[Click eStock] "NPD, Both Core Business and Subsidiaries Face Challenges Next Year"

Yuanta Securities Report

[Asia Economy Reporter Minji Lee] Yuanta Securities on the 20th forecasted that NPD's core business and subsidiary performance will both be sluggish next year.

This year's expected sales are 280 billion KRW, representing a 20% increase compared to the same period last year. Operating profit is analyzed to decrease by 15.7% from a year ago to 7 billion KRW. Despite top-line growth compared to the previous year due to increased FPCA sales, operating profit is expected to decline due to poor performance of the subsidiary CAP, which operates an automotive wiper OEM business.

The main cause of CAP's poor performance is the rise in transportation costs due to a surge in global cargo volume. Transportation costs, which were around 5.7 billion KRW annually last year, recorded 7.7 billion KRW cumulatively in the third quarter, and this impact is expected to continue through the fourth quarter. Researcher Kwangjin Kim of Yuanta Securities said, “This year's transportation costs are estimated to reach around 12 billion KRW, making it inevitable for CAP to turn to an annual operating loss.”

Next year's expected sales are 320 billion KRW, a 14% increase compared to the same period last year, with operating profit expected to be 7 billion KRW. Both the core business and subsidiary CAP are expected to face a challenging year. Primarily, the FPCA business is analyzed to see reduced profits as the price increases of key raw materials such as FPCB and IC-Chip, as well as rising labor costs at the Tianjin factory in China, are not fully passed on to product prices. Additionally, the front-end market, limited to the Galaxy A series and some customers in the Greater China region, is also expected to have a negative impact.

Researcher Kim said, “The poor performance of the subsidiary CAP is also expected to continue,” adding, “Since it is anticipated that it will take up to two years for global container freight rates to normalize, the burden of transportation costs is expected to persist next year, making continued operating losses unavoidable.”

Currently, the company's stock price has fallen to a price-to-earnings ratio (PER) of about 11.8 times based on next year's earnings. Negative factors regarding the industry are sufficiently reflected in the stock price, so further downward pressure is expected to be limited. Researcher Kim noted, “We are focusing on the potential expansion of the front-end market at the Hanoi factory as a point for the company's stock price rebound. The Hanoi factory is currently supplying final products for Samsung TVs through Seoul Semiconductor,” adding, “Although the sales proportion is still minimal, supply volume is gradually increasing, and this is expected to be an opportunity to diversify the front-end market, which had been limited to existing mid- to low-end smartphones.”