[Reporter Reading Securities Report] Sambosan Industry Paying Off Debt with Shareholders' Money

Last Year Debt Ratio at 767% with 56% Borrowing Dependence
Out of 15 Billion KRW, 10 Billion KRW Used for Accounts Payable and Loan Repayment

Sambo Industry plans to raise 15 billion KRW through a paid-in capital increase. Of the secured funds, 10 billion KRW will be used for accounts payable and debt repayment. As of the end of last year, Sambo Industry's debt ratio and debt dependency ratio stood at 767.42% and 55.61%, respectively.

Sambo Industry will proceed with the paid-in capital increase through a rights offering followed by a general public offering for unsubscribed shares. A total of 23.73 million common shares will be newly issued at a price of 632 KRW per share. The company plans to raise approximately 14.99736 billion KRW.

Sambo Industry collects used aluminum and produces products in the form of aluminum alloys through remelting. Most of the produced products are used as materials for automotive parts. Its subsidiary, Sambo Auto, manufactures automotive parts using the die-casting method.

On a consolidated basis, last year the company recorded sales of 427.12251 billion KRW and an operating loss of 620.21 million KRW. Sales decreased by 6.13% compared to the previous year, and operating profit turned negative. The cost ratio increased due to product prices falling more sharply than raw material prices, resulting in an operating loss. The net loss for the period continued at 16.77442 billion KRW.

Sambo Industry plans to use the funds raised through the paid-in capital increase for operating funds and debt repayment. Specifically, 4.6 billion KRW will be allocated for raw material purchases, 3.8 billion KRW for accounts payable repayment, and 6.6 billion KRW for debt repayment. In total, 10.4 billion KRW out of the 15 billion KRW will be used to pay off debts.

The reason is the deteriorated financial condition. On a consolidated basis in 2022, Sambo Industry's current ratio, debt ratio, and debt dependency ratio were 77.04%, 583.22%, and 54.34%, respectively. Last year, these figures were 74.02%, 767.42%, and 55.61%, showing an increase in debt ratio and debt dependency ratio. Notably, Sambo Industry has spent between 7 billion and 14 billion KRW on interest expenses over the past three years.

Given the worsening financial situation, the paid-in capital increase appears essential for Sambo Industry. Although the company received an unqualified opinion in last year's audit report, the auditors expressed significant uncertainty regarding the company's ability to continue as a going concern. Simply put, the business condition is unfavorable.

In last year's consolidated audit report, the company explained, "Current liabilities exceed current assets, and the debt ratio reaches 767.41%. This situation raises doubts about the company's ability to continue as a going concern."

If the paid-in capital increase is successfully completed, the debt dependency ratio is expected to improve to approximately 53.69%, about a 2 percentage point improvement compared to the end of last year. Additionally, the company plans to sell idle assets to improve its financial structure.

However, it is uncertain whether the company can secure the desired funds. If the stock price continues to decline, it will be difficult for the company to raise the necessary capital. Currently, Sambo Industry's stock price is in the 800 KRW range, which is higher than the planned issuance price. However, since the issuance price includes a discount on the reference price, if the current stock price persists, the company may fail to raise the planned funds.

Stock dilution is also a concern. Currently, 50,055,902 shares have been issued. With the paid-in capital increase, an additional 47.41% of the total shares will be issued. This means nearly 50% more shares will be newly added to the total shares.

Sambo Industry plans to finalize the first issuance price on May 30, confirm the issuance price on June 7, conduct subscription for existing shareholders on June 12-13, and hold the general public subscription on June 17-18.