[This Week's Industry Insight] Rino Industrial Grows Alongside AI Expansion

'Rinopin' with World’s Best Technology for Semiconductor Testing
Global Market Share 70%... Operating Profit Margin Nears 50%
Annual Increase in Shareholder Returns... Governance Change Risk

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Leeno Industrial is a KOSDAQ-listed semiconductor parts company specializing in the production of semiconductor test sockets (IC TEST SOCKET) and test probes used in these sockets. These two products account for more than 90% of its sales. In particular, it possesses world-class technology in the probe sector. It holds an overwhelming market share, supplying about 70% of global semiconductor test pins. More than 1,000 global semiconductor customers, including Samsung Electronics and Taiwan's TSMC, use Leeno Industrial's probes called "Leeno Pin."

Technology Behind 'Leeno Pin'... 70% Global Market Share

Probes are needle-like semiconductor inspection components that contact the solder balls of semiconductor chips to transmit and receive electrical signals, testing whether the semiconductor operates normally. Sockets are modularized products that gather probes to enhance the convenience of semiconductor testing.

Leeno Industrial was the first in Korea to develop semiconductor test sockets and probes, which had been entirely imported until the 1980s. Since then, it has continuously upgraded its products through research and development (R&D). The length of test probes mainly used in semiconductor test sockets is about 0.3 mm, but Leeno Industrial's Leeno Pin is shorter at 0.1 mm. Recently, as semiconductors have become smaller, demand for finer pins has increased, recognizing the company's competitiveness.

As of 2022 sales, over 1,020 domestic and international companies use Leeno Pin. Both Samsung Electronics and Taiwan's TSMC, the world's number one in memory and non-memory semiconductors, order and use Leeno Pin annually, reflecting its high preference in the global market. Its global market share is about 70%, ranking first in the industry.

Although the product price is somewhat higher than Japanese products, it is known for its long lifespan and receives high praise from customers worldwide. Thanks to its excellent technology and popularity, Leeno Pin has become a proprietary name for probes in the semiconductor parts industry. An industry insider said, "With semiconductor miniaturization and increased integration, the number of semiconductors requiring Leeno Pin's technology will increase, leading to higher demand."

Operating Profit Margin Over 40%... Sales Growth Expected with AI Market Expansion

Strong technology and dominant market share translate into high profitability. Leeno Industrial's operating profit margin exceeds 40%. After surpassing 40% for the first time in 2021, last year's margin approached 45%. Securities industry experts expect this year's margin to increase to 48%.

Along with high profitability, sales are also expected to continue increasing. Especially with the expansion of artificial intelligence (AI)-related industries, demand for non-memory semiconductor testing is expected to rise significantly, likely causing a sharp increase in Leeno Pin demand.

Lee Dong-joo, a researcher at SK Securities, said, "There are significant specification changes in the hardware market from AI smartphones to AI laptops," adding, "As demand for non-memory semiconductors related to automotive, servers, and graphics processing units (GPUs) increases, demand for test Leeno Pins and sockets will also grow rapidly."

Leeno Industrial's performance is expected to improve due to increased demand for R&D test sockets, an integrated process system based on technological superiority, and recovery in mass production socket demand following new model launches by major customers. Additionally, with the expansion of the on-device AI market in 2024, sales and operating profit are expected to increase. On-device AI is a technology that processes AI computations on the device itself without connecting to a central server.

Yu Woo-hyung, an analyst at KB Securities, said, "As the semiconductor integration trend strengthens, the number of Leeno Pins mounted per socket is also increasing," and predicted, "A supplier-driven market where Leeno Pin prices rise is likely to form."

Strong Financial Structure and Ample Cash Assets

Based on large-scale cash generation, the financial structure remains excessively sound. As of the end of the third quarter last year, Leeno Industrial's consolidated borrowings amounted to only 210 million KRW. Cash assets have increased annually, currently holding 343 billion KRW.

Investment capacity is also sufficient. Leeno Industrial plans to invest 200.2 billion KRW by 2025 to relocate its headquarters and factory to Eco Delta City in Gangseo-gu, Busan. The plan is to expand and relocate to a site of 72,519 square meters (about 22,000 pyeong) with a total floor area of 66,800 square meters.

A securities industry insider said, "Considering the current cash holdings and annual cash flow generated, the investment amount can be managed without borrowings," adding, "After the expansion and relocation, production capacity will further increase, likely leading to growth in sales and profits."

Dividends Increased for 13 Consecutive Years... Largest Shareholder Returns in KOSDAQ

Along with improved performance, shareholder returns have also been increasing over the long term. Leeno Industrial started paying dividends of 400 KRW per share in 2014 and has never reduced dividends for 13 years. Dividends have increased every year, reaching 2,500 KRW per share in 2021.

Based on last year's financial results, Leeno Industrial decided to pay over 45.5 billion KRW in shareholder dividends early this year. It is considered the company with the largest dividend payout among KOSDAQ companies with December fiscal year-end. The dividend per share increased to 3,000 KRW.

Possibility of Management Rights Sale... Risk of Governance Changes

Since the beginning of this year, there have been speculations that CEO Lee Chae-yoon, the major shareholder, might sell Leeno Industrial's management rights. It is known that a global private equity fund has expressed interest in acquiring management rights shares through various channels. However, no concrete sale has been confirmed.

An investment banking (IB) industry insider said, "Since the major shareholder has not completed the second-generation succession process, and considering the financial capacity of the second-generation manager, immediate succession is difficult," adding, "Therefore, the possibility of selling management rights has been steadily raised." If CEO Lee directly gifts his shares to the second generation, it is expected to incur tax burdens amounting to several hundred billion KRW.

The insider pointed out, "Although the sale rumors have positively affected the stock price, causing a sharp rise, there are views that see the possibility of governance changes and the post-change management situation as risk factors, making it difficult to rule out the possibility of sharp stock price fluctuations."