[Click e-Stock] "Neotis, Structural Beneficiary of AI Servers...Undervalued vs. Global Peers"

On the 24th, Meritz Securities analyzed that Neotis, the only drill bit manufacturer in Korea, is expected to enjoy structural benefits from the current shortage situation as AI servers become more advanced.

Yang Seungsoo, a researcher at Meritz Securities, stated, "We are revising up our consolidated sales and operating profit estimates for this year to 91.5 billion won (up 33.3% year-on-year) and 16.8 billion won (up 62.4% year-on-year), respectively, representing upward revisions of 3.1% and 5.2% from our previous forecasts."

The supply shortage in the global drill bit market is leading to price hikes. He said, "As raw material prices rise and the global drill bit supply shortage is prolonged, major global players such as Union Tool and Topoint are announcing successive price increases," adding, "Given the current favorable industry conditions and the low cost share of drill bits within PCBs, Neotis is also highly likely to join in raising prices, and we expect this to drive additional top-line growth and margin improvement."

On the demand side as well, a favorable environment continues. As Neotis's major domestic MLB and FC-BGA customers embark on aggressive capacity expansion, the demand-driven market environment is expected to persist. The company is also expanding its own capacity in response, and since current demand exceeds supply, it is analyzed that sales can grow immediately as soon as new equipment is brought in. In addition to existing customers, new supply to domestic MLB manufacturers is becoming visible, and after qualification is completed within the first quarter, related sales are expected to be fully reflected from the second quarter.

The advancement of AI servers is also a key factor in structurally expanding demand. Researcher Yang said, "As AI servers become more advanced, the number of PCB layers is increasing from 8-24 layers to 28-46 layers, and as material hardness rises, the drilling ratio (hole depth/diameter) is increasing from 8-10 times to 12-14 times," adding, "Accordingly, as requirements for rigidity, precision, and wear resistance of drill bits are strengthened, replacement cycles are becoming shorter, and due to a structure in which both PCB demand and usage per unit board are increasing, the drill bit supply shortage is expected to intensify further."

He also maintained the view that the current share price level is undervalued. He said, "Neotis is currently trading at a price-earnings ratio (PER) of 15.8 times this year, and despite being the only domestic beneficiary of the drill bit shortage, it is trading in an undervalued range compared with its global peers, whose average PER is 59.7 times."