[Click e Stocks] "PI Advanced Materials, Short-Term Correction Inevitable... Investment Opinion and Target Price Downgraded"

[Asia Economy Reporter Song Hwajeong] Hana Financial Investment downgraded its investment opinion on PI Advanced Materials from 'Buy' to 'Neutral' and lowered the target price from 70,000 KRW to 56,000 KRW on the 25th, citing short-term adjustment as inevitable due to poor earnings.

PI Advanced Materials' Q4 earnings last year fell short of market expectations (consensus). Q4 sales were 69.9 billion KRW, similar to the same period last year, and operating profit decreased by 14% to 14.4 billion KRW. This figure was below the consensus operating profit of 15.2 billion KRW. Hyunsoo Kim, a researcher at Hana Financial Investment, analyzed, "Regarding sales, the combined sales of PI films for the mobile market's front-end markets, flexible printed circuit boards (FPCB, 40% of sales) and heat dissipation sheets (35% of sales), decreased by 4% compared to the same period last year, which is negative," and added, "Operating profit margin fell by 3.3 percentage points quarter-on-quarter due to profitability deterioration caused by rising raw material prices."

The first quarter earnings this year are also expected to be weak. Hana Financial Investment forecasts PI Advanced Materials' Q1 sales to decrease by 1% year-on-year to 77.5 billion KRW, and operating profit to drop by 58% to 8.7 billion KRW. Researcher Kim said, "Although the price increase of DMF, a major raw material, will be partially passed on through price hikes on some products, the degree of profitability deterioration due to cost increases will be greater," adding, "Therefore, the Q1 operating profit margin is expected to fall by 4 percentage points quarter-on-quarter to 11%." However, from Q2 onwards, as the customer base reflecting price increases expands and the proportion of DMF recycling rises significantly, quarterly operating profit margin is expected to rebound. Kim explained, "Considering the front-end market, sales growth trends will continue due to increased OLED penetration in the mobile market and expanded demand from electric vehicle batteries," and "Accordingly, the full-year 2022 performance is expected to show a slight profit growth with sales increasing 15% year-on-year to 347.7 billion KRW and operating profit rising 3% to 78.1 billion KRW."

Researcher Kim stated, "Considering the margin decline due to rising raw material prices, we lowered PI Advanced Materials' EPS estimate for this year by 11%, resulting in a downgrade of the investment opinion and target price," and added, "While there is no doubt about the sales growth potential based on the expansion of PI film demand, it will be difficult to expect a stock price increase as margin pressure from rising raw material prices is confirmed in the earnings."