[This Week's Gong.Jong.] 'AI Cheat Key' This Company’s Absence Also Hits ChatGPT Broadband Memory

Hanmi Semiconductor, Operating Profit Margin Improves Through New Business Diversification Despite Slowing Revenue Growth
Performance Expected to Improve with Low Point in Q1 This Year
"Stock Price Has Risen Ahead... Need for Pause, Buy on Dips"

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the online environment flooded with unrefined information, Asia Economy aims to be your hands, feet, eyes, and ears to deliver accurate information about companies. Each week, we focus on companies that rank high in stock inquiries from the financial information provider FnGuide, delivering everything from basic information to analyses of related companies such as partners, clients, and investors. We will explain companies' financial status, performance, and future value in an easy-to-understand manner. We meet you every week under the name "This Week's Watchlist," highlighting notable stocks. This week, we analyzed Hanmi Semiconductor, which has recently emerged as a beneficiary of Nvidia.

Following the 'surprise earnings' announcement by Nvidia, the world's No.1 graphics processing unit (GPU) manufacturer, AI-related stocks have gained attention, and Hanmi Semiconductor's stock price is also strong. Hanmi Semiconductor, which has rapidly risen as a beneficiary of Nvidia, is now preparing to take a leap to claim the title of an AI semiconductor growth stock.

Hanmi Semiconductor, established in 1980, is a specialized company in semiconductor back-end process equipment (inspection and packaging). Starting with the development and launch of manufacturing equipment, it applies proprietary technology to design, manufacture, assemble, inspect, and test, maintaining an integrated production line. It has a production capacity of 2,400 units of equipment through five factories. Its main customers are specialized outsourced semiconductor package test (OSAT: Outsourced Semiconductor Assembly and Test) and printed circuit board (PCB) companies.

In particular, it is well-known as a domestic back-end process company that has secured TSMC, the world's No.1 foundry (semiconductor contract manufacturer), as a client. Its flagship product is the MSVP (Micro Saw & Vision Placement), equipment that simultaneously cuts semiconductor packages into small pieces and performs cleaning and inspection. This equipment accounts for about 60% of total sales. In 2021, MSVP sales accounted for 58.2% of total sales, and last year, 59.9%.

Top 10 Best Semiconductor Equipment Companies Worldwide

The core equipment, 'Vision Placement,' is essential equipment that handles everything from cutting semiconductor packages to stacking, maintaining the No.1 global market share since the mid-2000s. It succeeded in domestic localization of the 'Micro Saw,' a semiconductor package cutting module, for the first time in Korea, and in 2022 opened the 'Micro Saw R&D Center' with nine test rooms, laying the foundation for developing and testing various products. It has six types of saws, including large PCB board cutting and automotive semiconductor cutting. Notably, in September 2022, it launched the 'Full Automation Wafer Micro Saw,' a micro saw device for cutting semiconductor wafers, expecting to secure new sales. This product also holds the No.1 global market share. This year, it was the only Korean company selected by the global semiconductor market research firm TechInsights as one of the 'Top 10 Best Semiconductor Equipment Companies Worldwide.'

Currently, the EMI shield equipment, which holds the No.1 global market share in electromagnetic interference shielding equipment, is used in AI, Internet of Things (IoT), electric vehicles, autonomous vehicles, automotive electronics, low-earth orbit satellite communication services, and urban air mobility (UAM), all essential processes for 6G commercialization. Hanmi Semiconductor explained, "With the growth of the 4th industrial revolution, we expect the application range to expand further, and through the release of the latest EMI shield equipment applicable to these fields, we anticipate securing new sales."

Additionally, Hanmi Semiconductor jointly developed and supplies the TC Bonder (Through Silicon Via Thermal Compression Bonder), essential thermal compression bonding equipment for producing high bandwidth memory semiconductors (HBM) that enable 2.5D and 3D semiconductor structures by connecting wafers. This was developed in collaboration with SK Hynix in 2017. The TSV TC Bonder is a key device for producing HBM chips, which are crucial for implementing ChatGPT, a hot topic in the semiconductor industry, and demand is expected to grow accordingly. The company also introduced the 'Flip Chip Bonder,' which bonds semiconductor chips using the flip-chip method instead of the traditional wire bonding method. This is expected to increase demand due to the development of automotive semiconductors and memory semiconductor standards.

Slowed Growth... "Gradual Improvement in Performance"

Growth in performance has slowed. In the fourth quarter of last year, sales and operating profit were 60.9 billion KRW and 14.5 billion KRW, respectively, down 24% and 55% from the previous quarter. The consolidated results for 2022 showed sales of 327.6 billion KRW, operating profit of 111.9 billion KRW, and net profit of 98.1 billion KRW, down 12%, 9%, and 6% year-on-year, respectively. This is disappointing compared to the rapid growth since 2020. However, despite stagnation in scale growth, the operating profit margin has steadily improved from a low of 11.4% in 2019 to 34.1% in 2022. Kim Sun-woo, a researcher at Meritz Securities, explained, "This is based on vertical integration such as internalizing parts in existing businesses, expanding market share, and successful diversification into new businesses."

