EngisTech Expects EUV Investment Benefits Through Acquisition of Smart Subsidiary

Acquired by Melcon for 30 Billion KRW Last Year End... Producing Essential EUV Process Equipment THC
Equipment Sales Increase Due to Samsung Electronics and SK Hynix EUV Investments

[Asia Economy Reporter Park Hyungsoo] Japan's export restrictions have become a 'turning point' in improving the structure of the domestic semiconductor and display industries, leading to a revaluation trend of key materials and equipment companies in the domestic stock market. As Samsung Electronics and SK Hynix actively invest in extreme ultraviolet (EUV) process technology, which they are promoting as next-generation semiconductor production technology, related companies' stock prices are also rising.

According to the financial investment industry on the 7th, the stock price of Engis Technology has risen 125.3% compared to the March low when the domestic stock market plunged due to the impact of the novel coronavirus disease (COVID-19). Considering that the KOSDAQ index rose 77.4% during the same period, the return relative to the market is 47.9 percentage points.

Engis Technology is a software development company related to connected cars. As of the end of 2019, the sales composition ratio was 68.1% for the automotive electronics sector, 26.1% for the solutions sector, and 5.6% for the applications sector.

A connected car is a vehicle that allows two-way communication between the driver and the car. The car directly connects to external communication networks and provides functions such as calling, weather, internet search, and real-time traffic information just like a smartphone. The term connected car emerged because the vehicle is directly connected to external communication networks.

Connected cars have recently become a focus for both automakers and IT companies. BI Intelligence forecasted that the number of connected cars will grow by 45% annually, and this year, out of 92 million vehicles worldwide, 69 million, or 75%, will be connected cars.

Since October last year, Engis Technology has been actively supplying over-the-air (OTA) wireless software update solutions to Japanese automakers. For European automakers, it is expected to supply embedded navigation solutions for electric vehicles in the second half of this year.

Engis Technology, which has been steadily growing in its existing business sectors, acquired a 50.9% stake in Melcon for 30 billion KRW at the end of last year. Melcon supplies ultra-precision temperature and humidity air controllers (THC), a key equipment for semiconductor lithography processes, to Samsung Electronics, SK Hynix, Dongbu Hitek, and others.

According to the consolidated financial statements last year, Engis Technology holds 20 billion KRW in cash and financial assets. It maintains a sound financial structure with short-term borrowings of 1.5 billion KRW.

Melcon's THC equipment is essential for the EUV process. The EUV photo process controls temperature and humidity using gas instead of liquid. According to the evaluation report submitted when Engis Technology acquired Melcon, Melcon jointly developed the equipment with Tokyo Electron (TEL), the world's second-largest semiconductor equipment specialist, and supplies it exclusively to Samsung Electronics and SK Hynix with a market share exceeding 95%.

THC already holds the world's number one market share. It has been introduced in the next-generation semiconductor fine process, the EUV process, and is being tested at Samsung Electronics and others. It is known that about ten units have been supplied to domestic customers' EUV lines by the first half of this year. If full-scale investment in EUV mass production lines begins next year, Melcon's performance outlook as a THC equipment supplier is bright. Regarding the chiller product, a temperature controller, new product development has been completed, and full-scale supply is expected to start this year.

As premiums for companies producing EUV equipment increase, expectations for Melcon's corporate value expansion are also growing. If Melcon goes public, the value of the shares held by Engis Technology could increase further.

Engis Technology is also promoting collaboration to maximize synergy effects with Melcon. Based on Melcon's semiconductor equipment installation know-how and Engis Technology's network connection between machines, they are developing semiconductor equipment software independently.

Park Jaeil, a researcher at Kiwoom Securities, said, "We expect an operating profit turnaround this year," adding, "In addition to reflecting new order sales in full, the effect of Melcon's subsidiary incorporation will also be added."