Hyoungji, Only Golf Wear Performs Well... Financial Situation in the Red

Main Brand's Performance Expected to Plummet Due to COVID Impact
Castelbajac Acts as a Pillar
Total Debt of 269 Billion KRW as of Year-End
Cash Generation Capacity Declines, Financial Situation Critical

Despite the COVID-19 pandemic, golf courses have been bustling with activity. The domestic golf population has increased, and the market for related products such as golf wear and golf equipment has also expanded. However, ironically, companies owning golf brands are generally struggling with poor performance. Although the market has grown, competition has intensified as golf brands have proliferated rapidly. The consumption market downturn caused by COVID-19 is expected to serve as a turning point to distinguish the wheat from the chaff among the numerous golf wear brands. Those who survive the fierce competition may accelerate their growth. We have reviewed the current status of companies owning golf brands.

[Asia Economy Reporter Lim Jeong-su] Fashion Group Hyungji (Hyungji) has turned on a red light for its financial situation as its performance deteriorated due to the COVID-19 pandemic. Although the burden of borrowings continues to increase due to the construction of a new headquarters in Songdo, the cash-generating ability has declined due to prolonged poor performance over several years. Among its major affiliates, the only company generating a profit is the listed golf wear company Castelbajac.

Analysts in the securities industry predict that Hyungji's sales in the first quarter of this year will significantly decrease. Although Hyungji has not yet announced its first-quarter results, it is analyzed that sales of its main fashion brands such as Crocodile Lady and Shatlen have sharply declined due to the COVID-19 situation. The performance of major affiliates such as Hyungji Elite and Esquire is also unstable.

Therefore, it is expected to be difficult to turn a profit even in the first quarter. Fashion Group Hyungji recorded a cumulative net loss of 46.1 billion KRW over two years, with -28.9 billion KRW in 2018 and -17.3 billion KRW in 2019. Last year's EBITDA was 23.6 billion KRW, but most of it was spent on financial costs, preventing a turnaround to profitability.

Hyungji's only performance pillar is the listed affiliate Castelbajac, which owns a golf wear brand. Castelbajac has recorded solid performance as the golf wear market has expanded. Sales increased from 33.5 billion KRW in 2016 to around 80 to 90 billion KRW in the past two years, and it has generated over 10 billion KRW in EBITDA annually since 2017. This accounts for half of Hyungji's consolidated EBITDA.

A securities industry official said, "Castelbajac improved cost competitiveness by reorganizing unprofitable offline channels and expanding online channels this year," adding, "Even if sales decline due to the COVID-19 situation, profitability is likely to improve."

Despite Castelbajac's strong performance, Hyungji's financial deterioration continues. As of the end of last year, total borrowings stood at 269 billion KRW, an increase of over 90 billion KRW from 176 billion KRW in 2018. The increase in borrowings was significant due to the inclusion of lease liabilities amounting to 72.8 billion KRW as borrowings following accounting standard changes. More than half of these are short-term borrowings that must be repaid or refinanced within one year. Net borrowings excluding cash equivalents amount to approximately 243 billion KRW.

Due to the decline in performance, the ability to repay on its own has weakened, forcing the company to refinance most of its borrowings. At the end of last year, Hyungji's EBITDA was barely sufficient to cover financial costs such as interest on borrowings. The burden of fixed costs also places significant pressure on operating funds. If EBITDA decreases this year, the borrowing burden will inevitably increase.

The construction of the new headquarters in Songdo is also identified as a key factor increasing the borrowing burden. Hyungji is constructing a new headquarters in Songdo, aiming for completion in September next year, with a budget of 150 billion KRW. It is analyzed that the company will increase new borrowings by about 80 billion KRW this year to fund this construction.

The possibility of a credit rating downgrade has also increased. Credit rating agencies recently assigned a 'negative' outlook to Hyungji's credit rating (BB+). A credit rating agency official said, "If a sharp recovery in performance is not achieved, it will be difficult to return to a financial improvement trend."

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