[Click eStock "Soulbrain, Earnings Outlook Lowered... Target Price 300,000 KRW"]

KTB Investment & Securities Report

[Asia Economy Reporter Minji Lee] KTB Investment & Securities maintained a buy rating on Solbrain on the 21st and lowered the target price to 300,000 KRW, reflecting a downward revision of this year's earnings outlook.

Solbrain recorded sales of 265.3 billion KRW in the fourth quarter of last year, a 15.6% increase compared to the same period the previous year. Operating profit was 44.8 billion KRW, down 9.9%, falling short of market expectations. This was due to the impact of performance bonuses and bad debt write-offs in some business units, but excluding one-time factors, it was analyzed to be in line with estimates.

This year's expected sales are estimated at 1.1519 trillion KRW, and operating profit at 224.9 billion KRW, representing increases of 12.5% and 19.1% respectively compared to the previous year. This reflects the deterioration in profitability in the electrolyte segment.

By segment, semiconductor sales are estimated to increase by 18.2% year-on-year to 766.1 billion KRW. Due to production capacity expansions by semiconductor customers in Korea and China in the fourth quarter of last year and the first quarter of this year, demand for materials is expected to increase significantly. Yangjae Kim, a researcher at KTB Investment & Securities, said, “For the new revenue source, acetate-based Etchant, benefits are expected if domestic non-memory companies start mass production of 3nm processes and expand memory applications in the fourth quarter of this year.”

The display segment is expected to record sales of 168.8 billion KRW, an increase of about 6%. Despite the withdrawal of major customers from the LCD business, sales growth is expected to be slightly positive year-on-year due to increased supply of new materials (WOLED and QD-OLED).

The secondary battery segment is expected to grow by 1.3% to 158.4 billion KRW in sales. Researcher Yangjae Kim explained, “Domestic electrolyte production is handled by the company, while overseas electrolyte production is managed by Solbrain Holdings, so direct benefits from overseas investments in the secondary battery industry are minimal,” adding, “Since the fourth quarter of last year, the increase in electrolyte raw material costs has been passed on to selling prices, so profitability is expected to improve from the first quarter of this year.”

Meanwhile, the company announced the absorption merger of its subsidiary Huct. Huct is a joint venture with Japan’s Stella Chemifa, manufacturing and selling high-purity fluorine compounds. Solbrain used to procure high-purity hydrofluoric acid, a raw material for Etchant, from Huct, but as localization and internalization were completed, Solbrain acquired all shares of Huct and absorbed the company through a merger.

Researcher Yangjae Kim stated, “Solbrain’s stake in Huct was 49%, classified as an equity-method investment, and recognized as equity-method earnings,” adding, “Since most of Huct’s sales are to Solbrain, the profit and loss impact on Solbrain after the merger will be minimal.”