[Funding] Sedong Seeks Rebound Through Electric Vehicle Parts Production

Continued Deficits Despite Revenue Growth from 2017 to 2019
Sales Decline Last Year Due to COVID-19 Impact
Performance Improvement Expected This Year with Hyundai Motor Group Electric Vehicle Parts Production

[Asia Economy Reporter Hyungsoo Park] Automotive parts manufacturer Sedong has embarked on investment to produce electric vehicle parts in order to break away from its chronic deficit structure. The funds will be raised through a rights offering to shareholders.

According to the Financial Supervisory Service's electronic disclosure system on the 11th, Sedong will raise 6.864 billion KRW through a general public offering of forfeited shares after a rights offering to shareholders. The planned issue price of the new shares is 1,430 KRW, and a total of 4.8 million shares will be issued. For every one existing share, 0.38 new shares will be allocated.

Of the raised funds, 1.8 billion KRW is planned to be used for facility investment, and 4.8 billion KRW for raw material purchases.

Sedong mainly produces automotive parts for exterior body components such as roof moldings and windshields. Finished car manufacturers select suppliers for molding and injection parts through a limited bidding process.

Sedong supplies domestic finished car manufacturers including Hyundai Motor Group, Korea GM, and Ssangyong. As of last year, 79% of total sales were supplied to Hyundai Motor Group. Since its establishment, Sedong has maintained a close cooperative relationship with Hyundai Motor Group. It has been steadily receiving orders for parts for new cars, including recently launched electric vehicles. The company is investing in facilities to produce parts for NE models in mass production and CE, CV models in development stages.

The consumption contraction caused by the COVID-19 pandemic has been recovering since the second quarter of last year. As Sedong's order volume increases, material and processing costs are also rising. As of the end of last year, Sedong holds 3.9 billion KRW in cash equivalents. Operating expenses are insufficient to produce new electric vehicle parts while continuing to produce existing parts. Of the funds raised through the capital increase, 4.8 billion KRW will be used as operating capital.

Sedong expects an increase in sales and improvement in profitability as it begins mass production of electric vehicle-related parts this year. Until now, it achieved external growth by supplying parts for internal combustion engine vehicles, but continuous investment has resulted in a situation where profits have not been realized.

Sedong’s sales steadily increased from 119.282 billion KRW in 2017 to 140.775 billion KRW in 2018, and 147.346 billion KRW in 2019. The cost of sales ratio improved from 96.31% in 2017 to 91.27% in 2019. However, due to the impact of COVID-19 last year, sales dropped to 119.371 billion KRW and the cost ratio rose to 95.32%.

Excessive borrowing due to continuous facility investment and working capital burdens has affected financial stability. The increase in interest expenses negatively impacted profitability. Interest expenses from borrowings were 2.469 billion KRW in 2017, 2.687 billion KRW in 2018, 3.015 billion KRW in 2019, and 3.241 billion KRW last year, showing an increasing trend each year. Borrowings reached 47.7 billion KRW as of the end of last year. Last year, by selling factory real estate in mass production, part of the borrowings was repaid, resulting in a 7.8 billion KRW decrease compared to 2019. The ratio of short-term borrowings decreased from 84.69% at the end of 2019 to 38.35% at the end of last year.

Sedong explained that CEO Yoon Jeong-sang, the largest shareholder, is expected to participate 100% in the subscription. The largest shareholder will secure the funds needed for the rights offering subscription through financial borrowing. However, it is expected that related parties of CEO Yoon will not subscribe. The largest shareholder’s stake is expected to decrease from 31.67% to 27.82%.

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