[After CB Issuance] GemVaxGeo Faces Flood of Conversion Shares... Still 20 Million More Left

[Asia Economy Reporter Jang Hyowon] Gemvax Geo is experiencing a surge in conversion requests for its convertible bonds (CB). Approximately 5 million shares have been converted so far, but it is analyzed that more than 20 million shares of potential pending volume remain.

Rush of Conversion Requests... Potential Volume of 20.35 Million Shares

According to the Financial Supervisory Service's electronic disclosure on the 6th, Gemvax Geo announced that a CB conversion request worth 1.9 billion KRW was received on the 4th. This CB is part of the 18th and 19th series issued by Gemvax Geo on June 29 last year.

At that time, Gemvax Geo issued 10 billion KRW and 2.8 billion KRW worth of the 18th and 19th series CBs respectively, for purposes such as securing operating funds for raw material purchases and debt repayment. The nominal interest rate of these CBs is 0%, the maturity interest rate is 3%, and the conversion price is 809 KRW.

These CBs have been receiving continuous conversion requests since the conversion start date of June 29. As of the 4th, a total of 5.9 billion KRW worth of CBs have been requested for conversion. Based on the new share listing date, 4,944,369 shares were already issued starting from the 13th of last month, and the 2,348,577 shares requested on the 4th are scheduled to be listed on the 19th.

So far, new shares equivalent to 8.7% of the total issued shares have been released into the market, but there is still a larger volume remaining. The unrequested 18th and 19th series CBs amount to approximately 6.9 billion KRW, with a convertible share count of 8,529,047 shares. This represents more than 10% of the total shares as potential release volume.

Additionally, 1 billion KRW worth of the 15th series CB issued in 2018 and 8.4 billion KRW worth of the 17th series CB issued last March have not yet been converted. The convertible shares for these outstanding CBs are 1,455,604 shares and 10,373,700 shares respectively, exceeding 14% of the total shares.

Q1 Earnings Deteriorate... Order Intake Also Weak

Conversion requests for these CBs are expected to continue. The conversion price for each CB is 809 KRW, while the current stock price is moving in the low 900 KRW range, making conversion gains anticipated.

However, the future stock price and earnings of Gemvax Geo remain variables. The stock price fell to the 700 KRW range earlier this year, below the conversion price, but has recently shown an upward trend. Nevertheless, a large volume of CB conversions flooding the market could weigh on the stock price increase.

Earnings are also uncertain. Gemvax Geo recorded consolidated sales of 2.5 billion KRW and an operating loss of 1.9 billion KRW in Q1 this year. Sales decreased by 65.3% compared to the same period last year, while operating losses increased by 171% during the same period.

Gemvax Geo had continuously recorded operating losses since 2015 but achieved a turnaround with an operating profit of 600 million KRW last year; however, it posted poor results again in Q1 this year.

Gemvax Geo operates mainly in comprehensive interior design, energy, and leasing businesses. As of the end of last year, the sales composition by business segment was comprehensive interior design (61.8%), energy (35.5%), and leasing (2.7%).

In Q1 this year, the energy segment recorded sales of 900 million KRW, similar to the same period last year, but sales in the interior design business, which accounts for the largest share, sharply declined. Q1 sales for the interior design business were 1.2 billion KRW, down 79.5% year-on-year.

The order intake situation is also challenging. As of the end of Q1 this year, Gemvax Geo's total order amount was 9.8 billion KRW, down 46.1% from 18.2 billion KRW in the same period last year. Moreover, about 5.8 billion KRW of this amount will be completed in Q2 this year, so if there are no new orders, the number of orders that can be recognized as sales from Q3 onward is expected to decrease significantly.