[IPO Spotlight] 4by4, Determining the Offering Price Between PSR and PER

Selected Comparable Companies Including Listed Giantstep Last Year
Base Price Calculated Applying Average PSR of 12.4x

[Asia Economy Reporter Hyungsoo Park] As the ultra-high-definition immersive content production specialist company Poby4po is actively pursuing a listing on the KOSDAQ market, the method used to determine the public offering price has attracted attention. The lead underwriter, Mirae Asset Securities, applied a relative valuation model to present the desired price range for Poby4po's public offering. Both the Price-to-Sales Ratio (PSR) and Price-to-Earnings Ratio (PER) were utilized as indicators.

According to the securities registration statement submitted by Poby4po to the Financial Services Commission on the 24th, the desired public offering price range was set at 11,000 to 14,000 KRW.

Founded in 2017, Poby4po is a company producing ultra-high-definition video content centered on its self-developed image quality enhancement solution, PIXELL. PIXELL uses artificial intelligence (AI) to deep-learn the image quality enhancement process, enabling the improvement of existing videos to ultra-high-definition quality. Through deep learning, the performance of the image quality enhancement process is advanced, increasing the efficiency of what was previously a labor-intensive task.

Poby4po produces various immersive contents utilizing PIXELL technology. It has secured numerous clients including LG Display and Samsung Electronics, and recently has expanded its business into diverse fields such as entertainment and gaming content. Last year, it recorded operating revenue of 22.3 billion KRW and operating profit of 4 billion KRW.

Mirae Asset Securities selected nine comparable companies for determining the public offering price: Giant Step, Corpus Korea, Anyplus, Samhwa Networks, Pan Entertainment, Chorokbaem Media, Ace Story, Dexter Studio, and Wysiwyg Studios. Additionally, Shutterstock, the world's largest commercial image-focused e-commerce company, was included as an overseas comparable company.

The appropriate value of Poby4po was calculated based on the average PSR of these ten companies. PSR indicates how many times the stock price is relative to the sales per share (SPS). It is generally used as an auxiliary indicator when similar companies are operating at a loss. Early-stage platform companies or industries in rapid growth phases often do not generate profits, so the PSR method is used to estimate appropriate value. Companies like Coupang and K Car have applied the PSR method.

Mirae Asset Securities explained that market participants strive to expand market share in response to paradigm shifts within the industry. In transitional industries, the size of a company's revenue is considered an important factor affecting future growth potential and profitability. They stated that the PSR evaluation method was applied based on paradigm changes within the VFX content production industry.

The average PSR of the nine domestic comparable companies is 12.4 times. Applying this, Poby4po's per-share value was calculated at 24,991 KRW. Among the ten companies, four exceeded the average PSR: Giant Step (32.6 times), Samhwa Networks (26.3 times), Dexter Studio (19.4 times), and Wysiwyg Studios (17.0 times).

To appropriately use PSR as an investment indicator, the return on sales (ROS) among comparable companies should be similar. However, in reality, each company’s ROS differs. Simply comparing stock prices relative to sales without considering profitability can provide distorted information.

When applying the PSR method based on the trailing twelve months’ results as of Q3 2021, discrepancies with full-year actual results occurred. Considering Samhwa Networks recorded cumulative sales of 4.9 billion KRW by Q3 last year, the trailing twelve months’ sales were reflected as 6.9 billion KRW. Samhwa Networks achieved sales of 32.5 billion KRW last year. As sales increased, Samhwa Networks’ PSR dropped from 26.3 times to 5.6 times.

Mirae Asset Securities also applied the PER evaluation method, seemingly to complement the limitations of the PSR method. Since companies with net losses cannot be compared using PER, the average PER of five companies?Corpus Korea, Anyplus, Pan Entertainment, Ace Story, and Shutterstock?was calculated. Based on an average PER of 26.9 times, Poby4po’s per-share value was 9,194 KRW. The desired public offering price range was set by applying a discount rate of 18.5% to 36.0% to the average value of 17,092 KRW, which was derived from the average of PSR and PER-based valuations.

The PSR and PER comparable companies differ, yet a simple average was taken. The PSR method may appear more favorable than PER for determining the public offering price. Giant Step, which significantly influenced the upper limit of Poby4po’s desired public offering price range, adopted the PER method when it went public last year.