[At a Crossroads] Welkips Hightech① Large Q3 Losses... New Business Also Sluggish

Loss of Clients and Deterioration of Accounts Receivable
New Business 'Jewon Tech' Also Faces Large-Scale Losses

Exterior view of Welkips Hightech headquarters.

Wellkeeps Hightech, a KOSDAQ-listed company, recorded a large-scale deficit in the third quarter of this year. Although it barely achieved a turnaround to profitability last year, there are concerns that it may fall back into the red this year if the current trend continues.

According to the Financial Supervisory Service's electronic disclosure system on the 15th, Wellkeeps Hightech's cumulative sales on a separate basis for the third quarter of this year amounted to 9.1 billion KRW, a 39% decrease compared to the same period last year. Operating loss and net loss for the period were 4.2 billion KRW and 6.4 billion KRW, respectively. Considering that the company posted profits of 1.1 billion KRW and 9.3 billion KRW in the same period last year, this represents a significant deficit.

Wellkeeps Hightech operates in high value-added IT components and driver IC semiconductor design business, as well as display DDI packaging (Display Driver IC) business. As of the third quarter of this year, 82% of its sales came from IC semiconductor design and packaging.

The decline in sales is analyzed to be due to a lawsuit with its major client, DB Global Chip. DB Global Chip recently filed a lawsuit against Wellkeeps Hightech seeking damages of 8.9 billion KRW related to semiconductor chip manufacturing. Along with this, DB Global Chip also applied for provisional seizure on various claims and real estate of Wellkeeps Hightech. To prevent the provisional seizure, Wellkeeps Hightech deposited 2.7 billion KRW as a court deposit.

Since the end of June, DB Global Chip has also cut off transactions with Wellkeeps Hightech. Wellkeeps Hightech had subcontracted production related to Chip on Film (COF) packaging with DB Global Chip. The suspended sales amount to 8.4 billion KRW, which is about 41.5% of Wellkeeps Hightech's total sales last year.

While sales decreased, costs rather increased, causing operating losses. Cost of sales until the third quarter of this year was 9.0 billion KRW, nearly the same level as sales. This is why the gross profit was less than 100 million KRW. In particular, selling and administrative expenses rose 119% to 4.2 billion KRW from 1.9 billion KRW in the same period last year.

The significant increase in selling and administrative expenses is mainly due to bad debt write-offs, which were not present last year. Wellkeeps Hightech recorded 2.4 billion KRW in bad debt write-offs in the third quarter of this year. The cause of the bad debt write-offs is analyzed to be the allowance for doubtful accounts on trade receivables.

Wellkeeps Hightech set aside 2.5 billion KRW as allowance for doubtful accounts out of total trade receivables of 3.8 billion KRW in a lump sum. This is a sharp increase compared to 150 million KRW last year. The allowance for doubtful accounts is an accounting method that anticipates losses when it is expected that the collection of trade receivables, which are credit sales, will be difficult.

Amid growing uncertainties in its existing business and poor performance, the electric vehicle battery parts business, selected as a new growth engine, also appears lukewarm.

In January, Wellkeeps Hightech acquired 100% of the shares of ‘Jewon Tech,’ a manufacturer and seller of automotive parts, for 4 billion KRW. Jewon Tech is known as a first-tier vendor for Hyundai-Kia Motors with plastic injection molding technology. At the time, Wellkeeps Hightech announced that it would enter the new electric vehicle market through the acquisition of Jewon Tech.

However, Jewon Tech recorded a net loss of 3.8 billion KRW by the end of the third quarter this year. Its sales also sharply declined to 14.5 billion KRW compared to the same period last year, which is analyzed to be adding to Wellkeeps Hightech's performance burden.

Meanwhile, inquiries were made to the company regarding the causes of this poor performance and countermeasures, but no response was received.