[At a Crossroads] Welkips Hightech② 10 Billion Investment Electric Vehicle Business Faces Capital Erosion Crisis

Large-Scale Losses Contrasting with Rosy Prospects
Joint Guarantee on 15 Billion Debt Adds to Burden

Exterior view of Welkips Hightech headquarters.

Wellkeeps Hightech, a KOSDAQ-listed company, has recorded massive losses and is facing a capital erosion crisis in the business it ambitiously entered, claiming to capture the 34 trillion won electric vehicle battery market. In particular, the actual performance is significantly different from the rosy outlook presented at the time of acquisition, raising concerns about overpriced acquisition and investment failure.

According to the Financial Supervisory Service's electronic disclosure system on the 20th, Wellkeeps Hightech's subsidiary, Jewon Tech, recorded cumulative sales of 14.6 billion won and a net loss of 3.8 billion won by the end of the third quarter this year. Sales decreased by 46% compared to the same period last year, and the deficit widened by 289%.

As large-scale losses were recorded, total equity also plummeted. As of the end of the third quarter this year, Jewon Tech's total assets stood at 23.5 billion won, with liabilities of 22.7 billion won and equity of 800 million won. Total equity decreased by 71% from 2.9 billion won in the third quarter of last year. If a similar scale of deficit continues in the fourth quarter, it could fall into complete capital erosion.

Earlier in January, Wellkeeps Hightech acquired 100% of Jewon Tech's shares for 4 billion won. Jewon Tech is a plastic injection molding company supplying parts such as electric vehicle battery cases to Inpac, a first-tier supplier for Hyundai Kia Motors. Upon acquiring this company, Wellkeeps Hightech announced its intention to target the "34 trillion won electric vehicle battery market."

At that time, Wellkeeps Hightech valued Jewon Tech's shares using the discounted cash flow (DCF) method, which estimates the future cash flows Jewon Tech would generate and converts them into present value. The valuation was conducted on December 5 last year, with the financial statement reference date being the end of the third quarter of last year.

According to an external evaluation report, Jewon Tech was projected to record total sales of 35.7 billion won and an operating loss of about 400 million won for 2023. Although it posted losses until the third quarter, a slight recovery in the fourth quarter was expected.

Subsequently, it was estimated that in 2024, sales would reach 30 billion won with an operating profit of 700 million won, turning profitable, and that performance would increase annually until 2028, reaching sales of 45.2 billion won and operating profit of 3.1 billion won. The turnaround year was projected as 2024, considering operating profits had declined over the past three years from 1.8 billion won to 500 million won to 400 million won.

However, Jewon Tech actually recorded sales of 32.3 billion won, an operating loss of 1.7 billion won, and a net loss of 2.2 billion won in 2023, showing results significantly different from the estimates. Considering the valuation date was December 5 last year, there were only 18 business days left until the year-end, yet a proper performance estimate was not made. This year as well, it has recorded a historic level of losses up to the third quarter instead of a turnaround.

As Jewon Tech recorded large-scale deficits, red flags have been raised in Wellkeeps Hightech's financial structure. Wellkeeps Hightech has loaned 5.8 billion won to Jewon Tech and also provided joint guarantees for Jewon Tech's bank debt amounting to 14.9 billion won. If Jewon Tech fails to repay its debts, Wellkeeps Hightech will bear most of the burden.

Regarding this, a Wellkeeps Hightech official stated, "After acquiring Jewon Tech, orders decreased more than expected due to the electric vehicle chasm (temporary demand slump), resulting in reduced performance. Most of the joint guarantees are related to electronic promissory notes, so there is no major problem, and we are making efforts to re-enter a growth phase from next year."