Display and semiconductor equipment corporation DMST is facing delisting as it received a 'disclaimer of opinion' in its 2024 audit report. The issue arose from opaque transactions with the founder and largest shareholder, former CEO Park Yong-seok, and the market believes Park is preparing for equity transfer and inheritance through these dealings.
According to the Financial Supervisory Service electronic disclosure system on the 23rd, DMST announced on the 21st that it received a 'disclaimer of opinion' from its auditors for the 2024 business year. If a corporation listed on the KOSDAQ receives a 'disclaimer of opinion' from its auditors, it immediately becomes subject to delisting review.
DMST's auditor, Dongseong Accounting Corporation, cited the former CEO Park and his two children, Park Hyun-ji and Park Hyun-seo, who own 100% of Jeongbon Medical (formerly Jeongbon Global), as the reason for the rejection of the resolution. Dongseong Accounting Corporation stated, "We could not provide sufficient and appropriate audit evidence to demonstrate whether the transactions with Jeongbon Medical were based on objective grounds and normal transactions, and the substantive and economic purpose of the transactions is not clear."
It added, "DMST failed to secure sufficient and appropriate audit evidence to support the company's accounting policies and the accounting treatment performed by the company." This implies that DMST did not adequately provide transaction details with Jeongbon Medical.
Coincidentally, this audit was the first year that DMST was released from the designated auditor system, with the external auditor changing from Seohyun Accounting Corporation to Dongseong Accounting Corporation. According to the audit contract details, the audit hours increased from 1,800 hours to 2,300 hours, and the fees rose from 170 million won to 276 million won.
Jeongbon Medical is a company established by former CEO Park in February 2022 with a capital of 100 million won. It is reported that Park holds 83.3% of the equity, while his two children each hold 8.3%. Jeongbon Medical is estimated to have gained over 18 billion won through transactions and mergers and acquisitions (M&A) with DMST from February 2022 to December 2023. It also generated over 1.8 billion won in revenue in 2024.
DMST also transferred its 100% subsidiary, VIOL, which manufactures medical devices, to Jeongbon Medical for about 4 billion won in 2023. After merging with Jeongbon Medical, it changed its name to its current title.
Meanwhile, former CEO Park and his two daughters are increasing their equity in DMST through Jeongbon Medical. Jeongbon Medical steadily purchased DMST shares, raising its ownership ratio to 8.02% as of January 1 of this year. Park's two children also gained indirect ownership of DMST equity through Jeongbon Medical, and are expected to prepare for succession in the future. Park's ownership ratio is 20.65%.
DMST minority shareholders claim that DMST is deliberately funneling work to Jeongbon Medical, and that using cash generated by Jeongbon Medical, Chairman Park is buying DMST shares to maintain control.
An official in the financial investment industry said, "The method of steadily acquiring key company equity through an unlisted company to expand control, followed by transferring equity in the unlisted company, is a succession method frequently employed by owners, making it possible to reduce taxes compared to gifting listed company stocks." They noted, "In South Korea, where inheritance and gift taxes are high, such situations are directly related to the Korea discount (undervaluation of Korean stocks)."
DMST's appeal deadline is until the 11th of next month. If DMST does not file an appeal, the delisting process will proceed.