[At a Crossroads: Listed Company] Koise with Three Consecutive Years of Losses... 'Obstacle' Covid-19 Encountered Amid Performance Improvement

[Asia Economy Reporter Yoo Hyun-seok] Koiz, a backlight unit (BLU) component manufacturer for liquid crystal displays (LCD), has recorded losses for three consecutive years, making this year's performance more critical than ever. If poor performance continues for four consecutive years, the company will be designated as a management item. Although recent performance improvements have appeared, the company is facing the adverse effect of global concerns over a slowdown in LCD demand due to the novel coronavirus disease (COVID-19).

Founded in 2006, Koiz is an optical materials specialist company primarily producing optical film coatings and light guide plate products for LCD BLU. It was listed on the KOSDAQ market in September 2012. Koiz's performance steadily grew until the early 2010s. Sales on a separate basis increased from 18.4 billion KRW in 2010 to 35 billion KRW in 2012. Operating profit also steadily improved, rising from 4.3 billion KRW to 9.1 billion KRW during the same period.

However, as the display market shifted its focus from LCD to organic light-emitting diode (OLED), the business environment deteriorated, and Koiz's performance began to decline. In 2013, the year following its KOSDAQ listing, the company recorded separate sales of 23.8 billion KRW and operating profit of 1 billion KRW, showing a decline compared to the previous year. In 2015, sales were 22.9 billion KRW with an operating loss of 1.9 billion KRW, marking a transition to losses. Although it returned to profitability in 2016, it recorded large operating losses of 8.3 billion KRW and 8.6 billion KRW in 2017 and 2018, respectively.

At that time, Koiz faced a heavy burden from cost of goods sold. The cost of goods sold ratio, which was 82.91% in 2016, soared to 115.55% and 107.07% in 2017 and 2018, respectively. In 2018, selling a product for 100 KRW meant a loss of 7 KRW per unit, indicating that the more products sold, the greater the loss. As performance rapidly deteriorated, the financial structure also worsened. The debt ratio, which was 78.6% in 2016, sharply increased to 96.6% in 2017 and 196.1% in 2018. Additionally, the short-term borrowings dependency rose from 28.3% to 50.7% during the same period, significantly weakening financial stability.

In particular, in 2018, continuous large-scale losses caused the pre-tax continuing operations loss rate to exceed 50% of equity capital, raising serious concerns. Furthermore, in the first quarter of last year, due to the issuance of convertible bonds (CB) in 2018 and a decrease in equity capital, the debt ratio rose to 218.5%, increasing the likelihood of being designated as a company subject to a designated auditor.

However, concerns about the company have lessened as it expanded capital through a paid-in capital increase last year and showed signs of performance improvement. Koiz decided on a paid-in capital increase of 5 billion KRW through a rights offering followed by a general public offering of unsubscribed shares last year. The newly issued shares numbered 3.5 million, with a price per share of 1,410 KRW. At that time, Koiz invested most of the funds raised through the capital increase in purchasing raw and subsidiary materials. The total amount was 4.935 billion KRW, and the company explained, "Since sales of composite films are expected to expand compared to the previous year from 2019, the purchase amount of raw and subsidiary materials is expected to increase."

Along with this, last year, sales reached 32.3 billion KRW, a 90.17% increase compared to the previous year. Operating losses also decreased to 255.28 million KRW. The cost of goods sold ratio was 86.7%. The company attributed this to yield improvements of new optical film models and diversification of customers. A company representative stated, "Performance is gradually improving compared to the previous year, and we are considering holding an investor relations (IR) session after confirming first-quarter results."

Financial conditions also improved due to the paid-in capital increase. Last year's debt ratio was 90.48%, down more than 100 percentage points compared to 2018. However, due to continued losses, accumulated deficit increased from 4.8 billion KRW in 2018 to 5.2 billion KRW.

The problem lies in this year. Koiz has recorded losses for three consecutive years from 2017 to 2019. If poor performance continues this year, the likelihood of being designated as a management item increases. Although Koiz raised the possibility of improvement by increasing sales and reducing operating losses last year, external conditions are unfavorable.

Concerns have emerged that LCD product demand will shrink due to the impact of COVID-19. Korea Investment & Securities forecasts that global LCD TV demand will decrease by 3.6% to 212 million units this year compared to the previous year. Previously, a 0.8% increase was expected. The light guide plates and optical films produced by Koiz are applied to LCD BLU. If LCD demand decreases, it could naturally have a negative impact on performance.