[Company Insight] Tes Invests in Samsung Electronics and SK Hynix... Sales Growth Expected in Second Half

President-elect Yoon Suk-yeol has emphasized the importance of the semiconductor industry, sparking momentum within the related sectors. Considering the economic significance of the semiconductor industry and supply chain security, the Presidential Transition Committee announced that it is reviewing a ‘Semiconductor Super-gap Strategy.’ The government plans to actively support semiconductor companies facing difficulties. The key tasks mentioned by the Transition Committee include resolving labor shortages, fostering the system semiconductor industry through foundry investments and promoting the growth of excellent fabless companies, easing regulations on new and expanded factory construction, strengthening research and development (R&D) incentives, and protecting advanced technologies. In this context, Asia Economy analyzed Hanmi Semiconductor and Tes, semiconductor equipment manufacturing companies expected to benefit.

[Asia Economy Reporter Jang Hyo-won] As Samsung Electronics and SK Hynix embark on aggressive semiconductor equipment investments, semiconductor equipment company Tes is gaining attention. Orders began in the first quarter of this year, and performance is expected to improve in the second half. In addition to performance, Tes is steadily enhancing shareholder value through consistent dividends and share buybacks, supported by a stable financial position.

Performance Expectations for the Second Half

Tes manufactures semiconductor production equipment. It produces key equipment for the front-end process of semiconductor manufacturing, where wafers are processed to create chips. Its main products include Plasma Enhanced Chemical Vapor Deposition (PECVD) equipment used for thin film formation and Gas Phase Etch & Cleaning equipment, a dry etching tool. Although Tes also produces thin film encapsulation equipment used in display manufacturing, sales from semiconductor equipment manufacturing, sales, and maintenance account for 95% of total revenue. Major clients include Samsung Electronics and SK Hynix.

Its performance shows a steep growth trend. Last year, on a consolidated basis, Tes recorded sales of 375.2 billion KRW and operating profit of 62.2 billion KRW, increases of 52.5% and 96.3% respectively compared to the previous year. The expansion of capital expenditures by Samsung Electronics and SK Hynix drove the increase in Tes’s sales and operating profit. Additionally, Tes’s own cost reduction efforts contributed to the rise in operating profit. Net profit reached 74 billion KRW, a 146.5% increase from the previous year. The reason net profit exceeded operating profit is due to income generated from financial assets. As of the end of last year, Tes held financial assets worth 114.7 billion KRW. Investments in funds, bonds, and stocks generated approximately 16 billion KRW in interest, valuation gains, and disposal gains, leading to the increase in net profit. Total financial income rose 31.8% year-on-year.

Performance is also expected to increase this year. According to financial information provider FnGuide, the average market consensus for Tes’s sales this year is 397.2 billion KRW. Some securities firms forecast sales exceeding 400 billion KRW. The consensus for operating profit is estimated at 68.9 billion KRW. The reason for the expected increase in performance this year is the anticipated full-scale NAND investment by Samsung Electronics and SK Hynix. SK Hynix resumed new investments in the first quarter, and Samsung Electronics plans to continue investments from the second quarter onward in Pyeongtaek Phase 3 memory and foundry, Pyeongtaek Phase 4, and the new Taylor foundry.

Additionally, Tes is expected to supply gas etching equipment for foundry entry and new film PECVD equipment for DRAM. In fact, in the first quarter alone, Tes received orders worth 57.9 billion KRW from Samsung Electronics and SK Hynix. Agyujin, a researcher at DB Financial Investment, analyzed, “With SK Hynix’s investment resuming in the first quarter and Samsung Electronics’ memory investment from the second quarter onward, sales of new equipment will also begin in earnest. This will lead to an increase in equipment sales per unit for Tes.” However, the growth rate of performance is expected to be lower than last year. According to consensus estimates, Tes’s sales and operating profit this year are expected to increase by 5.9% and 10.8% respectively compared to the previous year. Net profit is estimated to decrease by 17.6% due to a reduction in last year’s large financial income.

Consistent Dividends and Share Buybacks

With consecutive performance improvements, Tes’s financial condition is also sound. As of the end of last year, Tes’s consolidated debt ratio was only 14.2%. Total liabilities amounted to 42 billion KRW, most of which were accounts payable and corporate tax liabilities, so actual borrowings were only about 200 million KRW. Essentially, Tes operates with no debt.

It also holds 128.9 billion KRW in cash equivalents. This accounts for 38% of total assets of 336.9 billion KRW. Based on abundant cash, Tes has been consistently paying dividends.

Tes has paid dividends for nine consecutive years from 2013 through last year. Last year’s dividend payout ratio was 14%, with a total dividend payment of 10.4 billion KRW. The cash dividend yield was 1.9%. The dividend yield over the past five years averaged 1.8%.

Tes also conducts share buybacks. On the 22nd of last month, Tes signed a trust contract to acquire treasury shares worth 15 billion KRW. Previously, in 2020 and last year, Tes invested 6 billion KRW and 10 billion KRW respectively to repurchase treasury shares.