Target Price Revised Down by 24%
Investment Opinion Lowered to 'Trading Buy'
Shinhan Investment Corp. downgraded its investment opinion on SK IE Technology from 'Buy' to 'Trading Buy' on the 30th, citing an increased likelihood of a turnaround to a loss this year, and lowered the target price from 85,000 KRW to 65,000 KRW.
Jung Yong-jin, a researcher at Shinhan Investment Corp., explained, "We have lowered the target price by 24% and downgraded the investment opinion. There is a higher possibility that the annual performance will turn to a loss this year, and considering the decline in earnings, a short-term stock price adjustment is inevitable."
SK IE Technology's first-quarter results this year recorded sales of 46.2 billion KRW and an operating loss of 67.4 billion KRW, falling short of market expectations. Sales decreased by 67.7% compared to the same period last year, and operating profit turned negative. Researcher Jung analyzed, "A large-scale loss was realized due to a sharp drop in sales. The captive (affiliate transactions) portion, which accounted for more than 80% of sales, fell to 63%. Due to inventory adjustments by key customers, the operating rate inevitably fell below normal levels, and overall shipment volume is estimated to have decreased by more than 70% compared to the previous quarter."
Although the operating rate is expected to gradually increase to improve performance, visibility on the recovery speed is low. Researcher Jung stated, "Sales to new North American customers are scheduled to begin at the end of the second quarter, and from the third quarter, shipments to captive customers are expected to recover in earnest. The company is also seeking business efficiency through the sale of non-core assets. However, despite these efforts, visibility on the recovery speed is low because the recovery of front-end demand is slow, making it difficult to pinpoint the timing of inventory restocking."
To achieve a stock price rebound, securing new customer groups is necessary. Researcher Jung said, "Since the slowdown in captive demand, which the market was concerned about, has been confirmed, diversification of sales through securing new customer groups is needed. The rebound point will be when long-term supply contracts in North America, currently underway following the announcement of the Foreign Entity of Concern (FEOC) under the U.S. Inflation Reduction Act (IRA) detailed regulations, are secured or when local investments are confirmed."
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