Riding the Semiconductor Supercycle: 'Wonik IPS'

Expectations are rising for entering a semiconductor supercycle (period of booming growth). Globally, the growth of 5G, artificial intelligence (AI), and autonomous vehicles is expected to increase demand for semiconductors such as memory and non-memory (system semiconductors). The Ministry of Trade, Industry and Energy forecasted that semiconductor exports this year will reach $111 billion, a 10.2% increase compared to last year. Additionally, the global semiconductor market size is expected to grow by 8.7% to $477.5 billion. Semiconductor companies worldwide are also making or preparing investments to meet the rising demand. As a result, the activities of semiconductor manufacturers, foundries (semiconductor contract manufacturing), and equipment suppliers are becoming busier to keep pace with the surging demand. Asia Economy aims to gauge the current status and future growth potential of Wonik IPS and DB HiTek, companies considered beneficiaries of the semiconductor supercycle.

[Asia Economy Reporter Yoo Hyun-seok] Wonik IPS, which produces semiconductor and display equipment, is expected to grow more than 10% compared to last year and record sales of 1.2 trillion KRW this year. Due to increased investments by domestic and international semiconductor companies, sales of equipment used in memory and non-memory production are expected to grow. Additionally, the rising demand for non-memory semiconductors is considered a positive factor for performance growth.

Wonik IPS was established in April 2016 by a spin-off of the semiconductor, display, and solar cell equipment business divisions from Wonik Holdings Co., Ltd. As of the third quarter of last year, consolidated sales and operating profit were 435 billion KRW and 118.5 billion KRW, respectively. Sales increased by 268.36% compared to the same period the previous year, and operating profit turned positive. By product, semiconductor equipment and consumables accounted for 159.1 billion KRW, and display equipment for 275.9 billion KRW. With steady performance, the company is financially solid. As of the third quarter of last year, the debt ratio was 49.3%, and short-term borrowings accounted for only 0.1%.

However, the fourth-quarter performance last year is expected to slow down. According to FnGuide, securities firms forecasted Wonik IPS's fourth-quarter sales at 164.4 billion KRW, a 25.25% decrease year-on-year, and operating profit is expected to turn into a loss of 4.9 billion KRW. The lack of domestic semiconductor investment is cited as the cause of one-time costs. Nevertheless, this year is expected to be better than past performance. According to FnGuide, securities firms forecast Wonik IPS's sales and operating profit this year at 1.2626 trillion KRW and 218.5 billion KRW, respectively, representing increases of 16.58% and 21.97% compared to the previous year.

◆ Semiconductor Investment of 106 Trillion KRW This Year... Record High = The biggest reason for the performance improvement is expected to be the benefits from expanded investments by domestic and international semiconductor companies. Yuanta Securities projected that the combined CAPEX (capital expenditure) of Samsung Electronics, TSMC, Intel, SK Hynix, and Micron will expand from $74.3 billion (about 83 trillion KRW) in 2020 to $95.2 billion (about 106 trillion KRW) in 2021, marking an all-time high.

In fact, TSMC announced that its capital expenditure this year will reach $25 billion to $28 billion (about 27 trillion to 31 trillion KRW), the largest ever. Samsung Electronics is also likely to increase its investments accordingly. Samsung Securities researcher Hwang Min-sung said, "With TSMC's aggressive investment, the possibility of Samsung Electronics reviewing its investment plans is increasing. Although investment plans still cannot ignore uncertainties such as market conditions and COVID-19, semiconductor investment this year is likely to be revised upward to the high 30 trillion KRW range."

Yuanta Securities researcher Lee Jae-yoon also explained, "Samsung Electronics is expected to secure new customers by expanding its foundry new plant in Austin, USA, following the domestic Pyeongtaek expansion." He added, "Samsung Electronics' memory capital expenditure this year is estimated at $24 billion, and non-memory at $11 billion."

◆ Leading Company in Front-end Equipment Highlighted = As investments expand, many opportunities are expected for Wonik IPS. Wonik IPS is a leading equipment company supplying front-end equipment for semiconductors and displays. In semiconductor equipment, it supplies deposition equipment such as plasma-enhanced chemical vapor deposition (PECVD) and atomic layer deposition (ALD) for both memory and non-memory. For display equipment, it produces dry etcher equipment and encapsulation equipment. In 2018, through a merger with Wonik TerasemiCon, it also began manufacturing semiconductor heat treatment equipment and heat treatment equipment for small- and medium-sized OLED panels.

Samsung Securities researcher Lee Jong-wook said, "The semiconductor investment atmosphere is rapidly changing, and investors will forget the fourth-quarter loss last year and focus on Samsung Electronics' new investment scale. Sales will normalize from the first quarter, centered on the semiconductor sector, and since this cycle emphasizes foundry investment, Wonik IPS's DRAM and foundry portfolio will be highlighted."

Moreover, with the recent high demand for non-memory semiconductors, Wonik IPS's equipment is expected to benefit. Hana Financial Investment researcher Kim Kyung-min emphasized, "The sales proportion of equipment for non-memory semiconductors is expected to exceed 10% for the first time this year due to increased orders per facility investment from product lineup expansion and increased non-memory facility investment in the upstream industry."