[Listed Companies at a Crossroads] Dt&CRO ⑤: Has the Suspicious "Contract Asset" Time Bomb Exploded? Billions of Won in Losses

'Contract Assets' That Boosted Revenue Come Back to Haunt Dt&CRO... 3.8 Billion Won Loss Materializes
18.7 Billion Won Still Remains... Uncertainty Grows Amid Concerns Over Further Impairments

Dt&CRO has been found to have recognized a large-scale impairment loss on contract assets in the first half of this year. Revenue that had been booked early as contract assets was ultimately not collected and became uncollectible. The market is concerned that further losses could arise, given that a substantial amount of contract assets remains on the books.

According to the Financial Supervisory Service's electronic disclosure system on October 15, Dt&CRO set aside approximately 3.8 billion won in allowances for doubtful accounts on contract assets as of the end of the first half of this year. This was about nine times the 400 million won set aside at the end of last year. An allowance for doubtful accounts is an accounting method that recognizes in advance as a loss the portion of receivables that is expected to be difficult to collect in cash from customers.

Dt&CRO is a contract research organization (CRO) that provides nonclinical and clinical trial services in fields including pharmaceuticals, medical devices and health functional foods. CROs recognize revenue based on the percentage of completion over the period in which services are provided to customers. Revenue recognized before it has been billed is recorded on the books as a "contract asset." This means that revenue and contract assets can fluctuate depending on how the company calculates its percentage of completion.

Dt&CRO's contract assets have increased sharply in recent years. Contract assets rose 42% year over year, from approximately 7.7 billion won in 2023 to approximately 10.9 billion won in 2024. In 2025, when revenue growth was particularly strong, contract assets surged to approximately 20.7 billion won, an 89% increase from the previous year. The share of current assets accounted for by contract assets also climbed from 44% to 78% in just two years.

For some time, market observers have warned that recognizing excessive contract assets could increase risk. Although revenue on the financial statements may appear to rise immediately, it is revenue recognized in advance based on the percentage of completion. If the cash is not actually collected, the amount could quickly turn into a bad debt.

This is why the large allowance for doubtful accounts recognized this time has heightened concerns. Until the end of last year, Dt&CRO set aside allowances for doubtful accounts on contract assets at a rate of 0% to 2%. That rate then jumped to 17% at the end of the first half of this year.

The problem is that a substantial amount of contract assets still remains. As of the end of the first half of this year, Dt&CRO had a contract asset balance of approximately 18.7 billion won, even after deducting the allowance for doubtful accounts. This represents more than 70% of Dt&CRO's total current assets.

Some market observers also argue that Dt&CRO was able to successfully raise a large amount of capital early this year in part because its contract assets helped boost its revenue growth rate. On February 20, Dt&CRO raised a total of 20 billion won by issuing 14 billion won worth of its second tranche of convertible bonds (CBs) and 6 billion won worth of its third tranche of bonds with warrants (BWs).

At the time, Dt&CRO had no cash and was under pressure to repay, by any means, the 16 billion won in first-tranche convertible bonds it had issued in 2024. According to industry sources, Dt&CRO is said to have attracted investment by emphasizing its revenue growth rate to investors. The market is concerned that if revenue growth based on contract assets does not translate into actual cash generation, it could undermine investor confidence.

Dt&CRO was contacted several times for comment on the matter, but said it would not respond.

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