[Funding] Myeongseong TNS②, Sharp Sales Increase in the Year Before Listing

[Asia Economy Reporter Park Hyungsoo] Myeongseong TNS has seen a steady decline in sales, raising growing interest in the success of its general allocation rights offering.

Myeongseong TNS was listed on the KOSDAQ market in September 2018. In the three years leading up to the listing, sales increased explosively. Sales grew from 17.6 billion KRW in 2015 to 26 billion KRW in 2016, and 64.6 billion KRW in 2017. The company explained that sales surged significantly in 2015 due to revenue from the polarized film stretching equipment line. In 2016, sales increased with revenue from the secondary battery separator stretching equipment, and in 2017, sales surged further with continuous additional orders. As of 2017, sales per employee were about 1.1 billion KRW, recording the highest productivity per capita in the industry.

KB Securities, which acted as the lead underwriter for Myeongseong TNS’s listing, calculated an appropriate public offering price based on 2017 performance and the annualized results for the first half of 2018. They selected comparable listed companies with similar business structures to Myeongseong TNS as benchmarks. Applying a discount rate of 11.5% to 23.8% to the per-share valuation, they proposed a desired public offering price range of 16,100 to 18,700 KRW. After a demand forecast targeting institutional investors, the public offering price was finalized at 20,000 KRW. The competition rate during the demand forecast reached 745.56 to 1. Over 97% of the total application volume exceeded the upper limit of the desired price range. Considering market demand, Myeongseong TNS increased the total number of public offering shares from the initial 1.6 million to 1.92 million shares. Former CEOs Kwon Tae-wook and Lee Yong-jin sold 600,000 shares at the public offering price through secondary sales.

At the time of listing, Myeongseong TNS introduced itself as the only domestic company equipped with all processes for secondary battery separator production equipment. Myeongseong TNS developed secondary battery separator manufacturing equipment in 2009 and began securing entire separator manufacturing lines in 2016. Riding a growth trajectory, Myeongseong TNS signed a listing advisory contract with the Listing Support Center in November 2016 to prepare for its KOSDAQ listing.

They attempted to list in 2017 but faced setbacks. They struggled during the review process due to market skepticism about the sustainability of sales growth and withdrew the listing decision. The following year, in 2018, they tried again and succeeded in listing.

Since listing, the company has faced difficulties. Sales declined and operating profit plummeted. In 2018, sales were 39.7 billion KRW and operating profit was 2.5 billion KRW, down 38.5% and 65.8% respectively from the previous year. In 2019, sales were 35 billion KRW and operating profit 900 million KRW, continuing the slump. Cumulative sales through the third quarter of this year were 16 billion KRW, indicating a third consecutive year of declining sales. The cumulative operating loss reached 2 billion KRW.

Amid continued poor performance, Myeongseong TNS’s largest shareholder and related parties sold their shares and management rights in May. The per-share sale price was 12,500 KRW, with total proceeds amounting to approximately 49 billion KRW.

According to the 'In-depth Analysis of Major Lithium Secondary Battery Material Companies' report published by SNE Research in February this year, the global lithium secondary battery market size was about 33.1 billion USD (approximately 39 trillion KRW) in 2018 and is expected to grow more than tenfold to 351.7 billion USD (approximately 416 trillion KRW) by 2030. In terms of demand volume, it is projected to grow from 198 GWh in 2019 to 3,392 GWh in 2030.

The outlook for the upstream industry market is expected to positively impact Myeongseong TNS’s secondary battery separator manufacturing equipment business division. While the upstream industry steadily grows, Myeongseong TNS’s performance has declined, and the largest shareholder sold shares at a price lower than the public offering price just two years after listing.

Earlier, in June, Myeongseong TNS lost a lawsuit regarding unpaid debts and interest claims related to the KOSDAQ listing advisory contract. The Listing Support Center signed a KOSDAQ listing advisory contract with Myeongseong TNS on November 25, 2016. In February last year, the Listing Support Center filed a lawsuit claiming Myeongseong TNS failed to pay the debt. The court ruled that Myeongseong TNS must pay 422 million KRW plus interest calculated at 5% per annum from September 21, 2018, to February 11, 2019; 15% per annum from the next day to May 31, 2019; and 12% per annum from the following day until full repayment. Myeongseong TNS filed an appeal on June 29 and in October, the appellate court decided to refer the case to mediation. On the 6th, during the mediation process, Myeongseong TNS agreed to pay 300 million KRW.