Fine M-Tec Co., Ltd. plans expansion as production lines run at full capacity; Hyundai Motor Securities raises target price 26%

[Financial News]  Hyundai Motor Securities forecast that expanding production capacity would be a key factor in earnings growth for Fine M-Tec Co., Ltd. amid rising demand for foldable smartphone components. The firm said mass-production volumes of key components would remain unchanged despite quality concerns surrounding the new North American product. It maintained its “Buy” rating and set a target price of 14,500 won, up 26.1% from its previous target.
On the 27th, Hyundai Motor Securities analyst Kim Jong-bae said, “Fine M-Tec Co., Ltd. is currently meeting demand at its maximum monthly production capacity,” adding, “By ordering additional equipment, it could secure production capacity as much as 30% or more above current levels next year.” The company currently has monthly production capacity of about 1.5 million units.
The assessment is that the quality issues raised over the recent North American foldable product are unrelated to the backplates supplied by Fine M-Tec Co., Ltd.
A backplate is a component that supports a foldable display. Analyst Kim identified yields of other components and the assembly process as the cause of the problem. He said Fine M-Tec Co., Ltd. had maintained its position as a key supplier by securing some additional volume amid quality problems at a competitor.
However, he said the pace of growth in finished-product shipments would depend on production capacity across the supply chain. Even if initial demand is high, it would be difficult to meet all of it in a short period if bottlenecks arise in the yields of other components or during assembly.
Hyundai Motor Securities assumed North American foldable smartphone shipments of 6 million to 6.5 million units this year and 15 million to 16 million next year. It expected demand for components to be 10% to 15% higher than shipments of finished products.
It also estimated that results for the third quarter of this year would exceed market expectations. Revenue was forecast to rise 139.1% year on year to 137.6 billion won, while operating profit was expected to increase 1,141% to 19.1 billion won. The projected operating margin is 13.9%. Analyst Kim said, “Strong shipments of backplates to domestic customers, together with the introduction of new equipment and high yields, improved profitability,” and cited “a recovery in orders for end plates for energy storage systems (ESS) as another factor contributing to revenue growth.” 
Meanwhile, Hyundai Motor Securities calculated its target price for Fine M-Tec Co., Ltd. by applying the 11.01x average forward 12-month price-to-earnings ratio (PER) of Dowoo Insys and KH Vatec to its forecast earnings per share (EPS) of 1,310 won for next year. Analyst Kim added, “Given the company’s position as a supplier of key components to major foldable-device makers at home and abroad, as well as its earnings growth outlook, its current share price is undervalued.” 
[email protected] Kim Gyeong-a Reporter