[After CB Issuance] DRTech CB Begins Turnaround with Strong Q1 Performance

[Asia Economy Reporter Yoo Hyun-seok] Investors of the 4th tranche convertible bonds (CB) of DRTech, a digital video medical device specialist company, have begun exercising their conversion rights. With strong first-quarter earnings, the stock price has risen nearly 30% this year, raising expectations for returns exceeding 20%. However, considering the already issued CB volume, shares amounting to 40% of the total could appear in the market, raising concerns about overhang (potential selling pressure).

According to the Financial Supervisory Service's electronic disclosure system on the 29th, DRTech announced on the 24th that conversion rights for the 4th tranche CB had been exercised. The scheduled listing date is next month on the 2nd. The volume to be converted this time is a total of 1.2 billion KRW, which corresponds to 1.6% of the total shares of 51,782,343.

DRTech issued CBs worth 12 billion KRW in April 2019. The nominal and maturity interest rates are both 0%. This is interpreted as an investment aimed at gaining profits through exercising conversion rights rather than interest income. The conversion price at issuance was 1,852 KRW, and the conversion claim period is from April 23 of this year to March 23, 2024. The company explained that out of the 12 billion KRW, 6 billion KRW would be used for facility funds, and the remainder for operating funds. DRTech invested these funds in production capacity, new growth engine development, and debt repayment.

For the 4th tranche CB, the conversion price has been adjusted four times. The conversion price, initially 1,852 KRW, was lowered to 1,841 KRW, 1,681 KRW, 1,667 KRW, and finally 1,458 KRW. As the conversion price decreased, the number of shares that could be issued increased. It amounts to 6,858,710 shares, corresponding to 13.25% of the total.

The closing price of DRTech on the previous day was 1,825 KRW, up 28.52% compared to the end of last year. The stock price is about 25% higher than the conversion price.

DRTech, established in 2000, is a specialist in developing 'detectors,' the core components of digital X-ray equipment. Unlike the traditional analog method, detectors allow images to be viewed immediately on a monitor after shooting without a developing process. Last year, DRTech expanded its scope from detectors to include diagnostic imaging systems.

The stock price rose due to improved performance. DRTech's consolidated sales in the first quarter reached 15.4 billion KRW, a 29.04% increase compared to the same period last year. Operating profit also surged 1,726% to 1.1 billion KRW. By product, indirect-type detectors accounted for the largest share at 61% of total sales, followed by X-ray systems at 20%, and mammography detectors at 7%.

There are also concerns about shareholder value dilution as the conversion timing for additionally issued bonds approaches.

For DRTech, the 3rd and 5th tranche CBs remain in addition to the 4th tranche. Considering all CB balances, the convertible volume exceeds 40% of the total shares. The 3rd tranche CB has 1.7 billion KRW remaining, with an issuable share count of 988,372 shares, accounting for only 1.90% of the total. However, the 20 billion KRW CB issued in July last year currently has a conversion price of 1,458 KRW. The issuable shares amount to 13,717,421, which corresponds to 26.49% of the total volume. This CB can be converted starting from July 23.