中小企業股票初次公開發行之挑戰 : 以H生技公司為例 - 政大學術集成

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(1)國立政治大學商學院國際經營管理英語碩士學位學程 International MBA Program College of Commerce National Chengchi University. 碩士論文政治. 大. 立Master’s Thesis. ‧. ‧ 國. 學為例. er. io. sit. y. Nat. 中小企業股票初次公開發行之挑戰:以H生技公司 n. a l and Medium Enterprise v i The Challenge of Small for Initial n C hengchi U. Public Offering: A Case of H Biotechnology Company. Student: Han-Sheng Chiu Advisor: Jack Wu. 中華民國107年5月 May 2018.

(2) 中小企業股票初次公開發行之挑戰:以H生技公司為例 The Challenge of Small and Medium Enterprise for Initial Public Offering: A Case of H Biotechnology Company. 研究生：邱翰昇指導教授：吳文傑. 立. Student: Han-Sheng Chiu Jack Wu 政治 Advisor: 大. ‧ 國. 學. 國立政治大學. 商學院國際經營管理英語碩士學位學程. A Thesis. sit. Nat. y. ‧. 碩士論文. er. io. Submitted to International MBA Program. n. aNational iv l C Chengchi University n h e n g cofhthe i U in partial fulfillment Requirements for the degree of Master in Business Administration 中華民國107年5月 May 2018.

(3) Abstract The Challenge of Small and Medium Enterprise for Initial Public Offering: A Case of H Biotechnology Company By Han-Sheng Chiu. 治政 The purpose of this thesis is to check the readiness 大 of a medium size family company, H 立 Biotechnology Company, for initial public offering (IPO). In recent, like most of small and ‧ 國. 學. medium size companies, H Company faces a bottleneck to grow due to difficulties of recruiting. ‧. suitable elites as well as raising money from financing channels. Moreover, it is also not an easy task for an unknown medium size company to initiate transactions with big or foreign. y. Nat. io. sit. companies that did not have any cooperation experience before; however, it is the road a. n. al. er. medium size company must take in order to grow well. Therefore, IPO is an option that H. Ch. i n U. v. Company must take into consideration. Starting from preparation to IPO, the company will scan. engchi. itself from bottom up thoroughly and make positive changes accordingly throughout the process. Once IPO successfully, there will be more chances and resources for the company to recruit talents and grow. Through preliminary scan in this thesis, hope to point out some parts that H Company has to improve in order to IPO in the near future.. Keywords: IPO, SME. i.

(4) TABLE OF CONTENTS Executive Summary.......................................................................................................... 1 1.1. Purpose ....................................................................................................................... 1. 1.2. Small and Medium Enterprise in Taiwan ................................................................... 1. 1.3. Capital Market in Taiwan ........................................................................................... 2. 1.4. The Company ............................................................................................................. 3. 1.5. The Industry................................................................................................................ 3. 1.6. The Competitor ........................................................................................................... 4. 1.7. The Customer ............................................................................................................. 5. 1.8. The Management ........................................................................................................ 5. 1.9. The Financials ............................................................................................................ 6. 1.10. The IPO Evaluation .................................................................................................... 6. 1.11. Brief Summary ........................................................................................................... 7. 立. 政治大. 學. ‧. ‧ 國. io. sit. y. Nat. n. al. er. 1.. 2.. Ch. engchi. i n U. v. Small and Medium Enterprise in Taiwan ...................................................................... 8 2.1. Role and Trend ........................................................................................................... 8 ii.

(5) 2.3. Distribution by Industry ........................................................................................... 15. 2.4. Funding ..................................................................................................................... 16. 2.5. Challenges ................................................................................................................ 17. 政治大. Capital Market in Taiwan .............................................................................................. 19. 立. Capital Markets Overview ........................................................................................ 19. 3.2. Stepwise review to each level markets ..................................................................... 20. 學. 3.1. ‧. The Company .................................................................................................................. 25. y. sit. er. Vision and Mission ................................................................................................... 25. io. 4.1. Nat. 4.. Length of Existence .................................................................................................. 13. ‧ 國. 3.. 2.2. al. 4.3. Location .................................................................................................................... 26. 4.4. Organization Structure .............................................................................................. 26. 4.5. Products and Business Model ................................................................................... 28. 4.6. Shareholders ............................................................................................................. 29. 4.7. Bottleneck and Why IPO .......................................................................................... 29. n. 4.2. v i n Ch History ...................................................................................................................... 25 engchi U. iii.

(6) Evolution of Biotechnology Industry in Taiwan ...................................................... 31. 5.2. Statistical Data of the Industry ................................................................................. 32. 5.3. H Company in the Industry ...................................................................................... 33. 政治大. The Competitor ............................................................................................................... 34. 立. Medical Products ...................................................................................................... 34. 6.2. Cosmetics Products .................................................................................................. 34. 6.3. Conclusions .............................................................................................................. 38. 學. 6.1. ‧. sit. y. Nat. The Customer.................................................................................................................. 40. io. 7.. 5.1. er. 6.. The Industry.................................................................................................................... 31. ‧ 國. 5.. al. 7.2. Fulfilments of Customer Needs ................................................................................ 40. n. 7.1. v i n C h .................................................................................... Target Customers and Needs 40 engchi U. 8.. The Management ............................................................................................................ 42. 9.. The Financials ................................................................................................................. 45 9.1. Financial Positions.................................................................................................... 45. 9.2. Income Performance ................................................................................................. 46 iv.

(7) 9.3. Pro-forma Financial Performance ............................................................................ 49. 9.4. Conclusion ................................................................................................................ 59. 10.. The IPO Evaluation .................................................................................................... 62. 10.1. IPO Evaluation ......................................................................................................... 62. 10.2. Plan ........................................................................................................................... 65. 10.3. Conclusions .............................................................................................................. 68. 立. 政治大. ‧ 國. 學. Reference ................................................................................................................................. 69. ‧. n. al. er. io. sit. y. Nat. Appendix ................................................................................................................................. 70. Ch. engchi. v. i n U. v.

(8) List of Figures and Tables. List of Figures: Figure 1: Proportion of Domestic and Export Sales by Size, 2016 Figure 2: SMEs Distribution by Industry, 2015-2016. 政治大. Figure 3: Framework of Financing Channels for SMEs in Taiwan. 立. Figure 4: Structure of Capital Market in Taiwan. ‧ 國. 學. Figure 5: Organization Structure. ‧. Figure 6: Business Model of Medical. y. Nat. n. al. er. io. List of Tables:. sit. Figure 7: Business Model of Cosmetics. Ch. engchi. i n U. v. Table 1: The Product, Distribution Channel and Customer of H Company Table 2: Number of Enterprises, Sales, Number of Employed Persons in Taiwan, 2015-2016 Table 3: SMEs by Ages, 2012-2016 Table 4: Criterion of IPO in Taiwan Table 5: Shareholder Structure Table 6: Strength and Weakness Analysis vi.

(9) Table 7: Analysis of Target Customers Table 8: Backgrounds of Major Managements Table 9: Financial Positions Table 10: Income Performance Table 11: Pro-forma Income Statement under Plan 1. 政治大. Table 12: Pro-forma Income Statement under Plan 2. 立. Table 13: Pro-forma Income Statement under Plan 3. ‧ 國. 學. Table 14: Merits and Demerits of IPO Plans. ‧. Table 15: Preliminary IPO Evaluation for H Company to List on TPEx Mainboard. n. er. io. sit. y. Nat. al. Ch. engchi. vii. i n U. v.

