2H23 Outlook
The author is an analyst for NH Investment & Securities. He can be reached at midas.sohn@nhqv.com -- Ed.
In 2H23, the domestic economy is expected to ride a sliding path. In times when external environments turn murky, we advise investment in firms boasting individual growth catalysts. In this report, we screen out eight small/mid-cap plays with such strong individual growth momentum.
I. Intellian Technologies
As the global number-one satellite antenna provider, Intellian Tech enjoys sound earnings growth in line with global VSAT market expansion. Its earnings growth should accelerate further alongside the blooming of global LEO satellite communication market. It recently announced rights offering plan to secure funds for pre-emptive R&D investment.
II. ViOL
As a specialized skin care beauty equipment producer, ViOL is expected to enjoy robust earnings growth going forward, backed by: 1) greater equipment sales on client addition; and 2) rising high-margin consumable sales in line with increasing skincare demand. Building on its strong reference in the US market, ViOL has added new clients in diverse markets including Southeast Asia and Latin America. With sales to China set to expand, we foresee strong mid/long-term growth potential for the firm.
III. SAMG Entertainment
SAMG Ent is a top-tier domestic toy maker and children’s animation producer. Its major IPs include Catch Teenieping and Miniforce. The company’s Catch Teenieping toy line has posted sound sales growth thanks to its high-quality product offerings and characteristics as a figurine collection-type toy. Building upon its strong growth in the domestic market, SAMG Ent is seeking further entry into overseas markets. We forecast that SAMG Ent’s Chinese market sales will exceed W20bn in 2023.
IV. Asflow
From 2Q23, Asflow is set to supply valves, filters, and tubes for use in a semicon fab currently under construction. As they are high-margin large-diameter construction parts, profitability should improve. Also, the supply of semicon equipment parts to the US, which was expected in 4Q22, should resume in 2Q23. In addition, parts supply to a semicon fab under construction in Texas, US is likely to begin from 4Q23.
V. Hyundai Ezwel
Hyundai Ezwel’s labor cost (fixed cost) burden is high. Following the firm’s incorporation into the HDS Group in 2021, labor costs surged sharply until end-2022, diluting operating leverage effects. But, we expect it to reap the fruits of growth thanks to slowing cost increase. We also expect top-line growth based on the clients and franchises of Sikdae app operator Vendys, which was acquired last year.
VI. SKonec
SKonec is a specialized XR content developer founded in Apr 2002, which has developed more than 150 pieces of VR content thus far. Having developed VR content in the domestic game market for over a decade, SKonec boasts the heftiest VR game track record among Korean players. Following Meta, global IT giants such as Apple, Sony, and Samsung Electronics are entering the XR market in earnest. These developments bode well for SKonec.
VII. Samyoung
Samyoung is the only domestic developer and producer of capacitor film, which is used in electronics and packaging industries. Its market share stands at around 10%, ranking it third globally. Recently, demand for capacitor film for EVs has increased, causing a shortage. Due to long equipment ordering periods and steady demand from downstream industries, the possibility of the shortage being resolved near term is low. Currently, three lines for capacitor film (530 tons per month) are under operation. The operation of a new line (400 tons per month) is to kick off in 2H23. By slimming low-profit business divisions and operating new lines, Samyoung should achieve earnings growth, down the road.
VIII. KNJ
In response to falling memory chip prices, semiconductor makers are increasingly switching to KNJ’s low-priced SiC focus ring products. In line, KNJ completed two new production lines and started mass production in 2Q23. A third line is to start operation from end-3Q23. The display equipment arm should turn to profit in 2024, led by rechargeable battery equipment sales and 8th-generation display investment by a client.