[IPO Spotlight] Nextchip Applies PER Valuation Method Despite Operating at a Loss

Three Consecutive Years of Net Losses Until Last Year... 9.8 Billion KRW Net Loss in Q1 2024
Applying 30% Annual Discount Rate to 2024 Net Income Estimates

[Asia Economy Reporter Hyungsoo Park] Nextchip, a developer of intelligent vehicle camera video processing recognition system semiconductors, is planning to list on the KOSDAQ market. Since its establishment in 2019, the company has continued to operate at a loss, making it difficult to determine an appropriate corporate value. The lead underwriter, Daishin Securities, presented a relative valuation using the price-earnings ratio (PER) method by converting the estimated net profit for 2024 into the net profit at the end of 2021.

According to the Financial Supervisory Service on the 26th, Nextchip proposed a public offering price range of 9,900 to 11,600 KRW. It plans to issue 2.6 million new shares to raise at least 25.7 billion KRW. The market capitalization after listing is expected to be between 172.1 billion and 201.7 billion KRW.

Nextchip was established in January 2019 through a physical division from NCN, a KOSDAQ-listed company. It has independently developed and owns technologies such as image signal processor (ISP) technology for automotive cameras and analog high-definition (AHD) technology that can transmit HD video in analog form.

Daishin Securities selected Above Semiconductor, MCNEX, Chips&Media, and Telechips as comparable companies. The average PER of these four companies was calculated at 24.55 times based on last year's net profit. Unlike these four companies, which achieved profitability last year, Nextchip recorded sales of 24.5 billion KRW, an operating loss of 13.5 billion KRW, and a net loss of 21.6 billion KRW last year. Since direct comparison is difficult, the present value of the estimated net profit for 2024 was applied.

Daishin Securities explained that considering financial risks and the feasibility of expected sales, Nextchip's estimated net profit for 2024 was converted into the net profit of 2021. Based on a 30.0% annual discount rate, the applied net profit was set at 12.8 billion KRW. Dividing this by the total number of shares issued after listing, the earnings per share were calculated at 699.9 KRW. Applying the average PER of 24.55 times from comparable companies, the per-share valuation is 17,181 KRW. Based on this valuation, a discount rate of 32.5% to 42.4% was applied to propose the public offering price range.

According to the estimated income statement for Nextchip presented by the underwriter, sales for this year are expected to be 32 billion KRW, operating loss 10.9 billion KRW, and net loss 18.9 billion KRW. In the first quarter of this year, Nextchip recorded sales of 2.8 billion KRW, operating loss of 9.8 billion KRW, and net loss of 9.8 billion KRW. Even considering possible quarterly sales fluctuations, if sales do not increase significantly from the second quarter onward, the basis for the estimates could be undermined.

The company explained that the 36.4% decrease in first-quarter sales compared to the same period last year was due to reduced factory operating rates caused by China's zero-COVID policy and the traditional off-season in the automotive industry. Chips&Media and Telechips showed improved performance in the first quarter compared to the same period last year.

For 2024, the company expects to achieve sales of 127.6 billion KRW, operating profit of 35.9 billion KRW, and net profit of 28.2 billion KRW. The main products include ▲ vehicle ISP for high-definition video processing ▲ AHD for analog transmission of HD to UHD high-resolution video ▲ system-on-chip (SoC) for video recognition essential for ADAS and autonomous vehicles.

With the rapid growth of the autonomous vehicle market, electric vehicle market, and vehicle non-memory semiconductor market, demand for Telechips products is expected to increase rapidly. Sales are anticipated to grow domestically as well as in the United States, China, and Japan.

However, uncertainties such as the success of new businesses exist, and the market share and usage rates applied in market and sales estimates reflect Nextchip's business plan targets. There may be criticisms of overvaluation regarding the proposed public offering price range.

The proceeds from the public offering will be focused on developing semiconductor products for vehicle camera video signal processing (ISP), video transmission (AHD), and video recognition (ADAS SoC). Of the 25.3 billion KRW, 20 billion KRW will be used for research and development funds, and the remaining 5.3 billion KRW for operating funds. Demand forecasting for institutional investors will be conducted over two days from the 16th to 17th of next month, and the final public offering price will be confirmed. General subscription will be accepted from the 21st to 22nd. Listing is scheduled for July.