(10) 1. Executive Summary. 1.1 Purpose. This thesis is not a formal proposal for applying IPO. Instead, it is a preliminary evaluation to examine how far that H Company is from applying for IPO and a start point to modify the company itself in order to submit the applications for IPO in the near future.. 立. 政治大. ‧ 國. 學. 1.2 Small and Medium Enterprise in Taiwan. ‧. Small and medium enterprise (SME) has been made up the backbone and one of the. y. Nat. io. sit. main driving forces of Taiwan’s economic development for several years. In recent,. n. al. er. facing fierce competition from mainland China’s upgraded supply chains particularly,. Ch. i n U. v. SMEs in Taiwan, especially those main partners in the upstream supply chain that. engchi. supporting large enterprises’ production and exports, have no choice but to consider strengthening their own competitiveness by cooperating with large companies or form industry clusters to cross trade barriers. Further, according to official analysis, by comparing to large enterprises, SMEs that exists for more than 20 years suffered significant sales decline and “the crisis of the elderly age” as their first-generation entrepreneurs got into old age and lost their vitality and creativity. It has become an important issue for those SMEs to find out and activate the entrepreneurial spirit, combined with sound “second-generation succession” and business transformation 1.

(11) strategy. In fact, many SMEs in Taiwan possess unique technology and innovative products, however, difficultly obtaining funds either from the capital markets, venture capitals and banks due to immature or unproven business models, lack of past trading records, unstable financial performance, volatile cash flow and lack of tangible assets that could be used for collateral. Those situations have been negatively impacted on the SMEs’ growth and survival.. 立. 政治大. 1.3 Capital Market in Taiwan. ‧ 國. 學. In general, the capital market in Taiwan can be divided into four level. Due to higher. ‧. identification and trading volume, the attractiveness of capital markets in Taiwan to a. y. Nat. sit. company would be Level 1 (higher) to Level 4 (lower) in order, which are mainboard. n. al. er. io. listing on Taiwan Stock Exchange (上市)、mainboard listing on Taipei Exchange (上. i n U. v. 櫃)、emerging stock registration on Taipei Exchange (興櫃) and go incubation board. Ch. engchi. for startup and acceleration firm (GISA) on Taipei Exchange (創櫃). According to the preliminary analysis, H Company should target to list on the mainboard of TPEx in the. 2.

(12) midterm.. 1.4 The Company. Chairman& CEO: Norman Chiu Industry: Downstream of biotechnology Business: A distributor of medical and cosmetics products. 政治大. Establishment: 1969 (over 40 years). 立. Paid-in Capital: New Taiwan Dollar (NTD) 80 million. ‧ 國. 學. Major source of financing: Bank loans. Employees: Around 80 person (managements included). ‧. Reasons for IPO:. y. sit. al. er. Open up another financial pipeline for funding.. n. 3.. Raise reputation that can do business with bigger or foreign companies.. io. 2.. Nat. 1.. i n U. Attract more talents to join the company.. Ch. engchi. v. 1.5 The Industry. In Taiwan, the government has designated biotechnology a key developing area since 1982. With the government released various biotechnology development addressing policies, the linkage between up and down stream of industry has become tighter. At the same time, coordination of funds, laws, incubation systems and human resources enables companies in the industry can grow well than ever. In the foreseeable future, 3.

(13) the market of biotechnology will grow up continuously with high possibility. As a member in the downstream of the industry, H Company is very pleased to see the bright future of biotechnology industry that can excavate more opportunities; however, as more and more companies join this field, H Company also should be aware of the competition after on.. 立. 政治大. 1.6 The Competitor. ‧ 國. 學. H Company has been deeply cultivated the medical products distribution channel in. ‧. southern Taiwan for long period of time, the competition from medical products. y. Nat. sit. distribution it faces today is far away smaller than that from cosmetics. As for cosmetics. n. al. er. io. products, through constant concern and analysis about competition in the field, further. i n U. v. considering the scale, products and customers factors, the competitor that most similar. Ch. engchi. to H Company is L Company which is the distributor of the Sebamed (施巴) series products in Taiwan. At the first glance the analysis, the M Brand of H Company will have a tough battle with Sebamed on the product level. However, recently some original L Company sales representatives chose to join H Company on their own due to the dislike of management style in L Company. It`s really a big help to H Company but it should keep developing new roads for M Brand products to make a distinction from. 4.

(14) Sebamed in order to generate more revenue stream from the products.. 1.7 The Customer. The target customer combined with relating product and distribution channels of H Company can be summarized as below. Table 1: The Product, Distribution Channel and Customer of H Company Segment. 政治大. Product. Local traditional. drugs such as 龍角散、撒. and chained drug. General. 隆巴斯、萊翠美…etc.. store in southern. publics. Taiwan. Nat. y. ‧. ‧ 國. Over-the-counter(OTC) Medical. Infant,. clinics, regional. pregnant. sit. Chained drug store,. n. Ch Cosmetics. engchi. er. io. al. M and K Brand Series. Cosmetics. Customer. 學. 立. Channel. i n U. v. hospital, medical. women,. center in Taiwan. general publics. 1.8 The Management. The major managements of H Company are all experienced professionals in their fields; however, the experienced capable men tend to claim for more remuneration, senior level position and inquire about more beneficial offer from competitors that result 5.

(15) in challenges for H Company and main reasons that it starts considering IPO. Through IPO, more resources and reputation will flow to H Company, in the same time, means for the company to let experienced managements stay and recruit talented young person will be more diversified. The most important of all, the recognition for employees themselves will finally increase after becoming a listed company.. 1.9 The Financials. 立. 政治大. The financial positions of H Company in recent 3 years were quite stable. For income. ‧ 國. 學. performance, the earning before tax of H Company fluctuated much more by comparing to sales as well as gross profits in last 3 years. After in-depth analyzing, it was the. ‧. expansion of H Company in recent years that caused human resource and marketing. y. Nat. sit. relating expenses have been increased.. n. al. er. io. After scanning the pro-forma statements of three profitability plans, plan2 is the best. i n U. v. of choice to H Company because there will be no accumulated deficits in the last year. Ch. engchi. and the profitability grow step by step that will be more likely to be accepted by supervising agencies and investors base on experience. Therefore, H Company has better to set Plan2 as its goal and start to review what should be improved. 1.10 The IPO Evaluation. After considering the requirements of different level capital markets in Taiwan, the most applicable market for H Company is Taipei Stock Exchange (TPEx). However, in 6.

(16) order to fulfill the criterion of listing in TPEx, H Company should start to efficiently control operating expenses, make PIC to EBT ratio grow step by step and cut off accumulated deficits after this preliminary evaluation. 1.11. Brief Summary. 「One cannot have the best of both worlds.」Even though H Company hopes to get. 政治大. the benefits from listing on the capital market, additional costs for interacting with. 立. investors, supervision agencies and other relating parties will incur apparently. However,. ‧ 國. 學. along with the growth and expansion, IPO is one of paths that the company should take into consideration without doubts. After this preliminary evaluation, the company can. ‧. start to deeper consider the roads to IPO and decide should it put resources into IPO or. y. Nat. n. al. Ch. engchi. 7. er. io. determine its way to the future more clearly.. sit. not in the near future. Besides, through this review, the company may be able to. i n U. v.

(17) 2. Small and Medium Enterprise in Taiwan. Before taking H Biotechnology Company as an example analyzing the challenges that a small and medium enterprise (SME) may encounter during the preparation of IPO, it is better to comprehend the basic environment that a SME lives in Taiwan as following sections.. 2.1 Role and Trend. 立. 政治大. ‧ 國. 學. Small and medium enterprise has been made up the backbone and one of the main. ‧. driving forces of Taiwan’s economic development for several years: it has been recognized as export pioneer in early stage, key partner in supply chains and industrial. y. Nat. er. io. sit. clusters and focal point of local economy, entrepreneurship, and industrial upgrade and transformation in recent years.. n. al. Ch. i n U. v. Facing fierce competition from mainland China’s upgraded supply chains. engchi. particularly, SMEs in Taiwan, especially those main partners in the upstream supply chain that supporting large enterprises’ production and exports, have no choice but to consider strengthening their own competitiveness by cooperating with large companies or form industry clusters to cross trade barriers. The main development strategy for SMEs in the future will focus on the trend of smart economy, which has created new opportunities for SMEs and provide a chance to transform themselves through smart manufacturing by strengthening their typical competitive advantage in flexible. 8.

