[Reading Securities Report] 'KOSDAQ Listed' Bect, Sluggish in First Half... Expecting Expansion of Electronic Whiteboard Sales in Second Half

Digital Signage Specialist
First Half Sales Up 8% Year-on-Year... "Expecting Electronic Whiteboard Performance in Second Half"
"Half of the 11.9 Billion KRW Procurement Funds Used for Debt Repayment"

VECT, a digital signage specialist company, has submitted its securities registration statement and is actively proceeding with the KOSDAQ listing process. Due to the nature of the company's business, it has a characteristic seasonality. However, even considering this, its performance in the first half of this year was sluggish. The company expects growth in the second half of the year driven by increased sales of its core product, electronic whiteboards.

VECT was established in 2006. Based on advanced digital signage hardware and software capabilities, it provides a one-stop service from planning various digital content projects to hardware production and installation, system operation, and after-sales management.

Over 18 years since its founding, VECT has built solid planning capabilities by executing projects for over 10,000 client companies. It is actively engaged in diverse fields such as exhibitions and performances, outdoor advertising, media art, outdoor media facades, educational interactive media, smart learning, and virtual reality (VR) sports. Its customer base is also very diverse, including general corporations, financial institutions, broadcasters and media companies, hotels, public institutions and local governments, and schools.

Although VECT experienced rapid growth recently, it slowed down this year. In 2021, it recorded sales of 34.7 billion KRW and operating profit of 2.2 billion KRW. Last year, sales were 68.9 billion KRW with an operating profit of 4 billion KRW. However, for the first half of this year, sales and operating profit were 34.9 billion KRW and 2.3 billion KRW, respectively, representing increases of 8.7% and 156.08% compared to the same period last year. Considering that sales in 2022 increased by 88.31% year-on-year to 65.4 billion KRW, it can be seen that the sales growth momentum has slowed.

Of course, VECT's sales exhibit seasonality. Its business areas consist of B2B (business-to-business) commercial digital signage and B2G (business-to-government) educational digital signage. Especially, B2G has significant seasonality because sales are concentrated at the end and beginning of the year when budget execution is high. Even taking this into account, the sales growth rate has declined.

However, a company representative expects continued growth as sales of electronic whiteboards, the core business, are anticipated to increase in the second half of the year. The representative stated, "Electronic whiteboards tend to be sold mainly during the winter vacation period when students are away due to installation and construction issues," adding, "Second-half performance showed an increase compared to the first half, supported by stable projector sales combined with electronic whiteboard sales." They further added, "Since VECT's performance tends to follow a 'low in the first half, high in the second half' pattern, we expect the upward trend to continue in the second half of this year."

Shinhan Investment Corp., the lead underwriter, used the price-to-earnings ratio (PER) to calculate VECT's desired public offering price. Based on the net income of 3.10728 billion KRW for the last four quarters as of the first half of 2024, they applied the average PER of comparable companies ATEC (23.41x) and Hannet (19.1x), which is 21.21x, to derive a per-share valuation of 4,910 KRW. Applying a discount rate of 20.57% to 28.72%, the desired public offering price was set between 3,500 and 3,900 KRW.

Based on the desired public offering price, VECT plans to raise between 16.625 billion KRW and 18.625 billion KRW. The actual amount to be utilized from the raised funds is 11.9 billion KRW, based on the lower end of the desired price range. The reason for the lower amount compared to the total raised is the inclusion of secondary share sales. VECT plans to issue 3.4 million new shares and sell 1.35 million existing shares.

Of the raised funds, 4.6 billion KRW will be used to expand the LED and electronic whiteboard businesses as well as for research and development (R&D). Additionally, 2.2 billion KRW will be invested in raw material procurement. The remaining 5 billion KRW will be used to repay borrowings. The company explained in the securities registration statement, "Upon completion of debt repayment, interest expenses will decrease, reducing interest payments," and added, "Improved cash flow from operating activities and a lower debt ratio will likely lead to positive evaluations from credit rating agencies."