Kumho HT, Announcing Participation in Ssangyong Motor Acquisition, Faces Trading Suspension Due to Parent Company's Poor Performance

[Asia Economy Reporter Jang Hyowon] After auto parts company Kumho HT announced its participation in the acquisition of Ssangyong Motor, its stock price fluctuated wildly. Kumho HT recorded losses for two consecutive years until last year, and its parent companies, SMAC and Ohsung Advanced Materials, are currently suspended from trading due to qualified audit opinions. Nevertheless, just the submission of a letter of intent to participate in the Ssangyong Motor acquisition caused the stock price to experience sharp ups and downs, raising concerns about potential investor losses.

According to the Financial Supervisory Service’s electronic disclosure on the 13th, Kumho HT posted separate financial statements showing sales of 197.3 billion KRW, an operating loss of 5.8 billion KRW, and a net loss of 29.3 billion KRW last year. While sales increased by 8.9% compared to the previous year, operating loss and net loss expanded by 29.7% and 215.8%, respectively. In 2020, the company also recorded an operating loss of 4.5 billion KRW and a net loss of 10.6 billion KRW. It has continued to post losses for two consecutive years.

Kumho HT manufactures automotive light-emitting diodes (LEDs) and incandescent bulbs. LED modules account for 78.6% of sales, and incandescent bulbs make up 14.8%. Last year, it merged with the drug development company Dynona and is conducting research and development on immuno-oncology drugs. As of the end of last year, it held 74.7 billion KRW in cash and cash equivalents.

The reason for recording an operating loss despite increased sales last year is analyzed to be a significant rise in selling and administrative expenses. Kumho HT spent 18.6 billion KRW on selling and administrative expenses last year, a 125% increase from the previous year. The largest increase within these expenses was in bad debt write-offs, which surged to 8.7 billion KRW last year, more than 14 times the 600 million KRW recorded the year before. The increase in bad debt write-offs is attributed to a one-time write-off of 7.9 billion KRW related to receivables from subsidiaries.

Additionally, the reason net loss widened significantly more than operating loss is due to non-operating expenses. In particular, impairment losses of 21.8 billion KRW on equity-method investments were recognized in a lump sum last year. Equity-method investments refer to affiliates. Kumho HT’s affiliates include ESSA HI-TECH, Crystal Genomics, and Hwail Pharmaceuticals.

Despite the ongoing losses, Kumho HT sent a letter of intent on the 5th to participate in the Edison Motors consortium for the acquisition of Ssangyong Motor. It announced its intention to enter a deal expected to require about 1.5 trillion KRW, including debt restructuring and operating funds.

Accordingly, the stock price experienced sharp fluctuations. Kumho HT’s stock price, which had been trading between 1,600 and 1,800 KRW throughout March, soared to 2,920 KRW intraday on the 6th after the announcement of participation in the Ssangyong Motor acquisition. It then repeatedly plunged and eventually fell back to the 1,600 KRW range as of the previous day.

The market expects that if Kumho HT participates in the Ssangyong Motor acquisition, it will mobilize funds from its affiliates. Kumho HT’s parent company is SMAC, a KOSDAQ-listed company, and SMAC’s largest shareholder is Ohsung Advanced Materials, also listed on KOSDAQ.

Currently, SMAC is suspended from trading due to a qualified audit opinion last year. This is because Barun Electronics, acquired last year, received a qualified opinion, and the audit firm could not verify SMAC’s equity-method investment amount. Ohsung Advanced Materials is also suspended from trading for the same reason.

A financial investment industry official said, “If a listed company receives an adverse audit opinion, it triggers grounds for delisting and trading is suspended. In such cases, the company’s ability to raise funds may deteriorate.”

Meanwhile, Kumho HT’s affiliates and subsidiaries include SMAC, Ohsung Advanced Materials, Hwail Pharmaceuticals, Crystal Genomics, and Barun Electronics.

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