[Funding] Why Organic T Cosmetic Can Have a Rights Offering Price Higher Than Its Stock Price

[Asia Economy Reporter Jang Hyowon] Organic T Cosmetic, a Chinese company specializing in infant and toddler cosmetics, conducted a paid-in capital increase at a price higher than the current stock price. Investors are analyzed to have invested based on the future growth potential of Organic T Cosmetic.

According to the Financial Supervisory Service's electronic disclosure on the 21st, 40 million new shares from a third-party allotment paid-in capital increase worth 20 billion KRW conducted by Organic T Cosmetic will be listed on the 3rd of next month. This corresponds to 30% of the shares issued before the capital increase.

The issue price of the new shares is 500 KRW. The reference stock price at the time of the paid-in capital increase decision was 341 KRW, which is a 46.67% premium. Considering that Organic T Cosmetic's recent stock price has been moving in the 230 KRW range, this means the capital increase was conducted at more than twice the price.

The recipients of the paid-in capital increase are Jinzheng Investment Co. PTE. LTD, the largest shareholder of Organic T Cosmetic, and Zhuohua Investment Holdings PTE. LTD, a Singapore-based private equity fund specializing in value investment and IPOs in the Asian region. They paid 11.5 billion KRW and 8.5 billion KRW respectively.

The reason they participated in the capital increase at a price higher than the current and reference stock prices is explained as a high evaluation of Organic T Cosmetic's growth potential. The company stated, "Considering the company's future prospects, we believe the current stock price is undervalued, and investors participated in the capital increase based on this judgment."

Organic T Cosmetic is a company primarily engaged in the sale of cosmetics, toiletries, and detergents for infants and toddlers in China. Its representative brand is ‘Tea Baby,’ which uses tea ingredients. Products are sold through about 88 agents in China at pharmacies and specialty stores for baby products.

According to market research firms, although the birth population in China is decreasing, the infant industry size is steadily growing. In particular, the ‘90hou’ generation, who grew up benefiting from China’s rapid growth, is entering childbearing age and emerging as the main consumer group, driving industry growth.

Accordingly, the market size for baby cosmetics is also expanding. As of 2020, it was 28.44 billion yuan (approximately 5.6 trillion KRW), an increase of about 10% compared to the previous year, and it is analyzed to have grown to 35.81 billion yuan (approximately 7 trillion KRW) in 2021. Recently, China has been encouraging childbirth through the ‘three-child policy,’ so the consumption market for baby cosmetics is expected to continue expanding in the future.

Additionally, the sneaker distribution business, which started this year, is also showing favorable results. Organic T Cosmetic announced that it received orders for sneaker products worth 189 million yuan (approximately 35.8 billion KRW) in January, and on the 13th, it re-announced that the order amount was changed to 229 million yuan (approximately 43.4 billion KRW), a 21% increase compared to the initial contract. The company is establishing a stable performance base through business diversification.

Meanwhile, of the 20 billion KRW raised through this third-party allotment paid-in capital increase, Organic T Cosmetic plans to use 4 billion KRW for operating funds and 16 billion KRW for acquiring other corporations.