[Click eStock] RFHIC, The Value of a Comprehensive GaN Semiconductor Company

[Asia Economy Reporter Lee Seon-ae] Shinhan Financial Investment announced on the 26th that it maintains a buy rating and a target price of 55,000 KRW for RFHIC. This is based on the expectation that the core telecommunications business revenue will sharply recover in 2022, along with the power semiconductor business becoming more visible.

Park Hyung-woo, Senior Researcher at Shinhan Financial Investment, stated, "In addition to power semiconductors, the application of GaN semiconductors is expanding in various industries such as RF energy. GaN semiconductors are a field with high entry barriers due to technical difficulties," adding, "Starting from 2022, the value of the company, which possesses top-level global technology, is expected to be highlighted."

The current stock price is at a price-to-earnings ratio (PER) of about 33 times for next year. He said, "The upper limit during the period when normal expectations for the company were reflected was over 50 times," and judged that "given the imminent visibility of new businesses, the current stock price level is an opportune time to buy."

RFHIC recorded third-quarter sales of 19.1 billion KRW (+96% YoY) and an operating loss of 100 million KRW (continued deficit), falling short of the consensus (2 billion KRW) and Shinhan’s estimate (200 million KRW). The background includes Samsung Electronics’ reduction in supply volume to Verizon and the deferral of domestic defense sales to the fourth quarter. Fourth-quarter sales are expected to be 31.2 billion KRW (+23%) with operating profit of 3.1 billion KRW (+72%). Although the reduction in supply volume to Verizon is expected to continue affecting the fourth quarter, a stable performance rebound is highly likely based on confirmed defense sales. Defense sales for the fourth quarter are projected at 16.3 billion KRW (estimated 11.6 billion KRW in the third quarter).

For next year, sales are forecasted at 177.3 billion KRW (+75%) and operating profit at 25.6 billion KRW (+334%). Full-scale supply to overseas regions for Samsung Electronics is expected. The CAPEX achievement rates of Samsung Electronics’ contracted telecom companies in Canada, Japan, and other countries in 2021 show a positive trend. Significant supply to Verizon as well as to Canada, Japan, Europe, and India is anticipated. In addition to the existing core business, the GaN semiconductor new business will also become visible. Furthermore, a joint venture for the power semiconductor business will be established with a global SiC wafer manufacturer in Korea. Specific business plans and scale are likely to be confirmed by the end of the year. Future power semiconductor sales are expected to sharply increase from 5.6 billion KRW in 2022 to 68.6 billion KRW in 2025. These sales have not yet been reflected in the current estimates and are expected to act as an upside in the future.