[IPO Spotlight] Taerim Paper Pursues Market-Friendly Listing

Applying Conservative Valuation in Appropriate IPO Price Setting
75% of Major Shareholder's Stake Locked for One Year

[Asia Economy Reporter Park Hyungsoo] Taelim Paper is pursuing a listing on the KOSPI market. The lead underwriters and Taelim Paper have presented a market-friendly price range for the public offering and are expecting strong subscription demand.

According to the Financial Supervisory Service's electronic disclosure system on the 21st, Taelim Paper will offer 8,104,000 shares including existing shares for sale. The proposed price range is 19,000 to 22,000 KRW per share. The total public offering size amounts to at least 154 billion KRW. Demand forecasting will be conducted from the 9th to the 10th of next month, and the public offering price will be finalized. The lead underwriters are Shinhan Financial Investment and Hana Financial Investment.

Founded in 1986, Taelim Paper produces all types of paper used in corrugated boxes, including surface paper, corrugating medium, and back paper. It maintains the number one market share by securing major production bases nationwide and the largest production capacity in Korea.

Taelim Paper has vertically integrated its supply chain from corrugated base paper to cardboard and boxes, establishing stable sales channels. Taelim Packaging, the number one domestic packaging company by market share, is also an affiliate of Taelim Paper.

On a consolidated basis, Taelim Paper recorded sales of 888.9 billion KRW and operating profit of 117.2 billion KRW last year, representing increases of 19.6% and 58.8% respectively compared to the previous year.

To determine the appropriate public offering price for Taelim Paper, Asia Paper, Daeyoung Packaging, and Sambo Paper were selected as comparable companies. Shindaeyang Paper and Youngpoong Paper were excluded from the comparison. Shindaeyang Paper was excluded considering the fire incident at its subsidiary Daeyang Paper Industry’s factory in 2020. Youngpoong Paper was excluded because its largest shareholder is pursuing a stake sale.

Based on last year’s performance, the price-to-earnings ratios (PER) of Asia Paper and Sambo Paper were 4.35 and 4.19 times, respectively. Daeyoung Packaging’s PER was 24.75 times, which is higher than the other two companies. Market capitalization ranks as Asia Paper (400 billion KRW), Daeyoung Packaging (260 billion KRW), and Sambo Paper (220 billion KRW). The average PER of the three companies is 11.1 times, with Daeyoung Packaging pulling up the average. The lead underwriters applied a discount rate of 23.69% to 11.65% to the benchmark PER of 11.1 times, calculating the public offering price range at 19,000 to 22,000 KRW.

The PERs of the excluded companies Shindaeyang Paper and Youngpoong Paper are 9.29 and 37.21 times, respectively. If these two companies were included, the average PER would be 15.96 times. Considering that existing shareholders’ sales account for 40% of the total public offering volume, a conservative approach was taken in setting the public offering price.

Seah Sangyeok, the largest shareholder of Taelim Paper, holds 100% (27,552,687 shares) of the shares before the IPO. Among these, 3,242,000 shares are included in the public offering. After listing, Seah Sangyeok’s shareholding ratio will decrease to 75%. Seah Sangyeok has extended the lock-up period to one year after listing, whereas the regulation requires a minimum lock-up period of six months for the largest shareholder.

Go Jae-woong, CEO of Taelim Paper, said, "We have prepared for the listing from a market-friendly perspective," adding, "Through a successful IPO, we will share growth results with investors and establish ourselves as a company leading ESG management trends."

The corrugated base paper industry grew rapidly over the past two years due to the impact of COVID-19. According to the Korea Paper Association, the corrugated base paper industry grew at an average annual rate of 3.4% in production volume from 2017 to 2021. The average annual growth rate over the recent two years from 2019 to 2021 reached 6.16%. This growth was influenced by the increase in single-person households and the expansion of e-commerce and parcel delivery markets during the COVID-19 pandemic. With growing environmental awareness, corrugated paper is also being seen as a substitute for plastic packaging materials, so demand is expected to continue increasing for the time being.

However, intensifying competition is considered a risk factor. As demand for corrugated paper increased, corrugated base paper manufacturers expanded production, and some newsprint manufacturers have started producing corrugated paper. This has led to an increase in the supply of corrugated base paper.