[At a Crossroads: Listed Companies] Wonpung Mulsan Faces 'Management Item' Designation if Q4 Also Posts a Deficit

[Asia Economy Reporter Jang Hyowon] Kinloch Anderson, a men's suit company managed by Wonpungmulsan, is at risk of being designated as a management item. If it fails to record an operating profit of more than 1.5 billion KRW in the fourth quarter of last year, it will mark four consecutive years of losses and be designated as a management item according to KOSDAQ market regulations.

Photo by Wonpungmulsan website capture.

According to the Financial Supervisory Service's electronic disclosure on the 25th, as of the end of the third quarter last year, Wonpungmulsan recorded cumulative sales of 19.6 billion KRW and an operating loss of 1.4 billion KRW on a separate basis. Sales increased by 4.5% compared to the same period last year, and operating losses decreased by 51.3%.

Wonpungmulsan specializes in the production and sale of men's suits and casual wear. Its main brands include Kinloch Anderson, Kinloch by Kinloch Anderson, Kinloch2, and OVERCAST.

Wonpungmulsan's operating profit turned negative starting in 2018. The operating loss grew from 400 million KRW at the end of 2018 to 1.3 billion KRW in 2019 and 6.6 billion KRW in 2020. The company explained that losses increased due to decreased sales and rising costs amid the COVID-19 situation.

If Wonpungmulsan does not record an operating profit of more than 1.4 billion KRW in the fourth quarter of last year to turn profitable, it will have four consecutive years of losses. According to the Korea Exchange, KOSDAQ-listed companies that record operating losses for four consecutive years on a separate basis are designated as management items. If losses continue for five consecutive years, they become subject to a substantial review of listing eligibility.

Earlier last year, Wonpungmulsan was designated as an "Investment Warning Item" by the Korea Exchange. This was due to internal accounting control inadequacies found when restating financial statements following accounting errors in 2019. The Investment Warning Item system is designed to inform investors in advance about companies that require caution in investment, including those at risk of being designated as management items or delisted.

Wonpungmulsan's investment in a micro light-emitting diode (LED) company, which it pursued as a new growth engine, also appears to be sluggish. Since 2008, Wonpungmulsan has invested a total of 3 million USD (approximately 3.2 billion KRW) in the U.S. company SUNDIODE, acquiring a 31.4% stake.

This company shifted its research and development focus from solar cell-related technology to the microLED field in 2010. However, it has not produced significant results for over 11 years and has continued to incur losses almost every year. As a result, the book value of SUNDIODE has become zero as of the end of the third quarter last year due to accumulated losses applied under the equity method.

Moreover, Wonpungmulsan lent about 270 million KRW to U.S. SUNDIODE and its wholly owned subsidiary SUNDIODE Korea, setting aside approximately 60 million KRW as an allowance for doubtful accounts as of the end of the third quarter last year. This caused other losses, and Wonpungmulsan recorded a net loss of 2.3 billion KRW for the period. Currently, Lee Doosik, CEO of Wonpungmulsan, is also the CEO of SUNDIODE Korea.

A Wonpungmulsan official said, "SUNDIODE Korea is still in the stage of developing microLED, and since microLED has not been commercialized, investment is ongoing," adding, "We cannot disclose the performance for the fourth quarter of last year."