of 8.6 billion won and operating profit of 1 billion won in 2019. However, Nanobrick actually recorded sales of 7.7 billion won and an operating loss of 800 million won. By business segment, as the company predicted, sales in the materials sector increased sharply from 900 million won in 2018 to 2.7 billion won last year. However, the applied business decreased from 5.2 billion won to 3.6 billion won. Ultimately, Nanobrick’s actual sales were 9.9% below estimates, and it failed to turn operating profit positive. Nanobrick has also recorded operating losses for three consecutive years since 2017. A company official said, "Sales expected from China have been delayed due to COVID-19, which affected our performance," adding, "Once COVID-19 stabilizes, related businesses will resume."

Nanobrick is expanding the application range of its materials to cosmetics and electronic devices, increasing its performance. Last year, it signed a contract with a cosmetics manufacturer to develop functional new materials. Recently, it also signed a development contract with a mobile electronic device manufacturer for the application and commercialization of electrically color-variable coating materials. However, first-quarter performance remained sluggish. Sales increased by 38.82% year-on-year to 2.2 billion won, but operating losses widened to 400 million won. The estimated sales and operating profit for this year are 16.1 billion won and 4.6 billion won, respectively. Warning signs are on for achieving these forecasts again this year, following last year.

However, as results are emerging in the bio sector, performance improvement is expected. The materials produced by the company are being applied to COVID-19 diagnostic kits. The stock price, which fell to 5,780 won in March, reached 13,850 won as of the 19th, approaching the offering price. A company official explained, "Our materials are used in the production of diagnostic kits, and sales are currently occurring in that area," adding, "Due to increased demand from COVID-19, profitability improvement is expected."