[Click e-Stock] "North American Foldable Quality Issues Could Be a Buying Opportunity for Pinemtec... Target Price Raised"

Hyundai Motor Securities expects short-term quality concerns surrounding a new foldable smartphone in North America to have a limited impact on Pinemtec's earnings. Anticipating that the company will begin to benefit in earnest from the expanding foldable smartphone market, the brokerage raised its target price by 26.1%, from 11,500 won to 14,500 won.

According to Hyundai Motor Securities on October 27, Pinemtec's third-quarter revenue is expected to rise 139.1% year over year to 137.6 billion won, while operating profit is projected to surge 1,141.0% to 19.1 billion won. Both figures are expected to exceed the brokerage's previous estimates and market consensus. The operating margin is forecast at 13.9%.

"Shipments of backplates for the domestic market have remained solid, following the previous quarter," said Kim Jongbae, an analyst at Hyundai Motor Securities. "With the introduction of new equipment and a high yield, profitability in the domestic market has also improved considerably and continues to maintain that trend." The analyst also expects a recovery in orders for end plates used in energy storage systems (ESS) to support revenue growth.

Hyundai Motor Securities said that quality issues recently reported with a new foldable product in North America are unrelated to Pinemtec's key product, backplates. The issues appear to stem from yield problems involving other components or the assembly process, which could instead present an opportunity for Pinemtec, the brokerage said.

"Pinemtec is, in fact, absorbing some market share due to quality issues at competitors and maintaining its position as a first vendor," Kim said. "There has been no change in demand at the current mass-production stage, and the company is responding to production and demand at its maximum monthly capacity."

The brokerage also gave a positive assessment of the foldable market's growth prospects. Hyundai Motor Securities estimated North American foldable smartphone shipments at 6.0 million to 6.5 million units this year and 15 million to 16 million units next year. It expects demand for components to be 10% to 15% higher than set shipments.

Pinemtec is believed to have entered the process of ordering additional equipment to meet rapidly growing demand. Its current monthly production capacity is about 1.5 million units, and Hyundai Motor Securities expects it to be able to expand capacity by up to more than 30% from the current level next year.

Rapid earnings growth is also expected. Hyundai Motor Securities estimates Pinemtec's revenue this year at 465.1 billion won, up 94.5% from a year earlier, and forecasts a return to profitability, with operating profit of 44.6 billion won. Next year, revenue and operating profit are projected to rise 70.2% and 65.9%, respectively, to 791.8 billion won and 73.9 billion won.

Accordingly, the brokerage kept its estimate for this year's earnings per share (EPS) unchanged at 643 won while raising its EPS forecast for next year from 1,149 won to 1,310 won. Hyundai Motor Securities set its target price using 11.01 times the average 12-month forward price-to-earnings (PER) ratio of domestic foldable-component makers Dowooinsys and KH Vatec.

"The foldable smartphone market's full-scale takeoff represents a meaningful change in edge devices, alongside technological advances in the devices themselves," Kim said, describing Pinemtec as "one of the few domestic companies in the value chain capable of supplying key components to leading foldable smartphone makers at home and abroad."

He added that "the current share price remains undervalued, considering the company's impending earnings growth." Hyundai Motor Securities maintained its "Buy" rating on Pinemtec. The stock closed at 9,400 won on October 26. Compared with the brokerage's target price of 14,500 won, this implies 54.3% upside.

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