[Top Semiconductor Stock②] LB Semicon... "Expecting Valuation Re-rating"

[Asia Economy Reporter Lee Seon-ae] #In recent years, the stock prices of memory companies have started to lead DRAM prices by more than six months. It is expected that DRAM prices will hit bottom in the second quarter of next year, so it is judged that stock purchases should begin around November. The foundry market is expected to continue its boom. If foundry companies do not mass-produce new semiconductors on time, fabless and finished product customers will face delays in product launch schedules. The foundry companies capable of implementing cutting-edge processes are narrowed down to two: TSMC and Samsung Electronics, and although Intel has declared participation, there is uncertainty as a verification period is needed. For the time being, the investment and growth rate of foundry companies are expected to accelerate.

Hanwha Investment & Securities has presented Samsung Electronics as the top preferred large-cap semiconductor stock. With the timing to buy memory stocks approaching within 1 to 2 months, Samsung Electronics is also showing performance improvements in foundry and smartphone businesses, making it a priority purchase target. For small and mid-cap stocks, Hanwha recommended mainly foundry post-process companies such as Hana Micron, Hanmi Semiconductor, LB Semicon, Techwing, and ISC.

According to Hanwha Investment & Securities on the 3rd, LB Semicon mainly operates packaging and testing businesses for display D-ICs, with Samsung Electronics and LX Semicon as major clients. In addition, it conducts PMIC bumping and testing, and is expanding AP and CIS testing as new businesses. PMIC was still sluggish in the first half, but D-IC performance was solid. AP testing, which started at the beginning of the year, showed an operating rate of about 60%, and CIS testing, which began in the second quarter, exceeded a 70% operating rate by the end of the quarter. With the increase in testing proportion and reduced pressure on price cuts, operating profit margins are also rising.

LB Semicon announced a non-memory testing facility investment of 95.5 billion KRW on the 28th of last month. The pure testing facility investment amount is estimated to be in the low 70 billion KRW range, with a high proportion expected for AP testing. Sales from this investment are expected to be seen as early as the beginning of next year. This investment is diversifying the portfolio, which had been concentrated on D-IC, into AP, CIS, and PMIC. The testing business carries the risk of performance deterioration if operating rates do not rise after large-scale investments. However, the successive new investment announcements by post-process companies suggest that the expansion of post-process outsourcing volumes is becoming visible. Researcher Lee Soon-hak of Hanwha Investment & Securities emphasized, "When sales become visible, valuation rerating can be expected."

For this year’s performance, sales of 510 billion KRW and operating profit of 56 billion KRW are forecasted. Although wafer supply, which was unstable in the first half, remains uncertain in the second half for D-IC, good performance is expected due to the peak season in large panel and mobile sectors. CIS testing equipment will be additionally delivered in July, and operating rates are expected to rise. Accordingly, the proportion of testing sales on a separate basis is expected to exceed 40% this year, with an operating profit margin forecasted to increase by 1.3 percentage points YoY to 11%. PMIC is expected to remain sluggish this year, but next year, with the expansion of Samsung Electronics Exynos volumes, operating rates for both AP and PMIC are expected to rise.