51% Decrease in Sales, 119.9 Billion Won Operating Loss… Ace Engineering Turns to Deficit Due to Bad Debt Burden

Ace Engineering, a manufacturer of energy storage systems (ESS) and special containers, recorded a massive deficit last year. This was driven by sales being nearly halved and the recognition of an allowance for bad debts of 127.7 billion won on account receivables from clients. Consolidated sales last year were 307.91 billion won, a 51.4% decrease from the previous year's 634.03 billion won. The operating profit, which was 48.3 billion won in 2024, swung to an operating loss of 119.87 billion won last year. The net income also shifted from a surplus of 51.43 billion won to a deficit of 101.47 billion won.

Ace Engineering was established in 1991. According to the audit report, it produces energy storage systems and special containers and sells them domestically and overseas. Sales more than doubled from 295.93 billion won in 2023 to 634.03 billion won in 2024, before decreasing to 307.91 billion won last year.

83% of Total Trade Receivables Set as Allowance

Selling and administrative expenses last year amounted to 151.42 billion won, an increase of 128.67 billion won from the previous year's 22.75 billion won. Most of the increase was due to a bad debt expense on trade receivables of 127.7 billion won. The total amount of trade receivables at the end of last year was 153.39 billion won. The company applied an expected loss rate of 83.3% to this, setting up a loss allowance of 127.7 billion won. The net trade receivables remaining on the balance sheet is 25.69 billion won.

Simply excluding the bad debt expense, last year's operating profit would have been a surplus of 7.84 billion won. However, this is not an official operating profit in accounting, and it must also be noted that sales themselves decreased by 51% last year. The audit report labeled a major client that accounted for more than 10% of sales as Company A. Last year, sales to Company A amounted to 247.93 billion won, reaching 80.5% of total sales. In the previous year, it was 341.76 billion won, which was 53.9% of total sales. The specific company name of Company A was not disclosed.

Claiming Over $100 Million in Receivables in Powin's Bankruptcy Proceedings

Separately, Ace Engineering is participating as a major creditor in the bankruptcy proceedings of the U.S. ESS company Powin.

According to documents submitted to the U.S. court, Ace Engineering's unsecured claims reflected in Powin's list of creditors amount to $100,104,820.79. Ace Engineering additionally claimed $10,232,822.69 that was not included in the list. The sum of these two amounts is $110,337,643.48. Ace Engineering also served as the chair of the unsecured creditors' committee in Powin's bankruptcy proceedings. Powin's liquidation plan was approved by the court on December 1, 2025, and took effect on the 5th of the same month.

However, the audit report did not disclose the name of the client for which the allowance for bad debts was set. Therefore, it cannot be concluded that Company A in the audit report or the receivables subject to bad debt are entirely related to Powin. The final recognized amount and recovered amount of Powin's claims can also only be confirmed as the liquidation proceedings progress further.

Drop in Gross Margin Influenced by Inventory Valuation Loss

Last year's gross profit margin was 10.3%, which is 0.9 percentage points lower than the previous year's 11.2%. However, it is difficult to see this as an overall deterioration in the profitability of manufacturing projects. Last year's cost of sales included an inventory valuation loss of 6.14 billion won. Simply excluding this, the gross profit margin would be about 12.2%, higher than the previous year. The drop in the gross margin shown in the report can be seen as being influenced by the inventory valuation loss.

Inventory assets increased 2.2 times from 59.33 billion won at the end of 2024 to 131.23 billion won at the end of last year. Among this, the book value of finished goods accounted for the majority at 129.88 billion won. Due to the increase in inventory, 78.04 billion won in cash flowed out last year. Cash flows from operating activities recorded a negative 41.67 billion won last year, following a negative 21.26 billion won the previous year. The process of selling finished goods inventory and recovering trade receivables as cash has become crucial for this year's performance.

Concentration in Both Customers and Production Partners

Overseas sales last year were 292.97 billion won, accounting for 95.1% of total sales. The sales proportion of a single major client also stood at 80.5%. The ordering and payment situations of specific overseas customers have a significant impact on the company's performance.

On the purchasing side, the transaction volume with Seojin System was large. According to the related party notes in the 2024 audit report, the amount Ace Engineering purchased from Seojin System was 252.16 billion won. Seojin System was excluded from Ace Engineering's related parties as of June 21, 2024. It is not separately explained in the report whether the disclosed purchase amount represents the total annual transaction amount or the transaction amount during the period the related party status was maintained.

According to public disclosures, there are four supply contracts from Seojin System to Ace Engineering confirmed for 2026. These include 270.16 billion won in March, 120.65 billion won in April, 187 billion won in May, and 53.71 billion won in July, totaling approximately 631.52 billion won. The May contract included power conversion systems for ESS and data centers.

However, these are contracts for Seojin System to supply products to Ace Engineering. The entire contract amount cannot be viewed as Ace Engineering's order intake or future sales. It is closer to reference material for estimating future expected production volumes.

Raising 56.5 Billion Won Through Hybrid Securities at Year-End

On December 30 of last year, Ace Engineering issued 56.5 billion won worth of hybrid securities to Invision Private Equity LP. The maturity is in 2055, but because the company can extend it and defer interest payments, it was classified as equity in accounting.

The coupon rate is 4% per annum for the first two years after issuance. It then rises to 7% in the third year and 10% in the fourth year, with an additional 1 percentage point added each year from the fifth year onward. The conversion price is 30,105 won per share. If fully converted, about 1.877 million new shares could be issued, which corresponds to approximately 17% of the total shares post-conversion. Invision also secured the right to appoint directors. Based on this, the audit report classified Invision as an entity exercising significant influence over the company.

At the end of last year, Ace Engineering's total equity was 83.16 billion won, and its liabilities were 229.52 billion won. The debt-to-equity ratio is 276%. Borrowings amounted to 130.43 billion won, and cash and cash equivalents were tallied at 97.97 billion won.

The Premises for Reattempting an IPO Have Also Changed

Ace Engineering applied for a preliminary examination for listing on the KOSPI market in August 2024, but withdrew it in November of the same year. The company explained at the time that there was a need to consolidate its internal stability ahead of listing following rapid external growth.

Looking at last year's performance, the direct causes of the massive deficit boil down to decreased sales, bad debt on trade receivables, and inventory valuation loss. If bad debt and inventory valuation losses are not repeated, profits and losses could improve. However, it is difficult to say that the decline in sales and the concentration on specific clients have been resolved.

This year, it is necessary to check how much of the Powin-related receivables is actually recovered, whether the nearly 130 billion won in finished goods inventory translates into sales, and whether the sales structure concentrated on a specific customer is alleviated. It appears that the timing for a reattempt at listing will only become concrete once these issues are resolved to some extent.