Taekwang’s first loss in a decade dampens outlook

Taekwang Industrial Co., a South Korean petrochemical and textile company, reported its first quarterly loss in 10 years amid weakness in its key businesses. The loss clouds its outlook as a lack of new growth engines is likely to continue weighing on earnings.

Taekwang posted an operating loss of 7.8 billion won ($6 million) on a consolidated basis in the second quarter, turning from a profit of 130 billion won a year earlier and suffering its first quarterly deficit since the April-June 2012 period, according to a company filing to a financial regulator.

The company was under pressure from tumbling demand in China, the company’s top customer, due to the resurgence of COVID-19 and surging raw materials costs. The firm could not reflect the higher expenses in prices of spandex, its core product, amid cutthroat competition against Chinese players.

In 2021, it reported a record operating profit of 355.2 billion won thanks to the strong petrochemical industry.

Taekwang, the first Korean company to commercialize spandex in 1979, has reported an annual operating loss on a consolidated basis only twice before — in 2001 and 2006.

LACK OF INVESTMENT IN NEW GROWTH DRIVERS

Its financial structure was strong, with cashable assets of 1.4 trillion won, or 29.4% of total assets, far higher than its rivals' 5% average. Its short-term borrowings were a mere 76.3 billion won, while its debt ratio was only 23.1%.

The company has spent little on new businesses, however, making only a few investments since 2012 when former chairman Lee Ho-jin was embroiled in several breach of trust and embezzlement cases.

Taekwang formed an acrylonitrile joint venture with LG Chem Ltd. last year and injected 145 billion won to expand production capacity of aramid for tires. Those were the only investments Taekwang has made over the past 10 years.

Shareholders complain the company has not taken any measures to bolster its share price. Taekwang shares stayed under pressure, partly due to low trading volume, with only 350 stocks changing hands on Aug. 12. Shareholders have been calling for a stock split to boost liquidity, but the company has yet to respond.

Write to Kyung-Min Kang at kkm1026@hankyung.com
Jongwoo Cheon edited this article.