[Funding] Joymax②, Why They Push Ahead with Capital Increase Despite Halving the Raised Amount

[Asia Economy Reporter Yoo Hyun-seok] Joymax's fundraising plan is facing setbacks. The amount they can raise has nearly halved compared to the initial plan.

According to the Financial Supervisory Service on the 16th, Joymax is conducting a paid-in capital increase through a shareholder preferential public offering worth 17.3 billion KRW. The issue price has been fixed at 2,375 KRW. The total number of shares to be issued is 7,290,401 shares, accounting for 85.7% (8,505,234 shares) of the total shares. The subscription period for existing shareholders is from today until the 17th, and the general public subscription period is from the 21st to the 22nd.

◆ Paid-in capital increase amount reduced from 30 billion KRW to 17 billion KRW = When Joymax initially decided on the capital increase, the expected issue price per new share was 4,115 KRW. They expected to raise 30 billion KRW. However, as the stock price continued to decline until the final issue price was set, the issue price was lowered. At the time of the initial capital increase decision, Joymax's stock price was maintained in the 5,000 KRW range but dropped to the 2,700 KRW range this month. This led to a reduction in the fundraising amount.

While they might have considered canceling the capital increase or reducing the number of shares issued, Joymax is proceeding as planned. This is interpreted as due to the possibility of delisting caused by continued business losses before corporate tax deduction. The company was designated as a management stock in March after recording continued business losses before corporate tax deduction exceeding 50% of equity in two out of the last three fiscal years.

If continued business losses before corporate tax deduction exceeding 50% of equity occur by the end of this year, there is also a possibility of delisting. According to consolidated data for the third quarter, Joymax's continued business loss before corporate tax deduction was 4.118 billion KRW. To resolve the delisting cause, the company must either record a large profit in the fourth quarter or increase capital.

Joymax explained in its investment prospectus, "Based on the third quarter, assuming an annualized basis for the full year, it is estimated that at least 12.2 billion KRW of capital increase is necessary to resolve the delisting cause. If there is no capital increase of more than 15.5 billion KRW in the event of a 20% increase in the estimated annualized pre-tax loss based on the third quarter, the company will be subject to delisting."

◆ More challenges ahead... Performance improvement is necessary = With the fundraising amount nearly halved, the usage plan has been completely revised. The 5 billion KRW allocated for debt repayment remains unchanged. However, operating expenses, initially planned at 12.6 billion KRW, have been reduced to 8.315 billion KRW. Marketing expenses for the new mobile games 'Star Wars™: Starfighter Mission' and 'Rise of Stars (RISE OF STARS)' have also been cut from a total of 4.4 billion KRW to 4 billion KRW. Additionally, the 3 billion KRW planned for license fee payments and the 5 billion KRW intended for investment in acquiring securities of other companies have been completely removed.

Even if capital is raised to ease concerns temporarily, the end is not in sight. Joymax's cumulative sales for the third quarter reached 8.3 billion KRW, a 25.59% increase compared to the same period last year. However, it continued to post an operating loss of 4.2 billion KRW. The company has recorded operating losses on an individual basis from 2018 through the third quarter of this year. Without a dramatic change in the fourth quarter, it will mark three consecutive years of operating losses. If losses continue into next year, it could be designated as a management stock again in 2022.

This makes the success of the new mobile games even more critical. Joymax expects the new games to start generating significant revenue from the first quarter of next year. They anticipate new sales of 9.619 billion KRW from Star Wars™: Starfighter Mission and 3.191 billion KRW from Rise of Stars, totaling 12.81 billion KRW from the new titles. Star Wars™: Starfighter Mission was released on the 19th of last month.

Since shares amounting to 85.7% of the total stock are to be issued, dilution is inevitable. However, according to the securities registration statement, the largest shareholder and related parties plan to participate 100% in the capital increase, so no dilution of their stakes is expected. The largest shareholder, Wemade, is allocated 2,517,171 shares, accounting for 34.53% of the issued shares, and related party CEO Lee Gil-hyung is allocated 857,016 shares, or 11.76%. After the capital increase is completed, their total shareholding will slightly increase from 44.69% to 45.42%.