Supplying SiC Focus Rings to SK Hynix

The author is an analyst of NH Investment & Securities. He can be reached at hyundong.lee@nhqv.com. -- Ed.

 

KNJ is benefiting from ongoing localization of SiC focus rings (a market which has largely been dominated by its main rival). Now carrying out capacity expansion, KNJ is a supplier of products to SK Hynix. Believing that its product supply will include the largest global consumer of SiC focus rings in the future, we expect KNJ’s earnings and share price to rise going forward.

Capacity expansion underway for SiC focus rings

KNJ’s businesses include the manufacture of: 1) edge grinders and inspection equipment for display manufacturers; and 2) SiC focus rings (consumables used in the semiconductor wafer etching process).

As focus rings must withstand high-energy plasma gas, the main raw material is changing from conventional quartz/Si to SiC, which boasts more than twice the durability. Given: 1) increase in the number of layers for 3D NAND and tech migration to ever-smaller nodes for DRAM; and 2) the accelerating penetration of SiC focus rings among memory makers (thanks to their superior durability), the SiC focus ring market is forecast to grow by 20% pa going forward.

KNJ is benefiting from SiC focus ring localization and ‘after market’ (direct sales to end clients) growth. TCK, the dominant ‘before market’ (sales to equipment makers) player in the domestic SiC focus ring market (valued at W200bn pa), currently boasts a M/S of over 80%. Meanwhile, KNJ stands as the second firm to have succeeded in the mass production of SiC focus rings in the world. KNJ has been directly supplying SiC focus rings to SK Hynix since 2016, and related 2020 sales are estimated to reach W15bn. Currently securing land sufficient to construct ten production facilities, the company is in the process of building two additional facilities capable of generating sales of W10bn pa. In 2020, quality tests were undertaken by the largest global SiC focus ring customer, generating related sales of W2bn. Opportunities continue to emerge for KNJ in 2021, with further preliminary testing in progress and clients’ shift to ‘after market’ procurement accelerating.

▶ High-margin SiC focus ring sales growth to drive overall earnings improvement

In 2020, sales at the display business were likely hampered by decreased customer investment. We estimate the firm’s 2020 sales at W42.9bn and OP at W1.7bn. However, the company’s SiC focus ring sales should continue climbing: W15bn (2020E) → W22.2bn (2021F) → W30.4bn (2022F). Considering rival TCK’s high OPM, KNJ’s SiC focus ring business should see robust OPM in excess of 20%. Accordingly, company-wide earnings improvement is anticipated.
 

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