[Report] DB HiTek Drowned in 'Shareholder Distrust'... Fabless Listing Cancelled but "Can't Trust"

Shareholders "How can we trust a turnaround at the end of last year?"
"No IPO" company persuasion fails
About 140 shareholders attend in person, 97 participate in voting

"Now is a time when the trust and support of our shareholders are needed more than ever. We will do our best to repay the expectations of our shareholders with better performance in the future." - Choi Chang-sik, Vice Chairman and CEO of DB HiTek

"How can we trust management that withdrew the plan for a physical division last year and then reversed their words?" - DB HiTek shareholders

Vice Chairman and CEO Choi Chang-sik of DB HiTek speaking at the regular shareholders' meeting on the 29th.
[Photo by DB HiTek]

On the 29th, shareholders attending the regular general meeting at DB HiTek's Bucheon Campus in Sudoro, Bucheon-si, Gyeonggi-do, asked 10 questions and made 1 shareholder proposal with visibly heightened expressions. The 144 seats prepared in the meeting hall were fully occupied around 9:20 AM when the meeting started. There were 97 shareholders present with voting rights who actually participated in the vote. Shareholder entry was allowed from 8:30 AM. Many shareholders expressed distrust in the company, creating an overall tense atmosphere.

The meeting started promptly at 9:00 AM and ended at 11:08 AM. The Q&A session lasted over two hours, during which some shareholders interrupted Vice Chairman Choi Chang-sik’s remarks, and others argued with each other, saying "You are disrupting the proceedings." The first Q&A session was chaotic. There were 10 questions and 1 shareholder proposal. Photography was not allowed for general shareholders.

DB HiTek regular general meeting site. All 144 seats were fully occupied.
Photo by Moon Chae-seok

The company announced the day before that it would physically split off the brand business unit engaged in fabless (semiconductor design) operations and stipulate in the parent company’s articles of incorporation that a special resolution at the shareholders' meeting would be required if the subsidiary is listed within five years. They also said that when pursuing listing after five years, a clause mandating a special resolution at the parent company’s shareholders' meeting would be newly added to the subsidiary’s articles of incorporation. Vice Chairman Choi Chang-sik said at the meeting, "The five-year standard is a government guideline."

The company decided to spin off the non-core fabless business as a subsidiary. The parent company plans to focus on the highly profitable power semiconductor foundry (semiconductor contract manufacturing). Since fabless companies placing orders with the same company’s foundry may suffer from design technology leakage and conflicts of interest, which could reduce sales capabilities, the two are separated. The plan is to create corporate values of 4 trillion KRW for the foundry and 2 trillion KRW for fabless.

Vice Chairman and CEO Choi Chang-sik said, "The foundry will resolve customer conflict issues to expand its client base and product lineup, and the brand (business unit) aims to pioneer a new path by recruiting professional managers and establishing an independent management system."

DB HiTek Regular General Meeting Site. [Photo by DB HiTek]

The main topic of the day was undoubtedly the 'physical division.' The company had planned a physical division at the end of last year but abandoned it due to opposition from minority shareholders. Most shareholders present raised concerns about the company reversing its decision not to proceed with the physical division last year. They said, "We cannot trust the management." They suspected that the company was trying to use a 'trick' to list the fabless subsidiary after five years.

A physical division means that the parent company A holds 100% of the shares of the newly established company B. Even if existing shareholders hold shares in the parent company, they are not recognized as shareholders of company B. If DB HiTek spins off fabless and lists it, the value of shares held by existing DB HiTek shareholders will decrease by the proportion of the split shares. DB HiTek’s closing price on the 28th was 61,400 KRW, down 21.4% from a year ago. DB HiTek is a stock with strong minority shareholder influence. As of the end of last year, 74.21% of DB HiTek shareholders were minority shareholders. Even combining DB Inc. and related parties (17.85%) and the National Pension Service (7.94%), the total is only 25.79%.

Jung Yang-young (65), a shareholder holding about 40,000 shares, said, "How can we trust a company that said last year it would not do a physical division and then suddenly changed its stance?"

Kang Gak-seong (80), a shareholder holding 870 shares, said, "I am 80 years old and not trying to speculate but just investing to earn a little pocket money, yet I am stuck with a low stock price. Although sales exceeded 1 trillion KRW last year, the stock price hasn’t risen and dividends are meager. Isn’t this just a money party among themselves?"

Vice Chairman Choi Chang-sik said, "Now is a time when the trust and support of our shareholders are needed more than ever," and added, "We will do our best to repay the expectations of our shareholders with better performance in the future."

At the regular general meeting of DB HiTek, a shareholder took out a mobile phone and started filming as Vice Chairman and CEO Choi Chang-sik explained the shareholder-friendly policy.
[Photo by Moon Chae-seok]

At the meeting, the proposal for dividends of 1,300 KRW per common share and 1,350 KRW per preferred share was approved. The 1,300 KRW per common share corresponds to a dividend payout ratio of about 10%. This is about half of the shareholder proposal of 2,417 KRW for common shares and 2,467 KRW for preferred shares.

Shareholder Jung Yang-young said, "The company made so much money last year, and is this what they call dividends? They should at least pay 2,500 to 3,000 KRW per share; this is not even a dividend."

The agenda items to appoint Jo Gi-seok as the new CEO and reappoint Yang Seung-ju as CFO and executive director were all passed. The reappointment of Kim Jun-dong, advisor at Sejong Law Firm, as an outside director, and the new appointments of Jung Ji-yeon, assistant professor at Kyungpook National University, Bae Hong-gi, CEO of PKF Seohyun Accounting Corporation, and Han Seung-yeop, assistant professor at Hongik University, were also approved.

However, the proposals to appoint Han Seung-yeop as an audit committee member (outside director) and to introduce a cumulative voting system were rejected.