Third Capital Increase Resolution in Three Years Since 2021
Financial Structure Deterioration Due to Large-Scale Loss in 2022
Raising Funds to Develop High-Speed Rail Vehicles
DawonSys is launching its third rights offering since 2021. It will raise operating funds through a rights offering to existing shareholders.
According to the Financial Supervisory Service's electronic disclosure system on the 22nd, DawonSys will issue 3.9 million new shares by allocating 0.114 new shares per existing share. The planned issue price per share is 11,480 KRW, totaling approximately 44.8 billion KRW. The record date for new share allocation is April 14, and the payment date is April 30.
The raised funds will be used for high-speed train vehicle development costs and raw material purchases. The company explained that it plans to develop high-speed train vehicles capable of running at speeds exceeding 260 km/h to secure future growth engines. The replacement period for existing railway vehicles in the domestic high-speed rail market is approaching. DawonSys expects the high-speed rail replacement market size to reach approximately 8 trillion KRW from this year through 2029.
Although it is an unavoidable decision to secure future growth engines, repeated fundraising through capital increases has raised concerns about shareholder value dilution. Previously, DawonSys issued new shares in April 2021 and April 2022, raising 66.8 billion KRW and 53.6 billion KRW respectively, through rights offerings to existing shareholders.
DawonSys has been in the red for two consecutive years after recording an operating profit of 16.4 billion KRW in 2020. It posted operating losses of 14.5 billion KRW and 159.3 billion KRW in 2021 and 2022, respectively. In 2022, the COVID-19 pandemic caused disruptions in procuring overseas parts. Due to failure to meet the delivery deadlines for electric trains, penalty fees were deducted from sales revenue. The penalty fees directly deducted from 2022 sales amounted to 103.4 billion KRW. The deterioration in performance also worsened the financial structure. The debt ratio increased from 152% at the end of 2021 to 229% in the third quarter of last year, which is higher than the industry average of 99%. Interest expenses in the third quarter of last year were 10.1 billion KRW, a 134% increase compared to 4.3 billion KRW in the same period the previous year.
Performance has been improving since last year. As of the third quarter of last year, cumulative sales reached 278.3 billion KRW, and operating profit was 8.7 billion KRW. The company returned to profitability as the COVID-19 pandemic ended and electric train parts were procured normally.
Park Seon-soon, the largest shareholder and CEO of DawonSys, will participate in the subscription within a maximum limit of 15% of the shares allocated using internal funds. After the capital increase, the largest shareholder's stake is expected to decrease from 15.0% to 13.7%.
The new shares issued through the capital increase correspond to 11.4% of the total issued shares. Since there is no preferential allocation to the employee stock ownership association, all new shares can be sold immediately after listing. If there are unsubscribed shares in the rights offering, investors will be recruited through a public offering. If there are remaining shares after the public offering, the underwriter, Hi Investment & Securities, will subscribe to them. Hi Investment & Securities explained, "As of the end of September last year, DawonSys's total order backlog was 620 billion KRW," adding, "We have succeeded in diversifying sales."
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