Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

Our base case valuation multiple for E&amp;D Co is 19x P/E. Using this multiple and applying to our estimated net profit of 13.8 billion won, this results in an implied market cap of 263 billion won or 25,309 won per share. This represents a 63% upside from current levels. Given the strong upside, we have a positive view of this stock over a one year view.The 19x P/E valuation multiple represents a 20% discount to the bankers' valuation multiple of 23.8x. A key reason why the company continues to trade at a steep discount to its peers is that the market is still not uncertain as to how long the company will be able to maintain its excellent sales and profit growth. As such, as the company continues to post excellent results, our 20% valuation discount to its peers may actually be too conservative.We forecast the company to generate 96.2 billion won in sales (up 65% YoY) and an operating profit of 21.2 billion won (up 116% YoY) in 2020. We estimate the company's sales growth to decline to 27% YoY in 2021. One of the key catalysts of the company's surging growth in sales and profits has been the fact that the fine dust issue has emerged one of the biggest social problems in Korea and other parts of the world. There have been increased regulations on diesel and obsolete vehicles, increasing the mandatory installation of the emission reduction devices.

Our base case valuation multiple for E&amp;D Co is 19x P/E. Using this multiple and applying to our estimated net profit of 13.8 billion won, this results in an implied market cap of 263 billion won or 25,309 won per share. This represents a 63% upside from current levels. Given the strong upside, we have a positive view of this stock over a one year view.The 19x P/E valuation multiple represents a 20% discount to the bankers' valuation multiple of 23.8x. A key reason why the company continues to trade at a steep discount to its peers is that the market is still not uncertain as to how long the company will be able to maintain its excellent sales and profit growth. As such, as the company continues to post excellent results, our 20% valuation discount to its peers may actually be too conservative.We forecast the company to generate 96.2 billion won in sales (up 65% YoY) and an operating profit of 21.2 billion won (up 116% YoY) in 2020. We estimate the company's sales growth to decline to 27% YoY in 2021. One of the key catalysts of the company's surging growth in sales and profits has been the fact that the fine dust issue has emerged one of the biggest social problems in Korea and other parts of the world. There have been increased regulations on diesel and obsolete vehicles, increasing the mandatory installation of the emission reduction devices. 

Established in 2004, E&amp;D Co (Eco &amp; Dream) is an advanced materials company in Korea,  specializing in producing diesel oxidation catalysts, fuel carrying catalysts, and other environment catalysts. E&amp;D Co is getting ready for an IPO on the KOSDAQ exchange in July.This one is a bit interesting and different since it already trades on the microcap KONEX market and is transferring its listing to the KOSDAQ exchange. Currently, E&amp;D Co's share price is at 15,000, which is slightly higher than the high end of the IPO price range of 14,400 won.The bankers used two companies including <a href="https://www.smartkarma.com/entities/sejong-industrial-co-ltd" target="_blank" data-smartkarma-citation="entities:7932:1" rel="noopener">Sejong Industrial (033530 KS)</a> and <a href="https://www.smartkarma.com/entities/ecopro-co-ltd" target="_blank" data-smartkarma-citation="entities:19029:1" rel="noopener">Ecopro Co Ltd (086520 KS)</a> as comps to E&amp;D Co. Using their net profit in 2019, the average P/E multiple of the comps in 23.8x. Applying this multiple on E&amp;D Co's net profit of 9.3 billion won in 2019, this results in an implied market cap of 221.5 billion won. After applying an additional IPO discount of 32.5% to 42.1%, this results in an IPO price range of 12,350 won to 14,400 won. The company's sales and profits have been exploding higher in the past year. In 2019, the company generated sales of 58.3 billion won (up 108% YoY), and an operating profit of 9.8 billion won (up 12x YoY). It had its best-ever quarterly results in 1Q 2020 when it posted sales of 25.2 billion won (up 360% YoY) and an operating profit of 5.5 billion won (up from operating profit of only 0.2 billion won in 1Q 2019).

Established in 2004, E&amp;D Co (Eco &amp; Dream) is an advanced materials company in Korea,  specializing in producing diesel oxidation catalysts, fuel carrying catalysts, and other environment catalysts. E&amp;D Co is getting ready for an IPO on the KOSDAQ exchange in July.This one is a bit interesting and different since it already trades on the microcap KONEX market and is transferring its listing to the KOSDAQ exchange. Currently, E&amp;D Co's share price is at 15,000, which is slightly higher than the high end of the IPO price range of 14,400 won.The bankers used two companies including Sejong Industrial (033530 KS) and Ecopro Co Ltd (086520 KS) as comps to E&amp;D Co. Using their net profit in 2019, the average P/E multiple of the comps in 23.8x. Applying this multiple on E&amp;D Co's net profit of 9.3 billion won in 2019, this results in an implied market cap of 221.5 billion won. After applying an additional IPO discount of 32.5% to 42.1%, this results in an IPO price range of 12,350 won to 14,400 won. The company's sales and profits have been exploding higher in the past year. In 2019, the company generated sales of 58.3 billion won (up 108% YoY), and an operating profit of 9.8 billion won (up 12x YoY). It had its best-ever quarterly results in 1Q 2020 when it posted sales of 25.2 billion won (up 360% YoY) and an operating profit of 5.5 billion won (up from operating profit of only 0.2 billion won in 1Q 2019). 

South Korea

E&D Co.,Ltd. operates advanced materials businesses. The Company mainly produces and sells diesel oxidation catalysts, fuel carrying catalysts, and other environment catalysts. E&D conducts business in Korea.

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E&D Co Ltd (101360 KS)

E&D Co Valuation Analysis

Our base case valuation multiple for E&D Co is 19x P/E. Using this multiple and applying to our estimated net profit of 13.8 billion won, this...

Douglas Kim

E&D Co IPO Preview

Established in 2004, E&D Co (Eco & Dream) is an advanced materials company in Korea, specializing in producing diesel oxidation catalysts,...

Douglas Kim

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