[Funding] Haesung Optics, Survival Competition in Smartphone Camera Parts Industry

Smartphone Market Growth Slows... Pressure to Lower Prices Grows in Targeting Emerging Markets
Camera Parts Companies Face Earnings Decline, Urgent Need to Improve Financial Structure
Haesung Optics Raises Funds Through Capital Increase Allocating 0.96 New Shares per Existing Share

[Asia Economy Reporter Hyungsoo Park] As the global smartphone market enters a mature stage, a red light has turned on for domestic smartphone parts companies to grow. Concerns are growing that LG Electronics' withdrawal from the smartphone market will lead to a deterioration in the profitability of smartphone parts companies. Haesung Optics has recorded net losses for three consecutive years, worsening its financial structure, and has launched efforts to improve its financial structure through a rights offering. In addition, asset sales are being carried out simultaneously.

According to the Financial Supervisory Service on the 27th, Haesung Optics will conduct a rights offering followed by a general public offering of forfeited shares. It will allocate 0.96 new shares per one existing share, issuing a total of 40 million shares. The planned issue price of the new shares is 784 KRW, and it is expected to raise a total of 31.4 billion KRW.

◆Urgent need to improve financial structure= The funds raised will be used to repay debts with 18.8 billion KRW, operating funds with 9.4 billion KRW, and facility funds with 3.1 billion KRW. Haesung Optics holds outstanding convertible bonds totaling 12.5 billion KRW, including the 5th series convertible bond of 2.5 billion KRW, the 7th series convertible bond of 5 billion KRW, and the 8th series convertible bond of 5 billion KRW. Investors holding the 5th series convertible bonds can exercise early redemption rights starting from September 25. The exercise period for early redemption rights on the 7th and 8th series convertible bonds is also approaching in about six months.

Haesung Optics decided to allocate part of the public offering funds to respond to the exercise of early redemption rights because there is a possibility that the stock price may fall below the conversion price. Since early redemption rights on convertible bonds can be exercised every three months before maturity, it is necessary to reduce the possibility of default when sudden redemption requests occur. Of course, if the stock price rises above the conversion price and the risk of early redemption disappears, the funds intended for redemption can be used for business promotion funds necessary for management purposes, repayment of other financial borrowings, or operating funds. Haesung Optics plans to repay 6 billion KRW of borrowings from financial institutions to lower its debt ratio and reduce interest expenses.

Haesung Optics has recorded large net losses for three consecutive years since 2018. Last year, it recorded a net loss of 47.8 billion KRW, and its current ratio deteriorated to 37% as of the end of last year. The debt ratio stands at 606%, with total borrowings of 49.3 billion KRW, and the dependency on total borrowings relative to total assets reaches 42%. Financial cost burdens continue. Samduck Accounting Corporation, which conducted the external audit, raised doubts about Haesung Optics' ability to continue as a going concern in its audit report.

While capital expansion and financial structure improvement are needed, Haesung Optics CEO Jaeseon Lee participated in a third-party allotment rights offering and paid 12 billion KRW. He is also promoting a rights offering and is considering paying about 2 billion KRW for the rights offering as well.

Haesung Optics is also pushing forward with asset sales. Haesung Vina Co., Ltd., a 100% subsidiary, will sell real estate owned 100% by Haesung Tech. Haesung Tech purchased 460,000 m² of factory land in Bac Ninh Province, Vietnam, in early 2017 and is developing and selling the land. The saleable land area is 350,000 m², of which about 62% has been sold. Contracts for the sale of unsold land have also been signed, and the final payment is expected to be completed by October this year. Plans to sell Haesung Tech's shares are also being considered. Furthermore, Haesung Optics is pursuing financial structure improvement through the sale of idle facilities of Haesung Vina.

◆Smartphone growth slowdown... Preparing to produce Space Zoom parts= Haesung Optics' poor performance is related to the slowdown in smartphone market growth. As smartphone penetration rates rise worldwide, major smartphone companies are targeting emerging markets. In emerging markets, efforts to increase market share by strengthening price competitiveness are increasing pressure to lower prices for major parts suppliers. With the camera accounting for about 20% of smartphone costs, reducing camera costs is an important factor in price competitiveness. As price reduction pressure on camera parts manufacturers intensifies, profit margins continue to decline. This is why a considerable number of camera parts companies have recently recorded losses.

Haesung Optics is preparing to produce new parts to improve performance. Regarding the VCM business that produces actuators, it manufactures existing optical image stabilization (OIS) type and AA type actuators. As Samsung Electronics applied Space Zoom (100x zoom) to the Galaxy S20, demand for actuators used in Space Zoom is increasing. The Space Zoom module improves zoom functionality compared to existing OIS, implementing optical zoom up to 10x.

Haesung Optics explained the necessity of additional facility investment to produce Space Zoom modules at existing OIS actuator production facilities. Currently, there are two companies producing SUBs for Space Zoom as Samsung Electro-Mechanics partners. Through facility investment, Haesung Optics plans to enter the SUB market for Space Zoom actuators. It will use 3.1 billion KRW of the capital raised as facility funds.

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