In the first quarter of this year, sales were 26.5 billion KRW, and operating profit was 2.1 billion KRW. Sales decreased 58% year-on-year and 56.5% quarter-on-quarter. Operating profit plunged 90.3% year-on-year and 85.7% quarter-on-quarter. Performance improvement is expected from the second quarter. Heungkuk Securities forecasts second-quarter sales of 38.1 billion KRW, down 69.1% year-on-year but up 43.8% quarter-on-quarter. Operating profit is expected to be 7.8 billion KRW, down 82.2% year-on-year but up 277.3% quarter-on-quarter. Lee Eui-jin, a researcher at Heungkuk Securities, said, "Sales declined significantly in the first quarter due to reduced front-end investment, but monthly order amounts are gradually improving, so performance is expected to show a low first quarter followed by a high second quarter."

Heungkuk Securities expects Hanmi Semiconductor's sales this year to be 214.4 billion KRW (down 34.5% year-on-year) and operating profit to be 52.8 billion KRW (up 24.6% year-on-year, operating margin 24.6%). Researcher Lee said, "Considering the still strong MSVP competitiveness, securing major OSAT companies as clients, and growth expectations for HBM and the Chinese market, rapid performance improvement is expected during the demand recovery phase," adding, "The company has entered a valuation expansion phase due to new market openings."

Hi Investment & Securities noted that monthly order amounts have been increasing since the low point in December last year, and with the expected recovery in the semiconductor industry, performance is expected to improve significantly from the third quarter. Especially in the second half, mass production is expected to start at Amkor's Vietnam line and Intel's Malaysia line, so performance improvement is likely to resume. The expected sales and operating profit for this year are 219.5 billion KRW and 59.6 billion KRW, respectively.

Limitations Tied to Front-End Business Cycle

Hanmi Semiconductor has structural limitations due to its business model. Researcher Kim Sun-woo pointed out, "Because the MSVP sales proportion is high, the business structure has the limitation of fluctuating in tandem with the front-end business cycle." Lee Seung-woo, a researcher at Eugene Investment & Securities, also noted that semiconductor demand deterioration directly affects performance.

Hanmi Semiconductor's flagship product, MSVP, has dictated sales and growth rates. Going forward, sales growth will be influenced by how much bonding equipment, including the TSV TC Bonder, sells. Bonding equipment accounted for only 7.9% of sales last year. The company's mid- to long-term goal is to increase the sales proportion of bonding equipment to achieve scale growth. Researcher Lee said, "Although not free from semiconductor downturn effects, considering major semiconductor companies' expanded investment in advanced packaging and increased demand for AI GPUs and HBM, the company is overcoming limitations as an equipment stock equipped with a kind of cheat code called AI, in addition to trend-based performance growth."

Many also view the current stock price as burdensome. Song Myung-seop, a researcher at Hi Investment & Securities, said, "Although we raised Hanmi Semiconductor's target price to 22,600 KRW, the upside potential compared to the current price is not very large," and downgraded the investment opinion to neutral. The closing price on the 2nd was 25,700 KRW. Song added, "The growth potential of equipment such as TSV TC Bonder for HBM and MSVP for automotive semiconductors is still highly evaluated, but the recent stock price rise speed is somewhat fast compared to this year's expected performance."

Lee Min-hee, a researcher at IBK Investment & Securities, also said, "Despite poor performance, reflecting the perception that the bottom has been reached, we raised the target price from 19,000 KRW to 24,000 KRW, but even considering the positive factors of industry improvement and AI growth expectations, the short-term stock price rise seems to have gone too far," advising, "A breather seems necessary, and we recommend a strategy of buying on dips with a longer-term perspective."

Diversification of Business for a 'Second Leap'

Hanmi Semiconductor is preparing for a second leap amid a major memory transition. It aims to reduce dependence on MSVP and grow TSV TC Bonder equipment for HBM as a new growth axis. Looking at the sales proportion by major customers over the past three years, OSAT accounted for an average of about 55%, the largest share. Sales to memory companies remained in single digits: 5.8% in 2020, 7.0% in 2021, and 6.7% last year.

TSV TC Bonder is the highest-priced and high value-added equipment in Hanmi Semiconductor's back-end equipment lineup. Demand is expected to be high not only from domestic memory semiconductor companies but also from the Chinese market in the mid to long term. Gwak Min-jung, a researcher at Hyundai Motor Securities, said, "HBM demand related to AI GPUs for deep learning implementation is increasing, and SK Hynix's global market share of HBM is expected to expand from 50% in 2022 to 53% in 2023," adding, "Therefore, demand for TSV TC bonding equipment suggests that the current generative AI trend will play a role beyond a simple growth trend."

Do Hyun-woo, a researcher at NH Investment & Securities, said, "Hanmi Semiconductor manufactures TSV TC Bonder equipment that bonds dies and recently supplies bonding equipment that attaches HBM, essential for high-performance GPUs used in AI computing, to customers," adding, "It has been identified that a customer who placed a large order for bonding equipment for HBM1 is considering purchasing upgraded equipment for HBM3."