(18) production with customization, rapid manufacturing, and creative vitality. Even though total annual sales, domestic sales, and export sales which are three major indices of SME`s performance show mild recession in 2016 comparing to 2015, the number of enterprises, the number of employed persons improved slightly during the same period. According to the statistics data that inquired from Ministry of Economic Affairs in the following table, as for the overall performance of SMEs in 2016, the number of SMEs reached a new high level of 1,408,313, which increased 1.76. 政治大. percent comparing to 2015 and accounted for 97.73 percent of all enterprises in Taiwan.. 立. Moreover, the number of persons hired by SMEs increased to 8,810,000, which grew. ‧ 國. 學. 0.58 percent from 2015 and represented 78.19 percent of all person hired in Taiwan. The annual sales of SMEs in 2016 was $11,764.7 billion NTD, slightly decreased from. ‧. 2015, accounting for 30.71 percent of total sales of all enterprises in Taiwan.. Nat. sit. y. Furthermore, SMEs’ domestic sales in 2016 accounted for 87.90 percent of total SME`s. n. al. er. io. sales, with 0.15 percent slightly increase from 2015. Large enterprises’ total sales was. i n U. v. NT$26,548.1 billion in 2016; domestic share of total large enterprises’ sales accounted. Ch. engchi. for 69.71 percent of its total sales that shows SMEs are more domestic oriented than large enterprises. In 2016, 95,320 new SMEs were created in total. According to the table, in 2016, total employment in Taiwan were 11,267,000 persons. The number of employed persons working for SMEs in Taiwan were 8,810,000 persons which accounted for 78.19 percent of all employment in Taiwan; large enterprises employed 1,432,000 persons and accounted for 12.71 percent; the government employed 1,025,000 persons and accounted for 9.10 percent. Through many business and economic cycles, SMEs have functioned as a stable labor force 9.

(19) market by comparing to large enterprises. Table 2: Number of Enterprises, Sales, Number of Employed Persons in Taiwan, 2015-2016 Enterprises; million NT$; thousand persons; %. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 10. i n U. v.

(20) Sector Indicator. All enterprises. SMEs. Large enterprises. 2015. 2016. 2015. 2016. 2015. 2016. 1,416,738. 1,440,958. 1,383,981. 1,408,313. 32,757. 32,645. 100. 100. 97.69. 97.73. 2.31. 2.27. -0.97. -0.34. No. of enterprise s Share of total Annual. 1.76. 38,875,34. 38,312,76. 11,803,11. 11,764,67. 27,072,22. 26,548,09. 0. 9. 5. 7. 5. 1. 100. 100. 30.36. 69.64. 69.29. Ch. engchi. sit. y. n. Annual growth. al. 30.71. er. io. total. 2.29. Nat. Share of. 1.71. ‧. Total sales. 立. 學. rate. 2.21. ‧ 國. growth. 政治大. i n U. v. -3.39. -1.45. -0.31. -0.33. -4.68. -1.94. 29,158,85. 28,848,50. 10,325,26. 10,340,88. 18,833,59. 18,507,62. 3. 7. 0. 6. 3. 1. 100. 100. 35.41. 35.85. 64.59. 64.15. rate Domestic sales Share of total. 11.

(21) Sector Indicator. All enterprises 2015. SMEs. 2016. 2015. Large enterprises 2016. 2015. 2016. Annual growth. -2.87. -1.06. -0.19. 0.15. -4.27. -1.73. 9,716,487. 9,464,262. 1,477,855. 1,423,791. 8,238,632. 8,040,471. 84.79. 84.96. -5.59. -2.41. 8,810. iv. 1,415. 1,432. rate Export. Share of 100 total. ‧ 國. 15.04. -2.60. -1.13. -3.66. 11,198. 11,267. 8,759. sit. employed. io. No. of. y. -4.94. Nat. rate. 15.21. al. n. persons Share of. ‧. growth. 100. 學. Annual. 立. 政治大. er. sales. Ch. n U engchi. 100. 100. 78.22. 78.19. 12.64. 12.71. 1.07. 0.62. 1.03. 0.57. 2.04. 1.20. total Annual growth rate Source: 2017 White Paper on Small and Medium Enterprises in Taiwan, Ministry of Economic Affairs. 12.

(22) Figure 1: Proportion of Domestic and Export Sales by Size, 2016. 政治大. Source: 2017 White Paper on Small and Medium Enterprises in Taiwan, Ministry of Economic Affairs. 立. 2.2 Length of Existence. ‧ 國. 學 ‧. In terms of market entry and exit, SMEs display more flexibility than large enterprises. As of 2016, 6.77 percent of SMEs had been in existence for less than one. y. Nat. io. sit. year comparing to 0.51 percent of large enterprise; 30.51 percent of SMEs within five. n. al. er. years comparing to 9.01 percent of large enterprise; and 48.82 percent of SMEs within. Ch. i n U. v. 10 years comparing to 22.9 percent of large enterprise. For large enterprises, 77.72. engchi. percent had been in existence for over 10 years. Furthermore, share of SMEs in existence for 20 years or more was 25.37 percent, far below 44.47 percent of large enterprises in 2016 which shows business succession / transition remains a major challenge to SMEs for survival. Further, according to official analysis, by comparing to large enterprises, SMEs that exists for more than 20 years suffered significant sales decline and “the crisis of the elderly age” as their firstgeneration entrepreneurs got into old age and lost their vitality and creativity. It has become an important issue for those SMEs to find out and activate the entrepreneurial 13.

(23) combined. with. 立. sound. “second-generation. succession”. 政治大. 學 ‧. ‧ 國 io. sit. y. Nat. n. al. er. spirit,. Ch. engchi. 14. i n U. v. and. business.

(24) transformation strategy. Table 3: SMEs by Ages, 2012-2016 Enterprises; %. 2016 Year 2012. 2013. 2014. 2015. Large. Age. SMEs enterprises. No. of 1,306,729. 立. 6.77. 0.51. 7.04. 1.82 2.06. 7.44. 7.12. 7.59. 6.86. 6.15. 6.37. 6.16. 6.62. 5.92. 3 - 4 years. 5.14. 5.39. 5.61. 5.46. 5.85. 2.35. 4 - 5 years. 4.51. 4.59. 4.80. 5.03. 4.93. 2.27. 5 - 10 years. 21.53. 2 - 3 years. al. sit. 1 - 2 years. er. year. ‧ 國. 6.94. 學. 7.42. ‧. 7.10. 7.34. io. 32,645. Nat. 1,408,313. y. Less than 1. 治 1,383,981 政 1,353,049 大. 1,331,182. SMEs. 19.57. v i18.50 n U. 18.31. 13.28. 24.93. 25.17. 25.03. 25.47. 25.81. 33.25. 22.95. 23.52. 24.30. 24.96. 25.37. 44.47. n. 20.43. 10 - 20. Ch. engchi. years 20 years or more Source: 2017 White Paper on Small and Medium Enterprises in Taiwan, Ministry of Economic Affairs. 2.3 Distribution by Industry. 15.

(25) In terms of industries, 48.44 percent of SMEs are classified in wholesale and retail trade, followed by accommodation and food service activities with 10.71 percent of SMEs, and third in manufacturing with 10.17 percent, followed by construction with 8.58 percent, other service activities with 3.30 percent, professional, scientific and technical activities with 3.30 percent in 2016. Figure 2: SMEs Distribution by Industry, 2015-2016. 立. 政治大. ‧. ‧ 國. 學 y. Nat. n. al. er. io. sit. Source: 2017 White Paper on Small and Medium Enterprises in Taiwan, Ministry of Economic Affairs. 2.4 Funding. Ch. engchi. i n U. v. In order to provide assistance for SME`s development, and provide diversified financing channels, the Small and Medium Enterprise Administration, Ministry of Economic Affairs (經濟部中小企業處) has been working on providing financial and funding services such as credit guarantees, short-term financing, and funding guidance for those needed SME. All those measures mainly target to help SMEs for obtaining external funds through providing direct credit guarantees by government. However, the resources are limited and several criterion are needed in order to get the subsidy. The 16.

