[Click eStock] "Seoul Semiconductor, Weak IT Product Demand... Target Price Down 23%"

Hana Securities Report

[Asia Economy Reporter Minji Lee] Hana Securities maintained a buy rating on Seoul Semiconductor on the 11th and set a target price of 16,000 KRW, down 23% from the previous target.

Seoul Semiconductor recorded sales of 295.7 billion KRW in the second quarter, down 12% year-on-year. Operating profit fell 79% to 4.8 billion KRW. These figures were 10% and 69% below market expectations, respectively. The decline in sales was due to a 10% decrease in the IT segment sales, which includes TVs, laptops, and monitors, compared to the previous quarter. These products are experiencing a base effect reversal following the untact (contactless) demand surge. On the other hand, automotive sales increased by 37% quarter-on-quarter, expanding their share within the company to 16%. This product mix improvement led to a turnaround to operating profit compared to the previous quarter.

IT product demand is expected to remain sluggish in the second half of the year. However, automotive sales are estimated to remain solid. A common point mentioned in recent earnings reports from global tech companies is that sales to the automotive electronics sector are favorable, suggesting that Seoul Semiconductor’s automotive lighting sales will also remain stable.

Researcher Rokho Kim of Hana Securities analyzed, “Although automotive lighting will not benefit from increased per-unit installation like other automotive electronic components, production is increasing due to easing semiconductor supply constraints. The expansion of automotive sales proportion will maintain the profitability trend.”

Regarding the company’s valuation, the price-to-book ratio (PBR) based on this year is 0.83 times, close to the historical band’s lower bound. Since the quarterly earnings have passed the bottom, further stock price declines are expected to be limited. Researcher Rokho Kim explained, “Points to watch going forward are the significant expansion of automotive sales proportion and whether mini or micro LED will contribute substantially to sales.”