[Click eStock] "KH Vatec, Disappointing Short-Term Slump... Target Price Down"

Target Price Revised Downward by 18.1% Compared to Previous Estimate

Meritz Securities evaluated KH Vatec's short-term slump as disappointing and lowered the target price from 22,000 KRW to 18,000 KRW on the 2nd. The investment rating was maintained as 'Buy.'

Researcher Yang Seung-su of Meritz Securities said, "We lowered the earnings per share (EPS) estimates for this year and next year by 25.7% and 28.6%, respectively, and reflected the increased weight of 2025 in the 12-month forward EPS, resulting in a lower target price." He explained, "Due to the consecutive failures of domestic clients' foldable smartphones, the market premium for KH Vatec's foldable hinges is shrinking."

KH Vatec recorded consolidated sales of 101.6 billion KRW in the second quarter of this year, up 34.5% year-on-year, meeting consensus (average securities firm forecasts), but operating profit was 8.5 billion KRW, up 0.6%, falling short of consensus by 16%. Researcher Yang analyzed, "Profitability relative to sales was disappointing, estimated to be due to price declines of flip-type external hinges caused by the entry of Chinese competitors into the supply chain," adding, "Sales related to titanium, which led first-quarter earnings growth, were sluggish due to the off-season."

Meritz Securities estimated KH Vatec's third-quarter results at 153.9 billion KRW in sales, down 21.3% year-on-year, and operating profit of 13.4 billion KRW, down 43.3%. Researcher Yang said, "Compared to last year, the impact of early production is inevitable," but explained, "Nevertheless, quarterly growth is possible due to additional fold production and the launch of a new slim fold model this year." He added, "In particular, for the slim model, KH Vatec alone handles all the client's volume without competition, because the hinge itself requires material changes and thickness reduction, significantly increasing technical difficulty."

Although the short-term slump is disappointing, the growth potential of hinges is considered large. Researcher Yang said, "From a long-term perspective, market participation by North American clients is expected in smartphones, and foldable technology itself is anticipated to expand into tablets, laptops, and even the automotive market," adding, "Although the short-term slump is disappointing, the premium on KH Vatec is valid considering the existing market is growing and new markets may open."