[Listed Companies at a Crossroads] Cherrybro 3: Builds Up "Profitable Subsidiary" Through Intra-Group Deals After Sale to Owner's Company

Cherrybro Sells 40% Stake in Korea Wonjong to Cherrybee Holdings
Share of Revenue from Affiliate Transactions Surges from 62.5% to 97% After Sale
Korea Wonjong's Revenue More Than Doubles and It Turns Profitable... Profits Accrue to Controlling Family's Company

Cherrybro, a KOSDAQ-listed company, appears to have sharply boosted its performance by concentrating intra-group transactions after selling its stake in Korea Wonjong, a key pillar of chicken production and a profitable subsidiary, to a company owned by the controlling family.

While Cherrybro held more than 90% of Korea Wonjong, the subsidiary performed poorly. But as soon as its stake was transferred to the controlling family's holding company, Korea Wonjong returned to profitability and more than doubled its revenue. In effect, the benefits of steering business to affiliates shifted to the controlling family.

According to the Financial Supervisory Service's electronic disclosure system on November 16, Cherrybro transferred a 40.77% stake in its subsidiary Korea Wonjong in December 2022 to Korea 153 (now Cherrybee Holdings), a related party and a company owned by the family of Kim Kang-heung, Cherrybro's vice chairman and CEO. As a result, Cherrybro's stake in Korea Wonjong fell from 92.33% to 51.56%, while Cherrybee Holdings became its second-largest shareholder.

Established in October 2002, Korea Wonjong specializes in breeder stock and hatching. Within Cherrybro's vertically integrated broiler business model (grandparent stock → breeder stock → hatching → raising → slaughtering → processing → distribution), it is a key production hub responsible for breeder operations and chick hatching at the very top of the chain.

Korea Wonjong produces high-quality breeder stock and broiler chicks and supplies them to its parent company, Cherrybro, affiliated slaughterhouses, and contract farms. It is considered a core company underpinning the quality and cost competitiveness of Cherrybro's entire business.

Korea Wonjong was originally loss-making, but its performance rebounded sharply from the point at which Cherrybro sold its stake to Cherrybee Holdings. In 2021, the year before the stake sale, Korea Wonjong posted revenue of KRW 112.7 billion, an operating loss of KRW 2.6 billion, and a net loss of KRW 3.9 billion.

In 2022, when the stake was transferred to Cherrybee Holdings, revenue surged 110.2% year on year to KRW 237 billion. The company returned to profitability, posting operating profit of KRW 7.5 billion and net income of KRW 2.1 billion. Revenue expanded further to KRW 255.9 billion in 2023.

The growth in revenue and sustained profitability were underpinned by concentrated support through transactions with group affiliates. The share of Korea Wonjong's total revenue from transactions with Cherrybro and its affiliates jumped from 62.5% in 2020 to 94% in 2022. Last year, sales to Cherrybro and other affiliates still accounted for 97% of its revenue.

As a result, Cherrybee Holdings, which acquired the 40.77% stake, received part of the profits generated by Korea Wonjong's intra-group transactions and the gains from the increase in the value of its shares. Cherrybee Holdings also received dividends from Korea Wonjong. Under the original ownership structure, these profits would have accrued entirely to Cherrybro, a listed company.

A Cherrybro representative said, "At the time, the Fair Trade Commission had imposed a penalty surcharge on Cherrybro, so we sold the stake in Korea Wonjong to secure working capital and improve our financial structure." The representative added, "Even after the sale, Cherrybro remains Korea Wonjong's largest shareholder, with a 51.56% stake, and includes its results in Cherrybro's consolidated financial statements."

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