[Click eStock] "Simtek, Profitability Expected to Decline"... Target Price ↓

On the 13th, DS Investment & Securities lowered the target price for Simtek from 50,000 KRW to 35,000 KRW following an adjustment in earnings estimates. However, the buy rating was maintained.

Simtek's sales in the third quarter of last year decreased by 16.3% year-on-year to 328 billion KRW, and operating profit dropped by 57.8% to 32.6 billion KRW, missing market consensus estimates by 14.4% and 42.9%, respectively. The decline in IT and memory demand led to a larger-than-expected drop in volume. Profitability was also weak due to fixed cost burdens and unfavorable exchange rate effects.

For the first quarter of this year, sales are estimated to have fallen 48.5% to 215.2 billion KRW, with an operating loss of 28.9 billion KRW. The overall volume decline in both memory and non-memory sectors is expected to widen in the first quarter, and the increased fixed cost burden will inevitably lead to poor profitability.

Simtek's sales for this year are projected to decrease by 31.4% year-on-year to 1.16 trillion KRW, with operating profit expected to drop 74.7% to 88.2 billion KRW. The earnings estimate for the first half is expected to fall short of guidance. Tae-woo Kwon, a researcher at DS Investment & Securities, stated, "Due to the worsening industry conditions, front-end memory distribution inventory adjustments are still ongoing. However, from the second quarter, reflecting IT peak season volumes, a recovery in operating rates is expected to lead to a return to profitability."

The estimate for the second half of this year shows sales decreasing by 14.1% to 689.2 billion KRW and operating profit falling by 35.5% to 96.3 billion KRW. Researcher Kwon explained, "The pace of profit improvement will accelerate due to demand recovery in non-memory and rising operating rates. The plan to expand the high value-added portfolio remains valid. The increase in operating rates of high value-added lines is encouraging for margin securing, so continuous structural improvement is expected."

He added, "Currently, due to the semiconductor and set industry downcycle, performance and stock price trends are sluggish, but reflecting seasonality, the company's performance is expected to gradually improve. It is judged that investment responses will be necessary depending on the speed of performance recovery in the second quarter and the timing of market demand improvement."