RFHIC Hesitates Amid US Huawei Sanctions... When Will the Turnaround Come?

[Asia Economy Reporter Jang Hyowon] The U.S. government's sanctions on Chinese telecommunications equipment company Huawei have also affected domestic company RFHIC, which supplies parts to Huawei. Although sales to Huawei have declined, causing a temporary slump in performance, the market expects a recovery starting from the end of this year as sales to Samsung Electronics increase.

According to financial information firm FnGuide on the 30th, the consensus estimate for RFHIC's third-quarter revenue is 15 billion KRW, a 0.67% increase compared to the same period last year. Operating losses are expected to continue, with a projected loss of 1.1 billion KRW.

RFHIC manufactures power transistors for wired and wireless communications. Its main products are gallium nitride (GaN) transistors and GaN power amplifiers, which account for 90% of the company's sales. RFHIC is the only domestic producer of GaN transistors, representing its greatest competitive advantage.

RFHIC's downturn is attributed to the U.S. government's strengthened sanctions against Huawei. Since declaring a national emergency in May last year, the U.S. has banned transactions involving Huawei products.

RFHIC's sales to Huawei sharply declined following the U.S. sanctions. Sales to Huawei, which were 37.6 billion KRW in the first half of last year, dropped 64% to 13.5 billion KRW in the first half of this year. Because RFHIC's products are manufactured based on wafers from U.S. companies, exports to Huawei have been prohibited.

RFHIC's performance is expected to remain weak in the second half of the year. On the 15th, the U.S. government imposed a second round of sanctions prohibiting the supply of products made using U.S. equipment, software, or design technology to Huawei.

Lee Changmin, a researcher at KB Securities, said, "In addition to the decline in sales to Huawei, the COVID-19 impact has delayed Samsung Electronics' 5G sales timing. Similar to the second quarter, some inventory asset impairment related to customers is expected, which will likely worsen profitability."

The market anticipates that RFHIC's performance will revive, supported by Samsung Electronics' expanded 5G investments. It is analyzed that the proportion of Huawei in RFHIC's total sales will gradually decrease while Samsung Electronics' share will increase.

There are also opinions that from the fourth quarter, initial shipments related to U.S. 5G investments will be recognized as sales, marking the beginning of performance improvement. Hanwha Investment & Securities forecasts RFHIC's fourth-quarter revenue at 24.9 billion KRW and operating profit at 1.7 billion KRW.

Choi Junyoung, a researcher at Hanwha Investment & Securities, stated, "Samsung Electronics' expansion of its global 5G market share will lead to increased sales of RFHIC's GaN transistors. GaN sales next year are estimated to reach 132.2 billion KRW, a 223.2% increase compared to this year."

He added, "From now on, it is advisable to focus on the expected high growth in sales in 2021 rather than this year's poor performance and to view the recent stock price adjustment as a buying opportunity."