Hancom WITH's operating profit in the first quarter of this year plunged 97% from a year earlier. The weak results appear to have come from the gold business, not the core institutional sector of information security. In fact, a look at Hancom WITH's revenue mix shows most revenue comes from the precious metals business, leading to criticism that the gold business effectively determines the company's report card.
According to the Financial Supervisory Service's electronic disclosure system on the 22nd, Hancom WITH's first-quarter revenue this year was 1659억7280만원, up 4% from 1597억3635만원 a year earlier. In contrast, operating profit over the same period plunged 97% from 20억93만원 to 5815만원. Hancom WITH posted a record-high performance last year with 61억4000만원 in operating profit on a consolidation basis, up 380% from the previous year, but profitability deteriorated sharply in just one quarter.
The cause of the worsening performance can be found in the precious metals institutional sector. Hancom WITH runs its precious metals business mainly through its subsidiary Hancom Gold Exchange. By institutional sector, the company's first-quarter wholesale and retail precious metals revenue was 1623억원, up from 1558억원 a year earlier, but operating profit swung to a loss, turning from a 18억288만원 surplus to a 2억2840만원 operating loss.
The problem is that the slump in the precious metals business led to a deterioration in the company's overall results. In fact, in the first quarter this year, Hancom WITH's precious metals business revenue accounted for 97.8% of total revenue. By contrast, revenue from the core Blockchain and security business was 36억원, just 2.1% of the total. Operating profit in the Blockchain and security business was 2억8549만원, up slightly from the previous quarter's 2억5315만원, but it failed to offset the decline in operating profit from the precious metals business. In effect, the company's results were driven more by the gold business than by its core security business.
It is notable that Hancom WITH, which has benefited from rising gold prices, saw profitability worsen in the first quarter despite strong gold prices. Hancom WITH entered the gold trading market in June 2020 by acquiring a stake in Seonhak Gold U, the predecessor of Hancom Gold Exchange. The equity ratio, which was about 25% at the time of acquisition, expanded to 55% by the end of the first quarter this year, strengthening control. Since acquiring the gold exchange, Hancom WITH has continued to improve results on the back of rising gold prices and increased preference for safe assets, and it posted a record performance last year.
Hancom WITH said profitability deteriorated due to sharply rising purchase costs and a limited margin structure. A Hancom WITH official said, "This year's rise in gold prices had a positive effect on expanding revenue, but during a period of sharp price increases we faced profitability pressure from higher purchase unit costs, inventory management burdens, and limited sales margins," and added, "Also, given the nature of the distribution business, sales margins can be limited depending on competition, so revenue growth and a decline in operating profit occurred at the same time."
As a result, industry watchers say Hancom WITH needs to reduce its dependence on the gold business to lower earnings volatility. At the time of acquiring the gold exchange, Hancom WITH set a goal of expanding a Blockchain-based digital asset business. However, the current revenue structure still focuses on the gold distribution business, leading to assessments that results are heavily swayed by the gold business's performance.
A Hancom WITH official said, "Hancom WITH is maintaining the security business as a core pillar, and we continue to review profitability and efficiency of consolidation subsidiaries' businesses at the portfolio level," and added, "Going forward, we plan to strengthen competitiveness in our core security business while managing profitability by business line in parallel."