(26) main framework of financing channels for SME in Taiwan are summarize in the following figure.. Figure 3: Framework of Financing Channels for SMEs in Taiwan. 立. 政治大. ‧. ‧ 國. 學 er. io. sit. y. Nat. al. n. v i n Ch Source: Small and Medium Enterprise Administration, Ministry of Economic Affairs engchi U 2.5 Challenges. From the brief introductions of SME in the sections above, it is without doubts that SMEs play a very important role in Taiwan`s economic. In fact, many SMEs in Taiwan possess unique technology and innovative products, however, difficultly obtaining funds either from the capital markets, venture capitals and banks due to immature or unproven business models, lack of past trading records, unstable financial performance, 17.

(27) volatile cash flow and lack of tangible assets that could be used for collateral. Those situations have been negatively impacted on the SMEs’ growth and survival. Even though the government try hard to legislation for supporting SMEs, however, due to the limited resources and complicated criterion, government`s supports may not flow into the pockets of those SMEs that really needed but into those have the ability to get. As a SME in Taiwan, H Biotechnology Company has empathy with the challenges that other SMEs encounter day by day. In fact, H Company has gotten several subsidies. 政治大. from governments and used the credit guarantee system mentioned above that tried to. 立. obtain more funds. However, the supports that H Company has acquired from the. ‧ 國. 學. government are far from let it become a large enterprise. Apart from funding, the company needed talents may not want to join because the low visibility and reputation.. ‧. All in all, in addition to the support from government, H Company has to find another. y. Nat. sit. way to strengthen itself, therefore, application for IPO has become one of choices after. n. al. er. io. suffering those challenges that a SME would encounter.. Ch. engchi. 18. i n U. v.

(28) 3. Capital Market in Taiwan. The thorough analyze of capital market in Taiwan is not the spindle of this chapter, in contrast, we are going to briefly introduce the structure and criterion of Taiwan`s capital market that will influence H Company most during the evaluation of IPO.. 政治大. 3.1 Capital Markets Overview. 立. ‧ 國. 學. Due to costs and benefits consideration, it is much more applicable for H Company to choose IPO in Taiwan rather than abroad on this phase. Roughly, there are four level. ‧. of capital markets in Taiwan for H Company taking into consideration:. sit. y. Nat. In general, because of higher identification and trading volume, the attractiveness of. io. er. capital markets in Taiwan to a company would be Level 1 (higher) to Level 4 (lower). al. v i n C hresources and do U talents, obtain more financial e n g c h i business with big or foreign companies n. in order. Same for H Company, it will get more opportunities and resources to recruit. Figure 4: Structure of Capital Market in Taiwan. 19.

(29) once listed in a higher level market.. Level • Mainboard listing on Taiwan Stock Exchange (TWSE) (上市) 1 Level • Mainboard listing on Taipei Exchange (TPEx) (上櫃) 2 Level • Emerging stock registration on Taipei Exchange (興櫃) 3. 政治大. • Go Incubation Board for Startup and Acceleration Firm (GISA) on Taipei Exchange (創櫃). 立. 學. ‧ 國. Level 4. ‧. 3.2 Stepwise review to each level markets. y. Nat. io. sit. Even though the formal IPO case should consider much more aspects, in avoidance. n. al. er. of losing focus, we are going to focus on major requirements of each market only in this. Ch. i n U. v. section; in other words, only when H Company meets those main criterion which can. engchi. be view as the basis of applying IPO, it can start to consider other issues. Therefore, we are going to stepwise scan the major requirements of each level of markets and choose the suitable one for H Company to make further evaluation for IPO. The requirements. 20.

(30) of each markets can be summarized as below: Table 4: Criterion of IPO in Taiwan. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 21. i n U. v.

(31) Level 1. Level 2. Level 3. Level 4. 上市. 上櫃. 興櫃. 創櫃. Requirements. PIC (Paid-in PIC > 50. PIC < 50. capital) > 600. Size. None million. million. million >3 years. Establishment. 立. >2 years. None. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 22. i n U. v. None.

(32) EBT (Earning EBT>4 million before tax) to most recent PIC ratio meet year and EBT one of to PIC ratio following meet one of criteria without following accumulated deficit:. 立. 政criteria:治大 1. 4% in most recent year. 學. continuous without 2 years. accumulated. Profitability. None. ‧. ‧ 國. 1. >6% in. 2. Average. y. Nat. deficit.. sit. 6% in. io. n. continuous. years and. Ch. 2 years. e n most recent gchi. er. 2. >3%in. recent 2. al. None. i n U. v. 3. Average 3%. year is in recent 2 better. years and 3. Average most recent 3% in year is recent 5 better. years. Trading Period. Trading as an. Trading as an 23. None. None.

(33) Level 1. Level 2. Level 3. Level 4. 上市. 上櫃. 興櫃. 創櫃. emerging stock. emerging stock. >6 months. >6 months. Requirements. None (TPEx will adopt. Recommending 2 Securities Firms. 立. 2. 2 integrative. 政治大. counseling). According to the table above, H Company should target to list on the mainboard of. ‧ 國. 學. TPEx in the midterm. For justification, H Company`s size is still far from meeting the requirement to list in the Level 1 market but has exceed that of Level 4 market.. ‧. Furthermore, even though H Company has fulfilled to list in the Level 3 market, for. y. Nat. sit. more reputation and stock liquidity, it is better for H Company setting Level 2 market. n. al. er. io. as the target in the midterm. In chapter 9, we will review the financial performance of. i n U. v. H Company and check the readiness of meeting the requirements of profitability to list. Ch. engchi. in Level 2 market. In chapter 10, we will compare H Company`s current status with the listing criterion of TPEx to make a preliminary IPO plan for H Company modifying its paths for the purpose of listing in the Level 2 market in the midterm.. 24.

(34) 4. The Company. After overviewing the SME`s current circumstances and major regulations of each level of capital market in Taiwan, from this chapter, we will start to introduce H Company and take it as an example analyzing how can it reach the goal of IPO in the near future.. 治政大 4.1 Vision and Mission 立 ‧ 國. 學. Introduce high quality cosmetics and medical products that lead consumers to a. ‧. healthy, beautiful, vibrant life as well as create value for employees and shareholders.. y. Nat. n. al. er. io. sit. 4.2 History. Ch. i n U. v. H Company was founded in 1969. For a long period, it was a main distributor of. engchi. domestic over the counter (OTC) drugs in southern Taiwan. Hereafter, due to the change of consumer habits, more and more consumers do not buy drugs from traditional drug stores that affected the ecology of traditional drug market therefore led H Company decided to reorganize and stepped into cosmetics area since 2005. However, owing to lack of finance resources and the influence of financial crisis in 2008, the time to revision was prolonged inevitably. The pain would pass overtime. In 2009, with a match between Israel embassy and H Company from an introducer, the company got a chance to interactive with some 25.

(35) cosmetics company in Israel. In 2010, H Company the first time to sell an Israel brand cosmetics, the M Brand which is the main product till today, opened the gate to revision after on. In 2014, H Company signed the contract to sell the second Israel brand cosmetics called K Brand and started to cooperate with some dermatologists from medical centers and join ecommerce in recent years.. 4.3 Location. 政治大. 立. is located at Xin Zhuang District in New Taipei City.. 學. ‧ 國. The main office and warehouse each is located at Kaohsiung City and a branch office. ‧. 4.4 Organization Structure. sit. y. Nat. n. al. er. io. The organization structure is simple, board of directors, CEO, finance and accounting. i n U. v. division, sales division and administration division compose the company. The function. Ch. engchi. can be detailed and figured below: 1.. Board of director Since H Company is still a medium size family business, three directors were all elected from shareholders who are family members. The board primary makes material decisions and periodically reviews the results of the company.. 2.. CEO Who is also the chairman of the board of directors, is responsible of. 26.

