After Majority Shareholder Sale, Company Performance Plummets
Audit Opinion 'Disclaimer' and Trading Suspension... Facing Delisting Crisis
Amid the aftermath of the novel coronavirus infection (COVID-19), funds are flowing into the frozen initial public offering (IPO) market. This year’s largest IPO, SK Biopharm, attracted subscription deposits amounting to 31 trillion won, marking the largest scale ever. Internet-only bank KakaoBank is also preparing for its IPO, aiming for a listing in the second half of this year. As the domestic stock market has shown significant volatility due to COVID-19, the number of individual investors newly starting stock investments has increased. With growing interest in IPO investments, it is necessary to make judgments about the appropriate offering price when investing in public offerings. Asia Economy reviews the investment prospectuses presented by newly listed companies on the domestic stock market and examines the appropriateness of their offering prices.
[Asia Economy Reporter Yoo Hyun-seok] Samco entered the stock market with the title of being the only aircraft door system company in Korea. However, in the third year after listing, the CEO sold the company last year, leading to a sharp deterioration in performance. Along with worsening financial conditions, the company eventually received a disclaimer of opinion from auditors. It is now at risk of being delisted from the stock market just four years after its KOSDAQ listing.
Samco was established in 2002. As Korea’s only specialized aircraft door system company, it manufactures and produces passenger doors, cargo doors, and inspection doors. It supplies products to about 10 global major aircraft manufacturers including Russia’s Sukhoi, the United States’ Boeing and Spirit, and Europe’s Airbus Helicopters. At the time of listing, Samco emphasized that there were only five companies worldwide specializing in aircraft door systems, showcasing its technological prowess.
In September 2017, when it was listed on KOSDAQ, Samco recorded sales of 30.1 billion won and operating profit of 3.2 billion won. The forecasted sales and operating profit were 33.2 billion won and 3.8 billion won, respectively, with deviation rates of 9.33% and 15.38%. The problem began in 2018 when the gap between projected and actual performance widened significantly. In 2018, Samco’s expected sales were 48.8 billion won and operating profit 6.4 billion won, but actual sales and operating profit were only 31.2 billion won and 4.2 billion won. Samco had agreed to supply the entire door system parts for Mitsubishi’s MRJ commercial aircraft. However, delays in the certification process during MRJ’s development led to adjustments in Samco’s mass production schedule, delaying revenue generation.
In 2019, Samco faced major upheaval. In May 2019, then-CEO Lee Chang-woo and four others transferred 45.50% of shares worth 30 billion won to Credo Partners and five others. The CEO sold the company about one year and six months after listing.
After the change of the largest shareholder, both performance and financial conditions deteriorated. Last year, sales were 25.7 billion won, but operating losses reached 24 billion won. The debt ratio increased from 47.3% at the end of 2017 to 432.5% at the end of last year. Consequently, Samco received a disclaimer of opinion from Samil Accounting Corporation that year. Samil Accounting explained, “Operating losses amount to 24 billion won, and net losses are 32 billion won. As of the end of the reporting period, current liabilities exceed current assets by 4.8 billion won, raising significant doubts about the company’s ability to continue as a going concern.”
Moreover, the company’s plan to diversify its business through acquisitions also fell through. On the 1st, the contract to acquire management rights of precision casting company TH Precision was canceled. At that time, Samco had substituted 6 billion won of the 8.2 billion won acquisition price with convertible bonds (CB), but due to the disclaimer of opinion, the CB’s maturity benefits were lost, leading to the contract cancellation.
The problem is that Samco’s situation is not improving but worsening, making its recovery prospects uncertain. In the first quarter, Samco recorded sales of 4.7 billion won and operating losses of 3.9 billion won. Sales decreased by 26.74%, and operating losses increased. Particularly, the debt ratio reached 1051.7%.
Meanwhile, Samco’s trading is currently suspended, and it has been granted an improvement period until April 12 next year. If it receives another adverse audit opinion next year, it will be delisted.
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