[Reporter Reading Securities Report] Samyang NChem, Using IPO Funds to Repay Borrowings

Semiconductor Photoresist Material Specialist Company
Expected IPO Price 16,000~18,000 KRW
"All Raised Funds to Repay Borrowings"

Samyang NChem, a semiconductor photoresist (PR) material specialist company, has submitted a securities registration statement and is officially proceeding with the public offering process. Through this KOSDAQ listing, the company plans to raise 17.6 billion to 19.8 billion KRW, all of which will be used to repay borrowings.

According to the financial investment industry on the 21st, Samyang NChem was established in 2008 under the name 'NChem.' It was the first in Korea to domestically produce core materials for PR. The company develops and manufactures polymers and photoacid generators (PAG), which are key components of PR.

For reference, PR is a photosensitive material that reacts to light and plays a role in forming fine circuits on wafers during semiconductor processing. The company has built a diverse material portfolio tailored to different light sources, including polymers and PAGs, which are the main components of PR.

Samyang NChem's desired public offering price ranges from 16,000 to 18,000 KRW per share. The valuation method used to determine the offering price was the enterprise value to EBITDA (EV/EBITDA) ratio. EV/EBITDA is primarily used to value manufacturing companies with large-scale facilities. In capital-intensive industries, significant depreciation expenses occur, so measuring value based on operating profit before depreciation and amortization (EBITDA) is considered a reasonable approach.

The lead underwriter, KB Securities, selected comparable companies including Miwon Commercial, Lake Materials, Japan's Toyo Gosei, and Osaka Organic Chemical Industry. The EV/EBITDA multiples calculated by annualizing their cumulative results up to the third quarter of this year averaged 15.3 times. Lake Materials had 33.9 times, Toyo Gosei 10.3 times, Miwon Commercial 9.1 times, and Osaka Organic Chemical Industry 7.8 times.

Samyang NChem's cumulative sales and operating profit for the first three quarters of this year were 81.6 billion KRW and 8 billion KRW, respectively. Compared to the same period last year, sales increased by 6.08% and operating profit by 36.2%. The company's cumulative EBITDA for the first three quarters was 12.09 billion KRW, and the applied EBITDA was 16.121 billion KRW.

Based on this, the per-share valuation was calculated at 21,884 KRW. Applying a discount rate of 17.7% to 26.9%, the desired public offering price was determined. For reference, the average discount rate for newly listed KOSDAQ companies over the past year ranged from 22.04% to 33.46%. The company explained in the securities registration statement that "the discount rate is lower than the average discount rate of companies newly listed on the KOSDAQ market since last year" and that "it comprehensively considered financial indicators including financial stability and profitability compared to existing listed companies and the characteristics of the industry it belongs to."

Based on the lower end of the desired public offering price, Samyang NChem plans to raise 17.6 billion KRW. However, the company intends to use all the raised funds to repay borrowings. This decision might be somewhat disappointing from an investor's perspective, as it prioritizes financial safety over investment.

As of the third quarter of this year, Samyang NChem's debt ratio was 57.73%, and its borrowing dependency was 27.10%. Last year, the industry average debt ratio and borrowing dependency were 77.76% and 25.68%, respectively. The company's debt ratio is lower than the industry average. Although borrowing dependency is slightly higher, it is at a level that suggests a stable financial structure.

The company stated in the securities registration statement, "As of the third quarter of 2024, short-term borrowings amount to 18.7 billion KRW and long-term borrowings to 10.7 billion KRW, totaling 29.4 billion KRW, with short-term borrowings exceeding long-term borrowings." It added, "Through the new listing on the KOSDAQ market, we plan to repay short-term borrowings to improve the debt ratio and reduce interest expenses, thereby enhancing our financial structure." Furthermore, it explained, "There are no plans for large-scale facility investments in the short term," and "We continuously generate operating cash flow, and we believe there is sufficient capacity to execute facility investment plans with the cash flow generated."