[At a Crossroads for Listed Companies] Digital Optic, 720 Billion Won Guaranteed Over 3 Years? ... Continuing 'Deficit' Streak in Q1①

[Asia Economy Reporter Jang Hyowon] Digital Optic, a KOSDAQ-listed company, announced that it secured sales of 720 billion KRW and operating profit of 72 billion KRW over three years by signing a distribution rights contract with its largest shareholder, Noble Bio, last January. However, it has been confirmed that the company still posted a loss in the first quarter of this year.

Moreover, Digital Optic purchased the distribution rights for 38 billion KRW at that time and is amortizing this amount. Therefore, if the company fails to generate profits exceeding 3.2 billion KRW each quarter going forward, it will inevitably continue to incur losses.

Digital Optics homepage capture.

Sales Target Not Even 23% Achieved on a Quarterly Basis

According to the Financial Supervisory Service's electronic disclosure on the 18th, Digital Optic's consolidated sales in the first quarter amounted to 20 billion KRW, a 130% increase compared to 8.7 billion KRW in the same period last year. On the other hand, operating loss and net loss were 6.4 billion KRW and 7.2 billion KRW respectively, with the deficit widening by 23% and 31% compared to the same period last year.

The increase in sales is due to the newly established product sales in the distribution business segment this year. Digital Optic's main business is originally manufacturing camera lenses for mobile phones. Product sales refer to a business model where Digital Optic purchases goods externally and sells them, rather than selling products it manufactures directly. This structure makes it difficult to expect high margins.

In the first quarter of this year, Digital Optic's product sales amounted to 13.8 billion KRW, accounting for 69% of total sales coming from distribution business product sales. Excluding this segment, Digital Optic's product sales actually decreased from 7.1 billion KRW last year to 6.2 billion KRW.

Most of Digital Optic's product sales came from its largest shareholder, Noble Bio. Noble Bio, a medical device company, became Digital Optic's largest shareholder through a 5 billion KRW paid-in capital increase last January. Subsequently, Noble Bio granted distribution rights to Digital Optic.

Noble Bio produces swab products for COVID-19 specimen collection. Under the distribution contract, specimen collection swabs and transport media were distributed through Digital Optic. During the first quarter, Digital Optic purchased goods worth 12 billion KRW from Noble Bio.

This amount is far below the scale declared by Noble Bio and Digital Optic at the time of the distribution contract.

Earlier, on January 27, the two companies signed a distribution rights contract in which Noble Bio guaranteed minimum sales of 720 billion KRW and operating profit of 72 billion KRW over three years. Following this news, Digital Optic's stock price fluctuated around 15,000 KRW (adjusted price) during the trading session, marking the highest price in two years and three months.

However, Digital Optic's product sales of 13.8 billion KRW this time represent only 23% of the target. To guarantee sales of 720 billion KRW over three years as announced by the company, it would need to generate at least 60 billion KRW in sales per quarter based on simple arithmetic. Moreover, since product sales include not only Noble Bio's products but also other goods, the achievement rate is analyzed to be even lower.

Amortization Cost of Distribution Rights Alone Amounts to 3.1 Billion KRW Each Quarter

As the company failed to achieve the guaranteed performance initially promised, Digital Optic's operating loss has increased further. This is because the distribution rights purchased from Noble Bio are recorded as expenses every quarter.

On January 27, Digital Optic issued convertible bonds (CB) worth 38 billion KRW to purchase the distribution rights from Noble Bio. These distribution rights were recorded entirely as intangible assets on Digital Optic's balance sheet.

Digital Optic is amortizing this intangible asset at 1.05555 billion KRW (38 billion KRW / 36 months) per month. In the first quarter of this year, it amortized 3.16666 billion KRW. To cover the amortization cost of the distribution rights, profits exceeding 3.16666 billion KRW must be generated from the distribution of Noble Bio's products each quarter.

Amortization of intangible assets is recorded as selling and administrative expenses, affecting operating profit. Digital Optic's consolidated selling and administrative expenses in the first quarter of this year were 5.9 billion KRW, a 103.5% increase compared to 2.9 billion KRW in the same period last year. Due to this impact, although sales increased, the scale of operating loss expanded.

The company did not respond to inquiries regarding these matters.

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