"Soulbrain to See Improved Prices and Shipments in H2... Target Price Raised" [Click e-Stock]

Meritz Securities Raises Soulbrain Target Price to 450,000 Won

On August 18, Meritz Securities stated that it anticipates both shipment volumes and prices of key products at Soulbrain to rise in the second half of the year. Accordingly, the target price was raised by 5% to 450,000 won from the previous 430,000 won, while maintaining its “Buy” rating.

Soulbrain’s provisional results for the second quarter exceeded market expectations, with consolidated sales reaching 312 billion won (up 36% year-on-year) and operating profit totaling 46 billion won (up 128%), as related company DNF was newly consolidated starting this quarter.

Driven by the full-fledged operation of new DRAM fab facilities and the partial completion of investments for the Xi'an NAND conversion, the utilization rate increased, continuing sales growth in the semiconductor materials segment. Excluding subsidiaries, semiconductor materials sales rose from 19.3 billion won in the first quarter to 21.8 billion won in the second quarter.

Major materials such as etchants, precursors, and CMP slurries also grew by more than 10% compared to the previous quarter. However, profitability declined compared to the previous quarter due to rising prices for some raw materials, including anhydrous hydrofluoric acid.

Meritz Securities estimates Soulbrain's operating profit in the third and fourth quarters at 54.8 billion won (up 59%) and 55.9 billion won (up 30%), respectively. Dongkwan Kim, researcher at Meritz Securities, explained, “The ramp-up in client DRAM fabs and the completion of the Xi'an NAND transition investments are expected to drive an increase in material shipments. Meanwhile, due to logistics disruptions stemming from conflicts in the Middle East, raw material prices — including hydrofluoric acid — have risen. Currently, Soulbrain is reportedly in talks with clients for price increases on key products such as etchants.”

The company expects the impact of these price hikes to begin in the third quarter, which should improve its overall operating margin (OPM). Kim added, “Currently in the materials industry, market share allocations for new fabs scheduled to start operations next year — such as Samsung Electronics’ Pyeongtaek Campus P5 and SK hynix’s Yongin Cluster Y1 — are under negotiation. Given the recent trend of expanding allocations within new lines, Soulbrain is also expected to maintain a solid market share within new fabs next year.”

Soulbrain stock is currently trading at a 12-month forward price-earnings ratio (PER) of about 13 times, below the historical average of 15 times. Meritz Securities interpreted this as being caused by concerns over compressed margins as rising raw material prices coincide with the beginning of a shipment growth cycle.

Kim stressed, “As key product price increases become more tangible, valuation discounts are expected to narrow rapidly. Backed by growth in semiconductor material demand from client fab expansions, operating profit is forecast to achieve a compound annual growth rate (CAGR) of 40% between 2025 and 2028. Given the current valuation is below historical averages despite entering an earnings expansion phase, we recommend this as a buying opportunity.”

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