Jogwang Paint Gunpo R&D Center. (Photo = Jogwang Paint.)
Jokwang Paint, which has been running a deficit since 2019, has decided to invest to improve performance. It plans to build a new logistics warehouse to increase efficiency and prepare for new business in the future. We are interested in whether this investment can provide an opportunity to turn to the black.
On the 31st, Jokwang Paint announced that it will invest 23.5 billion won for the purpose of improving logistics efficiency and securing factory sites for new businesses. The investment period is from January 1, 2021 to September 30 of the same year. Considering that Jokwang Paint’s total assets on a consolidated basis are 360 billion won, this is a considerable investment. As of the end of the third quarter of 2020, cash equivalents of 9 billion won are not enough cash.
Jokwang Paint is regarded as one of the major domestic paint companies that is greatly affected by the deteriorating industry conditions. In the mid-2010s alone, it produced operating profits of 16 billion to 18 billion won per year, but profitability fell sharply in 2017 and has been in the red since 2019. It has recorded a cumulative operating loss of 1.7 billion won by the third quarter of 2020.
Jokwang Paint Performance Trend. (Source = Audit Report.)
Above all, the business portfolio was focused on the paint industry, which was affected by the downturn in the downturn. It was in contrast to the fact that other domestic paint companies such as KCC, Noru Paint, and Gangnam Jebisco entered other new businesses early through their affiliates. As of the end of the third quarter of 2020, Jokwang Paint has Jokwang Vina, which was established to enter Vietnam in 2007, as its only subsidiary.
Of course, it does not mean that we do not try to enter new business. Since recent years, the fine chemical field has been spotlighted as a new food and invested intensively. Specifically, in addition to general paint products, new materials such as automotive adhesives, electronic materials for sensors, catalysts, and paste electrodes are targeted.
Jokwang Paint is producing high value-added products in earnest by constructing the Inno Center (R&D Center), a new research center in Gunpo, Gyeonggi-do in 2018. In April 2019, it invested a 19.05% stake in a company called Liforma for research and development of new catalyst materials, and in June 2020, it invested a 23.04% stake in Smeco, a company for research and development of coating materials.
However, it is still in the early stages of the business, so it is not very helpful to the performance. As it has been making a deficit since 2019, it seems the key to achieving good results in new businesses. It is analyzed that this situation also affected Jokwang Paint’s drastic investment decision in a situation where there was not enough cash.
An official from Jo Kwang Paint said, “We are working hard to become a chemical company beyond the paint industry.” “Based on the establishment of the Gunpo Inno Center, we are researching new technologies that were not previously handled and investing in various fields.”