Large Caps Stir, Partners Soar: The Real Winners of the Contract Jackpot

KOSPI Giants Like Samsung Electronics and LG Energy Solution Strike Big Deals
While Blue Chips See Modest Gains, Partner Companies Hit Price Ceilings
Positive Sign as Buying Sentiment Spreads from Large Caps to Small and Mid Caps

As major KOSPI giants such as Samsung Electronics and LG Energy Solution have recently struck a series of 'big deals,' it has been observed that the share prices of their partner companies, identified as beneficiaries, are outpacing the gains of the large-cap firms that secured these contracts.

According to the Korea Exchange on July 31, LG Energy Solution (up 0.26%) closed slightly higher the previous day, marking its third consecutive day of gains. On this day, the company announced a contract to supply lithium iron phosphate (LFP) batteries worth approximately 6 trillion won. News from foreign media revealed that the contract partner was Tesla, drawing significant market attention. LG Energy Solution has been the most heavily purchased stock by institutional investors this month, with a net purchase of 594.4 billion won.

However, the real stars of the day’s jackpot contract news were elsewhere: LG Energy Solution’s partner companies. Seah Mechanics, which supplies energy storage system (ESS) components to LG Energy Solution, saw its share price jump by 12% as expectations for increased sales from the new LFP contract were reflected. At one point during the session, the stock soared by 25%, hitting a new 52-week high. DNT, which exclusively supplies core laser notching equipment for LG Energy Solution’s secondary battery manufacturing process, also surged as much as 16% intraday before closing up 5%.

Previously, on July 28, Samsung Electronics secured a massive order worth 22.7647 trillion won from Tesla, causing its share price to jump by about 6.8%. While this marked the first time in 11 months that the stock price surpassed 70,000 won, it was the related partner companies that saw even more dramatic gains.

For example, Doosan Tesna, regarded as a key foundry (semiconductor contract manufacturing) partner for Samsung Electronics, hit the upper price limit on July 28. Nepes Ark touched the upper limit during the session before closing up 19%. These companies are reportedly involved in testing Samsung Electronics’ recently mass-produced mobile application processor (AP), the Exynos 2500. On the same day, Gaonchips, known as an official supplier to Samsung Foundry, rose by 22%, while ADTechnology, which has a design support partnership (DSP) with Samsung, jumped by 26%.

The revived investment sentiment is also spreading to affiliates. Samsung Electro-Mechanics was identified as a beneficiary of Samsung Electronics’ next-generation artificial intelligence (AI) chip A16 foundry supply contract with Tesla, surging 10% on the day. Park Kangho, a researcher at Daishin Securities, stated, “Samsung Electro-Mechanics supplies flip chip ball grid array (FC-BGA) substrates for Samsung Electronics and Tesla’s previous AI4 and AI5 semiconductor chips,” and predicted that Samsung Electro-Mechanics is likely to become the largest supplier for the upcoming AI6 as well.

As buying sentiment centered on large-cap stocks spreads to small- and mid-cap stocks, a positive impact on the stock market is expected. With the KOSPI successfully settling above the 3,200 level, it is also encouraging that foreign investors, who have driven the index, are making net purchases across both large-cap and small- to mid-cap stocks, covering a wide range of sectors. However, the fact that the second-quarter earnings of major export-oriented large-cap stocks, which have a high contribution to the index, are falling short of market expectations is likely to act as a variable.

Kim Suyeon, a researcher at Hanwha Investment & Securities, commented, “As of July 28, among KOSPI companies with second-quarter consensus, 68 have announced results. Large-cap operating profit fell short of consensus by 7.3%, while small- and mid-cap operating profit was 2.0% below consensus. If the Federal Reserve does not signal a rate cut, or if trade negotiations between China, Korea, and the US face difficulties, market expectations could be reversed, leading to a correction in the stock market.”