ILJEONG Industrial’s is a specialized small-to-mid-sized company that produces automotive seat fabrics. Although one might expect many competitors in this low-margin industry, in reality, there are few “significant” competitors due to the high quality and technical requirements demanded by major automakers like Hyundai and Kia.
Key competitors include Kolon and Duoll, with market shares of 28.60% and 11.61%, respectively. Interestingly, ILJEONG Industrial’s’ products are priced higher than those of Kolon and Duoll, suggesting that product differentiation plays a role in maintaining a high market share.
ILJEONG Industrial’s supplies all of its produced fabrics directly to Hyundai and Kia. However, direct supply accounts for only 30%, with most products being delivered through first-tier vendors. Direct supply is primarily for export vehicles, allowing Hyundai to conduct comprehensive quality control from raw fabric to finished product. Despite the direct or indirect supply, the margin difference is minimal.
Due to its supply to Hyundai, ILJEONG Industrial’s faces unavoidable CR pressure each year. However, when new products are developed, this pressure is deferred to the following year, incentivizing suppliers to continuously innovate. To stay competitive, ILJEONG started producing Moquette fabrics alongside its existing Tricot fabrics last year. Moquette fabrics, used in high-end automobiles, railcars, aircraft, and ships, are priced over twice as high as Tricot fabrics and offer a superior tactile experience.
ILJEONG Industrial’s also supports Hyundai’s plans to focus on overseas production. “Soju ILJEONG Special Fabric Co., Ltd.,” fully owned by ILJEONG, was established in 2003 at Hyundai’s request and has been producing since 2004. It turned profitable in 2005 with a net income of 900 million KRW. The fabrics produced are supplied to Hyundai’s Beijing and Gwangju plants. The decision to establish overseas subsidiaries will depend on Hyundai’s request for joint investment and careful assessment of business viability. Currently, consideration is being given to establishing a European subsidiary.
ILJEONG’s revenue has steadily increased, with an average annual growth of 10% since 1990, except for the economic crisis years of 1997 and 1998. However, profit margins saw significant increases until 2000, largely due to rising sales offsetting fixed costs. From 2002 onwards, profits declined due to increased borrowing costs and fixed costs related to the construction of the Ansan Plant 3 in 2003, as well as yield issues.
The company’s financials are summarized as follows: After the 1998 IMF crisis, revenue significantly exceeded asset scale, reflecting dynamic growth. Despite increased assets from 2003’s 9.5 billion KRW short-term and 16.2 billion KRW long-term borrowings for Plant 3, revenue did not increase proportionately.
Consequently, debt increased from 11.3 billion KRW to 38.5 billion KRW, with a corresponding rise in fixed assets. Despite this, revenue growth did not keep pace, leading to a decrease in profits due to additional annual interest costs of around 1 billion KRW. However, as Moquette fabric sales increase, significant revenue growth relative to assets is expected.
Additionally, although debt increased by approximately 27 billion KRW, the debt ratio remains relatively low at 67.6%, and the high retained earnings ratio of approximately 907.7% is positive.
ILJEONG maintains a quarterly asset size of around 98 billion KRW, with 40.7% in fixed assets, 33.7% in current assets, and 16.8% in investment assets. The increase in fixed and investment assets in 2003 was due to the construction of Plant 3 and the establishment of Soju ILJEONG Special Fabric Co., Ltd., aligning with Hyundai’s push into overseas markets starting in the early 2000s.
A notable asset is the idle land in Hwaseong, Gyeonggi-do, acquired in October 1995 but closed due to a shift in production focus to Ansan. The book value is 800 million KRW, but the market value is estimated at 2 billion KRW, with a sale price expectation of up to 5 billion KRW. The sale could potentially yield a profit of over 4 billion KRW. ILJEONG plans to sell the land within this year, though the use of the proceeds is yet to be decided.
Source : I Invest