(36) supervising the daily operation of the company. 3.. Finance and accounting division The division is responsible for managing financial and accounting affairs, handling customs declarations and analyzing operational performances.. 4.. Sales division There are two sub units that responsible for sales in this division. One is in charge of medical products and the other is in charge of cosmetic products.. 政治大. Administration division. 立. The division has responsibility to plan, implement and review matters. 學. ‧ 國. relating to allocation and management of human resources, personnel training and career development as well as general administration.. io. sit. Nat. y. ‧. Figure 5: Organization Structure. Board of Directors. n. al. er. 5.. Ch. engchi. CEO. i n U. Finance and Accounting. v. Sales. Medical. Administration. 27. Cosmetics.

(37) 4.5 Products and Business Model. According to previous section, two sales units, medical and cosmetics, are responsible for sales. The business model is simple, medical unit currently sells OTC drugs that is consigned from several well-known domestic pharmaceutical makers (五洲製藥、葡萄王、統一藥品…) to traditional and chain retailers (丁丁、杏一、維康..) in southern Taiwan. On the other hand, cosmetics unit imports two brands of cosmetics. 政治大. products (M Brand and K Brand) from Israel and distributes to chained retailers, clinics. 立. and hospitals throughout Taiwan. The business model can be figured as below:. ‧ 國. 學 ‧. Figure 6: Business Model of Medical. n. H Company. Ch. engchi. 28. er. io. al. sit. y. Nat. Domestic Pharmaceutical Makers. i n U. v. Retailers in Southern Taiwan.

(38) Figure 7: Business Model of Cosmetics. Israel Cosmetics Makers. 立. 4.6 Shareholders. Chained Retailers, Clinics and Hospitals Throughout Taiwan. H Company. 政治大. ‧ 國. 學. The H Company is composed of four shareholders currently, shareholders are all. ‧. family members. The latest shareholder structure is as below:. io A. al. 4,359,000. n. CEO. Shares. Ch. e n g 1,705,000 chi U. er. Shareholders. sit. y. Nat. Table 5: Shareholder Structure. v ni. % 54.49 21.31. B. 1,705,000. 21.31. C. 231,000. 2.89. Total. 8,000,000. 100. 4.7 Bottleneck and Why IPO. Accompany with growth of the company, it needs more and more resources especially for talent and financials. The company has to find more talents for expansion 29.

(39) and daily operation; in addition, it needs money to execution. However, a medium size company like H Company would face a lot of difficulties when recruiting talents and funding. For recruiting, outstanding young person tend to look for well-known company, which usually are listed or foreign companies that is good for their career paths; on the other hand, experienced person tend to ask for a senior position and a higher remuneration that match the title.. 政治大. For funding, the main applicable way for the company is borrowing money from. 立. banks. Despite of this, the costs are usually higher and the credit line will be lower for. ‧ 國. 學. a medium size company comparing to those well-known companies due to higher risks bring to banks.. ‧. Through initial public offering, it will not only create another roads to choose thus. y. Nat. sit. reducing the pressure from recruitment and funding but leads the company on the track. n. al. er. io. to be more organized. Further, it will has more chance to do business with well-known. i n U. v. or foreign companies once IPO successfully. In the midterm, it is better for H Company. Ch. engchi. take IPO into consideration in order to grow up.. 30.

(40) 5. The Industry. 5.1 Evolution of Biotechnology Industry in Taiwan. Along with the development of human society, people has paid more and more attention to live well, therefore lead to significant growth in the biotechnology industry. Recently, biotechnology industry has no longer limited to medicine, relating. 治政 applications also have spread to different fields大 such as food, agriculture and public 立 welfare. As the results, lots of countries have seen biotechnology as one of main industry ‧ 國. 學. to develop in order to make contributions to its nationals` health and acquire a dominant. ‧. position in the global biotechnology market.. In Taiwan, the government has designated biotechnology a key developing area. y. Nat. er. io. sit. since 1982 and focus on R&D capabilities as well as manpower development originally. In the pace with the growth of biotechnology, Executive Yuan started to plan a. n. al. Ch. i n U. v. development policy for biotechnology, consequently approved “Action Plan for. engchi. Strengthening the Biotechnology Industry”(加強生物技術產業推動方案) in 1995. Later, in response to the development and problems faced in the biotechnology industry, the Taiwan government further initiated different plans successively. In 2016, “Biotechnology Industry Innovation Promotion Project” (生醫產業創新推動方案) has been approved. The project, contains not only three main pillars which are connection with local communities, connection with international communities and link with future, but four actions which are perfect ecosystems, integrate innovation clusters, link to international market and promote distinctive industries, hopes to push forward the 31.

(41) biotechnology industry in Taiwan. With the government released various biotechnology development addressing policies, the linkage between up and down stream of industry has become tighter. At the same time, coordination of funds, laws, incubation systems and human resources enables companies in the industry can grow well than ever. In the foreseeable future, the market of biotechnology will grow up continuously with high possibility.. 治政大 5.2 Statistical Data of the Industry 立 ‧ 國. 學. As the biotechnology industry keep going on the track to international stage, the. ‧. scale also has expanded gradually. According to “2017 White Paper on Biotechnology Industry in Taiwan” published by Industrial Development Bureau of Ministry of. y. Nat. er. io. sit. Economic Affairs (IDB), in 2016, there were 1,918 companies, 78,219 employees included in the industry. At the same time, the industry enjoyed 315 billion NTD of. n. al. Ch. i n U. v. sales in 2016 that was 5.5% higher than in 2015, exports market were 129.5 billion NTD. engchi. and domestic market demand was valued at 421.7 billion NTD. In 2016, the industry made 50.94 billion NTD investments that were 5% higher than in 2015.Till the end of 2016, National Development Fund of Executive Yuan had invested in 14 biotechnology companies and 16 venture capitals that valued more than 10 billion NTD totally. In capital market, 105 biotechnology companies were listed on the mainboard of Taiwan Stock Exchange and Taipei Stock Exchange (上市櫃), 65 companies were listed in the emerging stock market (興櫃) and 13 small in size companies were registered on the Go Incubation Board for Startup and Acceleration 32.

(42) Firm (創櫃).. 5.3. H Company in the Industry. From the data in the previous sections, biotechnology industry has been live up in all aspects apparently. As a member in the downstream of the industry, H Company is very pleased to see the bright future of biotechnology industry that can excavate more. 政治大. opportunities; however, as more and more companies join this field, H Company also. 立. should be aware of the competition after on. Go for IPO that strengthen itself much. ‧ 國. 學. quicker is an important solution that H Company should take into consideration when facing the rapid change in the industry nowadays.. ‧. n. er. io. sit. y. Nat. al. Ch. engchi. 33. i n U. v.

(43) 6. The Competitor. 6.1 Medical Products. H Company has been the major OTC drugs distributor in southern Taiwan for over 30 years. The main competition characteristic of medical product distribution market is that the longer a distributor is in the market the harder a competitor can share the market,. 治政 since upstream original manufacturers are highly 大depends on the sales channels that a 立 senior distributor built already. Since H Company has been deeply cultivated the ‧ 國. 學. medical products distribution channel in southern Taiwan for long period of time, the. ‧. competition from medical products distribution it faces today is far away smaller than that from cosmetics. As the results, we will focus on analyze the competition threats. y. Nat. n. er. io. al. sit. from cosmetics products.. Ch 6.2 Cosmetics Products e. ngchi. i n U. v. Through constant concern and analysis about competition in the field, further considering the scale, products and customers factors, the competitor that most similar to H Company is L Company which is the distributor of the Sebamed (施巴) series products in Taiwan. The major target customers of Sebamed are infants and pregnant women which is overlapping with M Brand series products of H Company. Even though H Company has other products such as K Brand that targets to different customer group from those of Sebamed, M Brand products are viewed as the main 34.

