1. Executive Summary
10.2 Plan
Requirement TPEx Mainboard H Company Readiness
Recommending Securities Firms
2 None NO
10.2 Plan
From the table above, there are still 3 major requirements that H Company has to meet before it can apply to list on the mainboard of TPEx. Nevertheless, the requirement of trading as an emerging stock (Level 3 market; 興櫃) as well as recommending by 2 securities firms are not difficult goals to achieve because H Company has already met the requirements to trade as an emerging stock; besides, due to highly competitive ecology in Taiwan`s IPO market, it is not difficult to find 2 securities firms signing recommendation materials for IPO purpose once H Company achieve profitability requirements. In short, H Company has to devote its mind into improve the profitability.
Assume that the governance of H Company has decided to apply for IPO no later than next three years, according to current financial status and the plan selected in the Chapter 9, it has to put effort into following items to improve profitability immediately in order to accomplish the mission on time:
1. Control operating expenses:
From the pro-forma income statement under plan 2 in Chapter9, the income performance before gross profits are expected to grow in a stable
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rate in next 3 years, besides, the earning before tax each year will fix to the amount showed in the table. Therefore, the remaining factors that caused earnings before tax to fluctuate will from operating income which is affected by operating expenses. Deep inside, the increase of personnel relating expenses (ex: salary and welfare) and marketing expenses will directly cause the fluctuation of earning before tax. Accompany with the expansion of the company, H Company has hired several experienced persons for marketing and sales, in addition, for the purpose of attracting ideal experienced talents and stimulating morale, the company has send generous packages for new hired and gave extra bonus to those outstanding sales persons.
Actually, it is a dilemma for H Company, because it needs professions to operate the company well but expenses incurred
simultaneously. Under this situation, the optimal choice for H Company will be reviewing all expenditure policies especially those of personnel and marketing relating expenses to reduce unnecessary disbursements.
Once the operating expenses are well controlled, it is almost half way to the goal for H Company.
2. Make PIC to EBT ratio grow step by step and cut off accumulated deficits:
According to profitability requirements of TPEx mainboard, earning before tax be more than 4 million (cause PIC to EBT ratio to be 5%) in
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the year before applying for IPO is a major threshold to apply for listing.
Once this term is locked, in addition to control gross profits and operating expenses to increase earnings for reaching that requirement, it is also an important task to control the earnings growing step by step instead of fluctuating violently in order to demonstrate the trend that the company is getting better and better. Furthermore, the accumulated earnings before the deadline of plan should be highly enough to turn accumulated deficits into retained earnings in order to make sure that the company has the ability to share its operating performance with shareholders in the future.
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10.3 Conclusions
Even though the considerations of real case for applying IPO are absolutely more complicated than this. However, through this preliminary evaluation of IPO, hope that H Company can know how far it is to the capital market and find a direction to adjust itself. Hope this preliminary evaluation can be a good start point for H Company to grow up well in the future.
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Reference
1. Regulations from Taiwan Stock Exchange (http://www.twse.com.tw) 2. Regulations from Taipei Exchange (http://www.tpex.org.tw)
3. 2017 生技產業白皮書 by 經濟部生技醫藥產業發展推動小組
(http://www.biopharm.org.tw)
4. 2017 中小企業白皮書 by 經濟部中小企業處
(http://www.moeasmea.gov.tw)
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Major regulations of to list on the mainboard of TPEx:
Taipei Exchange Rules Governing the Review of Securities for Trading on the TPEx Article 3:
A public issuer applying for trading of stocks on the TPEx shall meet the following requirements:
1. Its paid-in capital shall be not less than NT$50 million and the number of its offered and issued common shares shall be not less than 5 million shares, determined based on the amount of capital shown on the certifying documents following registration (or amendment of registration). However shares of privately placed securities that have not been publicly issued shall not be counted in the calculation of the aforesaid amount of capital.
2. It shall have been incorporated and registered under the Company Act for no less than 2 full fiscal years. Its ratio of net income before tax to share capital stated in the financial reports shall be 4 percent or more for the most recent fiscal year, and there shall be no accumulated loss on final account in the most recent fiscal year; or 3 percent or more in each of the last 2 fiscal years; or an average of 3 percent or more in the last 2 fiscal years and the profitability of the most recent year is better than that of the previous year. The profitability shown in the financial reports referred to above shall not include net profit (or loss) attributable to its non-controlling interests. However, the net income before tax referred to above shall not be less than NT$4 million in the most recent fiscal year.
3. Its number of registered shareholders, excluding company insiders and any juristic person
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in which such insiders hold more than 50 percent of the shares, shall not be less than 300;
the total amount of the combined shareholdings of such registered shareholders shall constitute 20 percent or more of the total issued shares, or more than 10 million shares.
4. Its directors, supervisors, and the shareholders holding 10 percent or more of the total issued shares of the company shall carry out matters relating to placement in central custody and withdrawal from custody upon expiration for the entire amount of their shareholding in accordance with the applicable TPEx regulations. The applicable regulations concerning placement in central custody and withdrawal from custody upon expiration shall be separately prescribed by the TPEx.
