Concerns about Chip Business Downturn Eased
Semiconductor equipment shares, which suffered a big drop in the first half of this year due to the speculation that the semiconductor business was nearing its peak, are drawing attention from investors again. This is because Samsung Electronics and SK Hynix announced solid results for the second quarter and have resumed large-scale investments in semiconductor facilities. Display equipment shares are expected to rise with the expansion of facility investment in Korea and China.
Recently, stock prices of companies such as Tes, Wonik IPS, Tesna, Eugene Technology, TechWing and Hanmi Semiconductor have risen sharply in the KOSDAQ market.
It started when SK Hynix announced on July 26 its largest-ever second quarter operating profit (5.57 billion won) and said on July 27 that it would invest 3.5 trillion won to expand its Icheon factory in Gyeonggi Province. If the production equipment to be added to the factory is included, the investment is expected to exceed 15 trillion won. "The facility investment is part of the management plan announced in 2015," said Uh Kyu-jin, a researcher of eBest Investment & Securities. "As the investment progresses smoothly, concerns in the market about a plunge in semiconductor investment will be eased further."
Samsung Electronics' second quarter performance, which was released on July 31, also prompted the rebound of semiconductor equipment shares. Samsung Electronics announced that its operating profit for semiconductors reached 11.61 trillion won, the highest record that surpassed the level of the first quarter. In a conference call, Samsung dismissed concerns about a downturn in the chip business by saying, "Despite chip producers’ efforts to increase supply, it is still hard to keep up with the demand." Samsung Electronics is expected to announce plans to invest several trillion won in semiconductor facilities as it is reportedly considering a large-scale investment plan in response to the government's policy to increase jobs and investment.
Jeon Kyung-dae, an official in Macquarie Investment Trust Management, said, "Semiconductor equipment companies have been performing well, but their stocks have been neglected by investors due to the continuing concerns about a chip business slowdown. As their stock prices have plummeted for a while, they are likely to have a strong rebound with the large-scale facility investment by SK Hynix and Samsung Electronics."
Display equipment shares are gaining attention as well. This is because investment in organic light emitting diode (OLED) by Korean and Chinese companies is soaring. LG Display recently decided to invest 5 trillion won in its Guangzhou factory in China. China’s BOE, GVO, and Ever Display are also spending huge amounts of money on OLED targeting mass-production in 2019.
"Korea is the only country that produces OLEDs except for Japan, which has a market share of only 0.1%," said Choi Moon-sun, a researcher at Korea Investment & Securities. "The increasing investment in OLED by Chinese display producers is creating a huge market for domestic small- and medium-sized display producers.“ Companies that supply display production equipment to Korean and Chinese panel producers include DMS, Meerecompany, Viatron, Shinseong E&G, SFA, and Charm Engineering. These companies are expected to benefit from the investment boom.