Internal transaction suspicions are growing over SMEC CEO Choi Young-seop's privately owned company, SMEC Service, which is tied to a KOSDAQ-listed firm. Evidence has emerged that large sums of money flowed from SMEC to SMEC Service. Some note that in the midst of SMEC's management control dispute, opaque internal transactions with the CEO's private company could become a new flashpoint in the fight for control.
According to the investment industry on the 15th, SMEC Service's operating profit surged after CEO Choi acquired all of the company's equity. SMEC Service's audit report shows its operating profit jumped from 17 million won in 2022 to 1.5 billion won in 2023. During the same period, sales were similar at 10.6 billion won in 2022 and 11.2 billion won in 2023, but with operating profit soaring, SMEC Service's operating margin leaped in a year from 0.15% to 13.59%. SMEC, which supplies the work, posted operating margins of 7.37% and 12.48% over the same period.
Most of SMEC Service's sales come through SMEC. SMEC Service is not an affiliate of SMEC, but because CEO Choi holds 100% equity, the two companies disclose the scale of their transactions each year through related-party transaction details in their annual business reports.
CEO Choi first became a director of SMEC Service in 2007, is currently serving as CEO, and in 2023 received the full equity from the largest shareholder.
Notably, from 2019—when related-party transaction details became verifiable through business reports—until recently, the amount SMEC purchases from SMEC Service has consistently exceeded the sales volume, standing out. In 2019, SMEC's purchases from SMEC Service (then named Samwon Machinery) totaled 3.1 billion won, while sales were around 200 million won. The two companies' purchase and sales volumes have steadily increased since, but purchases rose more and remain larger than sales. As of 2024, SMEC's purchases from SMEC Service are 7.2 billion won, and sales are about 1.1 billion won.
Regarding this, SMEC said purchases from SMEC Service include materials and supplies and goods purchases, as well as payments for machinery and equipment installation fees.
However, a look at SMEC Service's asset structure raises questions about whether it has the real capacity to supply large-scale goods and services to SMEC. As of 2023, SMEC Service's total assets are about 6.1 billion won, of which 2.1 billion won are employee loans, and tangible assets—meaning production facilities (factories, buildings, machinery facilities, etc.)—amount to only 48 million won.
Some argue the listed company's profits may be being unfairly funneled to the CEO's private company. There are also suspicions that profits SMEC should earn as a listed company are being channeled to CEO Choi's private company in the form of a "toll," and that this money was then used, under the guise of "loans," as funds for Choi's purchase of SMEC equity.
An industry official said, "The CEO's private company, which is in a transaction relationship with the company, saw its operating margin become unusually high in a short period, and the size of its tangible assets is excessively weak," and added, "Judging by the simple figures, it is hard to see this as a normal transaction."
Meanwhile, SMEC is currently locked in a management control dispute with SNT Group. SNT Group and Chairman Choi Pyung-kyu acquired 13.65% and 6.55% of SMEC's equity last year, surpassing CEO Choi Young-seop's equity. CEO Choi Young-seop had maintained his status as the largest shareholder with 9.75% equity, but the low largest-shareholder stake was seen as leaving him vulnerable in defending control.