13 Years of Deficits 'Zombie Company'... Sustained by Shareholders' Money [At a Crossroads Listed Company] Kumho Jeon-gi②

Accumulated Deficit Exceeds 105.6 Billion KRW...
"Going Concern Uncertainty" Pointed Out for Six Consecutive Years
13 Rounds of Fundraising in Five Years, but Capital Erosion Ratio Surpasses 71%

Kumho Electric, a KOSPI-listed company, has been posting losses for 13 consecutive years. This is attributed to poor performance in its core business as well as a lack of results from new ventures. Despite this, Kumho Electric has been surviving through capital injections from shareholders via rights offerings and convertible bonds (CB) issuance.

According to the Financial Supervisory Service's electronic disclosure system on the 27th, Kumho Electric recorded sales of 44.3 billion KRW and an operating loss of 2.5 billion KRW last year on a separate basis. Sales increased by 1.2% compared to the previous year, but operating losses persisted. Net loss also continued on a large scale at 11.5 billion KRW, following the previous year.

Kumho Electric manufactures 'Beongae-pyo' lighting products. Its main products include general lighting such as linear, circular, and incandescent fluorescent lamps, as well as straight lamps, cross lamps, and light-emitting diode (LED) floodlights. It also supplies small-scale energy-saving facilities.

The reason for Kumho Electric's losses last year is analyzed to be due to a high cost structure. Last year, the cost of goods sold was 32.2 billion KRW, with a cost ratio of about 72.7%. The largest portion of the cost of goods sold was merchandise purchases, amounting to 28.8 billion KRW.

In accounting terms, 'merchandise' refers to goods received from external companies rather than those manufactured directly. It is estimated that most of the lighting products sold by Kumho Electric are produced by external companies. According to last year's business report, products manufactured at Kumho Electric's own production facilities amounted to about 2.5 billion KRW.

In particular, the reason why net loss is more than four times the operating loss is due to 'other losses' incurred outside of operations. Kumho Electric recorded 8.5 billion KRW in other losses last year. Among these, 5.3 billion KRW was impairment loss on investment securities of subsidiaries. This was because Brickmate, a subsidiary in which Kumho Electric invested 11.3 billion KRW in 2022, fell into complete capital erosion, resulting in the entire investment being recognized as a loss.

Kumho Electric has been posting losses for 13 years since 2012. While it recorded an operating profit of 5.2 billion KRW in 2011, it turned to an operating loss of 14.2 billion KRW in 2012. Since then, it has continued to incur losses ranging from several billion to hundreds of billions of KRW annually. As a result, the accumulated deficit on a separate basis exceeded 105.6 billion KRW last year.

Due to the long-term accumulated losses, the audit firm has pointed out significant uncertainties related to the company's ability to continue as a going concern for six consecutive years since 2019. Hanul Accounting Corporation, the auditor of Kumho Electric, stated, "Currently, Kumho Electric is at risk of financial liquidity issues, and there is a risk that assets and liabilities may not be recoverable through normal business activities."

Kumho Electric has been preventing the risk of cash liquidity depletion through frequent external capital injections. The company first issued the 1st series CB worth 10.1 billion KRW in March 2020, intended to repay existing debts. Since then, it has continuously issued CBs 11 times until last year. Meanwhile, it also conducted two rights offerings. The total funds raised externally amount to 89 billion KRW. However, Kumho Electric's total equity stood at only about 8.1 billion KRW on a separate basis at the end of last year. The capital erosion ratio is 71%.

A Kumho Electric official said, "Although the conversion claims and rights offerings may dilute the equity value of minority shareholders, we are doing our best to improve capital erosion through fundraising and aim for a turnaround. This year, we aim to return to profitability from the first quarter through new drone business with Pablo Aviation and a memorandum of understanding (MOU) with the Korea Environment Corporation," he said.