[Stock of the Week] Reno Industrial: Korea's Leading 'High-Dividend Growth Stock' for the AI Era

Consistently Overwhelming Operating Margins, Maintaining Over 40% Annually
Solid Financial Structure and Genuine Commitment to Shareholder Returns
Growth Momentum Driven by Client Diversification in the AI Era

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Reno Industrial, a domestic semiconductor inspection equipment company, is gaining attention for its mid- to long-term growth potential as it enters a phase of earnings recovery. Despite the ups and downs of the semiconductor industry, its specialized technology, stable financial structure, and high dividend payout ratio are cited as factors supporting its investment appeal.

Consistent Earnings Growth... Overwhelming Operating Margin

Reno Industrial manufactures consumable integrated circuit (IC) test sockets and probe pins, which are essential for electrical performance testing of semiconductor chips. The company has consistently delivered solid results, and above all, boasts one of the highest operating margins among semiconductor materials, parts, and equipment companies.

In the second quarter of this year, Reno Industrial posted sales of 112.5 billion won and operating profit of 55.6 billion won, representing increases of 58.5% and 60.9%, respectively, compared to the same period last year. These results far exceeded market expectations (consensus) raised by securities firms for the second quarter.

The operating margin exceeded 40% every year, with 44.8% in 2023, 44.6% in 2024, and an estimated 45.5% this year. This is on par with leading companies in the high-bandwidth memory (HBM) value chain, such as Taiwan's TSMC, Nvidia, and SK hynix, which are driving the artificial intelligence (AI) ecosystem.

Unwavering 'Technological Moat'... Bright Prospects Ahead

The company is recognized for its robust business structure, thanks to its "technological moat"-ultra-precision processing technology in the IC test socket sector, short lead times, and the ability to handle small-quantity, multi-variety production. In addition, sales to smartphone manufacturers, despite the industry's sluggishness, remain significant.

The key driver behind this quarter's "surprise earnings" was increased demand rather than price hikes. While price increases for major products such as sockets and pins were limited, the rebound in demand propelled the results. The direction toward price increases also remains intact. Reno Industrial's major clients include Qualcomm, Samsung Electronics, TSMC, and SK hynix. As these companies continue to launch new AI semiconductors, mobile application processors, and memory semiconductor products, demand for high-value-added products with higher prices is expected to persist. Ultimately, as the overall average selling price rises, both price and demand are projected to grow, enabling further expansion.

Kim Minkyoung, a researcher at Hana Securities, analyzed, "Although there is uncertainty in downstream demand, major smartphone manufacturers are expanding adoption of high-performance application processors to increase market share in a limited market, and Reno Industrial is diversifying its client base based on technological competitiveness, so solid performance is expected to continue." She added, "It is also positive that the tariff risks for major clients are highly likely to be resolved."

Solid Financial Structure... Sincere Shareholder Returns

Reno Industrial's financial soundness is outstanding even compared to domestic and overseas peers. As of the first half of this year, total liabilities stood at 64.6 billion won, with a debt ratio of 9.9%. Of the total capital of 647.6 billion won, 98.3% (636.7 billion won) is retained earnings.

Based on this, the company has continued stable shareholder returns. With exceptionally high margins and ample cash liquidity, it has maintained high dividend payouts even after investing funds. Reno Industrial's dividend payout ratio has consistently remained around 40%: 39.8% in 2022, 41.1% in 2023, and 40.2% in 2024. Nearly half of its net profit has been steadily returned to shareholders, earning it a reputation as a leading "high-dividend growth stock" in Korea.

Like major companies on the US stock market, Reno Industrial's share price has been firmly underpinned by stable shareholder returns. After a 5-for-1 stock split on April 25, the share price has continued to rise. From a closing price of 36,000 won on April 29, it climbed to 55,000 won during trading on July 15. Although it has recently fluctuated around the 47,000 won level, there is still ample room for further gains. In fact, securities firms have raised their target prices to the mid-50,000 won range and even up to the 60,000 won range following the earnings announcement.

Korea's Leading 'High-Dividend Growth Stock' for the AI Era

The future growth of Reno Industrial depends on the expansion of AI semiconductors and next-generation packaging technologies. As global semiconductor companies such as Nvidia and AMD ramp up investments in AI chips, demand for testing high-performance, high-density products is surging. The company already holds a high market share in the advanced socket sector for AI chip testing, and is expected to benefit further as new high-value-added products increase.

However, short-term risks include the pace of global semiconductor industry recovery, exchange rate volatility, and changes in client investment plans. The somewhat sluggish smartphone market is also a concern. Nevertheless, the company's unique competitive edge and financial stability in the semiconductor inspection equipment market are ultimately its greatest strengths.

Furthermore, Reno Industrial is pioneering new markets such as automotive electronics semiconductors and power semiconductors. As semiconductor demand diversifies, the application scope of test sockets is expanding, so the company's growth potential is not limited to the memory cycle alone. The medical device component business, which posted sales of 9.1 billion won in the second quarter alone-a 24.1% increase year-on-year-is an added bonus.

Reno Industrial is attracting investor attention based on four pillars: earnings recovery, sound financial structure, high dividend payout, and the expansion of AI semiconductors. In the short term, the uncertainty of the semiconductor market must be considered, but semiconductor usage is bound to increase worldwide. Regardless of the manufacturing process or application of semiconductors, product testing is essential. This is why the company is highly regarded as a leading domestic semiconductor test equipment company that combines both growth and stability.