[Funding] Humax Focuses on New Business Investment Amid Core Business Slump

Raised 45 Billion KRW Through Paid-in Capital Increase
30 Billion KRW Used to Expand New Mobility Business Instead of Core Set-Top Box Business
15 Billion KRW for Debt Repayment... "Debt Ratio at 210% with 370 Billion KRW Borrowings"

[Asia Economy Reporter Yoo Hyun-seok] Set-top box specialist company Humax is conducting a large-scale fundraising of 45 billion KRW. As the core set-top box business continues to slump, the plan is to pour funds into the newly launched mobility business to overcome this.

According to the Financial Supervisory Service on the 25th, Humax will proceed with a paid-in capital increase of 45.3 billion KRW through a rights offering followed by a general public offering of forfeited shares. The planned issue price is 4,115 KRW, and the total number of shares to be issued is 11 million, accounting for 37.90% of the total shares (29,020,484 shares in total).

Of the raised funds, 30 billion KRW will be used to acquire securities of other companies for expanding the mobility business. Additionally, 15.2 billion KRW will be used for debt repayment.

The reason Humax is investing most of the funds in new businesses rather than its core business is due to continued poor performance. Humax operates the gateway business, including set-top boxes, video gateways, and broadband gateways. Currently, it has 19 overseas manufacturing and sales subsidiaries.

On a separate basis, sales reached 1.2663 trillion KRW in 2017 but decreased to 967 billion KRW in 2018 and 770.4 billion KRW in 2019. Operating profit followed a similar trend. It achieved 39.3 billion KRW in operating profit in 2017 but recorded losses in 2018 and 2019.

The consolidated figures show the same trend. Sales were 1.5566 trillion KRW with an operating profit of 29.9 billion KRW in 2017, but sales decreased to 1.439 trillion KRW in 2018, and operating profit turned negative. In 2019, sales dropped to 1.1739 trillion KRW compared to the previous year, but operating profit turned positive at 22.9 billion KRW. Last year, sales were preliminarily estimated at 877.5 billion KRW, down 25.3% year-on-year, and operating profit decreased by 37.1% to 14.4 billion KRW.

The industry explains Humax's poor performance as a failure to keep up with market trends. An industry insider said, "Competitors followed market trends through AI set-top boxes," adding, "Humax remained focused on satellite and cable set-top boxes, which it has operated since the past, leading to deteriorated performance."

Moreover, the saturation of the set-top box market and the emergence of new platforms such as OTT (Over the Top) online streaming services have had a negative impact. Humax's securities registration statement explained, "As the OTT industry based on streaming, such as Netflix and Google Chromecast, grows, it is rapidly replacing the demand for existing satellite and cable broadcasting in major markets like North America and Europe, which are key markets for set-top boxes," and "Due to fluctuations in the prices of key raw materials like semiconductors and changes in selling and administrative expenses caused by workforce reductions, profitability has shown significant volatility, alternating between losses and profits."

To break through the saturated set-top box market, Humax is diversifying its business. It has pursued mergers and acquisitions (M&A) of automotive electronics companies and mobility firms. In December 2017, it acquired a 45.3% stake in Winnercom for 27 billion KRW, establishing a vehicle antenna business division. In 2018, it purchased a 74.3% stake in DigiParts, a connected car solution developer specializing in car sharing, for 27.4 billion KRW.

Humax Group Shares Photo by Humax Securities Registration Statement

Additionally, in 2019, through Humax Mobility, it acquired 100% of Hi-Parking, the number one parking lot operator in Korea, spending 70 billion KRW in the process. Currently, Humax Mobility is vertically integrating its mobility business through Hi-Parking, the car-sharing specialist brand Carplat, and the rental and car-sharing integrated platform People Car.

Humax plans to invest 30 billion KRW in the mobility business. This will be used as capital increase funds for Humax Mobility. Through this, the company plans to acquire mobility-related companies. Target companies include those providing electric vehicle charging, parking equipment development, and parking operation services. However, Humax Mobility has yet to show visible results. As of the third quarter of last year, Humax Mobility alone recorded an equity method loss of 10.9 billion KRW.

While continuing investments for business diversification, the financial structure has deteriorated due to performance decline caused by COVID-19. As of the third quarter of last year on a consolidated basis, the debt ratio was 211.0%, and total borrowings reached 371.8 billion KRW. To improve this, Humax plans to use 15 billion KRW of the funds raised through this capital increase to repay borrowings.

Concerns about dilution of the largest shareholder's stake due to this capital increase are low, as the largest shareholder plans to participate at 120%. However, subscription participation by related parties is undecided. The company stated in the securities registration statement that if the largest shareholder participates at about 120% and receives only 100% allocation, and related parties do not participate at all, the shareholding ratio of the largest shareholder and related parties is expected to slightly increase from the current 34.26% to 34.42%.