[At the Crossroads] Newintec ③ Without Reversal of Inventory Losses, 'First Quarter Would Have Been a Loss'

Unusual Reversal of Inventory Valuation Losses in Q1
Sharp Increase in Accounts Receivable... Sales Rise Without Cash Flow

It has been confirmed that Newintec, a KOSDAQ-listed company, barely managed to post a profit in the first quarter of this year by reclassifying previously written-off inventory as profit. If not for the inventory-related gain, the company would have effectively recorded a loss.

Originally, Newintec evaluated inventory-related gains or losses at the end of the first half or the end of the year, but starting this year, the company suddenly reversed the inventory write-down in the first quarter. This has led some in the market to criticize the company for possibly manipulating its earnings in anticipation of a shareholder allocation rights issue.

According to the Financial Supervisory Service's electronic disclosure system on the 21st, Newintec posted consolidated sales of 23.1 billion won and an operating profit of 24 million won in the first quarter of this year. Compared to the same period last year, sales increased by 12%, and the company swung to profitability in terms of operating profit.

This turnaround in profit was due to the 'reversal of inventory valuation losses.' Newintec disclosed that it recognized a reversal of inventory valuation losses amounting to 261 million won at the end of the first quarter this year. Without this reversal, the company would have essentially posted a loss.

The reversal of inventory valuation losses is an accounting treatment where amounts previously written off due to a perceived decline in inventory value are recognized as profit once the inventory value recovers. By reflecting the reversal in cost of goods sold, the company can reduce its total expenses.

However, it is unusual for Newintec to reflect the reversal of inventory valuation losses in the first quarter. In recent years, Newintec has reflected inventory valuation adjustments in its financial statements at the end of the half-year or year-end. The company has never recognized such reversals in the first quarter before.

The scale of the reversal recognized this time is also similar to what would typically be recorded on an annual basis. In 2024, Newintec recognized a reversal of inventory valuation losses amounting to 232 million won. Last year, it recognized inventory valuation losses of 420 million won. Typically, losses or reversals of this magnitude are spread over the year, but this time, the entire amount was reflected in a single quarter.

Moreover, it appears that most of Newintec's increase in sales was driven by accounts receivable. As of the end of the first quarter, Newintec's accounts receivable stood at 17.9 billion won, an increase of 1.3 billion won in just three months since the end of last year. This increase is roughly in line with the company's first-quarter sales growth. In the first quarter of last year, accounts receivable did not increase this much.

Accounts receivable represent goods sold on credit to customers. While the company does not receive cash immediately, it can still record the amount as sales and profit. In fact, Newintec's operating cash flow in the first quarter decreased by 13% compared to the same period last year.

If customers fail to pay, accounts receivable can later become a loss for the company. Currently, Newintec has set aside 4.7 billion won, or 26% of its total accounts receivable, as an allowance for doubtful accounts.

Meanwhile, Newintec did not respond to repeated requests for comment on the matter.

This content was produced with the assistance of AI translation services.