Earnings to Reach New Quarterly/annual Highs in 2022
The author is an analyst of Shinhan Investment Corp. He can be reached at doyeon@shinhan.com. -- Ed.
3Q21 OP forecast at KRW97.9bn (+20.3% QoQ)
DB HiTek delivered record-high quarterly results for 2Q21 with sales of KRW274.7bn (+12.7% QoQ) and operating profit of KRW81.4bn (+34.3% QoQ). Strong earnings were driven by capacity expansion (+3K or +2.3% QoQ) and ASP hike (estimated+6% QoQ).
In 3Q21, we expect ASP to continue upwards by 5% QoQ, once again driving quarterly earnings to new highs. Sales should reach KRW302.7bn (+10.2% QoQ) and operating profit KRW97.9bn (+20.3% QoQ), assuming the USD/KRW exchange rate averages KRW1,140. Earnings could even rise above our bullish forecasts, depending on further improvement in ASP, shipments, and exchange rates. DB HiTek may well see quarterly sales exceed the KRW300bn mark for the first time in its history and possibly achieve KRW100bn in operating profit.
Earnings to reach new quarterly/annual highs in 2022
Global supply shortages in non-memory chips are unlikely to be fully resolved until 2022. Clients are fiercely competing to secure capacity at their 8-inch foundry partner for production of their chips. ASP should continue climbing through 1H22 at the least. Monthly production capacity is projected to increase from 129K in 1Q21 to 145K in 2022. As such, DB HiTek stands to enjoy steep earnings growth in 2022 as well as this year.
Full-year earnings should reach new highs at sales of KRW1.11tr (+19.1% YoY) and operating profit of KRW326.4bn (+36.4% YoY) in 2021. For 2022, we forecast sales at KRW1.22tr (+9.8% YoY) and operating profit at KRW404.1bn (+23.8% YoY).
Earnings fundamentals to remain strong for years to come
DB HiTek’s fundamentals have strengthened greatly compared to the past. Until 2018, quarterly operating margin of 25% had sparked concerns over a short-term peak in shares, even when the company failed to keep it at such high levels. However, operating margin has stayed at or above 25% since 2Q19 (excluding 4Q results due to one-off bonus payments). Earnings fundamentals should remain strong for the next few years.
DB HiTek shares are currently trading at 2022F PER of just 8.9x, which seems unreasonable given continued strength in profitability. We see no reason for the stock to be undervalued vs. 8-inch foundry peers trading at 2021F PER of 19x or higher.