The author is an analyst for Shinhan Securities. He can be reached at hyon@shinhan.com -- Ed.
3Q23 operating profit of KRW15.8bn misses consensus
Hana Micron reported operating profit of KRW15.8bn (-14% QoQ) on sales of KRW239.4bn (-4% QoQ) in 3Q23, missing the consensus estimate (KRW22bn). Amid the slowdown in chip market conditions, output cuts by memory makers resulted in reducing demand for semiconductor parts (Hana Materials) and outsourcing orders (other subsidiaries). Meanwhile, Hana Micron Vina has seen earnings growth driven by outsourcing order intake, which continues to expand as originally planned. Additional costs incurred with the completion of its second plant in 3Q23 likely took a toll on profitability ahead of the full ramp-up. One-off forex translation losses were recognized from the rise in the USD/KRW exchange rate (KRW20.9bn in financial expenses in 3Q23).
4Q23 operating profit projected at KRW18.1bn (+14% QoQ)
In 4Q23, Hana Micron is expected to record operating profit of KRW18.4bn (+16% QoQ) on sales of KRW262.5bn (+10% QoQ). The company stands to enjoy an increase in outsourcing orders from its key client who will be boosting chip output with the launch of smartphone models powered by its in-house developed application processor (AP). Hana Micron Vina should continue to deliver earnings growth as its second plant is now up and running following the full ramp-up of the first plant. Earnings growth at other subsidiaries will likely be limited along with the prolonged weakness in tech product demand.
Hana Micron Vina’s capex and operations underway as planned
For full-year 2024, sales are forecast at KRW1.5tr (+52% YoY) and operating profit at KRW190.1bn (+174% YoY). Operating margin should improve by 5.7%p YoY to 12.7%. An increase in memory chip output is expected to lead to an upturn in outsourcing orders for the back-end process. Hana Micron Vina’s operating profit is projected to reach KRW789bn (+107% YoY) on the ramp-up of the second plant.
Retain BUY and raise target price to KRW36,000
We retain BUY on Hana Micron and raise our target price to KRW36,000, based on 2024F BPS of KRW7,904 and a target PBR of 4.5x (upper end of the 12- month forward PBR band). In 2024, chipmakers are likely to concentrate their capex spend on the back-end process with focus shifting from legacy to advanced-node chips. The resulting decline in back-end production of legacy chips is projected to drive an upturn in outsourcing order intake for OSAT (outsourced semiconductor assembly and test) service providers.