[Reporter Reading Securities Registration] IPO Retaker Dongbang Medical, Can It Overcome the Impeachment Crisis Chill?

Reattempt After Withdrawing Application Last Month
Uncertainty 'Burden' Amid IPO Slump and Impeachment Turmoil

Dongbang Medical, a company specializing in traditional Korean medicine and beauty medical devices, has submitted a securities registration statement and entered the initial public offering (IPO) process. Dongbang Medical previously submitted a securities registration statement in September this year but withdrew its listing last month due to poor results in demand forecasting. This is their second attempt. The problem is that the current market conditions are unfavorable. The IPO market continues to be sluggish, and with the impeachment political turmoil, volatility in the KOSDAQ has also increased.

Dongbang Medical was established in 1985. It operates businesses manufacturing traditional Korean medical devices and beauty medical devices. The business segments are broadly divided into traditional Korean medical devices and cosmetic plastic surgery medical devices. In the traditional Korean medical device sector, the company offers products such as traditional acupuncture needles and cupping cups. The beauty medical devices include fillers, absorbable sutures, and various special needles.

The company's performance has been growing annually. On a consolidated basis, sales increased from 81.4 billion KRW in 2022 to 90.9 billion KRW last year. Operating profit during the same period rose from 6.1 billion KRW to 16.5 billion KRW. The cumulative sales and operating profit for the first three quarters of this year are 77 billion KRW and 12.2 billion KRW, respectively. Compared to the same period last year, sales increased by 12.99%, while operating profit decreased by 1.40%.

This is Dongbang Medical's second attempt at going public. They submitted a securities registration statement in September this year but withdrew it last month. In the withdrawal report, the company explained, "We conducted a demand forecast to finalize the public offering price through a public offering of common shares, but considering various conditions, including difficulties in properly evaluating the company's value, we decided to withdraw."

The desired public offering price range remains the same as before, between 9,000 KRW and 10,500 KRW. However, this time, the number of new shares to be issued has been reduced from 3,401,029 shares to 3 million shares. The expected proceeds from the offering are estimated to be between 27 billion KRW and 31.5 billion KRW.

The public offering price was determined using the enterprise value to EBITDA (EV/EBITDA) ratio. EV/EBITDA is mainly used to value manufacturing companies with large-scale facilities. For reference, Dongbang Medical currently has local subsidiaries and production facilities in South Korea, China, and Indonesia.

The lead underwriter, NH Investment & Securities, used companies such as BioPlus, Humedix, Jetema, Korea BNC, and Medytox as comparables when calculating Dongbang Medical's offering price. Their EV/EBITDA on an annualized basis for the third quarter is 17.58 times. Applying this, Dongbang Medical's per-share valuation is 17,152 KRW. A discount rate of 40.63% to 49.11% was then applied to arrive at the desired public offering price.

Based on the lower end of the desired public offering price, Dongbang Medical is expected to raise 27 billion KRW. Of the funds raised, 11.5 billion KRW will be used to acquire securities of other companies. Specifically, 5.9 billion KRW will be allocated to the Indonesian production base, 'PT Dongbang Medical Indonesia.' Additionally, 5.6 billion KRW will be spent on a joint venture in Brazil. Furthermore, 9.4 billion KRW will be used to repay borrowings, and 4.7 billion KRW will be invested in facilities at the Yongin factory. Along with this, 1.1 billion KRW will be used as operating funds for procuring raw materials and supplies.

However, a concern is that the atmosphere in the public offering market this year is not favorable. The myth of guaranteed profits from IPOs has disappeared, and newly listed stocks have been experiencing poor stock performance. In particular, as IPOs continue to underperform, the number of companies withdrawing or canceling their listings is increasing. According to the Korea Exchange, from January this year until the day before yesterday, a total of 29 companies (including SPACs) have withdrawn their listings or canceled their public offerings. This is a significant increase compared to 17 companies during the same period last year.

Moreover, the stock market's entry into the impeachment political turmoil has increased uncertainty, which is also a burden. The KOSDAQ has been declining for six consecutive months on a monthly basis from July this year to this month. Especially, with the impeachment turmoil, the KOSDAQ recorded 627.01 on the 9th of this month, a 7.55% drop compared to the end of last month.