Health Functional Food Company Plans to Raise 51.3 Billion Won Through IPO
Selected Comparable Companies Include HPO, Novarex, Nutri
HPO's May Listing Falls Below IPO Price
[Asia Economy Reporter Hyungsoo Park] Health functional food company FromBio is using the funds raised through its initial public offering (IPO) to build a new headquarters and expand its factory. The need to expand production facilities has increased as sales have rapidly grown.
According to the Financial Supervisory Service on the 3rd, FromBio will open subscription for public offering shares for listing on the KOSDAQ market over two days starting from the 14th of next month. A total of 3 million shares will be offered to institutional and general investors, consisting of 2.45 million new shares and 550,000 existing shares. The expected price range for the public offering is 21,500 to 24,500 KRW per share. Based on the lower end of the expected price, FromBio will raise approximately 51.3 billion KRW.
FromBio sells products such as ‘Boswellia for Joint Cartilage’ and ‘Mastic for Stomach Health.’ Sales increased from 43 billion KRW in 2018 to 108 billion KRW last year, with a compound annual growth rate (CAGR) of 58.5%. In the first half of this year, sales reached 77.7 billion KRW and operating profit was 14.9 billion KRW. Sales increased by 46.4% compared to the same period last year. The operating profit margin was 19.2%. The sales proportions of Boswellia and Mastic products accounted for 61% and 23% of total sales, respectively.
FromBio has also increased employee recruitment in line with sales growth. The number of employees has exceeded the capacity of the currently leased office space. Of the funds raised through the public offering, 21 billion KRW will be invested in constructing a new headquarters building with a total floor area of 8,500㎡ and eight above-ground floors. An additional 12.2 billion KRW will be invested to expand production, improve production efficiency, and enhance logistics system efficiency.
Research and development efforts are being strengthened to diversify the sales structure, which is concentrated on major products. Last year, new products ‘Lactium for Sleep Health’ and ‘Bilberry for Eye Health’ were launched. Sales of these two products exceeded 7 billion KRW in the first half of this year.
FromBio’s Food Research Institute is currently conducting research and development for the recognition of nine individual functional ingredients. It plans to invest 3.4 billion KRW of the public offering funds over the next five years.
NH Investment & Securities, the lead underwriter for FromBio’s listing, selected seven companies as final comparables: HPIO, Novarex, Nutri, Farmsville, HL Science, Cell Biotech, and Kolmar BNH. As of the first half of this year, the average price-to-earnings ratio (PER) of these seven companies was 17 times. Applying a discount rate of 13.90% to 24.44% to FromBio’s per-share valuation of 28,454 KRW, the expected public offering price range was set at 21,500 to 24,500 KRW.
Among the comparable companies, HPIO has similar sales and profit scales to FromBio. In the first half of this year, FromBio and HPIO achieved net profits of 12.2 billion KRW and 11.6 billion KRW, respectively. When HPIO was listed on May 14, it used Cosmax BTI and Cell Biotech as comparable companies, applying an average PER of 31.9 times and a discount rate of 16.05% to 26.63%. After conducting demand forecasting targeting institutional investors, the public offering price was finalized at the lower end of the expected range, 22,200 KRW. Currently, HPIO’s stock price is around 17,000 KRW, lower than the public offering price. Its market capitalization is 339 billion KRW, similar to FromBio’s expected market capitalization.
Researcher Chansol Park of SK Securities analyzed, “The PER of the public offering price band based on this year’s performance is 12.1 to 13.8 times, which seems to be a reasonable valuation,” but added, “Attention is needed regarding the 43.6% proportion of freely tradable shares after listing.”
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