[Click eStock] "KMw, Lack of Supply Contracts... Continued Poor Performance"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a neutral investment rating on KMw on the 30th. This decision was based on the judgment that a conservative approach is necessary due to the expected weak performance in the third quarter.

Looking at the company's third-quarter performance, sales are expected to be 43.4 billion KRW, with an operating loss of 5.2 billion KRW, which is anticipated to be worse than the previous quarter. Generally, the second and third quarters are peak seasons for the telecommunications equipment industry, but with a decrease in domestic and overseas project order backlogs, sales are predicted to drop by 41% compared to the same period last year. Due to the decline in sales, the operating loss trend is expected to continue following the previous quarter.

Domestically, since the completion of the Nokia-oriented system contract (MMR) from the second half of last year, sales have decreased, and there have been no additional MMR supply contracts. Overseas, telecommunications companies have been hesitant to invest in 5G equipment due to COVID-19, causing many initially expected contracts to be delayed.

Researcher Cheolhee Jo of Korea Investment & Securities stated, “From the perspective of major global SIs, when global demand for telecommunications equipment increases beyond their own production capacity, the need for joint development and production partners like KMw rises. Currently, global demand is gradually increasing, so the negative business environment persists.”

Given that the timing of sales and profit growth is delayed compared to expectations, a conservative approach is predicted to be necessary. Researcher Jo analyzed, “The anticipated timing for promising new orders (second-generation MMR equipment) has been postponed from the second half of this year to the second to third quarter of next year, and the visibility of success in securing orders is still difficult to gauge.”