[At a Crossroads] Solux① Despite Poor Performance, Stock Price Strong Thanks to Aribio

Operating Loss Expanded by 1600% in First Half
Stock Price Rises 9 Times in About a Year

Solux, a KOSDAQ-listed company, recorded a large-scale deficit in the first half of this year, but its stock price continues to show a strong trend. This is interpreted as being due to increased expectations for Aribio's backdoor listing since CEO Jeong Jae-jun of Aribio acquired Solux last year, and the recent decision to merge.

According to the Financial Supervisory Service's electronic disclosure system on the 20th, Solux posted cumulative sales of 24.7 billion KRW and an operating loss of 3.9 billion KRW in the first half of this year. Sales decreased by 14% compared to the same period last year, while the operating loss widened by 1676%. In particular, the operating loss of 2.3 billion KRW recorded in the second quarter had a negative impact on the overall first-half performance.

Solux is a manufacturer of lighting fixtures, with main products including light-emitting diode (LED) lamps, fluorescent lamps, street lights, and tunnel lights. The company mainly supplies products to housing sites such as apartments. Solux stated that the poor performance this time was also influenced by the sluggish upstream industry. Due to the downturn in the construction market, new apartment construction has decreased and existing schedules have been delayed, leading to reduced sales.

The reason for the increased operating loss is analyzed to be that while sales decreased, selling and administrative expenses actually increased. Solux's selling and administrative expenses in the first half of this year were 6.7 billion KRW, a 33% increase from 5 billion KRW last year. Among these expenses, the most noticeable increase was in commission fees, which rose by 138% to 1.5 billion KRW from 600 million KRW the previous year. Commission fees include costs for accounting firms and law firms. Additionally, salary expenses and other unidentified costs increased compared to last year.

The net loss for the period increased even more than the operating loss. Solux's cumulative net loss in the first half of this year was 7.3 billion KRW, expanding by 3795% compared to the same period last year. The cause of the net loss was interest expenses resulting from the issuance of large-scale convertible bonds (CB) and bonds with warrants (BW). Interest expenses surged by 1152% to 3.9 billion KRW from 300 million KRW in the previous year. However, these interest expenses were accounted for as effective interest rates related to the issuance of CB and BW, and no actual cash outflow occurred.

Solux's performance has been declining for several years. While Solux recorded sales of 71.1 billion KRW and operating profit of 6.9 billion KRW in 2019, last year it posted sales of 59.8 billion KRW and operating profit of 500 million KRW. If it fails to generate about 4 billion KRW in operating profit in the second half of this year, it is expected to turn to a deficit for the year.

Despite the company's poor performance, its stock price has risen significantly compared to a year ago. Before CEO Jeong Jae-jun of Aribio acquired Solux, Solux's market capitalization was less than 60 billion KRW in early May last year. However, as of the day before, Solux's market capitalization was 511.7 billion KRW. The stock price has increased by about nine times in one year and three months.

The market views Aribio's influence as a major factor in Solux's stock price rise. In fact, from May 15 last year, when the announcement of CEO Jeong Jae-jun's acquisition of Solux's management rights was made, until the completion of the transaction on June 30, Solux's stock price surged by 268%. Also, from the ex-rights date of the large-scale 1-for-14 stock dividend on December 26 last year, the stock price soared about fourfold within a few days.

A Solux official said, "We expect the lighting business to recover performance again in the second half," and added, "The stock price is believed to have been highlighted due to Solux acquiring shares of Aribio, emphasizing the value of its stake."