[IPO Spotlight] Gaon Chips Calculates Fair Value by Comparing Sales 20 Times Larger Taiwanese Company

System Semiconductor Design Solution Company... 32.2 Billion KRW Revenue Last Year
Two Taiwanese Companies Selected for PER Comparison

[Asia Economy Reporter Hyungsoo Park] Gaonchips, a system semiconductor design solution company, is planning to list on the KOSDAQ market. By selecting Taiwanese companies as comparable firms to estimate the desired public offering price range, the undervaluation appeal of system semiconductor design solution companies in the domestic stock market is expected to increase.

According to the Financial Supervisory Service's electronic disclosure system on the 13th, Gaonchips will offer 2 million shares for public subscription to list on the KOSDAQ market. The expected offering price is 11,000 to 13,000 KRW per share, with a total public offering size of at least 22 billion KRW. Demand forecasting will be conducted for institutional investors from the 2nd to the 3rd of next month, and the offering price will be finalized. Daishin Securities is in charge of the listing underwriting.

Founded in 2012, Gaonchips is a system semiconductor design solution company. It provides comprehensive solutions ranging from semiconductor intellectual property (IP) sourcing to packaging design and off-chip PSI simulation. It plays a role in connecting foundry companies and fabless companies during the system semiconductor development process.

In system semiconductors, fabless companies design circuits, and design solution companies support design and pre- and post-production processes. The final system semiconductor is created through manufacturing by foundry companies.

Gaonchips is the only company in Korea that can simultaneously provide system-on-chip (SoC) circuit design, foundry design solutions, packaging design for system-level performance optimization, and off-chip PSI simulation solutions. The proportion of engineers among Gaonchips employees is 88%, ranking first in the industry. It has established technological capabilities to undertake ultra-fine high-end process projects below 8 to 5nm.

Gaonchips is a design solution partner of Samsung Foundry and ARM. Among the 12 Samsung Foundry design solution partners, it ranked first in business performance and prospects, technological capability, and design solution development, receiving the Best Design Partner Award. It was recognized for its technological prowess by winning the Best Design Partner award just one year after signing a partnership contract with ARM.

Last year, Gaonchips recorded sales of 32.2 billion KRW and operating profit of 6.2 billion KRW. Sales and operating profit increased by 88.5% and 214.2%, respectively, compared to the previous year. Sales are growing in sectors such as autonomous driving, artificial intelligence (AI), and the Internet of Things (IoT).

Daishin Securities, the lead underwriter, selected Taiwan's Alchip Technology and Global Unichip as comparable companies to estimate Gaonchips' appropriate corporate value, considering its technological capabilities and growth potential. In the domestic stock market, only one company, AD Technology, was selected as a comparable firm.

Alchip Technology, a Taiwanese listed company, provides semiconductor design services and intellectual property to Phytium and outsources semiconductor manufacturing to TSMC, the world's largest foundry company. It offers commissioned services for commercial ASIC design based on manufacturing at TSMC's cutting-edge 5nm extreme ultraviolet (EUV) line. Last year, it recorded sales of 427.6 billion KRW and operating profit of 75 billion KRW.

The largest shareholder of Global Unichip is TSMC. It provides comprehensive services to clients, including experience and knowledge (NRE) for in-house chip production as well as mass production through TSMC. Last year, it achieved sales of 619.4 billion KRW and operating profit of 68.6 billion KRW.

Applying last year's performance, the price-to-earnings ratios (PER) of Alchip Technology and Global Unichip were estimated at 49 times and 43 times, respectively. Considering that the PER of the domestic comparable company AD Technology is 16 times, the evaluation of system semiconductor design solution companies in the Taiwanese market can be seen as generous. The average PER of the three comparable companies was calculated at 36.4 times. Applying a discount rate of 32.9% to 43.2% to Gaonchips' per-share valuation of 19,379 KRW, the desired public offering price range was estimated at 11,000 to 13,000 KRW.

There are criticisms regarding the appropriateness of estimating the fair corporate value by comparing Gaonchips with Taiwanese companies that are 10 to 20 times larger in sales scale. The relatively high discount rate applied also appears to be a decision considering a higher weighting of overseas companies compared to domestic companies. In determining the PER multiple, factors such as dividend payout ratio, discount rate, and corporate growth rate, in addition to earnings per share, act in a complex manner. Even within the same industry, considering various factors such as net profit scale, cash generation ability, internal reserves ratio, and capital size, there are limitations to comparison based solely on PER.

However, some expect that this could serve as an opportunity to reconsider the high technological capabilities and future growth potential of system semiconductor design solution companies and the semiconductor industry, which are undervalued in the domestic stock market.