IT small/mid-cap
The author is an analyst for Shinhan Securities. He can be reached at hyon@shinhan.com -- Ed.
1Q23 OP misses market consensus at KRW11.9bn (-52.3% QoQ)
Doosan Tesna reported operating profit of KRW11.9bn (-52.3% QoQ) on sales of KRW74.6bn (-20.2% QoQ) for 1Q23, falling short of the market consensus of KRW15.3bn. Weak demand for mobile chips was the main cause of the weaker-than-expected results. Earnings sharply declined from test services for AP (application processors) in SoC (system on chip) and CIS (CMOS image sensors) as chipmaker output levels dropped in 1Q23 following the rise in mobile chip inventories to 10 weeks in 4Q22 vs. normal levels of 6 weeks. However, some of the decline in earnings from the mobile chip business was offset by increased earnings from automotive chip test services in 1Q23. Profitability fell in 1Q23 from a decline in capacity utilization rates and rise in costs, with the delivery of SoC test equipment delayed from 4Q22 and capex spend reaching KRW97bn in total.
Shift focus from 1H to 2H: Auto biz growth + mobile biz recovery
For 2Q23, sales are forecast at KRW75.5bn (+1.2% QoQ) and operating profit at KRW12.4bn (+4.9% QoQ). Although the decline in mobile chip demand is expected to slow down in the near term, we may need to wait until 2H23 to see a clear turnaround in earnings from mobile chip test services. Instead of the mobile chip business, we recommend focusing on the visible growth in earnings from automotive chip test services.
Chipmaker focus shifted from semiconductors for smartphones and home appliances to automotive chips as the latter continued to see solid demand in 2023 amid the industry down-cycle. As a result, automotive chips are accounting for a larger share of foundry output, and TSMC saw earnings increase at just its automotive chip business in 1Q23. With its clients also placing more weight on automotive chips, Doosan Tesna’s order intake has been on the rise.
For full-year 2023, we expect sales to improve to KRW323.5bn (+17% YoY) and operating profit to reach KRW62.4bn (-7% YoY), backed by growth in earnings from automotive chip test services and recovery of the mobile chip business in 2H23.
2023 chip ecosystem: Focus on main beneficiary of auto demand growth Setting itself apart from other Korean non-memory OSAT (outsourced semiconductor assembly and test) providers that focus mainly on mobile chips, Doosan Tesna has successfully diversified its business portfolio to test services for chips used in high-end cars and PCs with significant earnings growth seen from 2H22. Automotive chips are expected to emerge as the main growth driver of the semiconductor ecosystem this year. With Doosan Tesna seen as the main beneficiary, we continue to recommend BUY for a target price of KRW57,000.