[Company Insight] BioNote, Owner Family's Large-scale Gains Thanks to Diagnostic Kits

Rapid Growth in COVID-19 Test Kit Semi-Finished Products
Second Generation Secures Large Funds Through Affiliate Support
Chairman Also Gains Indirect Profit from FI Existing Share Sales

[Asia Economy Reporter Jang Hyowon] BioNote, the second largest shareholder and holding company of SD Biosensor, a COVID-19 diagnostic kit manufacturer, has postponed its listing schedule by one month and will reattempt listing in December. This is interpreted as a strategy to raise the corporate value (offering price) by reflecting strong third-quarter performance. During the rapid growth phase by selling semi-finished diagnostic kits, the second-generation owners made significant profits through affiliates, and if the listing succeeds this time, the owner family including the second generation will be able to gain substantial listing profits.

Rapid Growth through Diagnostic Kits... Second Generation Also Raised Large Funds through Affiliates

BioNote is a company engaged in in vitro diagnostic medical devices for humans, known as BioContents, and animal diagnostic business. In the BioContents sector, it mainly manufactures semi-finished COVID-19 diagnostic kits and supplies them to its affiliate SD Biosensor. It also developed the COVID-19 antigen and antibody rapid diagnostic test kit NowCheck, which is sold in Europe, South America, Australia, and other regions. The animal diagnostic business sells diagnostic products for companion animals and industrial animals.

Performance significantly increased starting from 2020, when COVID-19 became widespread. Consolidated sales, which were 40 billion KRW in 2019, surged to 631.5 billion KRW in 2020. Last year, sales were 622.4 billion KRW, and in the first half of this year, 394.3 billion KRW. Sales were boosted by selling semi-finished rapid antigen diagnostic kits to affiliate SD Biosensor. Semi-finished product sales jumped from 5 billion KRW in 2019 to 575.2 billion KRW in 2020. The sales proportion to SD Biosensor increased from 19.6% in 2019 to 92.3% in 2020, and has maintained the 80% range last year and this year.

The BioContents division is led by Director Cho Yonggi, son of Chairman Cho Youngsik. Director Cho joined BioNote in 2016 and was promoted to Director of BioContents S&M Headquarters last March. He holds 1.6 million shares (1.71%) of BioNote. The largest shareholder of BioNote is Chairman Cho, holding 54.2%, and special related parties including eldest daughter Cho Hyeim, Executive Director of SD Biosensor, the chairman’s spouse, son-in-law, and relatives hold a total of 19.46%.

The second generation, Director Cho and Executive Director Cho, earned large sums through the affiliate 'iLab.' Since 2015, BioNote has purchased key raw materials such as antigens and antibodies from iLab. iLab’s net profit margin reaches 80%, meaning most of its sales remain as profit. The shareholders of iLab are Executive Director Cho with 50% and Director Cho with 49%. Ahead of the listing, in January, BioNote acquired all key assets of iLab and then liquidated iLab. The cash accumulated in iLab from BioNote became the property of Executive Director Cho and Director Cho during the liquidation process.

Chairman Holding FI Shares Also Gains Indirect Profit from Selling Existing Shares

BioNote calculated the offering price by applying the average price-to-earnings ratio (PER) of comparable companies by business division to net profit. The corporate value calculated by BioNote itself is 3.282 trillion KRW. Dividing this by the total number of shares and applying a discount rate of 29.8% to 42.6%, the expected offering price was estimated at 18,000 to 22,000 KRW.

For the animal diagnostics sector, which BioNote considers a future growth business, comparable companies selected include Jungang Vaccine, EagleVet, U.S. Zoetis Inc, and IDEXX Laboratories, Inc. Their average PER is 25.41 times. Domestic companies Jungang Vaccine and EagleVet have PERs around 13 times, while Zoetis and IDEXX show PERs of 31 to 43 times, raising the average. Applying the annualized net profit of 23.4 billion KRW for animal diagnostics, the value was calculated at 593.6 billion KRW.

The main business, BioContents division, which accounts for most sales, has comparable companies such as Seegene, Boditech Med, LabGenomics, and U.S. QuidelOrtho Corporation, with an average PER of 4.69 times. Applying the annualized net profit of 286.6 billion KRW for BioNote up to the first half of this year, the BioContents division value was calculated at 2.6884 trillion KRW. Simply put, if the BioContents division does not generate 143.3 billion KRW net profit in the third quarter this year, the value could decline.

If the offering price decreases, financial investors (FIs) holding existing shares may see reduced proceeds from selling existing shares. Existing shareholders include SEMA-InterVest BioHealthcare Specialized Investment Association (941,000 shares), InterVest 4th Industrial Revolution Investment Association II (901,600 shares), and Brick-Orbit 6th New Technology Business Investment Association (757,300 shares). After selling existing shares, they will still hold 5,867,412 shares (5.64%), 5,622,496 shares (5.41%), and 4,722,940 shares (4.54%), respectively. SEMA-InterVest invested 10 billion KRW in 2017, and InterVest 4th and Brick-Orbit invested 20 billion KRW and 16.8 billion KRW respectively in 2019. Through this existing share sale, they are expected to recover 16.9 billion KRW, 16.2 billion KRW, and 13.6 billion KRW based on the lower end of the expected offering price.

When FIs sell existing shares, Chairman Cho Youngsik is also expected to earn profits. SDV Investment, wholly owned by Chairman Cho, holds 9.72% and 3.15% stakes in SEMA-InterVest and InterVest 4th funds, respectively. Thus, Chairman Cho indirectly participates in the existing share sale.