[Click e-Stock] "Fine Mtech: Fold8 Success, North American Foldable Launch Drive Target Price Higher"

Fine Mtech is expected to continue its performance growth as it prepares for the launch of the first foldable model for a North American client, following the success of its domestic client’s foldable product. After delivering profitability that exceeded market expectations in the second quarter, additional performance growth is anticipated in the typically slow fourth quarter, as sales to North American customers start being reflected from the third quarter.

According to Meritz Securities on September 7, Fine Mtech’s consolidated revenue for the second quarter was KRW 95.2 billion, up 118.5% from the same period last year. Operating profit reached KRW 7.3 billion, turning to profit, and the operating margin was 7.7%. These figures surpassed Meritz Securities’ previous estimates by 1.5% in revenue and 45.2% in operating profit.

The company’s strong top-line growth was driven by the full-scale shipments of backplates for foldable smartphones to domestic customers from the second quarter. The increase in average selling prices due to the adoption of laser etching and the expansion of market share also contributed to the improved performance.

The improvement in profitability was greater than initially expected. On top of a base effect from low profitability last year due to increased upfront research and development expenses, improvements in yield during the mass production stabilization process led to a significant increase in operating profit.

Researcher Yang Seung-su from Meritz Securities explained, “Full-scale shipments of backplates for domestic clients’ foldable phones began in the second quarter, and growth in market share and higher average selling prices from laser etching drove top-line growth. The stabilization of mass production significantly improved the yield, resulting in operating profits that far exceeded expectations.”

The growth trend is expected to accelerate even further in the third quarter. Meritz Securities projects Fine Mtech’s third-quarter revenue at KRW 135.7 billion and operating profit at KRW 11.9 billion. Compared to the same period last year, this represents a 135.9% increase in revenue and a 674.6% surge in operating profit.

In previous years, the early launch of foldable products by domestic clients led to peak results in the second quarter, but this trend is expected to shift this year. The domestic client’s latest foldable, the Fold8, has been a hit, keeping backplate production volume at a high level. While there have been some disruptions in the supply of key components, overall shipment trends remain robust.

Furthermore, from the third quarter, shipments for the North American client are expected to begin contributing to the results. Meritz Securities has assumed North American client foldable smartphone shipments of 6.5 million units (set basis) and 8 million panels (panel basis) for this year.

However, the volume for North America is expected to see substantial expansion in the fourth quarter. Due to yield issues in other component supply chains, it is highly likely that shipment volume will increase significantly in the fourth quarter compared to the third. This expansion in volume could have a positive impact on Fine Mtech’s performance.

Because volumes from North American clients will be fully reflected in the fourth quarter, which is typically considered an off-season, additional performance growth compared to the third quarter becomes possible.

Researcher Yang commented, “Shipments to North American clients are projected to ramp up in the fourth quarter due to yield issues elsewhere in the supply chain, so we expect additional performance growth in the fourth quarter—even though it is usually a seasonal low point—compared with the third quarter.”

In particular, Fine Mtech stands to benefit from delivering to a North American client’s first foldable model. As this is the client’s first such product, stability and quality are likely to be top priorities in the initial mass production stage. Fine Mtech is recognized for its competitive edge in laser etching technology compared with Chinese competitors, so whether it can further expand its market share will be of keen interest.

In the mid- to long-term, attention should be paid to growth in the foldable smartphone market itself. The success of the Fold8 has shown the potential demand for wide-form foldable form factors, and the first foldable model for the North American client, scheduled for release on September 10, is expected to accelerate mainstream adoption thanks to its strong design and ecosystem.

Researcher Yang assessed that investors should focus less on the possibility of short-term profit-taking after recent stock gains and more on the mid- to long-term growth potential of the foldable market and Fine Mtech’s structural advantages.

He noted, “The success of the Fold8 proves the latent demand for wide-type foldable form factors, and the North American client’s new model is also expected to help expand and mainstream the foldable market.”

He added, “Since there are very few domestic companies securing meaningful market share with North American foldable models, Fine Mtech’s unique benefits and investment appeal are expected to stand out.”

Meritz Securities maintained its ‘Buy’ investment opinion on Fine Mtech and slightly raised its target price to KRW 13,000, reflecting an upward revision of the operating profit estimate.

Researcher Yang predicted that, in the short term, the success of Fold8 and increasing North American shipment volumes will drive performance, while, in the longer term, the mainstream adoption of foldables will become an additional growth engine. While the second quarter marked the beginning of this growth, from the latter half of the year, simultaneous expansion of foldable shipments for both domestic and North American clients could lead to a full-fledged performance leap.

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