5. It is recommended in writing by two or more securities firms, provided that one of them shall be designated as the lead recommending securities firm, and the other(s) as assisting recommending securities firm(s).
6. It shall engage a professional shareholder services agent to handle shareholder services. A TPEx listed company that was listed at any time from 2 January 2013 onward shall engage a professional shareholder services agent to handle shareholder services, and may not take those services back into its own hands.
7. Its stock shall have been traded on the emerging stock market for not less than 6 months, provided that if the lead recommending securities firm is changed, the issuer shall undergo guidance by the newly appointed lead recommending securities firm, and then be traded for a further period of not less than 6 months on the emerging stock market before it may submit an application for TPEx listing.
8. The stocks and bonds publicly offered and issued or privately placed by it shall all have
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been issued in scripless form without exception.
9. A remuneration committee shall be established pursuant to Article 14-6 of the Securities and Exchange Act and its relevant regulations.
10. A company shall in its articles of incorporation specify the following matters:
(1) Electronic transmission shall be listed as one of the methods for exercising shareholder voting rights.
(2) The candidate nomination system shall be adopted for the election of directors and supervisors.
(3) An audit committee shall be established in place of supervisors. This requirement shall not apply, however, if the paid-in capital is less than NT$600 million at the time of application.
11. If the industrial classification of the TPEx listing is the food industry, or revenue from food and beverages accounts for 50 percent or more of its total operating revenue for the most recent accounting year, the company shall meet the requirements in all the following items:
(1) It shall have set up a laboratory to conduct autonomous inspections.
(2) If product raw materials, semi-finished products, or finished products are to be outsourced for inspection, they shall be submitted to a laboratory or inspection institution certified or recognized by the Ministry of Health and Welfare, by the Taiwan Accreditation Foundation, or by an institution retained by the Ministry of Health and Welfare for the inspection.
(3) It shall retain independent experts to issue opinions on the reasonableness with respect to its food safety monitoring plan, inspection frequencies, and items to be
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12. A state-owned enterprise applying for trading of its stocks on the TPEx shall not be subject to the restrictions under subparagraphs 2 to 4 of the preceding paragraph; a privatized state-owned enterprise shall not be subject to the restriction on duration of incorporation in subparagraph 2 of the preceding paragraph. If a credit cooperative reorganizes itself into a commercial bank, the calculation of duration of incorporation under subparagraph 2 of the preceding paragraph may include the period of the credit cooperative's establishment under the Credit Cooperative Act.
13. A securities enterprise, futures enterprise, financial enterprise, or insurance enterprise which applies for trading of its stocks on the TPEx shall obtain an approval letter from the authority in charge of said enterprises before the TPEx shall accept the application.
Furthermore, directors, supervisors, and shareholders of a securities investment trust enterprise holding 5 percent or more of the total number of its issued shares carry out matters relating to placement of their shares in central custody and withdrawal from custody upon expiration in accordance with subparagraph 4 of paragraph 1 above.
14. A public issuer which obtains a clear written assessment and opinion issued by central competent authority for the target industry to the effect that such issuer is a technology-based enterprise or cultural or creative enterprise and that its products or technology have been successfully developed and have marketability, shall not be subject to the restriction under subparagraph 2 of paragraph 1 if it meets the following requirements:
(1) If it is a technology-based enterprise, its net worth shall not be less than two-thirds of the share capital shown in the latest CPA-audited and attested or reviewed financial report, and furthermore its directors, supervisors, general managers,
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R&D directors, shareholders holding not less than 5 percent of the shares, and those shareholders providing patent rights or technical know-how as capital contribution and holding a position in the company and also holding not less than 0.5 percent of the total issued shares or 100,000 or more shares of the company at the time of application for trading on the TPEx, shall carry out matters relating to placement of their shares in central custody and withdrawal from custody upon expiration according to subparagraph 4 of paragraph 1 above.
(2) If it is a cultural or creative enterprise, its directors, supervisors, shareholders holding not less than 5 percent of the shares, and those shareholders providing patent rights or technical know-how as capital contribution and holding a position in the company and also holding not less than 0.5 percent of the total issued shares or 100,000 or more shares of the company at the time of application for trading on the TPEx shall carry out matters relating to placement of their shares in central custody and withdrawal from custody upon expiration according to subparagraph 4 of paragraph 1 above.
15. The term "insiders" in paragraph 1, subparagraph 3 means any company director, supervisor, or managerial officer, or shareholder that holds more than 10 percent of the total shares, and any spouse and minor children thereof.
Documents shall be issued by the Taiwan Depository & Clearing Corporation (TDCC) certifying the following matters for the professional shareholder services agent referred to in subparagraph 6 of paragraph 1:
(1) That its personnel and facilities for handling shareholder services all comply with the Regulations Governing the Administration of Shareholder Services of Public
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Companies.
(2) That it has not within the past 3 fiscal years, following an audit by the TDCC, been given written notice of recommendations for improvements and failed to make improvements within the deadline