Brief IPOs & Placements: Ecopro BM IPO: Valuation Analysis and more

In this briefing:

1. Ecopro BM IPO: Valuation Analysis

1. Ecopro BM IPO: Valuation Analysis

• The bookbuilding of the Ecopro BM Co Ltd (247540 KS) IPO starts on February 14th. Ecopro BM Co Ltd (247540 KS) specializes in making cathode active materials for rechargeable batteries that are used in EVs and electrical energy storage systems (ESS). Ecopro BM is the second largest global player after Sumitomo in the NCA high nickel-based cathode materials with market share of nearly 35%.
• Our base case valuation of the company suggests a market cap of 1.2 trillion won or implied price per share of 56,003 won, which is 31% higher than the high end of the IPO price range of 42,900 won. Therefore, we would take this deal. We used an estimated P/E of 25.3x (10% premium to the comps’ average of 23x) and an estimated net profit of 49.3 billion won in 2019 to derive our base case valuation. The high end of the valuation sensitivity analysis is 67,764 won, which would be 58% higher than the high end of the IPO price range of 42,900 won. 
• Ecopro BM has stronger sales growth and operating margins than its peers. However, its peers have stronger balance sheet with slightly higher returns on equity. We would give special points to the company’s stronger sales growth which is an indication of greater customer demand. Therefore, we think it is appropriate to provide a 10-20% premium valuation to Ecopro BM versus its peers based on the P/E analysis.