Confidence in Earnings Despite Falling Exchange Rate... Daeduck Electronics' Target Price Raised from KRW 150,000 to KRW 190,000

[Financial News] iM Securities raised Daeduck Electronics' target price from KRW 150,000 to KRW 190,000, a 26.7% increase, forecasting that the company's earnings improvement will continue despite the decline in the exchange rate. It maintained its 'Buy' rating.
Ko Eui-young, an analyst at iM Securities, said on the 28th, "Although we made minor adjustments to our third-quarter and full-year operating profit estimates, we raised our estimates for next year and 2028 by 4.5% and 2.1%, respectively," explaining, "We raised the target price to reflect the recent sharp rebound in the valuation multiples of overseas competitors."
Third-quarter revenue is projected to reach KRW 425 billion and operating profit KRW 76 billion, up 48.6% and 210%, respectively, from the same period a year earlier. The operating margin is expected to rise from 8.5% in the third quarter of last year to 17.8% this year.
The analyst was particularly positive about the company maintaining its existing business plan despite the decline in the won-dollar exchange rate. The average won-dollar exchange rate was 1,500 won in the second quarter and is expected to fall to between 1,410 and 1,420 won in the third quarter. However, Daeduck Electronics is maintaining its operating profit target in the low-to-mid KRW 70 billion range.
Ko said, "This means operating profit could easily have exceeded KRW 80 billion if the exchange rate had remained at its second-quarter level," adding, "We believe Daeduck Electronics' fundamentals are strengthening."
A shortage of package substrates driven by expanding artificial intelligence (AI)-related demand was also cited as a growth driver. Lead times for Ajinomoto Build-up Film (ABF) substrates are as long as 56 weeks, far above the typical 12 weeks. Daeduck Electronics mainly produces Flip Chip Ball Grid Array (FC-BGA) substrates for optical modules and NAND controllers, and began mass production of switch FC-BGA products in late June.
Ko explained, "The company is set to begin mass production of switch products for other customers in the fourth quarter, followed by mass production of physical AI substrates in the second half of next year," adding, "The direction is for new customers and applications to be added every quarter or half-year."
In response, the company will also expand its production capacity. Daeduck Electronics plans to increase its annual FC-BGA production capacity from KRW 450 billion this year to KRW 650 billion in the first half of next year. BT substrate capacity is also expected to rise from KRW 950 billion to KRW 1.2 trillion by the first half of next year to meet server demand.
Ko forecast, "The stock has underperformed overseas competitors since August because the third-quarter business plan was relatively conservative," adding, "As earnings season approaches, the stock is highly likely to narrow the gap with its peers."
[email protected] Bae Han-geul Reporter