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The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. — Ed. 

New investment for memory chips is likely to decline until 1H23 due to a slowdown in memory chip supply-demand conditions. However, SEC’s foundry business is expected to continue expanding its investment in order to increase its market share.

Memory semiconductor investment slows down

Although adhering to a Buy rating, we lower our TP on TES from W35,000 to W28,000. Our TP reduction reflects the assumption that customers’ investment will slow from 2H22 until 1H23 amid the ongoing memory chip downcycle. Our new TP is calculated based on 2022E~2024F average ROE of 13.9% (previously 16.2%) and COE of 8.5%.

TES is forecast to post 3Q22 sales of W93.2bn (+5% q-q) and OP of W18.4bn (+36% q-q). Sales which had been deferred due to equipment shipment delay for Samsung Electronics (SEC)’s P3 fab are set to be reflected in 3Q22. SK Hynix’s M14, M15, and M16 investments remain on schedule.

Foundry investment strengthens

For 3Q22, DRAM ASP is predicted to drop 20% q-q due to sluggish IT set demand amid economic slowdown. Micron Technology, SEC, and SK Hynix are planning to significantly reduce new investment from 2H22 to respond to the ongoing downcycle. Going forward, memory chip investment is expected to focus on process conversion, which is likely to negatively impact earnings at domestic semicon equipment makers.

We expect TES’s equipment portfolio to expand into the foundry arena. As a result, TES shares are likely to outperform those of other domestic equipment makers, which remain focused on memory chips. Of note, some sales of CVD equipment for foundries under development by TES have already been achieved. Testing processes for gas phase etching (GPE) equipment for a foundry customer are projected to wrap up within 2022. In contrast to the situation for memory, major customer SEC plans to execute investments in its S5, P3, and Taylor (US) foundries as scheduled to expand its market share.



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