[Funding] Dreamtech to Foster Healthcare for Business Diversification

Smartphone Sales Share Over 50%... Module Specialist
Fostering Healthcare with Wireless ECG Sensors and Next-Generation Artificial Joint Sensors

[Asia Economy Reporter Hyungsoo Park] Dreamtech has begun raising funds as it rushes to commercialize an electronic nose solution that detects infection with the novel coronavirus (COVID-19). The company intends to foster its healthcare sector, including the electronic nose solution and wireless electrocardiogram (ECG) patches, as a new growth engine.

According to the Financial Supervisory Service on the 3rd, Dreamtech will proceed with a paid-in capital increase by allocating 0.048 new shares per one existing share. The planned issue price for the new shares is 9,100 KRW, with a total planned fundraising amount of 33.9 billion KRW.

The raised funds will be used for supplementary investments to improve productivity of core products, facility investments to establish mass production lines for new businesses, operating funds, and research and development funds for new businesses. 30 billion KRW has been allocated for facility funds. Mass production lines will be established for smart medical devices and 5G components and modules. Additionally, old equipment among existing core product production facilities will be replaced to enhance productivity.

Dreamtech is a module specialist company that modularizes and supplies IT components. It purchases raw materials such as flexible printed circuit boards (FPCB) and components from secondary suppliers and manufactures modules or parts to deliver as a primary supplier. It supplies various modules and parts to smartphone Galaxy S and Note series and undertakes contract manufacturing of products and finished goods. The business division mainly producing smartphone module products accounts for more than 50% of total consolidated sales.

Mirae Asset Daewoo, the lead manager for the paid-in capital increase, analyzed, "Among Dreamtech’s customers, sales to Samsung Electronics account for more than 70% on a separate basis," adding, "there could be a negative impact on profitability depending on the smartphone industry and Samsung Electronics’ sales downturn or changes in parts procurement sources."

Dreamtech’s consolidated sales over the past three years have shown a declining trend, recording 679.4 billion KRW in 2017, 601.5 billion KRW in 2018, and 559.7 billion KRW in 2019. On a separate basis, sales were 527.6 billion KRW in 2017, 433.6 billion KRW in 2018, and 409.4 billion KRW in 2019. Since the growth rate of the upstream smartphone industry significantly affects Dreamtech’s performance, the company is investing in the healthcare sector as part of business diversification. Dreamtech has research organizations such as the PBA Development Team, Fingerprint Development Team, and Healthcare Team. Among approximately 100 researchers, 37 belong to the Healthcare Team.

Since 2015, Dreamtech has jointly developed a wireless ECG sensor to replace wired ECG sensors with LifeSignals in the United States. In June 2018, it received approval from the U.S. FDA for the wireless biosensor. Initial mass production shipments began in the fourth quarter of 2018. The company continues to develop next-generation products with various added functions beyond ECG. Dreamtech has also entered the surgical artificial joint sensor business. Since 2018, it has been jointly developing next-generation artificial joint sensors with U.S.-based Orthosensor. Initial sales occurred in the third quarter of 2019.

Amid the rapid growth of the telemedicine market due to the COVID-19 impact, Dreamtech has viewed this as an opportunity to expand its business. It is focusing on research and development of wireless biosensors to respond to the telemedicine market.

Among Dreamtech investors recently, the most keenly watched area is the timing of commercialization of the electronic nose solution. Previously, on the 30th of last month, Dreamtech signed a Memorandum of Agreement (MOA) with Israel’s NanoScent. This step aims to strengthen the partnership between the two companies and accelerate commercialization and country-specific approval processes for the electronic nose solution, a COVID-19 screening device. Dreamtech has secured exclusive domestic business rights for COVID-19 screening using the electronic nose solution.

The consolidated debt ratio is expected to decrease by about 16.6 percentage points from 148.8% as of the end of the third quarter this year to 132.2% after the capital increase. The total debt dependency and net debt dependency are projected to decrease to 24.6% and 19.3%, respectively.