[At a Crossroads: Listed Companies]③ Soribada, What Is the Reality of Its Mask Business?

[Asia Economy Reporter Jang Hyowon] It has been confirmed that the mask joint business declared by Soribada to be conducted in February has not been realized at all to date. Furthermore, the mask supply contract signed on the 14th is with one of multiple intermediate distributors, making the profit margin unclear and raising expectations of future regulatory sanctions.

◆Multiple Intermediate Distribution Networks... Who Are the Suppliers?

According to the Financial Supervisory Service's electronic disclosure on the 20th, Soribada signed a supply contract worth 5.9 billion KRW for disposable masks (dental masks) on the 14th. This amount corresponds to 12.87% of last year's total sales. The contracting party is MPS Partners.

Soribada is a company that provides music streaming and download services. As of last year, content sales accounted for 80.3% of total revenue. This is the first mask-related supply contract. Previously, Soribada added mask manufacturing and sales to its business objectives at an extraordinary general meeting of shareholders on February 21.

The general disposable masks supplied by Soribada this time are not directly manufactured by them but sourced from SY Industry. There are two types of masks: domestic use and export. Domestic masks are sourced directly from SY Industry, while export masks pass through a distributor, DSK Global, before arriving. DSK Global operates the Body & Nature website and is a women's products retailer.

MPS Partners, which receives goods from Soribada, resells masks to other distributors, religious organizations, or corporations rather than retailers. The distribution structure is manufacturer (SY Industry) → DSK Global → Soribada → MPS Partners → intermediate distributors or corporations.

Proceeding in this manner allows Soribada to gain a sales increase effect of 5.9 billion KRW, but because there are 3 to 4 intermediate distributors between the manufacturer and the consumer, the profit margin is likely to be relatively reduced.

Moreover, the involvement of multiple intermediaries in mask distribution could become a target for future sanctions. On the 14th, the Seoul Central District Prosecutors' Office's special investigation team for mask distribution disruption pointed out that the proliferation of mask distributors and the multi-level distribution structure were factors in price increases. They recommended that related government agencies, including the Central Disaster and Safety Countermeasures Headquarters, consider introducing distribution regulations for masks.

Meanwhile, the management of MPS Partners consists of executives from ‘Dahui,’ a company delisted in 2010. Dahui was a company where K, the former CEO of Signal Entertainment?which was delisted in 2018 due to fraudulent transactions, breach of trust, and embezzlement?served as president. MPS Partners is also new to the mask business.

An MPS Partners representative said, “We pursued the mask distribution business because it is highly profitable,” adding, “We are conducting the business completely independently from the past company.”

◆No Progress After Mask Business MOU... Only Stock Price Fluctuations

It has been confirmed that the mask manufacturing business Soribada announced it would invest in last February has not progressed at all since the signing of the memorandum of understanding (MOU).

On February 5, Soribada announced that it had signed an MOU with Mizline for exclusive sales rights, joint development, and additional machinery support related to KF94 masks. They also stated that they would make mutual equity investments with Mizline.

Regarding this, a Mizline official said, “Since signing the MOU with Soribada, no actual joint projects have been carried out,” and “Currently, we are independently pursuing the mask business without any relation to Soribada.”

Nevertheless, Soribada's stock price fluctuated amid mask-related issues. On February 5, Soribada's stock price rose by 4.5% intraday due to mask-related news but then plunged to the -5% range. On the 14th, despite a 7.4% surge following the mask supply contract disclosure, the stock ultimately closed down by about 4%.

Meanwhile, on the 10th, financial authorities announced plans to conduct intensive crackdowns on so-called COVID-19 theme stocks, including masks.

The financial authorities stated, “Companies unrelated to COVID-19 or those with unclear business substance are being spotlighted as theme stocks, causing sharp stock price fluctuations and raising concerns about investor damage,” adding, “We will inspect for unfair trading activities with high likelihood, such as disposal of major shareholders' stocks after announcing COVID-19-related favorable plans and profit extraction using nominee accounts.”