[Funding] Joymax①, 30 Billion KRW Capital Increase After Listing Due to Performance Decline... "New Game Success Desperately Needed"

[Asia Economy Reporter Yoo Hyun-seok] Game development company Joymax is conducting its first paid-in capital increase since its listing. It plans to raise a large-scale fund of 30 billion KRW to be used for marketing and operating expenses related to a new mobile game scheduled for release. As Joymax was designated as a management item in March, the success of the game is crucial.

According to the Financial Supervisory Service on the 13th, Joymax will carry out a paid-in capital increase through a 30 billion KRW shareholder preferential public offering. The total number of shares to be issued is 7,290,401, with a planned issue price of 4,115 KRW per new share. Since 85.7% (8,505,234 shares) of the total shares will be newly issued, stock dilution is inevitable. As of this date, Joymax's market capitalization is about 36 billion KRW, which corresponds to 83% of the total amount.

◆176 Billion KRW Used Only for Operating Expenses and Debt Repayment Amid Worsened Performance

Joymax plans to use 2.1 billion KRW monthly from January to June next year for labor costs and office maintenance expenses from the capital raised through the paid-in capital increase. The total amount is 12.6 billion KRW. This is for new game development and service. The reason for investing a large amount in maintenance costs is interpreted as due to continued poor performance.

Joymax has been running deficits on a consolidated basis from 2014 through the first half of this year. Sales in the first half of this year were 18.5 billion KRW, a 26.1% increase compared to the same period last year. Operating loss was 1.7 billion KRW, a reduction from the 6.3 billion KRW loss in the same period last year.

Although the deficit size has decreased, the debt ratio has increased sharply due to accumulated losses over a long period. The debt ratio, which was 33.6% in 2017, surged to 958.5% in the first half of this year. The deficit also amounts to 33.5 billion KRW.

Due to deteriorating performance, the company was designated as a management item in March. This was because in two of the last three business years, pre-tax continuing business losses exceeded 50% of equity capital. If pre-tax continuing business losses exceeding 50% of equity capital occur again this year, delisting is possible.

Next year is also a concern. On a separate basis, the company has been in deficit from 2018 through the first half of this year. Sales in the first half increased by 24.63% year-on-year to 5.7 billion KRW, but operating loss was 2.7 billion KRW. If losses continue this year, it will be three consecutive years of operating losses, and depending on next year's performance, the company may be designated as a management item in 2021.

5 billion KRW will be used to repay borrowings. Joymax borrowed 5 billion KRW from Jeongi IP in September. This was to be used for marketing expenses of the mobile game 'Star Wars™: Starfighter Mission'. Jeongi IP is a special related party wholly owned by the largest shareholder, Wemade.

◆Two New Titles That Will Decide the Company's Future

For Joymax, which is struggling due to worsening performance, the success of new titles has become important. Joymax plans to invest 2.4 billion KRW and 2 billion KRW respectively in the mobile games 'Star Wars™: Starfighter Mission' and 'Rise of Stars (RISE OF STARS)'. The purpose is for marketing and service usage fees, with the usage period scheduled from January to June next year. Additionally, 3 billion KRW will be used to pay license fees.

'Star Wars™: Starfighter Mission', scheduled for release at the end of this month, is a mobile flight shooting game utilizing the Star Wars IP (intellectual property). Players can collect over 80 types of starfighters appearing in the Star Wars universe, including Han Solo's Millennium Falcon, Luke Skywalker's X-Wing, and Darth Vader's TIE Fighter. Pre-registration began in June.

'Rise of Stars (RISE OF STARS)', scheduled for release in the first quarter of next year, is a full 3D designed sci-fi strategy game. It includes elements such as space base growth, PVP, and GVG wars. It was planned in 2016 and development started in 2017. Approximately 8.085 billion KRW has been invested in development so far, and an additional 1.6 billion KRW is expected to be needed by the first quarter of next year. About 10 billion KRW has been spent on development costs alone.

The remaining 5 billion KRW will be used to acquire securities of other corporations. Joymax has previously made equity investments in companies such as Plerogames, the developer of the mobile game 'Everytown', Link Tomorrow, the developer of 'Windrunner', and Idle Idea Factory, the developer of 'Abyssrium'. The company plans to strengthen development capabilities and secure content through capital investment.

Since both the largest shareholder and related parties plan to participate in this paid-in capital increase, concerns about dilution of the largest shareholder's stake are low. Wemade, the largest shareholder, is expected to be allocated 2,517,171 shares, accounting for 34.53% of the issued shares, and CEO Lee Gil-hyung, a related party, will be allocated 857,016 shares, or 11.76%. According to the securities registration statement, they plan to participate 100% in the capital increase. After completion, the total shareholding ratio is expected to increase from the current 44.69% to 45.42%.

Meanwhile, Joymax, established in 1997, developed titles such as 'Silkroad Online', 'Windrunner', 'WindrunnerZ', 'Matgo-ui Sin', 'Candy Pang: Juicy World', and 'Play Poker', and entered the KOSDAQ market in 2009.