[2020 Financial Weather Forecast] This Year, Focus on Small Caps and 5G Equipment Companies

Full-scale 5G Commercialization Wave in the US, China, Japan, etc.
Attention on Oisolution, KMw, Dasan Networks, etc.
Seojin System Particularly Undervalued

[Asia Economy Reporter Minwoo Lee] This year, IT-related industries such as 5th generation (5G) mobile communications and next-generation phones have been identified as promising small-cap sectors. As 5G commercialization progresses worldwide, companies possessing related equipment or technology are expected to benefit significantly.

According to Eugene Investment & Securities on the 3rd, the 5G-related sector is emerging as a promising investment industry this year. Unlike previous mobile communication generation changes, 5G technology, characterized by ultra-high speed, ultra-connectivity, and ultra-low latency, serves as a foundational technology that promotes key elements of the 4th Industrial Revolution, including various content, artificial intelligence (AI), and big data, beyond just communication technology.

Jongseon Park, head of the Mid-Small Cap team at Eugene Investment & Securities, stated, "Following South Korea's initial commercialization last year, governments and telecom companies in the United States, China, Japan, and other countries will actively promote commercialization starting this year. Positive developments will continue for 5G-related communication equipment and component companies, as well as mobile device manufacturers."

Initially, investments in communication equipment and component companies related to network construction are expected to be effective. This is because the current stage involves 5G network construction alongside the distribution of devices. Attention should be paid to companies supplying components to global firms such as Nokia, Ericsson, and Samsung Electronics, as well as component suppliers to Huawei, ZTE, Nokia, and Ericsson, which provide communication equipment to China, the world's largest market.

Base station equipment and component companies such as Seojin System, Oisolution, KMW, RFHIC, and Ace Tech have been highlighted. Since backhaul equipment supply is expected to increase significantly not only in Korea but also in the United States, Dasan Networks, whose headquarters are in Korea and subsidiaries in the U.S., is also worth noting due to anticipated performance growth.

Seojin System was identified as the most undervalued. With major U.S. telecom companies such as Verizon, AT&T, and Sprint increasing investments this year, the possibility of equipment supply is rising. Additionally, from the second half of the year, it can supply equipment to major Japanese telecom companies preparing for 5G commercialization services in March. Furthermore, steady equipment supply is expected in regions such as India and Vietnam, indicating stable growth. Seojin System is projected to achieve sales of 583.7 billion KRW and operating profit of 81.9 billion KRW this year, representing increases of 30% and 16.9%, respectively, compared to the previous year.

Park said, "Based on this year's expected performance, with earnings per share (EPS) estimated at 4,141 KRW, the price-to-earnings ratio (PER) is only 6.3 times, which is undervalued compared to the industry average of 8.7 times for companies such as Oisolution, KMW, Shinheung SEC, and Intops."