[At a Crossroads for Listed Companies] Vessel Faces Trading Suspension Due to 'Sales Below 300 Million'... What Lies Ahead?

[Asia Economy Reporter Jang Hyowon] Kosdaq-listed company Vesel has been suspended from trading after failing to achieve sales of 300 million KRW on a separate basis in the third quarter of this year. Sales below 300 million KRW is a reason for a substantive review of listing eligibility. If Vesel fails to provide an explanation regarding the continuity of its business within the next 15 days, it will be designated as a subject of the substantive review.

On the 17th, the Kosdaq Market Headquarters of the Korea Exchange announced that Vesel's sales for the third quarter of this year were confirmed to be below 300 million KRW, triggering a reason for a substantive review of listing eligibility, and suspended its stock trading. The Exchange plans to investigate Vesel by December 6 and decide whether it will be subject to the substantive review.

If Vesel is subject to the substantive review, the Corporate Evaluation Committee will receive an improvement plan and determine the eligibility for listing. If it is not subject to the substantive review, the trading suspension will be lifted. The Exchange plans to judge whether Vesel is subject to the substantive review based on criteria such as business continuity, financial soundness, and management transparency.

An official from the Exchange stated, "Vesel was classified as 'main business suspended' because its separate basis quarterly sales were below 300 million KRW, which led to the suspension of trading. We will observe whether sales will resume and business continuity can be maintained," adding, "We will also closely examine the transparency of its financial status and governance."

Vesel operates three businesses: manufacturing and installation of display equipment, aviation sector, and film material development. The aviation and film material development are conducted through subsidiaries, while Vesel headquarters handles the display equipment business.

Vesel recorded sales of 273 million KRW on a separate basis in the third quarter of this year. This represents a decrease of about 98% compared to 18.6 billion KRW in the same period last year. All sales recorded on a separate basis are related to the display equipment business.

Vesel supplies most of its display equipment to Chinese companies such as BOE. China significantly reduced investments in display equipment following the COVID-19 outbreak last year. This impact is currently reflected in Vesel's performance.

A Vesel representative explained, "Vesel receives orders to design and manufacture 'inline systems' for display manufacturing plants, and installation takes about one to one and a half years. Sales are recognized at the completion stage, so the current decrease in sales is a result of reduced orders last year."

He added, "However, we expect sales to rebound from the fourth quarter after hitting the bottom in the third quarter of this year," and said, "We plan to actively explain this to the Exchange."

Additionally, the film division is generating sales and profits, and the aviation sector is expected to generate sales next year once TC certification is obtained in China, indicating no issues with business continuity.

However, the financial condition is somewhat weak. As of the end of the third quarter this year, Vesel's cash equivalents on a separate basis amounted to 180 million KRW, a 94% decrease compared to the end of last year. The current ratio is only 48.8%, meaning that current liabilities due within one year are more than twice the current assets that can be liquidated within one year.

Regarding this, the company stated that since convertible bonds (CB) are included in current liabilities, the financial structure could improve if these are converted into shares in the future. Currently, Vesel's outstanding CBs amount to 11.5 billion KRW, accounting for 41% of total current liabilities of 28.1 billion KRW. If these CBs are converted into shares, the current ratio could increase.

However, the conversion price adjustment (refixing) limit for these CBs is up to 4,109 KRW. If the stock price falls further, conversion may become difficult. Vesel's stock price before the trading suspension was 4,665 KRW.

A Vesel representative said, "We are confident that Vesel will be excluded from the substantive review of listing eligibility soon, as there are ongoing projects and projects expected to be ordered."