This article was published on Jan. 21, 2025, at 9:44 a.m. on the ChosunBiz MoneyMove site.
DAEJIN ADVANCED MATERIALS, a company specializing in secondary battery materials, is understood to have significantly lowered its expectations for its initial public offering (IPO) valuation. Last year, it was valued at nearly 240 billion won, yet it raised less than 200 billion won in market capitalization post-listing.
Concerns over a slowdown in the battery industry's growth seem to have made entering the stock market the top priority. However, with public stock investment sentiment struggling to rebound and the financial investors (FIs) holding a significant amount of equity, optimism for a successful demand forecast is hard to find.
According to the financial investment industry on the 21st, DAEJIN ADVANCED MATERIALS has scheduled its demand forecast for institutional investors between Feb. 11 and 17. Although there was a plan to start the demand forecast on the 22nd, the company postponed the schedule after submitting a corrected securities registration statement the day before to its underwriter, Mirae Asset Securities.
With the 27th designated as a temporary holiday, concerns arose that the demand forecast schedule starting on the 22nd would be extended to Feb. 3. DAEJIN ADVANCED MATERIALS plans to proceed with subscriptions for individual investors starting Feb. 20, just three days after the end of the demand forecast. If things go as planned, the company aims to be listed within February or by early March at the latest.
DAEJIN ADVANCED MATERIALS was established in January 2019 as a manufacturer of anti-static components essential for preventing battery cell fires. Notably, in 2021, the company achieved rapid growth by entering North America alongside LG Energy Solution. In 2023, the revenue reached 64.6 billion won, which is nine times that of its first year.
The company aims to achieve another round of growth by investing the funds raised from the IPO in expanding its U.S. factory. A total of 3 million shares will be offered at a price range between 10,900 won and 13,000 won, aiming to raise up to 39 billion won in new capital. More than 93% of this will be allocated for the expansion of the U.S. factory.
A notable aspect is the valuation. Based on the upper range of the hoped-for offer price (13,000 won), a post-listing market capitalization of 192.3 billion won was suggested. Considering that the valuation when DAEJIN ADVANCED MATERIALS issued convertible bonds last April was around 240 billion won, this represents a downward adjustment.
According to the securities registration statement, the company derived a valuation of 316.9 billion won by applying a multiple of 31.54 times the estimated annual earnings before interest, taxes, depreciation, and amortization (EBITDA) of 10.3 billion won to comparable companies. However, a subsequent discount rate exceeding 32.29% was applied.
At the lower end of the hoped-for offer price range, the valuation is assessed at 161.3 billion won, with a discount rate of 43.23% applied compared to the estimated market capitalization. This represents a 10 percentage point adjustment from both the upper and lower levels compared to the average discount rates of newly listed general corporations on the KOSDAQ market in the last year (33.79% to 21.52%).
A source in the securities industry noted, 'It seems that DAEJIN ADVANCED MATERIALS has lowered its valuation somewhat but prioritized establishing a growth foundation based on the funds raised post-listing.' They added that the company appears to be pushing for expansion of its facilities in Tennessee and Georgia to broaden its client base.
However, there are questions surrounding the success of the demand forecast. A slowdown in the growth of the battery industry due to electric vehicle market challenges continues. Even for DAEJIN ADVANCED MATERIALS, the revenue growth rate, which exceeded 107% in 2021, has reduced to the 20% range by 2023. During the same period, the operating profit margin fell from 12.39% to 1.53%.
Against the backdrop of sharply declining sentiment for public stock investments entering the fourth quarter of last year, there are significant concerns about the overhang (massive share release) post-listing of DAEJIN ADVANCED MATERIALS as the equity held by FIs has exceeded 49%.
In looking at the current status of DAEJIN ADVANCED MATERIALS' tradable stocks, over 80% of the shares held by FIs will be released around the one-month mark post-listing. There are even concerns that depending on which entity acquires these nearly 50% equity stakes, changes in management rights could occur.
The underwriter is also concerned about this issue. In the securities registration statement, the underwriter stated, 'It is assessed that a proper level of equity has been secured to maintain management rights.' After the listing, CEO Yoo Seong-jun holds 3,901,244 shares, representing an equity stake of 26.37%.