[Edaily Marketin KIM YEON-SEO Reporter] Korea Ratings Corporation has downgraded the credit rating of DAEDONG CORPORATION, a comprehensive agricultural machinery manufacturer. This move comes as profitability has declined due to persistent cost pressures amid a delayed recovery in demand for small and medium-sized tractors in its main market, the U.S., coupled with a significant increase in debt burdens.

On the 23rd, Korea Ratings Corporation announced that it had lowered DAEDONG CORPORATION’s credit rating for unsecured corporate bonds from “BBB+” to “BBB.” The rating outlook was assigned as “Stable.” The credit ratings for commercial paper and electronic short-term bonds were also downgraded from “A3+” to “A3.”

The primary reason for the downgrade is weak operating profitability. Since 2022, DAEDONG CORPORATION’s core business performance has been limited by declining demand in the U.S. small- and medium-sized tractor market and slow growth in the domestic agricultural machinery market. Although revenue recovered in 2025 due to expanded sales in North America and Europe and higher selling prices, profitability did not improve sufficiently.

The burden of promotions and dealer support aimed at expanding sales persisted, and fixed costs related to new businesses—such as the operation of the mobility plant and AI agricultural machinery and robotics—also weighed on profitability. As a result, the operating profit margin for 2025 stood at just 2.1%.

The profitability slump continued into the first quarter of this year. Revenue contracted year-over-year as sales in North America and South Korea declined. In particular, the drop in sales in North America—a relatively high-margin market—due to weakened farmer sentiment and persistently high interest rates proved to be a significant burden. Compounded by increased costs related to logistics warehouses in Europe and higher promotional spending, the operating profit margin fell from 5.6% in the same period last year to 1.6%.

Deteriorating cash flow also weighed on the company’s creditworthiness. As the company expanded overseas sales, the burden of working capital—including inventory and accounts receivable—persisted, weakening its ability to generate cash internally. In 2025, this was compounded by capital expenditures totaling 709억 원, resulting in a free cash flow (FCF) deficit of 1,641억 원.

Debt burdens also rose rapidly. DAEDONG CORPORATION’s net debt increased from 4877억 won at the end of 2022 to 1조 97억 won at the end of March this year. Although the company sought to bolster its capital through rights offerings, the issuance of hybrid capital securities, and asset revaluations, the impact on improving its financial structure was limited due to net losses incurred in 2024 and 2025. As of the end of March this year, the debt-to-equity ratio and debt dependency stood at 263.9% and 45.3%, respectively.

Korea Ratings assessed that achieving meaningful improvements in financial stability in the short term would be difficult. This is because the recovery in demand for small and medium-sized tractors in the U.S. is delayed, and the domestic agricultural machinery market continues to experience low growth. Furthermore, considering the costs of expanding the sales base in Europe, fixed costs for new businesses, and tariff burdens, the company’s potential for improving profitability is deemed limited.

DAEDONG CORPORATION plans to implement policies to establish wholesale financing and reduce inventory in order to alleviate working capital burdens. However, there is a possibility that financial burdens could increase further as the company invests in new businesses such as AI-powered agricultural machinery, robotics, and precision agriculture.

Shin Joong-hak, a senior researcher at Korea Corporate Rating, explained, “Despite efforts to alleviate working capital burdens, given the net debt exceeding 1 trillion won on a consolidated basis and the burden of investments in new businesses, it will take time to see a meaningful improvement in financial stability indicators.”