Rose to fame with masks but IT slump... 'Sikkeumhan Lemon'

[Asia Economy Reporter Hyunseok Yoo] Lemon, known as a mask manufacturer whose stock price surged, is actually closer to an IT materials company. The proportion of mask sales accounts for less than 1% of total revenue. Rather, the economic downturn in the IT industry caused by the novel coronavirus infection (COVID-19) is acting as a threat factor.

Lemon's main business includes high-performance electromagnetic interference (EMI) shielding components and heat dissipation sheets using nanotechnology, as well as nanomembrane materials with ultra-fine pores. The main products in the EMI sector are heat dissipation shield cans, conductive fabrics and tapes, and 5G PCB SMDs, which accounted for 80.7% (30.2 billion KRW) of total sales as of the third quarter of last year. Products in the nano sector include nanofiber membrane fabrics, feminine hygiene products, respiratory masks, and beauty mask pack fabrics, making up 19.3% (7.2 billion KRW) of the total. As of the third quarter of last year, Lemon's total sales amounted to 37.499 billion KRW.

Lemon has been supplying nanofiber membranes for respiratory masks to domestic and overseas clients since 2016. However, its share in total sales remains minimal. Sales were 83 million KRW in 2016, 110 million KRW in 2017, 118 million KRW in 2018, and only 83 million KRW up to the third quarter of last year. Nevertheless, there is a high possibility that related sales will increase going forward. In December last year, Lemon launched its own brand Air Queen Yellow Dust Mask (KF80) and Air Queen Protective Mask (KF94). Additionally, as of last month, pre-order quantities surpassed 12 million units.

Lemon's performance is essentially linked to the EMI sector's results. Last year, 58.7% of sales, amounting to 22 billion KRW, came from heat dissipation shield cans. These shield cans are materials attached inside smartphones that provide electromagnetic shielding and heat dissipation. Lemon's products have been supplied to Samsung since 2014 and have been applied to flagship models. The outlook is positive. The main customers are expanding the use of materials previously used only in high-performance products to mid- to low-priced lines. The number of 5G models is also expected to increase.

However, COVID-19 is acting as a threat factor. According to market research firm Counterpoint Research, global smartphone shipments in January this year recorded 120.05 million units, a 5.5% decrease compared to the same period last year. In particular, global companies are expected to be significantly affected starting from February sales performance.

Recent performance has worsened due to rising cost of goods sold. In the third quarter of last year, the cost of goods sold ratio approached 97.4%. This was due to increased raw material purchase costs from the rise in heat dissipation shield can components and increased depreciation expenses from investment in nanomembrane facilities. Additionally, large-scale research and development (R&D) and marketing expenses occurred due to the launch of new feminine hygiene products. As a result, operating losses and net losses were recorded for two consecutive years. The financial situation also deteriorated due to large-scale investments. The debt ratio, which was 39% in 2018, jumped to 210% in the third quarter of last year. This was because short-term borrowings increased and unpaid equipment investment was recorded due to recent new investments. The reliance on borrowings also rose from 8.3% to 42.3%.

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