[After CB Issuance] KNJ's Stock Price Doubles in One Year... CB Investors' Joy Also Doubles

[Asia Economy Reporter Hyunseok Yoo] Investors who invested in the convertible bonds (CB) of K&J are beaming with joy. This is because the company's stock price has more than doubled in just over a year, allowing them to realize substantial gains.

According to the Financial Supervisory Service's electronic disclosure system DART on the 13th, K&J announced that the conversion rights for the 2nd and 3rd series CBs were exercised on the 5th.

K&J issued the 2nd series CB worth 5 billion KRW in March last year. They used 2 billion KRW for raw material purchases and other operating funds, and 3 billion KRW to repay the 1st series CB. With a nominal interest rate of 0% and a maturity interest rate of 1%, the investment was aimed more at exercising the conversion rights to gain profits rather than earning interest income. The conversion price at issuance was 5,127 KRW. The conversion request period is from March 25, 2023, to March 25, 2025.

A month later, an additional 3 billion KRW worth of 3rd series CB was issued to raise funds for facility investment and operating capital. The nominal interest rate was 0%, and the maturity interest rate was 1%. The conversion price was 5,284 KRW. The conversion request period is from March 3, 2023, to March 3, 2025.

There were no significant adjustments to the conversion prices for the 2nd and 3rd series CBs. The stock price has steadily risen since issuance. The number of shares convertible from the 2nd series is 636,755 shares, and from the 3rd series is 370,721 shares, totaling 1,007,476 shares. In monetary terms, these are 3.25 billion KRW and 1.95 billion KRW, respectively. After the conversion requests, the remaining balances are 342,868 shares for the 2nd series and 199,619 shares for the 3rd series. On the 12th, K&J's closing price was 12,850 KRW. If the current stock price continues until the listing date, the 2nd series could yield a return of 151.76%, and the 3rd series 144.29%. The listing date for the 2nd and 3rd series CBs is scheduled for the 20th.

K&J is a company that develops and manufactures edge grinders and inspection equipment used in display manufacturing. Since entering the CVD-SiC (silicon carbide) product line as a new business in 2010, it has started producing and supplying SiC coating products for LED manufacturing and SiC focus rings, consumables used in semiconductor wafer etching processes.

On a consolidated basis last year, the company recorded sales of 42.6 billion KRW and operating profit of 2.6 billion KRW. Compared to the previous year, sales decreased by 24.33%, and operating profit by 31.56%. The business is mainly divided into equipment and parts divisions, with separate sales proportions of 63.63% and 36.37%, respectively. Despite the decline in performance, the stock price rose likely due to expectations of improved results from factory expansion and other factors.

K&J announced in July last year that it purchased land worth 8.9 billion KRW in Eumbong-myeon, Asan-si, Chungcheongnam-do, and in September of the same year, decided to spend 16 billion KRW for factory construction and new facility investments. This was to expand production of semiconductor process materials and parts such as SiC focus rings. The investment amount was a large-scale investment, accounting for 60.68% of its equity capital.

With factory expansion, sales of SiC focus rings are expected to increase, improving K&J's performance. According to FnGuide, securities firms estimate this year's consolidated sales and operating profit at 51.4 billion KRW and 3.4 billion KRW, respectively, representing increases of 20.66% and 30.77% compared to the previous year. NH Investment & Securities expects sales of SiC focus rings to rise from 15 billion KRW last year to 22.2 billion KRW this year.

Given the large difference between the current stock price and the conversion price, most of the CB volume is expected to be converted into shares. The resulting overhang (potential sell-off volume) is a concern. K&J's total number of shares is 6,375,432. The convertible shares from the 2nd and 3rd series CBs are 975,229 shares and 567,751 shares, respectively. These correspond to 15.47% and 9% of the total shares, totaling 24.47%.