[IPO Spotlight] NanoCMS Preventing Currency Counterfeiting Also Targets Viruses

[Asia Economy Reporter Park So-yeon] Nano CMS, a functional new material specialized company based on nano platform, held an online press conference on the 22nd ahead of its initial public offering (IPO).

◇What kind of company is Nano CMS

Founded in April 2003 based on basic research related to nanomaterials to develop and produce application materials essential to domestic industries with proprietary technology, Nano CMS produces special organometallic functional materials for anti-counterfeiting using independently developed patented nano new material technology.

Targeting the ink and advanced anti-counterfeiting security material market within the security material market, Nano CMS possesses anti-counterfeiting and security material technologies such as near-infrared absorption/reflection pigments, ultraviolet organic fluorescent pigments, and infrared emitters for security technology applications.

The security material market has a high entry barrier requiring 5 to 10 years for technology development and patent registration. Especially, national security materials are continuously used for 10 to 15 years after adoption, enabling stable growth.

Recognized for its technological prowess through patented new material technology based on nanomaterials, Nano CMS is currently expanding its sales market from the Korean Mint’s security material adoption in the banking sector to Europe, North America, and the Middle East.

Besides the banking sector, it has also entered markets such as passports and identification cards, and recently accelerated overseas market entry by expanding into the Asian market. It is also conducting R&D and commercialization in new industries such as IoT-based smart anti-counterfeiting technology development, infrared absorption filter material development, and virus-eliminating UV lamp development.

The global security material market targeted by Nano CMS, specifically the ink and advanced anti-counterfeiting security material market, is expected to grow annually by 4.5% to 4.7%, from $3.6214 billion in 2019 to $4.5454 billion in 2024.

Kim Si-seok, CEO of Nano CMS, said, "Nano new materials including advanced security materials are one of the core foundations of various industries. Through this IPO, we will introduce Nano CMS, which is recognized in the global advanced security material market, to many investors and use this as a cornerstone for expanding globally."

Nano CMS plans to offer a total of 800,000 shares (including employee stock ownership association) through this offering. The desired price range is KRW 14,500 to KRW 18,500. After confirming the offering price through demand forecasting for institutional investors on the 22nd and 23rd, subscription will be accepted on the 25th and 26th. It is scheduled to be listed on the KOSDAQ market on the 9th of next month, with Kiwoom Securities as the lead underwriter.

◇Technology Growth Special Case Company, Profitability is Key

Nano CMS received approval for preliminary listing examination by applying the technology growth special case among KOSDAQ listing requirements. Before requesting the preliminary listing examination, it received an A grade from a professional evaluation agency (NICE Information Service) for its core technology, "Development of anti-counterfeiting security pigments."

Its main business is developing and supplying nano functional new materials applied to security printing such as banknotes, passports, and driver’s licenses, but as of the submission date of the securities registration statement, it has not yet achieved visible financial results. The debt ratio has continuously increased due to accumulated deficits from net losses over the past three years and debt recognition of convertible redeemable preferred shares, but after the conversion of these preferred shares to common stock in the second half of 2020, the debt ratio decreased from 630.86% in 2019 to 94.34% in Q3 2020, showing a debt ratio similar to the industry average in 2019.

Nano CMS operates a business developing and supplying nano functional new materials, mainly supplying the national security market within the security printing market. Sales are generated from key products such as near-infrared absorption/reflection pigments, ultraviolet organic fluorescent pigments, and infrared emitters. Due to the nature of national security printing such as banknotes where security pigments are mainly applied, sales to the Korea Minting and Security Printing Corporation, a national institution, account for a high proportion. Sales to the Korea Minting and Security Printing Corporation accounted for 48.5% in 2017, 63.5% in 2018, 58.6% in 2019, and 79.4% as of Q3 2020, indicating a high concentration on a specific client.

Nano CMS recorded net losses of KRW 117 million in 2017, KRW 2.54 billion in 2018, and KRW 1.691 billion in 2019, but turned profitable with a net income of KRW 956 million as of Q3 2020. Profitability is expected to gradually improve through overseas expansion, product portfolio diversification, and entry into new businesses.

With an expected inflow of approximately KRW 11.6 billion from this offering, about KRW 9 billion will be used for facility investment. To expand production capacity of existing product lines and develop new products, production facilities in Cheonan Seobuk Industrial Complex will be relocated to Gongju Tancheon Industrial Complex for factory expansion and investment in production equipment.

◇Q&A with Nano CMS

Q. The company recorded losses for three years until 2019. Is there any momentum for shareholders to expect performance improvement?

-Sales mainly come from currency, passports, and resident registration cards. The Bank of Korea has announced that issuance of high-denomination bills above KRW 50,000 will increase, and since security materials are widely used in the KRW 50,000 bill, sales are expected to exceed the increase in currency issuance. In Southeast Asia, countries like India and Vietnam are evaluating our security materials very carefully and positively. Sales to the Mint are expected to increase by more than 100% this year, and from 2022 onwards, sales growth is expected to be led by India and Southeast Asia.

Q. The dependence on the Korea Minting and Security Printing Corporation is very strong. While it may be stable, it could also pose a risk due to recent changes in currency usage. Is there a countermeasure for this?

-In the national security sector, overseas exports are often only possible through the Mint. There are sales for actual use by the Mint and parts that are exported. Exports to Southeast Asia are also made through the Mint. Considering this, high sales to the Mint are not a risk.

Q. What is the future portfolio composition?

-It is based on nano materials of light and wavelength. Sales are generated by applying them to security materials, and R&D is being diligently conducted. Having a reference in the Korean banknote sector, the goal is to expand into Southeast Asia and further into Africa and North America. Once applied to banknotes, passports, and resident registration cards, it will be applied again when designs change or new currency reforms or new resident registration cards are issued. The lifecycle is 10 years. This year is a turning point. Existing imported products were not recognized for environmental friendliness, so Nano CMS is replacing and supplying them. Based on nano materials, it is progressing to apply to new optical industrial fields. After the Korea-Japan export dispute, we plan to localize dyes for smartphone infrared camera filters. Although sunglasses already contain UV blockers, they do not contain infrared blockers. Currently, ophthalmic diseases and infrared blocking are attracting attention as future industries. From the perspective of business diversification, future portfolios include electromagnetic wave shielding and medical applications related to displays, bio, and defense sectors. Preparations for listing include production capacity expansion to sufficiently meet security material supply demands in Europe, Asia, and other countries.