(44) force for contributing revenue stream in H Company`s cosmetics business unit in the near future. Therefore, further strength and weakness analysis between L Company and H Company as well as Sebamed and M Brand products is needed. The analysis. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 35. i n U. v.

(45) is summarized in the following table. Table 6: Strength and Weakness Analysis. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 36. i n U. v.

(46) Classifications. Strength. Weakness. L Company is. L Company is. stronger than H. weaker than H. Company in:. Company in:. 1.. 1.. Concentration on selling. style results in. medical. lots of critics.. 政治 products. 大. Company Level. L Company vs H. 立Company. Analysis. 2.. 2.. Professional. ‧ 國. 學. director of. Nat. to employees.. sit. n. v. hospital.. engchi. 37. Office building. less attractive. er. io. doctors in. Ch. 3.. ‧. Stronger. i n U. health problem.. is older that. connection with. al. Founder`s. y. doctor. 3.. Management.

(47) Classifications. Strength. Weakness. Sebamed is stronger. M Brand is stronger. than M Brand in:. than Sebamed in:. 1.. 1.. 2.. More wellknown among. ingredients are. customers.. more effective. Early input in. in treating skin. 政治 the大distribution. problems.. 立 Sebamed vs M. channels that. Brand. overlaps with. distribution. M Brand.. channels that. y. io. n. Ch. already built in. products is. medical. more. products.. German. sit. Nat. al. Using the. ‧. 3.. er. Analysis. 2.. 學. ‧ 國. Product Level. Herbal. i n U. v. acceptable than. e n g c h i Israel products.. 3.. Sales manager from L Company.. 6.3 Conclusions. At the first glance of the analysis in the above table, the M Brand will have a tough battle with Sebamed on the product level. However, the relating factors on the company level sometimes are more influential on overall situation. In fact, recently some original 38.

(48) L Company sales representatives chose to join H Company on their own due to the dislike of management style in L Company. It`s really a big help to H Company because those employees are very familiar with the strategy of L Company as well as the advantages and disadvantages of Sebamed. Nevertheless, H Company should keep developing new roads for M Brand products to make a distinction from Sebamed in order to generate more revenue stream from the products.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 39. i n U. v.

(49) 7. The Customer. 7.1 Target Customers and Needs. Since there are two business units in H Company, medical and cosmetics, we are going to separately analyze the target customers of two business units as well as find out their needs in the following table.. 政治大 Table 7: Analysis of Target Customers 立. ‧ 國. Target Customer. 學. Segment. 1.. ‧. General publics in. Nat. Medical. y. 2.. n. er. io. al. sit. southern Taiwan.. Ch. n U engchi. iv. Infant, pregnant women, Cosmetics. general publics in Taiwan.. 3.. Need Symptom relief without going to hospital or clinic. Economical solution to symptom. Free of serious side effects.. 1.. Non-irritating herbal ingredient.. 2.. Healthier skin.. 3.. Consulting about their skin problems.. 4.. Well-known brand.. 7.2 Fulfilments of Customer Needs. Thanks to the widespread medicine knowledge from internet and public media, 40.

(50) plus the assistance from pharmacist in pharmacy, people tend to buy ordinary drugs from pharmacy to relieve slight symptoms. H Company has been selling those ordinary drugs and daily used medical products for long period of time. Although the category of products are dispersed, each kind of products has its own stable customers, furthermore, sale representatives of different channels also keep updating the customers` needs from “front line” that the company can adjust its distributing strategy immediately. Therefore, the revenue and gross profits that generated from. 政治大. medical business unit has been quite stable.. 立. For cosmetics business unit, H Company can grasp the target customers` needs. ‧ 國. 學. gradually. The product line of M Brand are mainly locked to infant and pregnant women that has obtained a lot of good comments from users that means the nature of. ‧. the product is good without doubts. However, the visibility of M Brand still has to. y. Nat. sit. put more effort. The decision of first time buyer tend to compare the efficacy of M. n. al. er. io. Brand products with Sebamed and search for user comments from the internet. In the. i n U. v. past, H Company did not put much of effort on internet till recent 2 years. Hoping the. Ch. engchi. emphasis on marketing through internet will give M Brand more exposure to target customers and generate more revenue from this product line.. 41.

(51) 8. The Management. One of important core assets to a company are talents. As the brief summary showed in the table below, the major managements of H Company are all experienced professionals in their fields. However, the experienced capable men tend to claim for more remuneration, senior level position and inquire about more beneficial offer from competitors. Further, along with the expansion of the company, more and more talents. 治政 are needed in order to grow well. This is also a real 大challenge for H Company and one 立 of reasons that it starts considering IPO. Through IPO, more resources and reputation ‧ 國. 學. will flow to H Company, in the same time, means for the company to let experienced. ‧. managements stay and recruit talented young person will be more diversified. The most important of all, the recognition for employees themselves will finally increase after. n. er. io. sit. y. Nat. al. Ch. engchi. 42. i n U. v.

(52) becoming a listed company.. Table 8: Backgrounds of Major Managements. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 43. i n U. v.

(53) Department. Title. Education 1.. Experience. Bachelor of Chia Nan University of Pharmacy and. CEO. more than 30 years of. Kaohsiung Normal. relating experience. 治政University 大 3.. Certified Pharmacist of ROC. Bachelor of Dong Fang. More than 20 years sales. High School of Industry. experience of medical. and Commerce. products. y. sit. io. Bachelor of Tainan. al. n. Manager. Finance and. ‧. Manager. Nat Cosmetics. Master of National. 學. Medical. ‧ 國. 立. 2.. Founder of H Company and. More than 15 years relating. er. CEO. Science. i n U. University of Technology. Ch. engchi. v experience of cosmetics More 20 years accounting. Bachelor of Tamkang. and finance experience in. University. accounting firm and public. Manager Accounting. company Assistant. Master of National Sun. More than 10 years of. Manager. Yat-sen Universit. human resource experience. Administration. 44.

(54) 9. The Financials. One of the most important issues during preparation for IPO is the financial performance of the company, since it’s the reflection of company`s “physique” and verification of company`s business model. It is hard to change the financial results of a company in a very short period; therefore, it also means a company should well plan its financial goals especially for those plans for IPO like H Company. In this chapter, we. 治政 are going to review the financial achievements of大 H Company in recent three years, and 立 find out the improvements that H Company should work hard through set up the ‧ 國. 學. deadline to apply for IPO.. ‧. 9.1 Financial Positions. er. io. sit. y. Nat. The financial positions of H Company in recent 3 years were quite stable. Assets,. n. al. Ch. i n U. v. liabilities and equity have changed in approximately the same path with the expansion. engchi. of the company. Debt ratio was pretty high because the main funding resource of H Company has been lending from the banks, actually, it is quite common among SMEs which are highly depend on banks for funding. However, the subject that should be emphasized in the table is accumulated deficits that it started to decrease in last 3 years due to the improvements in profitability. Stable profitability without accumulated deficits is one of major requirements that H Company should try hard to achieve before sending applications for IPO.. 45.

