[Click e-Stock] "Soulbrain, Delayed Recovery in Semiconductor Material Utilization Rate... Target Price Lowered"

Target Price Lowered by 25% from Previous Level

On May 26, LS Securities lowered its target price for Soulbrain from 320,000 won to 240,000 won, citing that a recovery in semiconductor material utilization rates would be difficult. However, the firm maintained its 'Buy' investment rating.

Cha Yongho, an analyst at LS Securities, stated, "If real demand in the NAND industry does not recover, it will be difficult for both the factors that determine Soulbrain's performance (wafer input volume) and those that determine its valuation (NAND prices) to rise together." He added, "However, the current share price is trading at a 12-month forward price-to-earnings ratio (PER) of 7.7 times, so further downside in the share price is likely to be limited."

In the first quarter of this year, Soulbrain posted consolidated sales of 209.5 billion won, down 1% year-on-year, and operating profit of 36 billion won, down 22%. Analyst Cha commented, "Both sales and operating profit fell short of our estimates of 222.2 billion won and 47.5 billion won, respectively." He explained, "The main reasons for this earnings miss compared to our estimates were a decrease in wafer input volume due to natural output reduction as Samsung Electronics proceeded with the NAND conversion investment at its Xi'an 1 plant, and a 19% decline in sales of semiconductor wafer polishing material (CMP slurry) from 17.2 billion won in the fourth quarter of last year to 13.9 billion won in the first quarter of this year, due to a sharp drop in Samsung Electronics' high-bandwidth memory (HBM) production in the first quarter."

LS Securities forecasts Soulbrain's full-year sales for this year at 856.5 billion won, down 1% year-on-year, and operating profit at 153.7 billion won, down 8%. Analyst Cha explained, "After the conversion investment at Samsung Electronics' Xi'an 1 plant, the company plans to proceed with the conversion investment at the Xi'an 2 plant. As natural output reduction continues, it will be difficult for wafer input volume in the NAND industry to recover, and Soulbrain's semiconductor material utilization rate is also unlikely to see a sharp increase." He added, "In addition, the secondary battery division's earnings are expected to decline by 26%, from 88 billion won in 2024 to 64.8 billion won this year, due to sluggish downstream demand."