KBSX

Business Context and Reporting Period

FST Corp. (Ticker: KBSX) is a Cayman Islands holding company that consummated a business combination with Chenghe Acquisition I Co. (SPAC) and Femco Steel Technology Co., Ltd. (Femco) on January 15, 2025. The company operates as a manufacturer and innovator of high-performance golf club shafts under the proprietary KBS brand, as well as an OEM/ODM for other global golf brands. The reporting period covers the fiscal year ended December 31, 2024.

As of December 31, 2024, the company held 37,749,381 ordinary shares outstanding. Following the business combination, shares began trading on the Nasdaq Global Market under the symbol "KBSX" on January 16, 2025.

Key Financial Metrics (Year Ended Dec 31, 2024)

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 27.0% year-over-year, driven by a 26.9% increase in golf shaft sales. This growth was attributed to the opening of the KBS Taipei Flagship Store and the expansion of high-end product lines.
• Margin Compression: Gross margin decreased from 46.8% to 43.1%. Management cited a product mix shift toward lower unit sale prices and higher unit costs due to relatively low production volumes in 2024, which increased fixed cost allocation per unit.
• Expense Increases: Selling expenses rose 14.6% due to store opening costs and personnel expansion. General and administrative expenses increased 28.9%, primarily due to transaction fees and professional fees associated with the Business Combination.
• Restatement: The 2023 financial statements were restated to correct errors related to deferred income taxes and initial offering process expenses, resulting in a higher reported net loss for 2023 compared to previously reported figures.

Guidance, Outlook, and Risks

Liquidity and Going Concern: The company faces liquidity pressures and has incurred operating losses. Management has identified a need for additional liquidity to continue as a going concern within twelve months. Plans to address this include refinancing short-term obligations and potentially selling non-core land assets.

Outlook: Management expects full-year 2025 revenue to grow steadily based on Q1 2025 performance. The company is actively discussing long-term financing with financial institutions and has obtained formal credit approvals from two banks.

Key Risks:

• Tariffs and Geopolitics: The company faces significant exposure to U.S. tariff policies. As of April 2025, tariffs on imports from Taiwan were adjusted to 10% (with a temporary pause on additional rates), while tariffs on China increased significantly. The company currently absorbs tariff increases on premium shafts shipped directly to the U.S.
• Internal Controls: The company identified material weaknesses in internal controls over financial reporting related to insufficient resources and a lack of skilled personnel in U.S. GAAP. Corrective measures, including staff training and external consulting, are underway.
• Supply Chain: The company relies on a single external manufacturer for graphite shafts and specific suppliers for raw materials, creating concentration risk.

Investor Verification Checklist

• Verify Liquidity Plans: Confirm the status of the refinancing discussions and the potential timeline for selling non-core land assets to service debt.
• Monitor Tariff Exposure: Track the finalization of U.S. tariff policies regarding Taiwan and China to assess the long-term impact on margins for premium shafts.
• Review Internal Control Remediation: Assess the progress of the corrective measures for material weaknesses in financial reporting to ensure future compliance.
• Check Share Transfer Transaction: Verify the regulatory approval status of the Share Transfer Transaction to acquire the remaining shares of Femco, which is subject to approval by the Department of Investment Review of the Ministry of Economic Affairs of Taiwan.
• Validate Revenue Quality: Analyze the sustainability of the 27% revenue growth given the margin compression and the shift in product mix.