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

Trading Strategy for Lemon IPO Post Pricing

Trading Strategy for JNTC IPO Post Pricing

Korea Stock Market Monthly Recap #45 (February 2020)

Equity Capital Markets

Our one-year base case valuation of Lemon is 410 billion won or 11,082 won per share, which is 54% above the high end of the IPO valuation range of 7,200 won. Therefore, given the strong upside, we like this IPO deal. Our base case valuation assumes a P/E multiple of 25x, which is 161% premium to the average P/E multiples of the peers in 2021. Overall, given the surging sales growth and improving profit margins, we believe the company is likely to trade about 100-200% premium to the comps. Especially due to the on-going concerns due to the novel Coronavirus and the explosive demand for quality masks, which the company makes, there will likely be strong demand for the company's shares in the IPO. Plus, the company is a leading supplier of EMI shield products for Samsung's smartphones. We are including <a href="https://www.smartkarma.com/entities/lemon-co-ltd" target="_blank" data-smartkarma-citation="entities:28841:1" rel="noopener">Lemon (294140 KQ)</a> in our model portfolio. In our financial forecasts of the company's businesses, we used a 10% discount to the company's sales guidance for the EMI business from 2020 to 2022. However, we assumed a 25% higher sales growth for the company in the Nano business in 2020 and assumed the same sales amount in 2021 and 2022.

Our one-year base case valuation of Lemon is 410 billion won or 11,082 won per share, which is 54% above the high end of the IPO valuation range of 7,200 won. Therefore, given the strong upside, we like this IPO deal. Our base case valuation assumes a P/E multiple of 25x, which is 161% premium to the average P/E multiples of the peers in 2021. Overall, given the surging sales growth and improving profit margins, we believe the company is likely to trade about 100-200% premium to the comps. Especially due to the on-going concerns due to the novel Coronavirus and the explosive demand for quality masks, which the company makes, there will likely be strong demand for the company's shares in the IPO. Plus, the company is a leading supplier of EMI shield products for Samsung's smartphones. We are including Lemon (294140 KQ) in our model portfolio. In our financial forecasts of the company's businesses, we used a 10% discount to the company's sales guidance for the EMI business from 2020 to 2022. However, we assumed a 25% higher sales growth for the company in the Nano business in 2020 and assumed the same sales amount in 2021 and 2022. 

Lemon Co Ltd

Lemon IPO Valuation Analysis