[At a Crossroads: Listed Companies] Sambutogeon, Shaking Off Insolvency and Stretching to Revive

The election to choose the next president is just one year away. Speculative funds betting on leading presidential candidates are rapidly increasing in the domestic stock market. Theme stocks related to top-ranking figures in the '2022 presidential candidate approval ratings,' such as Lee Nak-yeon, a member of the Democratic Party of Korea, Lee Jae-myung, Governor of Gyeonggi Province, and Yoon Seok-youl, former Prosecutor General, are surging. As former Prosecutor General Yoon's approval ratings rise sharply, the stock price volatility of listed companies managed by Yoon and his university alumni executives has also increased. Asia Economy aims to examine the business performance and financial stability of political theme stocks.

[Asia Economy Reporter Park So-yeon] Sambu Construction was classified as a 'Lee Nak-yeon theme stock' after appointing Lee Gye-yeon, the younger brother of Lee Nak-yeon, co-chairman of the Democratic Party of Korea's Central Election Committee, as CEO in November last year. Sambu Construction, which mainly operates in construction and real estate development, has been focusing on business normalization since graduating from workout in 2017. Last year, it secured approximately 900 billion KRW in new orders, significantly increasing sales, and resumed its own sales projects for the first time in about 10 years since 2010, signaling a revival. However, it is expected to take some time to recover profitability. Operating profit and net income turned to losses due to deficits in subsidiaries conducting sales projects, overseas subsidiaries, and impairment losses from liquidation companies reflected last year.

Revival Signs with New Sales Projects; Securing Profitability is Key

According to the Financial Supervisory Service's electronic disclosure system, Sambu Construction's consolidated sales last year were 384.8 billion KRW, a 70% increase from the previous year. Sales increased due to the commencement of new order sites. However, operating loss and net loss were recorded at 5.5 billion KRW and 18.8 billion KRW respectively, turning to losses. Sambu Construction explained, "Operating losses occurred due to increased initial investment costs (advertising, commissions, etc.) of subsidiaries conducting sales projects, and net losses occurred due to impairment losses of subsidiaries scheduled for liquidation."

On an individual basis, both sales and operating profit increased last year. Sales were 376.3 billion KRW and operating profit was 6.1 billion KRW, up 66.3% and 3.4% respectively from the previous year. Net income was 4.1 billion KRW, a 56.6% increase. Most sales and overseas subsidiaries are running at a loss. Sambu Pakistan Co., Ltd. recorded a net loss of 400 million KRW, Sambu Kazakhstan Co., Ltd. 3.8 billion KRW, Kazakhstan (INO LLP.) 2.1 billion KRW, Yeongjong EP Co., Ltd. 7.5 billion KRW, Sambu Renaissance Co., Ltd. 7.5 billion KRW, and Sambu Renaissance The Hill Co., Ltd. 1.4 billion KRW.

Cash Assets Decrease and Debt Increase Worsen 'Financial Soundness'

Sambu Construction's stock price has dramatically risen over the past year. Until the third quarter of last year, Sambu Construction was a 'penny stock' trading below 1,000 KRW per share, but after CEO Lee Gye-yeon's appointment, the stock price soared vertically to a high of 6,080 KRW. In the past three months, it has fluctuated between 3,000 and 4,000 KRW.

Contrary to the stock price trend, Sambu Construction's financial soundness has deteriorated. As of the end of last year, cash and cash equivalents of Sambu Construction and its subsidiaries were 57.9 billion KRW, down 26.8% from 79.1 billion KRW at the end of the previous year. Conversely, current liabilities due within one year increased by 72.84%, from 133.3 billion KRW at the end of two years ago to 230.4 billion KRW at the end of last year. The current ratio was 168.77%, and the debt ratio was 170%.

In particular, the debt ratio increased by about 60 percentage points from 110% at the end of two years ago. The net debt ratio also surged from 2% at the end of two years ago to 51% at the end of last year. Selling and administrative expenses, donations, and financial costs increased significantly last year. Selling and administrative expenses rose 200% from 12.4 billion KRW two years ago to 37.1 billion KRW last year. Among these, advertising expenses increased dramatically, from 11 million KRW two years ago to 10.45 billion KRW last year, about 950 times. Donations of about 10 million KRW were newly recorded.

The company explained that subsidiaries such as Sambu Renaissance Co., Ltd. and Sambu Renaissance The Hill Co., Ltd. increased selling and administrative expenses while conducting sales projects worth about 500 billion KRW last year. A Sambu Construction official expressed confidence, saying, "Ineffective subsidiaries are undergoing liquidation procedures, and since most of the loss costs were accounted for last year, performance improvement based on new orders will accelerate this year."

Major Shareholder 'Hurim Robot' Pledges Most of Its Shares as Collateral

The largest shareholder of Sambu Construction is Hurim Robot Co., Ltd., holding 10.48% of shares as of the end of 2020 according to the business report. Of these, 8.48% are pledged as collateral for financing. Hurim Robot issued 10 billion KRW worth of private convertible bonds (CB) in February last year. In this process, 6.67 million common shares of Sambu Construction were pledged as collateral to Live Savings Bank Co., Ltd. It is interpreted that investors such as Kirens borrowed funds from Live Savings Bank to acquire the CB and immediately set collateral rights with the savings bank.

At the end of last year, while issuing 14 billion KRW worth of CB, an additional total of 5 million shares (3.64%), or 1.84% each, were pledged as collateral to investors Changwon Gijeon and Henry Park. Hurim Robot has thus pledged about 81% of its Sambu Construction shares, 11.67 million shares (8.48%), as collateral for loans. The second-largest shareholder is Woojin Co., Ltd., holding 8.80%, and the employee stock ownership association holds 0.14%.

Meanwhile, Sambu Construction entered rehabilitation proceedings in September 2015 and completed them in October 2017. Until recently, it has not received credit ratings for corporate bonds or commercial paper except for public bidding purposes. For public bidding credit ratings, it received e-40 in 2018, e-4+ in 2019, and e-4+ in 2020. The e-4 rating corresponds to a BBB grade in corporate bond credit ratings.

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