Semiconductor/equipment
The author is an analyst for Shinhan Securities. He can be reached at ym.ko@shinhan.com -- Ed.
AI driving growth in demand for reflow equipment & FC-BGA developers
1) Reflow equipment: After coming in at KRW12bn for 2022, STI’s reflow equipment sales are expected to jump from KRW5bn in 2023 to KRW23.6bn in 2024. The company began shipping flux reflow systems to its domestic client from 2022, and appears to have expanded into the supply of high-end equipment in the reflow process with an order reportedly secured from the client's HBM3 production line (no order intake was forecast at the beginning of the year). With HBM chips seen as one of the key drivers of the current industry cycle, STI is highly likely to receive additional orders upon capex expansion at client companies in 2H23. Order inflows from overseas clients including Amkor Technology are also expected to continue.
Meanwhile, STI has been jointly developing fluxless reflow systems with its domestic client, which continues to push for the transition from flux to fluxless reflow systems. Order intake for 2024 could exceed our projections by as much as twofold if final quality tests are completed within 2H23.
2) FC-BGA developers: Sales from FC-BGA developers are forecast to increase from KRW18bn in 2022 to KRW20bn in 2023 and KRW32bn in 2024. STI is poised to benefit from growing investment into FC-BGA equipment, triggered by expansion of the market for AI applications. As a locally-supplied alternative to Japanese imports, STI's FC-BGA developers are also expected to attract new clients going forward.
2H23 & 2024 outlook: Recovery of mainstay infrastructure business
For 2Q23, we forecast sales at KRW74.4bn (-37% YoY) and operating profit at KRW4.5bn (-60% YoY). Amid the slowdown in market conditions, growing uncertainties over production bases due to rising US-China conflicts led to delays in overall infrastructure investment by major chipmakers.
For full-year 2023, sales are projected at KRW339.6bn (-20% YoY) and operating profit at KRW23.4bn (-33% YoY). While earnings from the mainstay infrastructure business should remain sluggish through 3Q23, growth momentum is expected to pick up from 2H23 upon the resumption of investment projects at Samsung Electronics (P4, backend process/R&D center, Taylor fab, etc.), SK Hynix, Intel, and Micron Technology. As a result, we expect STI's sales to reach KRW461.7bn (+36% YoY) and operating profit to jump to KRW47.9bn (+105% YoY) in 2024.
TP raised with new product momentum to stand out in the current cycle
We raise our target price to KRW25,000, based on 2024F EPS of KRW2,771 and a target PER of 9x. Following delays caused by the market slowdown, we are now starting to see growth in demand for new equipment on the turnaround in market conditions. With recent order intake led by equipment closely linked to the growing AI market, we believe STI will stand out as a lead player in the current industry cycle. Operational synergy between its infrastructure and new equipment businesses should add a further boost.