[At a Crossroads] Bion① After One Failure, Another Sale... Will It Break the 6-Year Loss Streak?

The Second Sale Target is 'CTM'
Six Consecutive Years of Losses and Risk of Inadequate Disclosure

KOSDAQ-listed company Baion has launched a resale effort. Baion previously faced the risk of being designated as a non-compliant disclosure corporation after a failed sale attempt. Additionally, having recorded losses for six consecutive years, the market is closely watching whether this sale will be successful.

According to the Financial Supervisory Service's electronic disclosure, on the 13th, Baion's largest shareholder, Double U Global No.1 Association, along with one other, signed a contract to transfer 3,560,436 shares (9.37%) to CTM for a total of 11.9 billion KRW. Specifically, Double U Global No.1 Association sold 2,863,237 shares at 2,922 KRW per share, and Baion CEO Kim Byung-jun sold 701,130 shares at 5,071 KRW per share. The average price per share was 3,344 KRW, which is 140% higher than the closing price the day before the contract was signed.

Alongside this, Baion also decided on a third-party allotment capital increase worth 7 billion KRW targeting CTM. A total of 5,686,433 new shares will be issued at 1,231 KRW per share. In summary, CTM will invest 18.9 billion KRW to acquire a total of 9,246,869 shares (21.4% stake). CTM's average price per share is 2,045 KRW.

Previously, Double U Global No.1 Association and CEO Kim Byung-jun had signed a share sale contract with iWorld Pharm, a natural herbal medicine-based pharmaceutical development company, in August. They also decided on a capital increase worth 7 billion KRW targeting iWorld Pharm. However, iWorld Pharm failed to pay the balance by the payment deadline of September 25, and the contract was canceled. The capital increase was also eventually withdrawn. As a result, Baion faced the risk of being designated as a non-compliant disclosure corporation. The final decision on this designation and penalty points will be made on the 17th. If penalty points reach 8 or more, trading will be suspended for one day, and if 15 or more, Baion could be subject to a delisting review.

The market views this sale transaction as important not only due to concerns about penalty points but also because of Baion's sustainability issues. Baion has recorded operating losses on a consolidated basis for six consecutive years since 2016. Up to the third quarter of this year, it posted cumulative sales of 6.8 billion KRW and an operating loss of 5.2 billion KRW. The accumulated deficit amounts to 85.5 billion KRW.

Baion operates businesses in bio-medical, cosmetics, and fuel sales. In the bio-medical division, it supplies processed red ginseng raw materials to pharmaceutical companies. The cosmetics division sells over 60 products, including stem cell cosmetics and basic and color cosmetics. The fuel sales division operates gas stations in the Eumseong area of Chungbuk. The sales composition ratio is 59.3% from fuel sales, 33.3% from cosmetics, and 2% from bio-medical.

Baion's poor performance is analyzed to be due to a structure with a high proportion of low-margin product sales. As of the third quarter cumulative basis this year, product sales amounted to 4.8 billion KRW, accounting for 71% of total sales. Product sales refer to sales of goods purchased externally and distributed, unlike products directly produced by Baion, and typically have low profit margins. In fact, Baion's cost of goods sold for product sales is about 4.5 billion KRW.

Additionally, bad debt expenses on accounts receivable are also weighing on performance. Baion recorded 2.6 billion KRW in bad debt expenses on accounts receivable this year alone. This amount is classified as money unlikely to be collected from credit sales. As a result, by the end of the third quarter, Baion set aside 7 billion KRW as allowance for doubtful accounts out of total accounts receivable of 8.9 billion KRW. This is about a 55% increase compared to the end of last year.

A financial investment industry official said, “Although the regulation to designate a company as a management item after four consecutive years of losses has been removed, the new largest shareholder must consider growth drivers for Baion’s cash generation.” Meanwhile, CTM must pay the balance at least three days before the first extraordinary general meeting of shareholders after the contract signing. The date of the extraordinary general meeting has not yet been disclosed.