[This Week's Industry Insight] Intellian Technologies Emerges as the Leading Satellite Communication Antenna Provider

No.1 Market Share in Maritime Satellite Communication Antennas
Sales Expected to Rise Due to Mandatory Internet Use for Seafarers
Supply Contract for User Antennas with UK’s OneWeb... Large-Scale Paid-in Capital Increase

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the unrefined and chaotic online environment filled with all kinds of information, Asia Economy aims to be your hands, feet, eyes, and ears to deliver accurate information about companies. Each week, we focus on companies that rank high in stock inquiries from the financial information provider FnGuide, delivering everything from basic information to analyses of related companies such as partners, customers, and investors. We will explain companies' financial conditions, performance status, and future value in an easy-to-understand manner. We meet you every week under the name "This Week's Watchlist," highlighting stocks of interest. This week, we analyzed Intellian Technologies, the market leader in maritime satellite communication antennas.

Satellite communication is changing the tide of war. When Russia invaded Ukraine on February 24 last year, it immediately cut off power grids and launched radio jamming operations, but these efforts failed. This was because Elon Musk, CEO of SpaceX, provided Starlink, SpaceX's satellite communication service, free of charge to Ukraine. Despite the complete destruction of national infrastructure, Ukraine continued military operations using Starlink. Civilians also shared the horrors of war on social media.

Starlink is regarded as a case demonstrating the potential of the space industry. Satellite communication services like Starlink and OneWeb are useful not only in wars but also in natural disasters such as wildfires and earthquakes. A product essential for such vital satellite communications is the 'satellite antenna.' A well-known domestic company in the satellite antenna market is Intellian Technologies (IntellianTech).

Listed on KOSDAQ in 2016... 90% of Sales from Exports

IntellianTech was established in 2004. It develops maritime VSAT (maritime satellite communication antennas), TVRO, and low Earth orbit (LEO) VSAT antennas. It was listed on the KOSDAQ market in 2016.

CEO Sung Sang-yeop holds 21.1%, and Intellian Systems holds 7.9%. According to consolidated financials for 2022, the sales composition by segment is 72.5% from satellite communication antennas, 5.3% from satellite broadcasting reception antennas, and 23.3% from others.

The satellite communication industry is structured as 'satellite component suppliers (secondary suppliers) → satellite product companies (primary suppliers) → satellite operators (primary buyers) → satellite service/video operators (secondary buyers) → end users.'

IntellianTech is a primary supplier delivering antennas to telecom companies (primary buyers) and ship operators (end users). Therefore, it manages major customers such as satellite communication companies, energy firms, shipping companies, cruise lines, and government agencies. It is well known as a technologically advanced company, having launched the world's first multi-orbit, multi-band VSAT product v240MT in 2018.

Increasing Use of Maritime Satellite Communication Services

IntellianTech currently holds the number one market share (58.9%) in the maritime satellite antenna market. Its major customers include global shipping companies Maersk, CMA CGM, and the world's largest cruise line Carnival. It also supplies products to major global satellite communication companies such as Inmarsat, Marlink, MTN, Speedcast, RigNet, SK Telink, and KT Sat. By targeting global companies, exports account for 90% of its sales.

Sales of maritime satellite antennas for cargo ships, cruise ships, and yachts are expected to increase. This is because shipowners will be required to provide internet services to crew members. This obligation stems from the International Labour Organization (ILO) adding provisions enforcing seafarers' rights to use maritime internet to the Maritime Labour Convention (MLC) in May last year. With the MLC revision, internet service for seafarers has become mandatory, and demand for VSAT is expected to rise.

The introduction of autonomous ships is also a positive factor. Satellite communication use is expected to increase for ship monitoring and communication between vessels. Internet has also become an essential option on cruise ships. Although watching long videos is still challenging, many passengers use the service. Maritime satellite communication costs are also trending downward, creating an atmosphere of increasing demand.

