[Click eStock] DB HiTek Raises Q1 and Annual Operating Profit Estimates, 'Target Price Up'

[Asia Economy Reporter Lee Seon-ae] Yuanta Securities announced on the 12th that it maintains a buy rating on DB HiTek and raises the target price from 123,000 KRW to 139,000 KRW. The upside potential is 103%. This adjustment is due to the upward revision of the first quarter and annual operating profit estimates.

Researcher Lee Jae-yoon of Yuanta Securities said, “Considering better-than-expected demand for 8-inch wafers and exchange rate conditions, we are raising the company’s earnings forecast,” projecting DB HiTek’s first-quarter operating profit to increase by 183% year-on-year to 171.4 billion KRW. This is an 8% increase from the initial operating profit estimate of 158 billion KRW.

Annual sales and operating profit for this year are expected to be 1.7 trillion KRW and 776.2 billion KRW, respectively. Lee said, “Our research center’s operating profit estimate of 776.2 billion KRW is 25% higher than the consensus average operating profit of around 620 billion KRW,” adding, “The basis for the upward revision of the annual earnings forecast is that prices for 8-inch foundry wafers, which have already risen this year, are expected to increase further in the second half.”

Costs were conservatively assumed and reflected in the earnings estimates. He stated, “While assuming a 10% growth in DB HiTek’s wafer shipments this year, raw material purchases are expected to increase by 21% year-on-year, and labor costs are assumed to rise by 19% compared to the previous year.”

The shortage of 8-inch foundry supply is expected to continue for the next 2 to 3 years. Lee said, “As competition intensifies among global major 12-inch foundry companies, it is becoming increasingly difficult to procure 8-inch equipment,” and forecasted, “The increase in 8-inch foundry supply will only be possible at a limited level compared to the past.”

Furthermore, he emphasized, “The main drivers of increased demand for automotive and industrial semiconductors are high-voltage PMICs and sensors specialized only in a very small number of 8-inch fabs,” and added, “It is also important to note that the growing demand for IT products such as Internet of Things and wearable devices acts as a catalyst for 8-inch foundry demand.”