[Into the Stock]"Where is the Bottom?"... Tesna Loved by the National Pension Service(?)

Early-Year Semiconductor Supercycle Boost Drives Stock Surge
Last Month, National Pension Service Acquired 10.14% Stake
Decline This Month Amid Net Buying by Pension Funds
Beneficiary of Semiconductor Supply Shortage... Operating Profit Expected to Rise 88% This Year

[Asia Economy Reporter Ji Yeon-jin] Tesna, a specialized company in testing non-memory semiconductors, has experienced a rollercoaster ride in its stock price this year. It surged to 60,000 KRW at the beginning of the year, then plummeted sharply during the correction phase after late January. Although it showed signs of recovery last month, it has been declining again this month. Net selling by institutional investors, including the National Pension Service, the second-largest shareholder, appears to be pulling the stock price down.

◆ A beneficiary of the 'semiconductor cycle' trickle-down effect = Tesna tests system semiconductors (non-memory semiconductors) such as camera image sensors (CIS), SoC (System on Chip), and smart card chips. The semiconductor industry is divided into memory semiconductors, which store data, and system semiconductors, which are designed for information processing tasks such as computation, control, and logic operations without storage functions.

In the case of system semiconductors, the process is divided among fabless companies specializing in semiconductor design, foundry companies that manufacture chips on behalf of external clients, and back-end process companies specializing in assembly, packaging, or testing of processed wafers. Tesna, a back-end process company, counts Samsung Electronics and SK Hynix as major clients, and is expected to benefit from the expansion of the foundry market and Samsung Electronics' increased investment in non-memory semiconductors.

Last year, Tesna invested 150 billion KRW to expand CIS production capacity and recently decided to purchase additional CIS testing equipment. The acquisition cost is 32.4 billion KRW, about 9.47% of total assets (342.7 billion KRW). Kim Kyung-min, a researcher at Hana Financial Investment, said, "The equipment being acquired this time is expected to contribute to performance starting from the end of 2021," adding, "Since demand for camera image sensors remains robust, once cash generation capacity surpasses the facility investment amount, the pace of capital accumulation could accelerate, which is positive for the stock price."

Last year, the company posted sales of 132.5 billion KRW and operating profit of 30.6 billion KRW, up 35% and 24% respectively from the previous year. Hyundai Motor Securities forecasts that this year's annual sales will increase by 60% year-on-year to 212 billion KRW, and operating profit will grow by 88% to 57 billion KRW. Park Chan-ho, a researcher at Hyundai Motor Securities, stated, "Starting this year, 130 CIS testers will be operational, driving performance growth, and from the second half of this year, the company is expected to benefit from the rapidly growing 5G smartphone industry."

◆ National Pension Service turns to selling this month... Non-memory supply shortage is an 'opportunity' = Since the beginning of this month, Tesna's stock bulletin board has been flooded with complaints from individual investors such as "Is the institutional selling real?" and "Where is the bottom?" As of the 31st of last month, the National Pension Service held a 10.83% stake in Tesna. The National Pension Service had increased its stake by purchasing 1,731,570 shares (10.14%) last month.

However, this month, the pension fund has net sold 30,250 shares. Tesna's stock price rebounded slightly from the closing price of 47,250 KRW on the 31st of last month to surpass 50,000 KRW at the beginning of this month, but then dropped to 47,700 KRW on the same day. The National Pension Service first acquired a 4.98% stake in Tesna in 2019 and gradually increased it to 13.50% in January this year, making it the second-largest shareholder after the largest shareholder, AITree (19.71%). At that time, Shinhan Financial Investment set a target price of up to 74,000 KRW for the company.

The securities industry expects that the global shortage of non-memory semiconductors, driven by the growth of the untact industry due to COVID-19, will positively impact Tesna's performance. Some Taiwanese semiconductor packaging and testing specialized outsourced semiconductor assembly and test (OSAT) companies have raised prices due to the semiconductor supply shortage, leading to expectations of benefits from the continued foundry shortage. Kim Yang-jae, a researcher at KTB Investment & Securities, said last month, "Considering the client's new orders and the policy to expand outsourced testing, high-speed growth is expected to continue at least until 2023," but also slightly lowered the target price, noting, "Due to recent yield deterioration in major clients' 5nm processes and production disruptions in the smartphone industry, the volume increase is slower than initially expected."