[Exclusive] Smart Golf Management Dispute... Why Is Original Super Ant Kim Seongjin Pursuing Acquisition of an Unlisted Company?

Kim Sung-jin, Request for Extraordinary General Meeting Including Removal as CEO of Smart Golf
Minimal Presence in Screen Golf Market...Continued Deficits Reduce Acquisition Incentives
Appears to Seek Backdoor Listing by Acquiring OTC Market Company Owned by Himself

Original super individual investor Kim Sung-jin is aiming to acquire management rights of SmartGolf. Having mainly acquired stakes in KOSPI-listed companies, his demand to convene an extraordinary general meeting of shareholders over agenda items such as the dismissal of SmartGolf's CEO, a company designated on the over-the-counter market (KOTC), has drawn significant attention.

According to the Korea Financial Investment Association and the OTC market industry on the 22nd, Topus, led by Kim Sung-jin, requested the holding of an extraordinary general meeting of shareholders on May 31st with the agenda of dismissing the CEO of SmartGolf. Topus is reported to have purchased 850,000 shares of SmartGolf at an average price of 319 KRW per share.

An OTC market insider said, "Kim Sung-jin's side requested the appointment of Kim Sung-jin, Kim Seon-woong, and Choi Jin-ho as inside directors of SmartGolf, and Lee Yeon-hee as an audit committee member." The insider added, "Kim Seon-woong (born 1983) appears to be Kim Sung-jin's son, and Lee Yeon-hee (born 1961) seems to be his wife. All are known to be executives of Topus."

CEO Kim Sung-jin became famous for accumulating shares of Geukdong Construction before Lone Star purchased its stake in 2000. It is said that he secured a 41% stake for about 2 billion KRW together with acquaintances and sold it for a significant profit. Since then, he has participated in competitive acquisitions of stakes in KOSPI-listed companies such as Shinil Industry and Korea Industry, and last year attracted market attention by accumulating shares in Hwacheon Machinery.

Kim Sung-jin began accumulating shares of SmartGolf in mid-May, and it is estimated that he currently holds about 22.62% (1.27 million shares) of SmartGolf. According to the first quarter quarterly report, SmartGolf CEO Park Ji-hyung holds an 18.11% stake. Park's stake decreased from 29.74% at the end of last year. However, if major shareholders side with CEO Park, the situation could change. As of the end of last year, if additional stakes such as Chris World The Residence (2.50%) are secured, it could rise to a level comparable to Kim Sung-jin's side.

Park, the major shareholder and CEO of SmartGolf, said, "There were several cases of M&A tapping before Kim's attempt to acquire management rights, but they were rejected," adding, "All were requests for old share acquisitions rather than 'new share + old share acquisitions' that would inject new funds into the company, so they could not be accepted." He continued, "It seems Kim's side is not interested in acquiring management rights with genuine interest in the company," emphasizing, "I hope shareholders do not suffer from the situation where the stock price surges sharply and then plunges again."

Continued Deficits and Market Capitalization of Only 500 Million KRW

SmartGolf was founded in 2014 by CEO Park Ji-hyung, a former development team leader at Golfzon. Its sales in the first quarter of this year were 71.9 million KRW, significantly down from 865.79 million KRW in the same period last year. Operating loss and net loss were 214.26 million KRW and 227.13 million KRW respectively, indicating ongoing deficits.

The screen golf market is virtually monopolized by the top player Golfzon, holding an 80% market share. Kakao ranks second, followed by SmartGolf. As a technology company, continuous investment in R&D is necessary, and expanding franchise stores to over 1,000 is required to expect stable profits. Under current circumstances, there is little incentive to acquire the latecomer SmartGolf.

SmartGolf's sales were 1.03263 billion KRW in 2016, 2.02647 billion KRW in 2017, 4.04013 billion KRW in 2018, 3.4091 billion KRW in 2019, 1.81447 billion KRW in 2020, 5.049 billion KRW in 2021, and 3.36 billion KRW in 2022. Operating profits slightly increased during the same period: 17.01 million KRW (2016), 91.67 million KRW (2017), and 132.62 million KRW (2018). Afterwards, operating losses were recorded as -1.95521 billion KRW (2019), -1.82546 billion KRW (2020), -1.53455 billion KRW (2021), and -425.76 million KRW (2022). The reduction in losses is largely due to the closure of 15 directly managed stores.

Market capitalization is also minimal. It once reached 38.5 billion KRW but underwent a free capital reduction last year due to capital erosion. As a result, market capitalization shrank to about 500 million KRW. According to the quarterly report, there are currently only five employees as of the first quarter of 2023. Excluding CEO Park Ji-hyung and non-standing auditor Hyun Jong-ho (born 1988), there are only three others. CEO Kim also said, "It's a company with a market cap of about 500 million KRW, so calling it a hostile M&A... is unreasonable."

The market is puzzled by CEO Kim's accumulation of shares. He has mainly accumulated stakes in KOSPI-listed companies but has recently been actively pursuing acquisitions of OTC market companies.

Therefore, the prevailing view is that there may be other purposes beyond entering the screen golf business. The fact that Kim's side requested an extraordinary general meeting to dismiss CEO Park without explaining reasons such as management failure adds weight to this speculation.

A financial investment industry insider said, "If the plan is to acquire management rights at a low price and then resell, there should be a plan to normalize management," adding, "Demanding only the dismissal of the CEO without such context suggests that a KOTC company to be used as a vehicle is needed."

There is also a view that profit-taking through management disputes is not the goal. An accounting expert said, "If profit-taking were the goal, targeting KOSDAQ or KOSPI-listed companies would be more advantageous," adding, "Moreover, looking at SmartGolf's financial statements and cash flow, it is embarrassing to consider this a management dispute."

The market believes attention should be paid to Kim's recent moves. He has been acquiring OTC market companies through unlisted corporations he owns. He acquired Creme de la Creme from Boas Asset and Santa Cruz Company from Wonok. Currently, Topus is pursuing the acquisition of SmartGolf's management rights. Topus and Boas Asset held extraordinary general meetings yesterday and added 'financial product investment business and securities trading business' to their business objectives.

He sent certified letters to all mentioned companies requesting extraordinary general meetings to dismiss CEOs and demanded the appointment of the same individuals as inside directors and auditors. It appears to be an attempt to merge these companies and enter the OTC market. An OTC market investor speculated, "He could use his unlisted companies to backdoor list on the OTC market and then aim for entry into the KOSDAQ market," adding, "It costs less than directly acquiring KOSDAQ or KOSPI-listed companies." CEO Kim declined to comment on the purpose of acquiring SmartGolf, saying, "There is no information I can confirm."