Eoflow: Financing Requirements, Changing Shareholding Structure, and the Next Steps

• In this insight, we discuss the additional financing requirements, changed shareholding structure, and the next steps for Eoflow.

• Eoflow is one of the best performing stocks in the Korean stock market in the past one month as its shares have soared 249% in this period.

• The details of the oral argument (Insulet vs Eoflow) at the U.S. Appellate Court suggest that the U.S. Appellate Court may rule in favor of Eoflow.

In this insight, we discuss the additional financing requirements, changed shareholding structure, and the next steps for Eoflow (294090 KS) whose shares have been rising like the phoenix in the past two weeks.

In fact, it is one of the best performing stocks in the Korean stock market in the past one month as its shares have soared 249% in this period. Despite its sharp share price increase, it is down 58% from its 52 week highs in May 2023.

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Additional Financing Requirements

The company had cash and short term investments of 26.1 billion won at the end of 1Q 2024. Monthly cash burn is about 2.5 billion won per month. If the US legal system continues to hamper the company's overseas sales activities, Eoflow would likely need to raise additional capital through additional CB issue/rights offering in 4Q 2024/1H 2025.

However, if the Eoflow finally wins the case versus Insulet and Eoflow is allowed to sell its products overseas (especially in the United States) sometime in the next 3-6 months, it is unlikely for Eoflow to raise additional capital through rights offering/additional CB issue this year, in our view.

Furthermore, if all the legal disputes are settled and Eoflow is able to fully operate and sell its products overseas, then investors would also be more willing for the company to raise more capital to expand its business, although ideally they prefer that the company generates enough revenues to fund its business from internal cash flow, rather than through additional external financing.

Balance Sheet Analysis - The company's balance sheet has worsened in the past several quarters due to lack of sales. Eoflow's debt ratio increased from 37% at end of 2023 to 63.2% at end of 1Q 2024. It had total assets of 89.3 billion won and equity of 54.7 billion won at the end of 1Q 2024. It had total debt of 29.9 billion won and net debt of 3.8 billion won at the end of 1Q 2024.

• Convertible bond - Convertible bond was 14.6 billion won at the end of 1Q 2024. Convertible bond was issued on 8 February 2024. Maturity date of the CB is on 8 February 2027. This CB has a 0% coupon rate and a 5% guaranteed maturity rate of return.

  • Call option on CB - The call option price is 3,759 won (4,552,479 shares). Eoflow currently has 30.42 million shares outstanding. Hence, the the call option shares on the CB represent 15% of the company's outstanding shares. Given the current price is much higher than CB conversion price, they are likely to be converted into equity next year.

  • Call option period - 8 February 2025 to 8 July 2025 (20% of the 4.55 million shares could be exercised each month in the call option period).

  • Put option - The CB holder may request early repayment before maturity of the bond for the entire amount calculated by multiplying the electronic registration amount for which early repayment was requested by the early repayment rate every three months from the date of 18 months from the date of issuance of this bond.