[Post-IPO]⑪ Jeonjin Biopharm, Product Sales '0' Prepared as New Revenue Source... "Will the Second Half Be Different?"

[Asia Economy Reporter Yoo Hyun-seok] The performance slump of Jeonjin Bio Pharm, now in its third year listed on KOSDAQ, continues. This is because sales of products expected to be growth drivers have not materialized. The company plans to improve its performance in the second half of the year through sales of laundry products and animal damage reduction agents related to African Swine Fever (ASF).

Jeonjin Bio Pharm was established in 2004. It operates in the pest damage reduction agent business, a sector within the pest control industry, based on natural substances. Currently, it has built data on 700 types of active substances. The company possesses functional materials that can be applied to various pest damage reduction agents.

Mirae Asset Daewoo, the lead underwriter, expected steady growth in sales of Jeonjin Bio Pharm’s insect repellent products and a rapid increase in sales of sea lice (salmon parasites) damage reduction agents. Based on this, the projected 2018 performance was KRW 2.848 billion in sales and an operating loss of KRW 1.6 billion. For 2019, sales of KRW 10.8 billion and operating profit of KRW 4 billion were anticipated, and for this year, rapid growth was expected with sales of KRW 26.4 billion and operating profit of KRW 14.5 billion.

Through this, in the IPO market, Mirae Asset Daewoo proposed a desired public offering price of KRW 15,000 to KRW 17,000 for Jeonjin Bio Pharm, but the final offering price was set at KRW 10,000, below the lower end of the desired range. Ultimately, Jeonjin Bio Pharm’s planned public offering amount, which aimed to raise KRW 7.5 to 8 billion, was limited to KRW 5 billion.

Jeonjin Bio Pharm entered the KOSDAQ market in December 2018. That year, the company’s performance was poor. The sales forecast was KRW 2.8 billion, but actual sales were only KRW 1.4 billion, half of the projection. According to the prospectus, Mirae Asset Daewoo reviewed the third quarter 2018 results during the 13th corporate due diligence. Despite reviewing up to the third quarter, the full-year performance deviation rate reached 51%. Operating losses were KRW 3 billion, nearly double the forecasted KRW 1.6 billion. Overall, business operations were sluggish. The insect repellent product, expected to generate KRW 1.6 billion in sales, only achieved KRW 700 million, and the pest damage reduction agent, expected to reach KRW 1 billion, recorded KRW 600 million. There were no sales at all for the sea lice damage reduction agent.

Performance in 2019 was even worse. Sales reached KRW 3.9 billion, showing a deviation rate of 63.2% from the forecast. Operating losses were KRW 2 billion. Overall sales performance was poor. Except for one product, no sales occurred or sales declined compared to projections. Only the pest damage reduction agent saw increased sales; the rest underperformed. Notably, the sea lice damage reduction agent, which was expected to generate KRW 7 billion in sales, recorded zero sales. A company official explained, "The sales channels requested proof of effectiveness, but the verification tests are still ongoing. Additionally, due to COVID-19, sales activities in Europe have not been conducted normally."

This year, it is also expected to be difficult to achieve forecasted performance. Jeonjin Bio Pharm recorded KRW 1.8 billion in sales and an operating loss of KRW 900 million in the first half. Sales increased by 63% compared to the same period last year. Although operating losses continued, the deficit narrowed slightly. The official said, "At the time of preparing the securities registration statement, it was expected that sales would occur as R&D development was completed, but this did not happen, so no sales were generated. Also, products developed last year and contracted for supply were delayed due to COVID-19 and other factors."

As the performance slump continues, Jeonjin Bio Pharm’s financial condition is also deteriorating. The deficit, which was KRW 12.2 billion in 2018, increased to KRW 18.7 billion in the first quarter, and the debt ratio rose from 82.1% to 457.9% during the same period. With worsening performance and financial structure, Jeonjin Bio Pharm also proceeded with fundraising. It issued convertible bonds (CB) worth KRW 2.2 billion and KRW 3.5 billion last year and this year, respectively, and also issued corporate bonds worth KRW 600 million. Among these, the KRW 2.2 billion CB was repaid early.

However, the company plans to improve performance in the second half of the year as sales of newly developed laundry products such as capsule detergents and ASF-related animal damage reduction agents are showing favorable results. The official emphasized, "The insect repellent is currently doing well on Chinese home shopping channels, and ASF-related substances are also being sold. Our goal is to improve performance in the second half."