Playing Both Ends Against the Middle

The author is an analyst of NH Investment & Securities. He can be reached at midas.sohn@nhqv.com. — Ed.

Non-memory capacity expansion at semiconductor companies is now in full swing. Among domestic plays, KoMiCo stands out for its dealing with a number of global semiconductor firms, including those of Korea. Backed by completed capacity expansions at its subsidiaries, KoMiCo looks set to benefit from accelerating global semicon investment.

Battle for foundry hegemony begins

Adhering to a Buy rating, we raise our TP on KoMiCo from W34,000 to W40,000. In light of capacity expansion at clients, we hike 2021F and 2022F EPS to 4.6% and 13.0%, respectively, with our target P/E multiple sitting at 13.3x. Considering its robust technological competitiveness (backed by its new coating method and powder recipe), we believe the firm warrants a P/E valuation in line with those of other IT materials firms.

TSMC has recently announced plans to build a 5nm fab in the US (Arizona), with an estimated capacity of 20,000 units/month and production scheduled to start in 2024. On May 21, Samsung Electronics (SEC) announced construction of an EUV foundry (under 5nm) in Pyeongtaek, with operations expected to commence in 2H21. In addition, further investment by Intel is anticipated in the US.

Business underway with most global chipmakers

Thanks to its globallly dispersed business operations, including HQ in Korea (Anseong) and subsidiaries in the US (Austin), China (Wuxi), Taiwan (Hsinchu), and Singapore, KoMiCo is able to respond effectively to demand from chipmakers in many key regions. Recently, sales at the US, Chinese, and Taiwanese subsidiaries have been riding a steady growth trend, and sales at the Anseong HQ are recovering. As of 1Q20, overall sales broke down as domestic (46.2%) and overseas (53.8%).

Backed by its dealings with a variety of global semiconductor companies through its subsidiaries, the current uptick in foundry competition (which appears to be expanding in all directions) should prove favorable for KoMiCo. With capacity expansions at subsidiaries having wrapped up over 2018~2019, the firm’s capacity (sales basis) by region now roughly breaks down as: Anseong W200bn, US W40bn, China W60bn, Taiwan W30bn, and Singapore W15bn. In addition, KoMiCo’s establishment of a second US subsidiary in Hillsboro (outside Portland, Oregon) with an estimated capacity of W40bn is scheduled to be completed in 1H21 to respond to demand from chipmakers located near the Hillsboro region.