Very Positive on Internalization of Dual-chuck Saw
The author is an analyst of Shinhan Investment Corp. He can be reached at doyeon@shinhan.com. -- Ed.
2Q21 preview: Earnings surprise at OP of KRW28.5bn
Hanmi Semiconductor is expected to have recorded sales of KRW93.2bn (+31.4% QoQ) and operating profit of KRW28.5bn (+47.4% QoQ) for 2Q21, exceeding our previous estimates (KRW81.2bn in sales, KRW23.6bn in operating profit) by a wide margin. Robust earnings were likely driven by sharp growth in non-memory investments amid severe supply shortages.
The non-memory shortage should ease from 3Q21, but may not be fully resolved until aggressive capacity additions by non-memory chipmakers (TSMC, etc.) lead to an actual increase in production volume in 2022.
Very positive on internalization of dual-chuck saw
Hanmi Semiconductor has recently completed the development of dual-chuck saw, which is essential to manufacture its mainstay product Vision Placement but imported from a sole supplier in Japan until now. The new equipment, dubbed “micro SAW,” will benefit Hanmi Semiconductor in various ways. First, we should see reduction in lead time for rapidly-growing Vision Placement orders. The recently-disclosed contracts with Chippacking Technology (June 7) and UTAC Thai (June 8) for the simultaneous supply of micro SAW and Vision Placement show shorter lead time from order intake to delivery vs. other contracts. Second, margin improvement is expected through cost reduction.
Lastly, the company will likely secure new sales by supplying micro SAW to other companies going forward. This should provide further upside in 3Q21 earnings. We forecast full-year earnings to hit an all-time high in 2021 with sales of KRW358.3bn (+39.2% YoY) and operating profit of KRW108.4bn (+62.7% YoY), and continue on an uptrend in 2022.
Retain BUY and raise target price to KRW46,000
We raise our target price for Hanmi Semiconductor by 15% to KRW46,000 on upward revision of earnings forecasts. Our 12-month forward target PER remains unchanged at 24x. Current share valuations are seen undemanding, given the decline in market discount rate, supply shortages in non-memory chips, and growing sales contribution from new products.
The recent tech sector correction helped to remove short-term fatigue built up from the sharp rally. Hanmi Semiconductor is the only semiconductor small/mid-cap stock in the domestic market with earnings and share price moving in sync with TSMC.