Piolink
The author is an analyst for NH Investment & Securities. He can be reached at kyeongkeun.kang@nhqv.com -- Ed.
Piolink provides data center optimization solutions. We draw attention to both rising demand for ADC equipment (following DR system expansion) and the firm’s brisk exports of security switches to Japan. Given its solid market growth potential, steady earnings momentum, and likely share price growth, Piolink appears highly likely to escape from its current value trap.
Provides data center optimization solutions
Piolink provides data center optimization solutions that enable its client companies to respond deftly to data traffic surges and data security issues. Application delivery controller (ADC) equipment, Piolink’s main product, boosts efficiency and stability of data centers by controlling network traffic. Moving ahead, stronger establishment of DR systems should spur demand for Piolink’s ADC equipment.
The company’s security switch business is faring well in Japan, with its exports to the country projected to soar from W8.4bn (+121.0% y-y) in 2022 to W15bn (+79% y-y) in 2023. Meanwhile, its security switch sales are to be further bolstered by the expansion of home network market along with implementation of the Korean government’s household network separation guidelines.
Time to lift out of value trap
Piolink has released a new product called Hyper-Converged Infrastructure (HCI), an integrated system of core data center infrastructure that includes server, storage, and network equipment. We foresee the new product becoming a next-generation earnings growth driver for the firm, noting that the domestic HCI market is sized at W250bn.
As of 1Q23, Piolink’s net cash holdings amount to W48.8bn. However, its shares are currently trading at 2023E P/E of 5.9x, a level we view as being excessively undervalued. We expect the stock to soon lift itself out of this value trap, pointing out: 1) the strong growth potential for the downstream data center market; 2) steady earnings growth momentum (4-yr CAGR of 23% for sales and 78% for OP); and 3) robust sales of new products.