[Click eStock] HF R, 5G Investment Wave Blows "Focus on Leading Stock"

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment announced on the 30th that it has initiated coverage on HFCL with a buy rating and a target price of 63,000 KRW, expecting an increase in earnings.

The target price was calculated by applying a target price-to-earnings ratio (PER) of 20 times, which is the average PER of telecommunications equipment companies during 2019 when they recorded strong performance due to increased investments from clients, to the expected 2022 earnings per share (EPS) of 3,170 KRW. Kim Hong-sik, a researcher at Hana Financial Investment, explained, "Considering that the estimated Verizon order volume was minimized and the possibility of specialized network orders was not reflected in the estimates, if additional orders occur in the future, it is expected that earnings estimates will be revised upward and sales growth from acquiring new clients will increase expectations, enabling further multiple expansion."

Currently, with the expansion of coverage by North American telecom companies, large-scale front-haul orders from clients are underway, and the amount of orders already received to be reflected within the year has exceeded 200 billion KRW. As C-band commercialization begins and telecom companies set aggressive coverage expansion targets, the total order volume is likely to increase as the second half of the year progresses. The mid-band frequency will also expand until the end of 2023, indicating that the North American front-haul market is now entering the early stage of growth.

Even if Verizon orders are not secured, HFCL's operating profit in 2022 is expected to reach 41.5 billion KRW. However, considering competitors' capacity, the possibility of not securing Verizon orders is low, and even assuming securing less than 50% of the total order volume, export revenue is estimated to grow 172% year-on-year to 296.2 billion KRW. Researcher Kim emphasized, "Although investment sentiment in equipment stocks has been weakened due to continued poor performance of telecom equipment companies, it is time to draw attention to HFCL, which is proving through its performance that the investment cycle toward North America has returned."

Meanwhile, 2022 performance is expected to achieve sales of 402.9 billion KRW (+95% YoY) and operating profit of 52.3 billion KRW (+139% YoY). In 2022, domestic sales are expected to turn upward due to increased production capacity of the three domestic telecom companies, front-haul orders will surge due to large-scale infrastructure investments by North American telecom companies, and order amounts will grow due to DBRU product upgrades, expanding orders of high-margin products, leading to external growth and profitability improvement. Although manufacturing costs are inevitably rising due to semiconductor supply difficulties and AT&T’s second order volume will be delivered in earnest from April, HFCL’s first-quarter performance is expected to be weak, but as delivery volumes increase in the second half, a performance trend of low in the first half and high in the second half is anticipated.