(55) Table 9: Financial Positions In Thousands NTD, %. Year 2017. YoY. 2016. YoY. 2015. Subject Assets. 310,080. 1.92%. 304,231. 17.14%. 259,722. Liabilities. 235,523. 2.16%. 230,552. 22.73%. 187,849. Equity. 74,557. 1.19%. 73,679. 2.51%. 71,873. Paid-In Capital. 80,000. -. 80,000. 立. Debt Ratio. 6,439. -21.90%. 8,245. -7.76%. 8,939. 75.96%. -. 75.78%. -. 72.33%. 學. Deficits. ‧. ‧ 國. Accumulated. 政治- 大80,000. y. Nat. n. er. io. al. sit. 9.2 Income Performance. i n U. v. The earning before tax (EBT) of H Company fluctuated much more by comparing. Ch. engchi. to sales as well as gross profits in last 3 years. The main reason that caused earning before tax to fluctuate was from operating expenses. After in-depth analyzing, it was the expansion of H Company in recent years that caused human resource and marketing relating expenses have been increased. In the midterm, the patterns of sales and gross profits will keep increasing gradually according to the managements` projection because the composition of products and cost of goods sold will not change a lot. On the other hand, in order to meet the earning requirements of IPO, more applicable way for H Company is starting to examine its operating expenses especially those for human 46.

(56) resource and marketing. Besides from this, all other expenses should also be well controlled in avoid of unnecessary waste thus influence the earnings directly. By means of controlling the gross profits and operating expenses mainly, we hope a more stable. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 47. i n U. v.

(57) profit earing performance can be reached before sending the applications for IPO. Table 10: Income Performance In Thousands NTD; %. Year 2017. YoY. 2016. YoY. 2015. Subject Sales. 248,765. Gross 52,323 Profits. 立. Loss. 51,327. -1.85%. -49,755. 133.40%. 1,572. v 1,494. 103.54%. 734. -48,836. 2,652. -27.72%. 3,669. y. sit. a1,594 l C h. n Operating. 2.30%. 1.71%. io. Non-. 52,505. 治政 -0.35% 大. -49,671. Nat. Income. 232,238. ‧. Operating. 3.24%. er. Expenses. 239,759. 學. Operating. ‧ 國. Less:. 3.76%. 6.69%. engchi. i n U. Earning 1,058. -51.36%. 2,175. 159.55%. 838. 21.03%. -. 21.90%. -. 22.10%. 1.32%. -. 2.72%. -. 1.05%. Before Tax Gross Profits Ratio EBT to PIC Ratio. 48.

(58) 9.3 Pro-forma Financial Performance. Since the managements of H Company hope to achieve the goal for IPO within next few years, preliminary, we set three years as the deadline for reaching three selective profitability requirements of TPEx mainboard (not necessarily apply for IPO at the same time), which is selected in the previous chapter as the targeted IPO market for H Company, with some assumptions in order to find out which plan is more. 政治大. applicable and ahcieveable for H Company.. 立. order to forecast the financial results more efficiently:. 學. ‧ 國. Before starting the analysis, we will make following assumptions in advance in. 1. Sales keep growing at the rate of 3.5% which is the average growing rate of. ‧. recent two years.. Nat. sit. y. 2. Gross profits ratio stay at the rate of 21.68% which is the average ratio of recent. n. al. er. io. three years.. i n U. v. 3. No non-operating losses which are not controllable by managements.. Ch. engchi. 4. Neglect the changes of assets and liabilities which are not going to variate a lot in the midterm that predicted by management based on past experience. 5. Paid-in capital will be unchanged. 6. Corporate income tax rate is 20%.. Scenario: Suppose H Company plans to reach the profitability requirements within next three years. 1.. Plan1: EBT> 4 million in the last year with EBT to PIC ratio 4% in the last 49.

(59) year without accumulated deficit. Firstly, H Company will have to earn 4 million of earnings before tax at the end of third year, under this prerequisite, H Company will also meet the profitability requirement of 4% EBT to PIC ratio at the same time. Secondly, we will calculate the decreasing rate that H Company has to reach for the purpose of cleaning all accumulated deficits at the end. 政治大. of third year. Since the number of accumulated deficits in 2017 was. 立. 6,439 thousand dollars and earnings after tax in 2020 will be 3,200. ‧ 國. 學. thousands, it means H Company has to earn at least 1,621 thousands after tax (2,026 thousands before tax) in rest of two years to turn accumulated. ‧. deficits into retained earnings at the end of third year.. y. sit. Nat. Thirdly, basing on the assumptions we made in the previous, the. n. al. er. io. pro-forma income statement in the next three years under this plan will. Ch. engchi. 50. i n U. v.

(60) look like Table 11.. Table 11: Pro-forma Income Statement under Plan 1 In Thousands NTD; %. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 51. i n U. v.

(61) Year 2020. YoY. 2019. YoY. 2018. YoY. 2017. Subject. Gross Profits. 3.5%. 266,484. 3.5%. 257,472. 3.5%. 248,765. 59,796. 3.5%. 57,774. 3.5%. 55,820. 6.68%. 52,323. 55,796. 1.87%. 治 3.63% 政 55,748 大. 53,794. 8.3%. 49,671. 2,026. -23.6%. 2,652. -. -. 1,594. 2,026. 91.49%. 1,058. 1,621. 91.61%. 846. Less: Operating Expenses. 立. Operating. -. -. -. 4,000. 14.29%. 2,026. -. y. io. Tax. -. Nat. Earning Before. -. ‧. Loss. 2,026. n. al. er. Non-Operating. 14.29%. ‧ 國. Income. 4,000. 學. 275,811. Earning After 3,200 Tax. sit. Sales. Ch. e n g1,621 chi. 14.29%. i n U -. v. Gross Profits 21.68%. -. 21.68%. -. 21.68%. -. 21.03%. 5%. -. 2.53%. -. 2.53%. -. 1.32%. -. -. 3,197. 33.64%. 4,818. -25.17%. 6,439. Ratio EBT to PIC Ratio Accumulated Deficits. 52.

(62) Retained 3. -. -. -. -. -. -. Earnings. Plan2: EBT> 4 million in the last year with EBT to PIC ratio >3% in the last continuous 2 years. Firstly, H Company will have to earn 4 million of earnings before tax at the end of third year, under this prerequisite, H Company will also. 政治大. meet the profitability requirement of 3% EBT to PIC ratio in the last year.. 立. Secondly, H Company will also have to earn more than 3% of PIC. 學. ‧ 國. before tax (2,400 thousands before tax; 1,920 thousands after tax) in order to meet the requirement. However, there is no profitability. ‧. limitation in the most recent year, we assume that H Company can earn. Nat. io. sit. y. 2% of PIC before tax under this plan. The pro-forma income statement. n. al. er. 2.. Ch. engchi. 53. i n U. v.

(63) in the next three years under this plan will look like Table 12.. Table 12: Pro-forma Income Statement under Plan 2 In Thousands NTD; %. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 54. i n U. v.

(64) Year 2020. YoY. 2019. YoY. 2018. YoY. 2017. Subject. Gross Profits. 3.5%. 266,484. 3.5%. 257,472. 3.5%. 248,765. 59,796. 3.5%. 57,774. 3.5%. 55,820. 6.68%. 52,323. 55,796. 0.76%. 治 2.13% 政 55,374 大. 54,220. 9.16%. 49,671. 1,600. 39.67%. 2,652. -. -. 1,594. 1,600. 51.23%. 1,058. 1,280. 51.3%. 846. Less: Operating Expenses. 立. Operating. 50%. -. -. -. -. 4,000. 14.29%. 2,400. 50%. y. io. Tax. Nat. Earning Before. al. n. Earning After. ‧. Loss. 2,400. er. Non-Operating. 14.29%. ‧ 國. Income. 4,000. 學. 275,811. sit. Sales. Ch. 1,920 eng chi. i n U50%. v. 3,200. 14.29%. 21.68%. -. 21.68%. -. 21.68%. -. 21.03%. 5%. -. 3%. -. 2%. -. 1.32%. -. -. 3,239. -37.22%. 5,159. -19.88%. 6,439. Tax Gross Profits Ratio. EBT to PIC Ratio. Accumulated Deficits. 55.

