[Click eStock] Simtek, Rapid Profitability Improvement Leads to 'Target Price Upgrade'

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment maintained its buy rating on Simtek on the 5th and raised the target price to 48,000 KRW. This is due to upward revisions of operating profit for 2021 and 2022 by 16% and 22%, respectively, compared to previous estimates.

The profitability improvement speed of package substrates progressed faster than expected, achieving a company-wide operating profit margin of 14% in the third quarter of this year. Since the profitability of module PCBs and subsidiaries is lower than the company-wide operating profit margin, the operating profit margin of package substrates reached 15%. It is judged that the mix improvement due to the increased proportion of MSAP substrates exceeded expectations. The transition effects to GDDR6, LPDDR5, DDR5, and the expansion effect of MSAP substrates are capturing both top-line growth and profitability improvement.

Kim Rok-ho, a researcher at Hana Financial Investment, said, "The package substrate market is expected to grow steadily in 2022, and Simtek is also expected to consider expansion again within 2022," adding, "The reason why Simtek's price-to-earnings ratio (PER) was undervalued was due to the low company-wide operating profit margin, but now that the valuation discount factor has been removed, it is time to enjoy the package substrate market."

Meanwhile, Simtek's fourth-quarter sales are forecasted at 381.3 billion KRW (YoY +37%, QoQ +4%), and operating profit at 58.6 billion KRW (YoY +298%, QoQ +16%). Although demand for PCs in the module PCB sector is a concern due to decline, the increase in sales of MCP and non-memory package substrates in the package substrate sector is expected to offset this. Simtek's FC-CSP is mainly supplied for controller ICs, and related demand is understood to be strong. Since the expansion of 5,000㎡ of the high value-added MSAP substrates has begun to be reflected, profitability is also expected to level up once again.