Duksan Hi-Metal: beneficiary of the growth of the packaging substrates market

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The authors are analysts from Shinhan Investment Corp. They can be contacted at [email protected] and [email protected], respectively. – Ed.

Supplier of solder balls used in semiconductor packaging

Duksan Hi-Metal produces and sells solder balls, micro solder balls (MSB) and core solder balls (CSB) for use in semiconductor packaging. The main subsidiaries of the company are Duk San Neolux (stake: 36.2%), DS Navcours (60%) and DS Myanmar (100%).

Top Companies That Will Benefit From Growth Of Packaging Substrates Market

For 2022, we forecast revenue of KRW 149 billion (+ 60.1% yoy) and operating profit of KRW 27.3 billion (+ 182.8% yoy). The strong growth in turnover is expected to be driven by: 1) improved profits in major companies; 2) recognition of DS Navcours turnover for a full year; and 3) ramping up operations at the DS Myanmar plant.

The demand for solder balls, the Company’s primary products, is likely to increase as the demand for packaging substrates continues to grow due to: 1) growth in shipments from semiconductor companies; and 2) high demand for bead array (BGA) and returned chip packaging due to increased chip density. Margin gains are also expected from higher MSB and high margin CSB sales.

Expansion of new activities is another point of investment, with Duksan Hi-Metal expected to start domestic production of Type 6 and Type 7 solder pastes in 2022. DS Myanmar, which has stepped up operations of the plant in 4Q21, should contribute to the stability of the supply of tin concentrates as well as margin gains.

Initiate hedging with BUY for a target price of KRW27,000

We are starting Duksan Hi-Metal hedging with BUY for a target price of KRW27,000 based on the sum of the coins valuation. The company’s fair market capitalization of KRW 618.6 billion reflects the value of the main activities (KRW 299 billion), the participations in Duk San Neolux (KRW 256.6 billion) and DS Navcours (KRW 14.9 billion). KRW) and net cash (KRW 48 billion).

We find Duksan Hi-Metal attractive with: 1) the main companies which are expected to record an improvement in their profits; and 2) the current market valuation of major companies is considered excessively low given the value of the company’s stake in subsidiaries.

The current market capitalization of KRW408.9bn implies a PER 2022F of 3.1x for the main activities of the company, even after reflecting the value of the stake in DS Navcours at half the purchase price. Duksan Hi-Metal no longer seeing slow growth in revenue or operating margins of 10% as in the past, we believe the company’s shares deserve a revaluation in light of the visible improvement in the value of the main activities.


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