①Arion, Will the New Mask Business Generate Profit?

[Asia Economy Reporter Jang Hyowon] Recently, as the shortage of masks continued due to the novel coronavirus infection (COVID-19), the number of listed companies entering the mask-related business is increasing. Arion, a KOSDAQ-listed company, is one of them.

According to the Financial Supervisory Service's electronic disclosure on the 28th, Arion announced that it signed a supply contract for 9 million KF94 masks the day before. The confirmed contract amount is 9.9 billion KRW, which is 21.58% of the 2018 sales revenue. The contracting party is ‘Daejong Medical Equipment Co., Ltd.’

Arion also signed a supply contract for 10 million KF94 masks on the 26th. The contract amount was 11 billion KRW, and the contracting party was ‘Pikoterra Co., Ltd.’ Over two days, they signed contracts for 19 million masks totaling 20.9 billion KRW.

As of the end of the third quarter last year, Arion is a company engaged in digital broadcasting receiver business, entertainment, and e-commerce. Digital broadcasting receiver sales account for 67% of total sales, and entertainment accounts for 27%. The company originally does not manufacture masks.

According to the company, Arion signed a supply contract with a mask production factory in Pyeongtaek. Subsequently, by contracting to supply masks to Daejong Medical Equipment and Pikoterra, they created a structure of mask factory - Arion - wholesalers (Daejong Medical Equipment, Pikoterra) - retailers. Usually, factories and wholesalers trade directly, but Arion has inserted itself in between.

As a result, the market is curious whether Arion can make a margin from the mask business. Arion’s mask supply price is 1,100 KRW per piece. Given the current mask shortage situation, there is no reason for mask factories to supply masks to Arion at a price significantly lower than 1,100 KRW.

In fact, efforts to find mask factories among wholesalers are ongoing without pause. Mask factories hold the advantage in price-setting power.

Also, the government is supplying masks at a minimum price in the 800 KRW range to stabilize mask prices. Due to government measures, it is expected that the profit margin of existing mask distributors will shrink, and thus, it is analyzed that Arion also has less room to make profits. Even if the entire 20.9 billion KRW is supplied and recorded as sales as planned, the operating profit margin is likely to be minimal.

There is also interest in the past sales scale of the wholesalers contracted by Arion. Pikoterra, which signed the 11 billion KRW contract, recorded sales of 900 million KRW in 2018. Daejong Medical Equipment, which signed the 9.9 billion KRW contract, posted sales of 1.9 billion KRW during the same period.

Arion stated in the disclosure, “The contract details may be changed through consultation with the trading partners depending on the progress.”

This content was produced with the assistance of AI translation services.