Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Nearly 30 years of experience in the Korean/Asian equity research. Major sectors coverage include the following:
- Technology 
- Consumer 
- Special Situations/Deep Value Plays
- Tender Offers/M&As
- Holdcos/Stubs
- Asian Unicorns/Private Companies

Korea/Asia, Events, IPOs

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Equity Capital Markets

We have chosen to use EV/EBIT to value BrandX Corp mainly because this negates the differences in the capital structure of the different companies. Echo Marketing is currently trading at 14.7x EV/EBIT using 2020 EBIT estimates. We have applied a 20% premium valuation multiple on BrandX Corp (17.6x EV/EBIT 2020E), mainly due to much higher sales growth and returns on equity as compared to Echo Marketing.Applying a 17.6x EV/EBIT multiple to our estimated EBIT of 18.5 billion won in 2020 results in an EV of 327 billion won and an implied market cap of 363 billion won. This results in an implied price of 17,912 won, which is 29% above the mid-point of the IPO range (12,400 won to 15,300 won). Given the solid upside, we have a positive view of this IPO and we would take this deal. As we mentioned in our previous note, <a href="https://www.smartkarma.com/insights/brandx-corporation-ipo-preview" target="_blank" data-smartkarma-citation="insights:41084" rel="noopener">BrandX Corporation IPO Preview</a>,  a key risk that the company faces is whether it can become more than a "one-hit-wonder." The company's most successful brand Xexymix has been the major driver of its sales and profits in the past two years and for now, it is uncertain whether it can continue its success in other products such as cosmetics, men's apparel, and HMR F&amp;B product categories.

We have chosen to use EV/EBIT to value BrandX Corp mainly because this negates the differences in the capital structure of the different companies. Echo Marketing is currently trading at 14.7x EV/EBIT using 2020 EBIT estimates. We have applied a 20% premium valuation multiple on BrandX Corp (17.6x EV/EBIT 2020E), mainly due to much higher sales growth and returns on equity as compared to Echo Marketing.Applying a 17.6x EV/EBIT multiple to our estimated EBIT of 18.5 billion won in 2020 results in an EV of 327 billion won and an implied market cap of 363 billion won. This results in an implied price of 17,912 won, which is 29% above the mid-point of the IPO range (12,400 won to 15,300 won). Given the solid upside, we have a positive view of this IPO and we would take this deal. As we mentioned in our previous note, BrandX Corporation IPO Preview,  a key risk that the company faces is whether it can become more than a "one-hit-wonder." The company's most successful brand Xexymix has been the major driver of its sales and profits in the past two years and for now, it is uncertain whether it can continue its success in other products such as cosmetics, men's apparel, and HMR F&amp;B product categories. 

BrandX Corporation IPO Valuation Analysis