[Funding] Mecaics, Turning COVID-19 into Opportunity... Large-Scale Investment in the USA

Planned 33 Billion Won Fundraising via Rights Offering... 20 Billion Won Investment in US Local Corporation
Sales Soar 444% Due to Increased Demand for Artificial Respirators
Concerns Over Decreased Demand for Artificial Respirators Due to COVID-19 Vaccine Development

[Asia Economy Reporter Park Hyungsoo] MekICS, a developer of ventilators and respiratory therapy devices, has launched a large-scale fundraising effort. As the novel coronavirus infection (COVID-19) spread worldwide, the demand for ventilators surged. MekICS is raising funds through a rights offering to increase production capacity and enter the U.S. market in response to the growing demand.

According to the Financial Supervisory Service on the 16th, MekICS will raise 33 billion KRW through a rights offering followed by a general public offering of unsubscribed shares, allocating 0.14 new shares per existing share. The planned issue price per new share is 31,900 KRW, with a total of 1,036,000 shares to be issued.

MekICS was the first in Korea to develop ventilators that previously relied on imported products. Based on biosignal technology and respiratory fusion technology, the company develops patient monitoring devices, ventilators, and respiratory therapy devices, supplying them to domestic nursing hospitals and general hospitals. It has secured a distribution network of 25 local dealerships in 20 countries worldwide for exports. Only about 10 companies worldwide have secured in-house design and manufacturing technology for ventilators, making it a field with high technological barriers.

Due to the COVID-19 impact, the demand for ventilators increased, improving MekICS's performance this year. The cumulative sales as of the third quarter on a consolidated basis reached 52.4 billion KRW, a roughly 444% increase compared to 9.6 billion KRW in the same period last year. Operating profit and net profit turned positive at 23.5 billion KRW and 19.2 billion KRW, respectively. As of the third quarter, the sales distribution by region was 10.4% domestic, 12.0% India, and 77.7% other overseas regions. MekICS is targeting overseas markets based on technology and price competitiveness comparable to global ventilator companies.

MekICS plans to invest 20 billion KRW of the funds raised through the rights offering into its U.S. local subsidiary. The funds will be used for operating expenses, marketing, and factory establishment costs. This is to actively target the North American region, the largest medical device market worldwide. The remaining funds will be used to purchase new ventilator parts. They plan to buy ventilator components such as pressure sensors and oxygen meters, which require a procurement period of over 12 weeks.

The decision to conduct a rights offering reflects the management's determination to become a global medical device company amid the COVID-19 crisis. Kim Jongcheol, the largest shareholder and CEO, plans to acquire more than 30% of the shares allocated in the offering. The funds will be raised by selling about 83,000 existing shares or through stock-backed loans. CEO Kim holds 23.05% (1,611,252 shares) of MekICS. After the offering, his stake is expected to decrease to 19.89%.

However, some voices warn that excessive investment could backfire. With the start of COVID-19 vaccinations, if the spread of the COVID-19 virus subsides, the demand for ventilators may return to the previous year's level. According to GlobalData, the global annual demand for ventilators was about 100,000 units, but this year, an additional approximately 900,000 ventilators are expected to be needed.

As of the end of the third quarter this year, MekICS's inventory assets on a separate basis were 26.6 billion KRW, an 801% increase compared to the end of last year. As raw materials and parts were purchased to produce inventory, accounts payable also increased significantly. Accounts payable on a separate basis for the third quarter were 13.8 billion KRW, a 1,762% increase from 700 million KRW at the end of last year. The accounts payable turnover ratio fell from 19.31 times last year to 9.08 times in the third quarter this year.

The company stated that after the COVID-19 crisis, governments worldwide are purchasing quarantine medical devices such as ventilators at the national level, and they expect national-level demand to continue for a considerable period to respond to infectious diseases. MekICS believes it has globally promoted its brand and that its technology and product efficacy have been recognized.