"Optical Communications Stocks Plunge, Buying Opportunity Returns: Brokerage Firms Recommend These Picks"

Korea Investment & Securities Recommends Buying RF Materials

"Earnings Improvement Trend Maintained,

Significantly Alleviated Valuation Concerns"

On August 5, Korea Investment & Securities suggested that now is a buying opportunity for the optical communications sector, issuing an "Overweight" recommendation. Within the domestic value chain, the firm recommended the purchase of RF Materials.

In a report released on this day, Kim Jungchan, a researcher at Korea Investment & Securities, stated, "Although the direction of earnings improvement has been maintained, the recent correction has significantly eased valuation pressure."

Globally, stock prices in the optical value chain have declined by an average of 40% from their highs since May, but are now attempting a rebound. Considering that the overall market index fell by around 5% during the same period, the sector's weakness has been particularly pronounced. Analyst Kim noted, "Even taking into account previously high expectations, this degree of correction is sufficient," and evaluated that "the sector’s valuation attractiveness has increased."

In particular, Kim highlighted that "the second half of the year is likely to see guidance upgrades across the optical value chain, driven by increased shipments due to easing bottlenecks in InP (indium phosphide) supply and the securing of additional production capacity." AXT, a core supplier of InP substrates, has announced plans to triple capacity this year and double it again next year. He explained, "As supply bottlenecks—which were a major obstacle to mid- and long-term performance visibility in the first half—ease to some extent in the second half, guidance upgrades are expected to be possible," and added, "The full-scale mass production of Nvidia’s Rubin also has a positive impact on the performance of optical component stocks."

He continued, "Compared to the first half, the second half should see acceleration of growth across the optical value chain fueled by increased shipments and the shift to 1.6T," and predicted, "This will be accompanied by upward revisions of estimates and multiple expansion." He also commented on previously noted concerns about delays in Scaling Up CPO, which had contributed to the sector's downturn, saying, "Discounts across the optical value chain based solely on the timing of adoption are excessive."

Alongside the overweight view on the optical communications sector, RF Materials was highlighted as a recommended stock. Kim stated, "As Lumentum's pump laser shipments increase, package sales are rising, facilitating top-line growth," and anticipated, "Along with earnings improvement and multiple expansion among global optical peers, the stock price should trend upward." RF Materials closed at 29,950 won the previous day. Korea Investment & Securities set a target price of 54,000 won.

This content was produced with the assistance of AI translation services.