[Click e-Stock] "Neotis' SoCAMM-bound volumes ramp up in earnest... Benefits from microbit 'shortage'"

Neotis is expected to continue growing its earnings, supported by rising demand for high-specification printed circuit boards (PCBs) as the artificial intelligence server and high-speed switch markets expand, as well as a shortage of microbits. In particular, as sales of routers for SoCAMM ramp up in earnest, they are expected to become a new growth driver, complementing the company's traditional core product, drill bits.

On October 16, Meritz Securities forecast Neotis's third-quarter consolidated revenue at 23.9 billion won and operating profit at 5 billion won. These figures represent increases of 32.6% and 91.4%, respectively, from the same period last year. The firm also expects the operating margin to reach 21.1%, extending the improvement in profitability.

"The microbit business is expected to maintain solid growth as expanding end-market demand coincides with the effect of higher average selling prices due to supply shortages," said Yang Seungsoo, an analyst at Meritz Securities. "In particular, revenue from routers for SoCAMM is expected to increase substantially, surpassing drill-bit revenue in the third quarter."

The key investment thesis for Neotis is the structural supply shortage in the microbit market. Major domestic PCB manufacturers have announced successive large-scale expansion plans to prepare for demand from 2028 onward, improving the medium- to long-term visibility of demand for related equipment and components.

Meanwhile, as specifications for AI servers, high-speed switches and optical communications products rise, PCBs are becoming more multilayered and thicker, and the use of high-specification materials is increasing. This is making the drilling process more difficult and accelerating drill-bit wear, which, analysts say, is increasing consumption per unit of board area.

"The structural shortage of microbits is expected to persist as growing demand driven by customer capacity expansions coincides with higher per-unit consumption due to advances in PCB technology," Yang said.

Neotis is also aggressively expanding its production capacity to meet rising demand. Capacity in the second half of this year is scheduled to increase 14% from the first half, and further expansion in 2027 is expected to lift capacity by more than 50% from 2026.

Growing demand among customers to secure stable supply volumes is also a positive factor. Awareness of the structural microbit shortage is spreading among major customers, increasing the need for long-term supply agreements. In fact, major customers Unimicron, Zhen Ding and GCE participated in a convertible bond issuance by Neotis competitor Topoint of Taiwan.

This illustrates how securing a stable supply chain for high-specification drill bits has become a key priority for customers. Analysts say Neotis's strategic importance in the supply chain is also increasing, potentially strengthening its bargaining power with customers and its position in the value chain.

Yang also addressed concerns that recent tungsten carbide price adjustments could lead to lower microbit selling prices, focusing instead on the supply shortage. "Given the structural supply shortage and market conditions favoring suppliers, we expect average selling prices to rise further," he said.

Neotis's valuation also stands out as attractive. Based on Meritz Securities' estimates, the company's 2027 price-to-earnings ratio is 8.6 times, well below the average of 22.2 times for global peers and 14.6 times for domestic PCB peers.

"The current share price remains undervalued compared with global peers and domestic PCB peers, making the stock attractive as an investment," Yang said.

Neotis's growth is expected to continue in 2027. Meritz Securities forecasts revenue of 150.2 billion won next year, up 64.6% from this year. Operating profit is projected at 30.8 billion won, an increase of 78.8% from this year, with the operating margin expected to rise to 20.5%.

With the high-specification PCB market continuing to grow, led by AI servers, analysts say Neotis could achieve simultaneous earnings growth and improved profitability, supported by capacity expansion and stronger pricing power amid supply shortages.

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