[Click eStock] Waldeck, Still Showing Earnings Growth

[Asia Economy Reporter Lee Seon-ae] Shinhan Investment Corp. forecasted on the 13th that Woldeks's fourth-quarter earnings will increase due to the effect of production capacity expansion. However, they did not provide an investment opinion or target stock price. The closing price of Woldeks on the previous day was 18,800 KRW.

Woldeks's fourth-quarter sales are expected to be 68.3 billion KRW, and operating profit 12.6 billion KRW, representing increases of 27.2% and 29.8% respectively compared to the same period last year. The factors driving earnings growth are favorable exchange rates and the operation of newly expanded factories. However, some downward revisions were made compared to previous earnings estimates. This is based on the judgment that existing factories are not fully meeting customer demand. It is understood that there are difficulties in hiring personnel for the newly expanded factories requested by customers, causing delays in normal operations. The production capacity of the new factory is about 100 billion KRW, but considering the manpower supply and optimization process, there is a possibility of an additional 1 to 2 quarters of delayed operation.

Contrary to concerns about IT hardware companies, growth potential is considered high. Researcher Kim Chan-woo of Shinhan Investment Corp. explained, "Recently, the market consensus for most small and medium-sized IT stocks is concern about negative growth," adding, "Considering front-end demand, there is an opinion that earnings growth will be difficult, and although many companies are expected to grow earnings in 2023 according to consensus, there is concern that actual results will fall short."

He continued, "Dividing into P and Q, P refers to price reductions considering customer situations, and Q refers to a decrease in customer demand volume. Concerns about P reduction are difficult to resolve," noting, "Price reductions for sharing pain may be inevitable during periods when customer earnings rapidly deteriorate."

The Q decrease is a problem faced by most material and component companies, but due to the nature of the aftermarket, this impact is expected to be limited. It is anticipated that customers will increase purchases of aftermarket products to secure profitability. Attention was drawn to the fact that sales increased by 19% and 11% year-on-year in 2018 and 2019, respectively, during the semiconductor downcycle.

Researcher Kim emphasized, "Since expectations for earnings growth are low, changes in multiples due to interest rate conditions are a variable, and the recent factor determining IT stock prices is multiples," adding, "It is difficult to expect an expansion of industry multiples at this stage, but positive evaluations are necessary for companies showing earnings per share (EPS) growth." He forecasted that 2023 sales will continue to grow by 18.9% to 294.6 billion KRW, and operating profit by 24.5% to 62.3 billion KRW.