[Click e-Stock] Haesung DS "Weak Earnings... Target Price Lowered"

On May 7, DB Securities downgraded its target price for Haesung DS, a manufacturer of semiconductor lead frames and related products, from 32,000 won to 29,000 won, citing deteriorating profitability. However, the investment rating was maintained at 'BUY'.

According to the consolidated financial statements released by Haesung DS on April 30, its preliminary results for the first quarter showed sales of 138.1 billion won and operating profit of 400 million won. Sales declined by 10.8% and operating profit dropped by 98.1% compared to the same period last year. In particular, operating profit fell significantly short of the securities market consensus of 9.7 billion won. Analyst Cho Hyunji commented, "Although there are differences among customers for automotive lead frames, inventory levels at some clients remain somewhat high. For package substrates, both sales and profitability have remained sluggish due to a continued quarter-on-quarter decrease in shipments of DDR4 products, which previously had relatively high yield and profitability."

DB Securities forecasts that Haesung DS will post second-quarter sales of 148.5 billion won, down 3.2% year-on-year, but operating profit will rise by 63.7% to 6.5 billion won. However, the company expects full-year operating profit to decrease by 51.5% to 27.6 billion won compared to last year. DB Securities anticipates that the lead frame market will only begin to recover in the second half of this year.

According to DB Securities, Haesung DS has historically enjoyed a competitive advantage over other component companies due to its profitability. However, since the third quarter of last year, it has failed to maintain double-digit profitability. DB Securities stated, "A return to double-digit profitability within this year appears unlikely for Haesung DS."