[Funding] TerraScience Expects 233% Annual Sales Growth for CLS Korea Acquired for 23 Billion KRW②

[Asia Economy Reporter Hyunseok Yoo] CLS Korea, acquired by Terra Science, is expected to see a sharp increase in sales from 17 billion KRW last year to 56.7 billion KRW this year. The company anticipates achieving these results as its order backlog for the first quarter exceeds 43 billion KRW.

In January, Terra Science acquired 100% (1,029,000 shares) of CLS Korea, a manufacturer of LED components, for 23 billion KRW. The company paid the amount by raising additional funds through a paid-in capital increase besides its existing funds.

The company evaluated CLS Korea’s value through Donghyun Accounting Corporation. Donghyun Accounting applied the Discounted Cash Flow (DCF) method, which estimates the present value by measuring the expected future cash inflows from the subject and applying a discount rate. The accounting firm assessed CLS Korea’s value to be between 20,403 KRW and 27,783 KRW per share. Terra Science acquired the shares at 22,352 KRW per share.

The basis for this valuation was the expected future performance growth. CLS Korea recorded sales of 9.6 billion KRW and an operating profit of 200 million KRW in 2018. In 2019, sales reached 15.9 billion KRW with an operating profit of 1 billion KRW, and last year, sales were 17 billion KRW with an operating profit of 1.3 billion KRW. The compound annual growth rate during this period was 36.6%.

In particular, it is expected to achieve rapid growth in 2021 with sales of 56.7 billion KRW and an operating profit of 11.9 billion KRW, representing a 233.10% increase compared to last year. Subsequently, sales of 59.1 billion KRW with an operating profit of 10.1 billion KRW are projected for 2022, and 61.4 billion KRW with 9.4 billion KRW operating profit for 2023.

The company cites the full-scale production of mini LED components as the reason this growth is achievable. Mini LED TVs are LCD-based TVs that densely embed LEDs sized 100 to 200 micrometers (㎛) around the backlight, which serves as the light source. They offer OLED-level picture quality without burn-in issues and are cost-effective.

CLS Korea began preparing production facilities for mini LEDs in October last year and started product manufacturing. The company expects sales of 22.4 billion KRW from LEDs and 29.3 billion KRW from mini LEDs this year.

The company plans production based on product delivery schedules obtained from customers such as Solatron, Samsung Electronics, and LG Electronics, confirming sales quantities and schedules for this year, which it presents as the basis for its sales figures.

However, actual production details such as CLS Korea’s factory output cannot be confirmed. The company only stated that it installed a production line for optical components for mini LEDs and began pilot production in September 2019, and prepared a production facility for mini LED TVs (expansion of 500 pyeong) in October last year.

Nonetheless, Terra Science emphasizes that achieving sales is fully possible. The order backlog as of the first quarter this year amounts to 43.9 billion KRW. A Terra Science official said, "The total order amount secured by CLS Korea is about 48 billion KRW, and first-quarter sales were approximately 7.3 billion KRW, a 62% increase compared to the same period last year. Additional orders are expected in the second half, especially in the mini LED business sector."