TES
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com -- Ed.
Given improving memory supply-demand conditions, memory makers are to resume capacity investment from 2H23. TES is also to benefit from inclusion of foundry equipment in its memory-oriented equipment portfolio.
Memory makers to resume capacity investment from 2H23
Reiterating a Buy rating, we raise our TP for TES to W28,000 (from W20,000). Our new TP reflects for a resumption from 2H23 in capacity investment at TES’s clients alongside an improving business environment for the memory semiconductor industry. TES’s earnings are highly correlated with new NAND production investment at its clients. Having stood at 180K in 2021 and 110K in 2022, NAND new capacity investment is forecasted to drop to 50K in 2023. But, the figure should return to the 120K level in 2024 in response to a better business environment (2024F: 120K (vs previous: 85K); 2025F: 170K (vs 130K)).
With TES’s 1H23E earnings to be sapped by reduced or delayed new capacity investment at its customers amid unfavorable semiconductor industry conditions, its 1Q23 sales were likely held to W51bn (-32% q-q), with OP of W5.1bn (-40% q-q) and NP (excl minority interest) of W3.4bn (-37% q-q). The firm’s 1Q23 results should include sales recognition of Samsung Electronics (SEC)’s P3 line DRAM and NAND investment. TES’s SK Hynix-related sales are to show a significant decline.
Positively view portfolio expansion to include foundry equipment
Considering memory makers’ recent production and investment cuts, memory supply-demand conditions should strengthen from 3Q23. With memory player investment likely to resume thanks to the improving industry conditions, we believe that they will boost their memory equipment orders from 4Q23. In particular, NAND makers’ investment should increase rapidly upon seeing the end of their markedly sluggish current industry conditions. This direction bodes well for TES, which has a high sales portion for NAND equipment such as ACL.
We also positively that TES is expanding its memory-oriented equipment portfolio to include foundry equipment. The company is known to now be developing foundry-oriented Gas Phase Etching (GPE) equipment. With approval processes currently in progress, related sales should begin in earnest from 2H23. An important earnings momentum factor is to be major client SEC’s beefed up long-term investment budget for its foundry business, a move which should narrow the IT giant’s gap with TSMC, unlike memory.