Price target cut 23% despite forecast of a return to profit in Q3 ... Can FADU rebound?

[Financial News] Shinhan Securities forecast a sharp improvement in FADU’s third- and fourth-quarter results but lowered its price target by 23.1%, from 130,000 won to 100,000 won. The move reflects a reduced earnings outlook for next year amid concerns about NAND flash procurement, as well as a decline in semiconductor-sector valuations amid concerns over increased memory supply from China. It maintained its ‘Buy’ rating.
Shinhan Securities analyst Heo Seong-gyu said on the 16th, “We believe the current share price has fallen excessively,” adding, “Depending on the timing of orders, second-half results are expected to increase substantially from the first half, and earnings visibility is also improving from 2027 onward.”
Shinhan Securities forecast FADU’s third- and fourth-quarter revenue at 129.4 billion won, up 404.6% from the same period last year. It expected operating profit to reach 31.7 billion won, marking a return to profitability, and the operating margin to come in at 24.5%. Compared with the previous quarter, revenue is expected to rise 76.8% and operating profit 95.4%.
The improvement is expected to be driven by growing demand for enterprise SSD (eSSD) controllers. Controller revenue is estimated at 83.3 billion won, up 470.2% from the same period last year. Other revenue is also forecast to increase 317.8% to 46.1 billion won.
From next year, sixth-generation eSSD controllers are expected to become a new growth driver. Analysts say they have a cost-of-ownership (TCO) advantage over existing competitors’ products, which should help FADU expand its customer base. New customers added this year are also expected to begin contributing substantially to results next year.
“Revenue from sixth-generation eSSDs will begin in 2027, and we believe they have a TCO advantage over competitors’ controllers,” analyst Heo explained. “In 2028, we also expect a major cloud provider to supply eSSDs produced in-house and mass-production orders from space-related customers to increase.”
However, reflecting NAND flash procurement challenges, Shinhan Securities cut its revenue forecast for next year by 18.1%, from 748.6 billion won to 613.2 billion won. It also lowered its operating profit forecast by 15.5%, from 215.8 billion won to 182.4 billion won.
The average 12-month forward price-to-earnings ratio (PER) of overseas competitors fell 29.3%, from 36.4 times to 25.7 times, amid concerns about China’s expanding memory mass production. This also contributed to the price-target revision.
“This is a period in which customer additions and the expansion of mass production will continue through 2028,” analyst Heo said. “Compared with the improving fundamentals, we believe the recent share-price decline has been excessive.”
[email protected] Bae Han-geul Reporter