[IPO Spotlight] BioNote Faces Employee Concerns Amid Overvaluation Controversy

Market Cap of 1.8 Trillion KRW Based on Lower End of IPO Price Band
2.6 Million Shares Allocated to Employee Stock Ownership Association... Average 160 Million KRW per Employee
Increasing Loss Cases from Employee Stock Investment Raise Subscription Concerns

[Asia Economy Reporter Hyungsoo Park] BioNote, a company specializing in in vitro diagnostic medical devices, is pursuing an initial public offering (IPO) to list on the domestic KOSPI market. Amid criticisms of an overvaluation in the proposed public offering price range, employees who need to purchase employee stock ownership plans (ESOP) are facing growing concerns.

According to the Financial Supervisory Service's electronic disclosure system on the 25th, BioNote proposed a public offering price range of 18,000 to 22,000 KRW per share. The expected market capitalization ranges from 1.8712 trillion to 2.287 trillion KRW. NH Investment & Securities and Korea Investment & Securities are jointly serving as lead underwriters.

To determine an appropriate corporate valuation, the company divided its business into the animal diagnostics segment and the bio-content segment, selecting comparable companies for each. For the animal diagnostics segment, four comparable companies were selected: Jungang Vaccine, EagleVet, Zoetis Inc., and IDEXX Laboratories Inc. The average price-to-earnings ratio (PER) of the two domestic companies was only 13.38 times, whereas the average PER of overseas companies reached 37.45 times. Based on an average PER of 25.41 times for the four companies and applying the animal diagnostics segment's net profit of 23.4 billion KRW, the corporate value was estimated at 593.6 billion KRW.

For the bio-content segment, which sells in vitro diagnostic medical devices for human use, four comparable companies were identified: Seegene, Boditech Med, LabGenomics, and QuidelOrtho Corporation. Using an average PER of 4.69 times and a net profit of 573.2 billion KRW, the corporate value was calculated at 2.6883 trillion KRW.

Adding the values of the two business segments, BioNote's corporate value was estimated at 3.282 trillion KRW. Dividing by the total issued shares of 104.68 million shares, the per-share valuation was calculated at 31,354 KRW. Applying a discount rate of 29.83% to 42.59%, the proposed public offering price range was set at 18,000 to 22,000 KRW.

The financial investment industry is skeptical of the underperformance of COVID-19 diagnostic kit companies listed on the domestic stock market and the inclusion of secondary shares in the subscription, questioning the lead underwriters' calculations. BioNote's public offering consists of 13 million shares, including 10.4 million new shares and 2.6 million secondary shares. The secondary shares come from holdings by SEMA-InterVest Biohealth Specialized Investment Association, InterVest 4th Industrial Revolution Investment Association II, and Brick-Orbit 6th New Technology Business Investment Association, among others. Secondary share sales are generally less favored in the IPO market because the funds raised do not go directly to the issuing company for growth purposes.

Among the comparable companies in the bio-content segment, Seegene's stock price has fallen about 50% this year. The price, which was above 60,000 KRW at the end of last year, dropped to around 30,000 KRW. During the same period, Boditech Med and LabGenomics also saw their stock prices decline by 40% and 19%, respectively. Concerns that diagnostic kit companies' earnings peaked after the COVID-19 pandemic have led to a decline in related companies' stock prices.

As the controversy over the high valuation intensifies, whether the ESOP allocation is fully absorbed could affect the general subscription competition rate. The ESOP allocation is 2.6 million shares, worth approximately 46.8 billion KRW based on the lower end of the proposed price range. According to the securities registration statement, BioNote has 293 employees, meaning each could receive an average of 160 million KRW worth of shares. Given recent cases where employees of newly listed companies suffered losses after purchasing ESOP shares and the bleak economic outlook for next year, it is expected that the ESOP association may find it difficult to fully absorb the allocated shares.

BioNote has set plans to expand its animal diagnostics business segment into immunodiagnostics, molecular diagnostics, biochemical diagnostics, and continuous glucose monitoring markets to sustain continuous growth. The company aims to launch a variety of product lines to capture new markets and meet the demands of animal hospitals and research institutes. As a growth strategy for the bio-content segment, BioNote plans to maximize synergy with Meridian, acquired by SD Biosensor. Combining BioNote's core competencies with Meridian's strengths in molecular diagnostic raw materials, global brand sales, and FDA approval experience is expected to yield results in sales, products, and production.

If BioNote proceeds with the listing as planned, the value of shares held by Chairman Youngsik Cho, the largest shareholder, totaling 50.71 million shares, will be at least 912.8 billion KRW. Chairman Cho also holds 32.59 million shares of SD Biosensor, which was listed in July last year. The value of his listed shares alone approaches 2 trillion KRW.