Earnings and ASP to Be on a Steep Uptrend in 2022
The authors are analysts of Shinhan Investment Corp. They can be reached at hyungwou@shinhan.com and doyeon@shinhan.com, respectively. -- Ed.
4Q21 review &1Q22 outlook: Strong operating margin gains
Simmtech is an IT parts company that focuses on supplying substrates used in the backend semiconductor packaging process.
The company posted operating profit of KRW73.2bn (+398% YoY) on sales of KRW390.1bn (+40%, YoY) for 4Q21. Robust earnings growth was driven by: 1) product mix improvement; 2) visible increase in DDR5 sales; and 3) costs booked preemptively in the past.
Demand is typically weak in the first quarter of the year, but not this time around. We raise our operating profit forecast for 1Q22 from the previous KRW51.7bn to KRW66.3bn, and also see potential for further upside.
Earnings and ASP to be on a steep uptrend in 2022
A positive earnings surprise is expected for 2022, with operating profit up 75% YoY to KRW297bn (vs. consensus estimate of KRW239.3bn). Our projection will likely be revised upward for the following reasons.
First, Simmtech’s USD/KRW exchange rate assumption for 2022 is conservative considering the current KRW1,209. Second, we projected gross margin will stay at 2H21 levels in view of rising raw material prices. Third, the company continues to expand its production capacity of high value-added MSAP substrates. Our projection has yet to factor in sales from a new plant that is slated to start mass production in 2H22.
ASP should continue on an uptrend this year. The company’s package substrate prices are likely to rise at a faster pace in the 20% range, vs. a 10% increase seen in 2021.
Retain BUY and raise target price to KRW70,000
Our revised target price of KRW70,000 is based on 2022F EPS and a target PER of 10x, reflecting the typical valuation applied to IT parts suppliers.
Simmtech shares are currently trading at 2022F PER of less than 7x. The adoption of more sophisticated AP and communication chips requires an upgrade of FCCSP and SiP substrates, which will lead to growth in demand. Samsung Electro-Mechanics and LG Innotek are ahead of Simmtech in terms of FCCSP sales volume. However, the company has the highest share of FFCSP sales (about 20% estimated for 2022) among peers. We believe Simmtech has the strongest upside potential during a period of rising demand for FCCSP and SiP substrates.