Reflecting this trend, the company's performance growth is noticeable. Sales increased from 110.1 billion KRW in 2020 to 138 billion KRW in 2021, and 239.5 billion KRW in 2022. Operating profit surged from 3.2 billion KRW (2020) and 2.2 billion KRW (2021) to 15.3 billion KRW (2022).

According to Valour Consultancy, the number of VSAT-equipped ships in 2022 is estimated at about 46,000. This is less than half of the total global fleet of 105,000 ships as of January this year. This indicates that the potential for VSAT sales growth remains significant.

Contract with UK OneWeb... Entry into Low Earth Orbit Satellite Antenna Market

The company is expanding its business area into the LEO (Low Earth Orbit) satellite communication market based on its maritime satellite communication technology. Notably, its 2017 contract to supply user antennas to UK satellite communication company OneWeb is seen as an opportunity. OneWeb is the UK's equivalent of Starlink. It plans to complete satellite deployment by the second quarter of this year and provide global satellite communication services from the end of the year. The plan is to expand satellite communication services from the Arctic region to the Southern Hemisphere.

IntellianTech supplies two main types of antennas to OneWeb: mechanical antennas and flat-panel antennas. Since LEO satellites are constantly moving, they receive signals from multiple directions. Flat-panel antennas have high competitiveness because they electronically steer beams using internal core chips. IntellianTech completed its second factory in Pyeongtaek in October last year to produce these products. The new factory is about 2.5 times larger than the existing one. Production of antennas for OneWeb began in the fourth quarter of 2022. Sales to OneWeb are expected to account for up to 30% this year.

Additionally, the company plans to supply antennas to SES, which provides medium Earth orbit satellite communication services. By contracting with OneWeb and SES, IntellianTech has effectively expanded its satellite communication antenna business across low Earth orbit, medium Earth orbit, and geostationary orbit. This is why expectations for long-term performance growth are rising.

1 Trillion KRW Rights Offering... 16.8% Dilution Effect

Satellite antennas essential for satellite communication require significant research and development (R&D) costs. Over the past three years, the company's R&D expenses have continuously increased: 15.9 billion KRW (2020), 20.2 billion KRW (2021), and 30.6 billion KRW (2022). This means more money was spent on R&D than operating profit.

To fund this, the company conducted a rights offering of 79 billion KRW in July 2021 and recently decided on a 100 billion KRW rights offering after two years on the 21st. The new shares to be issued amount to 1,546,000 shares, resulting in a dilution effect of 16.8% based on the total shares issued. The subscription price is 64,700 KRW, a 20% discount from the stock price on April 20.

This rights offering is expected to reduce the projected 2024 earnings per share (EPS) and book value per share (BPS) by 14.7% and 14.4%, respectively. The return on equity (ROE) for 2024 is estimated to fall from 18.8% to 15.4%.

The large-scale rights offering caused concerns among domestic institutional and individual investors, reflected in the stock price. After the announcement on the 21st, the stock price dropped 21.9% in one day, from 81,700 KRW to 67,000 KRW.

The funds raised through this rights offering will be used for R&D (50 billion KRW), raw material purchases (30 billion KRW), and debt repayment (20 billion KRW). To have their technology adopted by global satellite operators such as OneWeb and SES, investment in research and development and overseas sales is unavoidable. The standards for core source technology, quality, and reliability are extremely high compared to domestic levels.

Intellian Tech Pyeongtaek 2nd Plant.

The reason IntellianTech chose a rights offering as a means to secure investment funds and raw material costs is due to its financial situation. The contract with OneWeb increased accounts receivable rather than cash. As of the end of last year, borrowings reached 105.9 billion KRW. Given the current high interest rates, increasing borrowings further seems burdensome.

The debt ratio in 2022 rose slightly to 51.8% but remains at a stable level. The increase in borrowings is due to loans for the Pyeongtaek second factory site and production line investments. The reliance on borrowings remains stable at 28.6%. Although some loans, such as revolving credit (a type of overdraft), are maturing, there appear to be no liquidity issues at this time.

However, the base date for the initial issuance price is May 23, making it difficult to avoid short-term stock price adjustments. Some evaluations suggest this could be an opportunity for new investors.