(65) Retained 39. -. -. -. -. -. -. Earnings. Plan3: EBT> 4 million in the last year with EBT to PIC ratio average 3% in the last 2 years and the final year is better. H Company will have to earn 4 million of earnings before tax at the end of third year, which is 5% of PIC. Under this circumstance, H. 政治大. Company will have to earn 1% of PIC before tax (800 thousands before. 立. tax; 640 thousands after tax) in order to meet the profitability. 學. ‧ 國. requirement of average 3% EBT to PIC ratio in the last year and the final year is better. However, there is no profitability limitation in the most. ‧. recent year, we assume that H Company can earn 1% of PIC before tax. Nat. io. under this plan will look like Table 13.. n. al. sit. y. under this plan. The pro-forma income statement in the next three years. er. 3.. Ch. engchi. 56. i n U. v.

(66) Table 13: Pro-forma Income Statement under Plan 3 In Thousands NTD; %. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 57. i n U. v.

(67) Year 2020. YoY. 2019. YoY. 2018. YoY. 2017. Subject. 3.5%. 266,484. 3.5%. 257,472. 3.5%. 248,765. 59,796. 3.5%. 57,774. 3.5%. 55,820. 6.68%. 52,323. 政- 治大 56,974 3.55%. 55,020. 10.77%. 49,671. -69.83%. 2,652. -. -. 1,594. 800. 24.39%. 1,058. Less: Operating 55,796. 800. -. -. -. -. 800. y. 500%. -. al. n. Earning Before. io. Loss. Nat. Non-Operating. 4,000. ‧. Income. 2.07%. 學. Operating. ‧ 國. Expenses. 立. 4,000 Tax. sit. Gross Profits. 275,811. er. Sales. C500% h e n g c800h i. i n U -. v. Earning After 3,200. 500%. 640. -. 640. 846. Tax 24.35%. Gross Profits 21.68%. -. 21.68%. Ratio. 58. -. 21.68%. -. 21.03%.

(68) EBT to PIC 5%. -. 1%. -. 1%. -. 1.32%. 1,959. -62.03%. 5,159. -11.04%. 5,799. -9.94%. 6,439. Ratio Accumulated Deficits. 9.4 Conclusion. 政治大. From the pro-forma financial statements that we made in the previous section, even. 立. 學. ‧ 國. though H Company can achieve the goal under three plan, the priority of the plan will be Plan2> Plan1> Plan3. The merits and demerits of each plan are compared as below:. Demerits. Ranking. sit. y. ‧. Merits. Nat. No accumulated. The EBT to PIC. io. deficits in the last. n. al. year.. 2. er. Plan 1. Table14: Merits and Demerits of IPO Plans. ratio are same in the. v i n middle 2 years that Ch engchi U will show growing problems.. Plan 2. 1. No accumulated. No apparent. (Selected). deficits in the last. demerits comparing. year and retained. to 2 other plans.. earnings is the highest among 3. 59. 1.

(69) Merits. Demerits. Ranking. plans. 2. The profits grows up step by step that will more acceptable to supervising. investors.. 學 1. Has accumulated. comparing to 2 other. deficits in the last. io. n. al. year.. sit. Nat. plans.. y. ‧. No apparent merits. 2. The EBT to PIC. er. Plan 3. ‧ 國. 政治大 agencies and 立. v i n Ch are same in the e n g cratio hi U middle 2 years that will show growing problems. 3. Overall profitability pattern. 60. 3.

(70) Merits. Demerits. Ranking. is too radical.. According to the table above, Plan 3 is the worst plan because its profitability pattern is too radical and the accumulated deficits is still exist at the end of last year. Plan1 is much better than Plan3 but still worse than Plan2 because its profitability pattern is not. 治政大 choice to H Company because there will be no accumulated deficits in the last year and 立 the profitability grow step by step that will be more likely to be accepted by supervising grow step by step and the retained earnings is lower than Plan2. Plan2 is the best of. ‧ 國. 學. agencies and investors base on experience. Therefore, H Company has better to set. ‧. Plan2 as its goal and start to review what should be improved that will discuss in the next chapter.. n. er. io. sit. y. Nat. al. Ch. engchi. 61. i n U. v.

(71) 10. The IPO Evaluation. 10.1 IPO Evaluation. As the conclusion made in the Chapter 2, it is more suitable for H Company targets to list on the mainboard of TPEx in the midterm. In this chapter, we are going to use a table comparing the current status of H Company with the major requirements of IPO. 治政 in TPEx mainboard for making a preliminary evaluation 大 that the company is able to 立 comprehend what have to improve in order to reach the goal. ‧ 國. 學 ‧. Table 15: Preliminary IPO Evaluation for H Company to List on TPEx. n. er. io. sit. y. Nat. al. Ch. engchi. 62. i n U. v.

(72) Mainboard. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 63. i n U. v.

(73) Requirement. TPEx Mainboard. Size Establishment. H Company. Readiness. PIC > 50 million. PIC is 80 million. YES. >2 years. Since 1969. YES. EBT>4 million most recent year and EBT to PIC ratio meet one of following criteria: 1.. 1. EBT 1.058 政治大 million.. 立4% in most. ‧ 國. recent year. Accumulated. 學. 2.. deficit 6.439 without. ‧. million the year accumulated. Profitability. NO. >3%in. y. 2.. EBT to PIC. er. 3.. sit. deficit.. io. Nat. end of 2017.. n. ratio: acontinuous 2 iv l C n (1) 2017: U 1.32% h years. e n g c h i (2) 2016: 2.72%. 3.. Average 3% in recent 2 years and most recent year is better. Trading as an. Trading Period. emerging stock >6. None. months 64. NO.

(74) Requirement. TPEx Mainboard. H Company. Readiness. 2. None. NO. Recommending Securities Firms. 10.2. Plan. 治政大TPEx. Nevertheless, the requirement meet before it can apply to list on the mainboard of 立 of trading as an emerging stock (Level 3 market; 興櫃) as well as recommending by 2. From the table above, there are still 3 major requirements that H Company has to. ‧ 國. 學. 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. y. Nat. er. io. sit. recommendation materials for IPO purpose once H Company achieve profitability requirements. In short, H Company has to devote its mind into improve the profitability.. n. al. Ch. i n U. v. Assume that the governance of H Company has decided to apply for IPO no later than. engchi. 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 65.

(75) 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. 政治大. persons for marketing and sales, in addition, for the purpose of attracting. 立. ideal experienced talents and stimulating morale, the company has send. ‧ 國. 學. 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. Nat. sit. y. professions to operate the company well but expenses incurred. n. al. er. io. simultaneously. Under this situation, the optimal choice for H Company. i n U. v. will be reviewing all expenditure policies especially those of personnel. Ch. engchi. 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 66.

(76) 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. 政治大. into retained earnings in order to make sure that the company has the. 立. ability to share its operating performance with shareholders in the future.. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 67. i n U. v.

(77) 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.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 68. i n U. v.

(78) 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) 2017 中小企業白皮書 by 經濟部中小企業處. 政治大. (http://www.moeasmea.gov.tw). 立. 學 ‧. ‧ 國 io. sit. y. Nat. n. al. er. 4.. Ch. engchi. 69. i n U. v.

(79) Appendix. . 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. 政治大 Its paid-in capital shall be not less than NT$50 million and the number of its offered and 立. requirements: 1.. ‧ 國. 學. 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. y. sit. io. al. v i n full fiscal years. Its ratio ofC nethincome e n gbefore c h itaxUto share capital stated in the financial. It shall have been incorporated and registered under the Company Act for no less than 2. n. 2.. er. capital.. Nat. been publicly issued shall not be counted in the calculation of the aforesaid amount of. 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 70.

(80) 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. 政治大. regulations concerning placement in central custody and withdrawal from custody upon. 立. expiration shall be separately prescribed by the TPEx.. ‧ 國. 學. 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).. y. Nat. It shall engage a professional shareholder services agent to handle shareholder services. A. sit. 6.. n. al. er. io. TPEx listed company that was listed at any time from 2 January 2013 onward shall engage. i n U. v. a professional shareholder services agent to handle shareholder services, and may not take. Ch. engchi. 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. 71.