[Market Focus] Dawonsys Hits Record Low on News of 113.8 Billion Won Train Supply Contract Termination

Dawonsys is showing weakness in early trading.

As of 9:05 a.m. on January 9, Dawonsys was trading at 2,120 won, down 70 won (3.20%) from the previous day. Immediately after the market opened, the stock plummeted as much as 7.99% to 2,015 won, marking an all-time low. Over the past year, the share price has dropped by more than 77%.

Investor sentiment appears to have weakened following reports that the contract Dawonsys signed in 2019 with POSCO E&C (then POSCO Construction) for the manufacture and supply of double-track trains for the Shin Ansan Line was terminated due to Dawonsys's delivery delays. The termination amount is approximately 113.8 billion won, which is about 88.4% of Dawonsys's recent sales (about 128.7 billion won).

This is not the first time Dawonsys has faced controversy over delays in train deliveries. According to the Ministry of Land, Infrastructure and Transport, Korea Railroad Corporation (KORAIL) signed three contracts with Dawonsys since 2018 for the purchase of ITX-Maum trains, totaling about 915 billion won. However, a significant portion of the first and second contracts has yet to be delivered, resulting in a non-delivery rate of 61%. The Ministry of Land, Infrastructure and Transport has reported Dawonsys for investigation, citing contract violations such as misusing advance payments for purposes other than intended and failing to expand production lines.

Previously, President Lee Jaemyung also criticized the excessive advance payment structure related to Dawonsys's delivery delays during a Ministry of Land, Infrastructure and Transport work report, saying, "It seems that government agencies have been deceived."

Dawonsys, one of the top three train manufacturers in Korea, has seen its main revenue stream-electric train deliveries-come to a halt. The company has also established a subsidiary, Dawon Powertron, with a board composition and business objectives almost identical to Dawonsys, raising shareholder concerns about poor management.

The Dawonsys Minority Shareholders' Alliance submitted a petition to the presidential office and financial authorities in September last year, arguing that Dawonsys is heightening shareholder anxiety due to ▲delays in train deliveries and repeated liquidated damages ▲non-payment to subcontractors ▲refusal to allow inspection of accounting books, among other issues.