Kris F&C Stock Decline Causes GemVax Link Stake Market Value to Drop by 25 Billion KRW

[Asia Economy Reporter Jang Hyowon] Golfwear company Chris F&C has continued to experience sluggish stock performance after its listing, resulting in a decrease of approximately 25 billion KRW in the market value of shares held by its largest shareholder, Gemvax Link.

However, Gemvax Link did not reflect the stock price decline in the value of its holdings, instead maintaining a high outlook on Chris F&C's future earnings prospects.

◆ Chris F&C Stock Price Drops After Gemvax Link’s Share Sale

According to the Financial Supervisory Service’s electronic disclosure on the 15th, Chris F&C Invest, the largest shareholder of golfwear company Chris F&C, held a 34.23% stake as of the end of last year. Chris F&C Invest is 100% owned by Gemvax Link.

Gemvax Link acquired a 63% stake in Chris F&C in March 2017 for 172.5 billion KRW. Since then, due to a bonus issue, stock split, and partial share sales, the stake has changed to the 58% range. Reflecting this, Gemvax Link’s acquisition price for Chris F&C is approximately 27,000 KRW per share.

At the time of Chris F&C’s listing in October 2018, Gemvax Link sold 1,758,000 shares of existing stock to the market. The offering price was 30,000 KRW per share, recovering 52.7 billion KRW. This represented about a 10% profit over the acquisition price.

However, since then, Chris F&C’s stock price has continuously declined and has never exceeded the offering price. As of the 13th, Chris F&C’s stock price stood at 17,200 KRW, about 42% lower than the offering price. Gemvax Link effectively sold its shares at the peak price.

◆ Decline in Value of Holdings... No Recorded Valuation Loss

Although some shares were recovered, Gemvax Link remains the largest shareholder of Chris F&C. The structure inevitably involves significant fluctuations in the value of its holdings due to stock price changes.

At the end of 2018, when Chris F&C was reclassified from a subsidiary to an associate company, the market value was measured at 100.8 billion KRW. Within a year, this value dropped to 75.9 billion KRW, meaning about 25 billion KRW evaporated. This amount exceeds seven times Gemvax Link’s net profit of 3.3 billion KRW last year.

However, Gemvax Link did not reflect this decrease in its book value because the recoverable amount was higher than the book value. According to accounting standards, if the recoverable amount is less than the book value, a loss is recognized, but if it is higher, the value remains unchanged.

The recoverable amount is calculated as the higher of value in use and net fair value. Value in use is calculated by estimating future cash flows, while net fair value reflects the market price (stock price). Although the stock price fell, lowering the net fair value, the estimated future cash flows Chris F&C is expected to generate did not decrease.

However, Chris F&C’s performance has shown a sluggish trend since its listing. Chris F&C recorded an operating profit of 46.3 billion KRW in 2017 but posted 37.7 billion KRW last year, a decrease of 18% over two years. Nevertheless, Gemvax Link maintains a positive outlook on Chris F&C’s future earnings.

Regarding this, a Gemvax Link representative stated, “The book value was calculated according to accounting standards, and the value in use was obtained from two external appraisal agencies.” However, the key assumptions used in calculating the value in use, such as sales and operating profit forecasts disclosed in the 2017 business report, were not made public.

Meanwhile, Gemvax Link is a company engaged in overseas clothing and accessories wholesale and retail, as well as wireless internet services. As of the end of last year, on a consolidated basis, it recorded sales of 95.1 billion KRW, operating profit of 5.9 billion KRW, and net profit of 3.3 billion KRW. Of its total assets of 187.7 billion KRW, 56%, or 105 billion KRW, is invested in Chris F&C shares.

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