[Column] RS Automation Launches 40 Billion Won Rights Offering Amid Sluggish Performance

Continued Deficit Since 2023 Due to Downturn in Key Industries
18 Billion Won Invested in R&D for Next-Generation Product Development
CEO Kang Deokhyun to Participate in Only 20% of Rights Offering
Decreasing Largest Shareholder Stake Raise

RS Automation has initiated a large-scale paid-in capital increase worth 40 billion won. The company has been posting sluggish results due to the downturn in its key upstream industries, semiconductors and displays. To overcome this, it plans to develop a next-generation intelligent drive control platform that incorporates artificial intelligence (AI).

However, since CEO Kang Deokhyun will participate in only 20% of the allotted shares, the declining ownership stake of the largest shareholder is expected to be a burden.

According to the Financial Supervisory Service's electronic disclosure system DART on September 2, RS Automation announced that it will carry out a paid-in capital increase worth 40 billion won through a rights offering to existing shareholders followed by a general public offering of forfeited shares, for the purposes of operations, debt repayment, and facility investment. The number of new shares to be issued is 3,536,700 common shares, with the planned issue price set at 11,310 won per share.

The reason behind RS Automation's large-scale paid-in capital increase appears to be its poor performance. After recording sales of 113.4 billion won and operating profit of 2.5 billion won in 2021, the company has been on a downward trajectory. In 2023, sales fell to 80 billion won and it posted an operating loss of 3.2 billion won. The losses have continued from 2023 through the first half of this year, with sales also declining.

RS Automation, established in December 2009, specializes in robot components and control software. Its main products are robot motion controllers and energy control devices. The deterioration in performance was mainly due to the downturn in upstream industries. The worsening conditions in the semiconductor and display industries, which are its main upstream sectors, led to a decrease in orders from major clients. In addition, demand for power conversion systems (PCS) in the energy control device business also dropped significantly.

To overcome these challenges, RS Automation plans to invest 18 billion won in research and development (R&D) to enhance product performance and expand its business model. The company will pursue phased R&D, including: ▲ development of AI-enabled control software platform technology; ▲ development of an edge computing-based drive platform; and ▲ development of on-machine, humanoid, and defense drive modules. Through these efforts, RS Automation aims to connect the industrial control component market with new markets.

In addition, 8 billion won will be used as facility funds to proactively respond to rising demand in the semiconductor and precision equipment markets. Another 7.95 billion won will be allocated for personnel expenses and expanding business operations in its Americas subsidiary, while 6.05 billion won will be used to repay borrowings.

However, from an investor's perspective, there are some concerns regarding this capital increase. First, 38.02% of the total 9,303,140 shares outstanding will be newly issued shares. As new shares are issued, the value of existing shares is expected to be diluted.

The largest shareholder's stake will also decrease. The largest shareholder of RS Automation is CEO Kang Deokhyun, who currently holds a 27.65% stake. CEO Kang plans to participate in the capital increase at a level of only about 20%. As a result, the largest shareholder's stake will decrease to 20.60%. For reference, CEO Kang plans to sell part of his holdings through a block deal (off-market bulk sale) to secure funds for the subscription to the capital increase.