[After CB Issuance] Seojin System, Why the Stock Price Dropped Despite 'Record-Breaking Performance'

[Asia Economy Reporter Jang Hyowon] Despite record-breaking earnings growth, the stock price of Seojin System remains sluggish. It is suggested that the large issuance of convertible bonds (CBs) that can be converted into stocks is weighing down the stock price due to the potential supply burden. However, it is analyzed that the issue of overhang (potential waiting supply) is not significant because it is difficult for CBs to be converted at the current stock price, and the largest shareholder also holds a large portion.

According to the Financial Supervisory Service's electronic disclosure on the 21st, Seojin System's consolidated sales last year amounted to 606.1 billion KRW, an increase of 88.3% compared to the previous year. Operating profit during the same period surged by 1082% to 58 billion KRW, and net profit also turned positive, reaching 38.7 billion KRW.

This is attributed to successful business diversification and customer diversification despite the COVID-19 situation. Seojin System operates a business producing applied products using aluminum as the main raw material. Its major business sectors include telecommunications equipment, semiconductor equipment, mobile phone parts, and energy storage system (ESS) components.

Among these, sales in the ESS business sector increased by more than 410% year-on-year due to acquiring new customers last year. Sales of semiconductor equipment parts also rose by 217% compared to the previous year, driven by sales from a new factory and its subsidiary SEMVIT.

The strong performance trend is expected to continue into the first quarter of this year. Park Jongseon, a researcher at Eugene Investment & Securities, stated, “Sales growth across all existing business divisions will be maintained, and sales of the new container product will also occur in the second half of the year,” adding, “Despite the first quarter being an off-season, stable growth is expected to continue.”

Despite such strong performance, Seojin System's stock price has not gained momentum. Since the beginning of this year, Seojin System's stock has declined by about 21%. Compared to the KOSDAQ index, which fell by 11% during the same period, this is a larger drop.

The market points out that the outstanding CBs of Seojin System are burdening the stock price. As of the end of the third quarter last year, Seojin System had issued CBs worth 200 billion KRW. Among these, 90 billion KRW worth are currently convertible, and 110 billion KRW worth will be convertible starting from the 22nd and 25th, respectively. Additionally, in December last year, CBs worth 18 billion KRW were newly issued.

Excluding the December issuance, if all existing CBs are converted into stocks, 5,443,871 shares could be newly released into the market. This corresponds to about 29% of the currently circulating shares.

Previously, Seojin System raised funds through CBs in March 2020 and March 2021 and invested in its Vietnam subsidiary. This was to expand production facilities and secure operating funds for the Vietnam subsidiary. As a result, the Vietnam subsidiary's sales increased by 1100% year-on-year by the end of the third quarter last year, and net profit reached 31 billion KRW. While the CBs contributed to the performance increase, they also imposed a supply burden.

However, it is analyzed that the likelihood of a large-scale CB conversion in the near term is low. The conversion price for the 7th and 8th series CBs worth 110 billion KRW issued last year is 47,000 KRW, and there is no repricing clause due to the stock price decline. This means Seojin System's stock price must rise above the conversion price to avoid losses. Currently, Seojin System's stock price is around 34,000 KRW.

The 4th and 5th series CBs worth 90 billion KRW issued in 2020 have a conversion price of 29,000 KRW, but 30 billion KRW of these were issued to the largest shareholder, President Jeon Donggyu. Even if converted, these shares are not likely to be easily released into the market.