[Click eStock] "Daesung Hitech, Stock Price Slump Will End Once Profitability Improvement Becomes Visible"

The Cause of Poor Performance is Weak Front-End Demand
Seeking Rebound Through Securing New Customers
Sales Improvement Expected from Q2

Shinhan Investment Corp. analyzed on the 20th that Daesung Hightech's valuation recovery would be possible once profitability improvement is confirmed. No separate investment opinion or target price was presented. Daesung Hightech's closing price on the previous trading day was 4,580 KRW.

Researchers Jeong Yongjin and Choi Minki of Shinhan Investment Corp. stated, "With the stock price decline causing the 2024 expected price-to-book ratio (PBR) to fall to around 0.8 times, valuation recovery seems possible if sales growth and profitability turnaround are confirmed through securing new demand sources."

According to Shinhan Investment Corp., Daesung Hightech experienced a decline in sales of Swiss-type automatic lathes and poor performance due to weakening demand in the front-end sectors (semiconductors/secondary batteries). However, continuous efforts to secure orders suggest a recovery possibility centered on new demand sources (defense/IT). Performance improvement is expected in 2024 through defense and IT demand.

Daesung Hightech's sales in 2023 were 92.8 billion KRW, down 28% from the previous year. Operating loss turned to -6.6 billion KRW. However, due to customer acquisition and efforts to improve business structure, the order backlog rose to 29 billion KRW as of the first quarter of 2024. First-quarter sales were 17.6 billion KRW, down 13% year-on-year, and operating loss remained at -2.7 billion KRW, but from the second quarter, sales deferred due to logistics disruptions are expected to be reflected, leading to improvement.

Researchers Jeong Yongjin and Choi Minki said, "Defense demand is expected to grow this year due to intensified global defense competition, and growth toward major customers in Israel is expected to continue." They added, "Also, the hinge processing business for foldable phones is expected to grow faster than anticipated by capturing market share from Chinese competitors."