[At a Crossroads] Alois① Stock Decline... CB Potential Volume Weighs Down

Operating Profit Down 40% Last Year... Sluggish Growth
Potential CB·BW Volume Equivalent to 12% of Total Shares Awaiting

The stock price of Alois, a company listed on the KOSDAQ, appears to be stagnant. The slowed earnings growth and potential outstanding convertible bonds (CB) and bonds with warrants (BW) are believed to be weighing down the stock price.

On the 28th, Alois's stock price closed at 1,390 KRW, down 0.64% from the previous day. The stock price, which was trading in the 2,000 KRW range last December, has been on a continuous decline, falling about 30% over the past year.

One of the reasons for the stock price decline is the slowed earnings growth. Alois recorded sales of 28.7 billion KRW and operating profit of 4.3 billion KRW last year, down 21.8% and 38.6%, respectively, compared to 2021. Through the third quarter of this year, cumulative sales of 19.2 billion KRW and operating profit of 3 billion KRW were recorded, making it difficult to expect a recovery to 2021 levels.

Most of Alois's sales are generated overseas. By region, Europe accounts for 54.9%, North America 40.1%, and others 5.0%. Last year, sales declines were particularly notable in North America and the Middle East, with sales in these regions dropping by more than 36%.

Alois is a manufacturer of OTT set-top boxes equipped with Android-based multimedia device functions. In 2015, CEO Kwon Chung-sik of Alois established the company by acquiring patents and other intellectual property (IP) from Fortis (now DS&L), which is currently facing delisting. The largest shareholder, CEO Kwon, Vice President Shin Jeong-gwan, and Research Director Lee Si-young all come from Fortis. In its early business days, Alois provided after-sales service for Fortis's set-top box products.

According to Grand View Research, the global OTT set-top box market is expected to grow at an average annual rate of 8.8% until 2025. The Middle East market, in particular, is projected to grow at 18%. Although the market size is expanding, Alois's sales have decreased.

In addition to the sluggish growth, the potential CB and BW that could be released into the market are also analyzed as obstacles to stock price increases.

In September 2021, Alois issued CB worth 2.7 billion KRW and BW worth 5 billion KRW. The purpose of issuance was working capital and raw material purchases. CB and BW are bonds that can be converted into stocks after a certain period. If the stock price rises above the conversion price, bondholders profit.

The initial conversion price per share for the total 7.7 billion KRW worth of CB and BW was 5,238 KRW. After Alois conducted a 1-for-1 stock dividend, the conversion price dropped to 2,619 KRW. As the stock price continued to fall, the conversion price was adjusted (refixed) to the lowest possible price of 1,834 KRW according to the refixing conditions. Although the conversion price has dropped to its limit and conversion requests have been possible since September last year, bondholders such as IBK Investment & Securities have not converted because the conversion price is still higher than the current stock price.

However, if the stock price rises near the conversion price, conversion requests could be made. In this case, 4,198,472 new shares would be released into the market. This is a large volume exceeding 12% of Alois's current total shares. Even if the stock price rises, there is a high possibility that the stock price will be diluted again due to the conversion volume.