[Stock of the Week] Neotis Emerges as a Hidden Gem in AI Semiconductors

Rising Demand for PCBs
Neotis Stands Out as the Only Domestic Micro Bit Producer
16 Consecutive Years of Dividends
Dividend Yield Comparable to Financial Institutions

Editor's Note
To all retail investors dreaming of successful investments: How well do you really know the stocks you buy with your own money? In an online environment overflowing with unfiltered information, The Asia Business Daily aims to be your hands, feet, eyes, and ears, delivering accurate information about companies. Each week, we focus on companies ranked at the top in search counts on FnGuide, a financial information provider, and provide not only basic information but also analysis of related entities such as partners, clients, and investors. We will break down the company’s financial status, business performance, and future value in an easy-to-understand way. Under the name "Stock of the Week," we will bring you this series every week.

Neotis, a KOSDAQ-listed company, is attracting attention in the market. As the semiconductor industry, its main market, is booming thanks to the artificial intelligence (AI) frenzy, Neotis is also expected to see a significant increase in its performance. Furthermore, the company has drawn even more interest as a "model case for shareholder returns," having paid dividends for 16 consecutive years.

Key Player in the PCB Supply Chain Used by Nvidia and Tesla

Neotis manufactures micro bits-ultra-precision tools used in printed circuit board (PCB) processing-and motor shafts for automotive applications. The company holds the number one market share in each of these sectors in Korea. In 2021, Neotis acquired Gwangjin Precision, adding a lens polishing machine business. The company also established an automotive electronics division in line with the growth of the electric vehicle and autonomous driving sectors.

Micro bits are essential consumable components for ultra-high-precision mechanical processing required in electronic component manufacturing. Depending on their use, they are categorized as router bits, end mills, and micro drill bits.

Neotis’s micro bit division has been on a growth trajectory. In the first half of this year, the cumulative sales of the micro bit division reached 10 billion won, a 32% increase compared to 7.6 billion won in the same period last year.

This strong performance is due to the boom in the upstream semiconductor industry. Recently, the semiconductor sector has seen new demand driven by the proliferation of AI accelerator servers and high-performance computing. In addition, the growth of the DDR5 and high-bandwidth memory (HBM) markets is leading to increased demand for package substrates and module PCBs.

One of Neotis’s major clients, Company A, is reportedly preparing to produce substrates for "SOCAMM," the next-generation memory module led by Nvidia, as it is expected to play a key role in the SOCAMM supply chain. Another client, Company B, is expected to post a surprise performance this year, as it has begun supplying multi-layer PCBs (MLB) for AI applications and high-performance package substrates (FC-BGA) for Tesla, in addition to growth in the server memory package segment.

Following these client trends, Neotis is also expected to post strong results in the second half of the year. In particular, due to the withdrawal of competitors, Neotis is now the only domestic manufacturer of micro bit tools. The industry’s preference for domestic products, considering the ongoing US-China trade dispute, could also directly benefit the company.

A Neotis representative stated, "With the upstream semiconductor market booming alongside the development of the AI industry, our micro bit division is expected to achieve record-high sales this year. We are already fully booked through the end of the year and are operating our production facilities at full capacity." As of the first half of this year, the average operating rate of the micro bit production facilities was 98.3%, up 7 percentage points from last year’s 91.3%.

Anticipating that growth in the upstream industry will continue through 2027, Neotis plans to expand its production capacity. The company explained that it will replace equipment with new facilities by next year, increasing capacity by 10-20% to meet surging client orders.

The automotive shaft division is also growing by securing new domestic and international clients. For existing client Company C, Neotis supplies hollow worms used in popup door handle motors, with order volumes increasing by 30% annually. This year, the company began supplying two new domestic clients and is working on projects with global clients in India and Europe. In addition, the brushless DC (BLDC) motor developed over two years with global sunroof motor manufacturer Company W is scheduled for mass production starting in the first quarter of next year.

The automotive electronics division, which officially launched this year, is also delivering results. Neotis began supplying sunroof controllers for the Actyon, released by KG Mobility (KGM) this year.

Gwangjin Precision, the lens polishing equipment subsidiary, plans to relaunch its KOSDAQ listing next year. While new demand for shaped lenses from mobility clients has been steadily increasing, Gwangjin Precision, which mainly supplies glass polishing equipment for optical lenses and smartwatches, faced difficulties due to China’s economic slowdown until last year.

A Neotis representative said, "Gwangjin Precision has entered a recovery phase this year and has already surpassed its annual sales and operating profit for 2023-2024 as of last month. We will actively prepare for the delayed IPO by boosting performance through expansion into new markets such as India and Vietnam."

16 Consecutive Years of Dividends... Dividend Yield Comparable to Financial Institutions

Neotis is a long-standing "high-dividend stock," having paid dividends for 16 consecutive years since 2009. Despite occasionally posting losses due to industry cycles, the company has maintained its dividend policy, thanks to steady growth and a robust retained earnings base. As of early this year, Neotis’s cash dividend yield stood at 6.1%, similar to the average dividend yield (6-7%) of the four major financial holding companies.

Last year, Neotis even implemented a differentiated dividend policy, excluding the largest shareholder. This is interpreted as a commitment by the largest shareholder and management to reward loyal investors by maintaining the long-standing dividend policy, even in times of loss.

A Neotis representative stated, "We will maintain our dividend policy this year as well. In addition to dividends, we are also considering other shareholder return measures such as share buybacks to continue increasing shareholder value."