"Called a 5G Beneficiary"... Foreigners and Institutions Leaving KMV

Foreigners and Institutions Net Sell 26 Billion KRW in May
Hantoo Securities "Expected Sales Growth Rate This Year 27.8%"

[Asia Economy Reporter Minji Lee] KMw, which once ranked within the top 5 in market capitalization mainly benefiting from 5G, is showing sluggish stock price movement. This month, it has been listed as the most sold stock by foreigners and institutions, and some securities firms have adjusted their investment ratings to neutral, citing concerns about second-half earnings.

According to the Korea Exchange on the 13th, KMw was traded at 59,000 won as of 10:30 AM on the 13th, down 2.4% from the previous session. Despite the government announcing this month the promotion of the ‘Korean New Deal’ to create jobs through early establishment of 5G infrastructure, the stock price fell about 3.3%.

5G-related companies have been highlighted as beneficiaries due to the expansion of untact demand caused by the novel coronavirus disease (COVID-19). It is expected that related equipment stocks will gain momentum in earnings and stock prices thanks to 5G infrastructure investment. However, KMw has been one of the most sold KOSDAQ stocks by foreign and institutional investors this month, continuing a sluggish stock price trend.

In fact, until the previous day, foreigners and institutions net sold stocks worth 11.255 billion won and 14.843 billion won, respectively. They have put about 26 billion won worth of stocks on the market over six trading days.

The reason why major market players started selling stocks is due to growing concerns over earnings that were worse than expected. Previously, the company recorded 77.5 billion won in sales and 6.6 billion won in operating profit in the first quarter, significantly below market consensus (108.3 billion won, 15.3 billion won). Compared to a year ago, these figures fell by 34% and 73%, respectively.

This was because orders, mainly for parts, were delayed due to the impact of COVID-19, causing disruptions to existing plans. In particular, filter segment sales shrank as export volumes to China’s ZTE did not increase significantly. Filter segment sales were 17.6 billion won, down 47% year-on-year.

The impact of COVID-19 is expected to continue into the second and third quarters. The second-quarter operating profit is expected to increase by 442% from the previous quarter to 35.6 billion won, but concerns remain that the timing of revenue recognition may be postponed to the second half.

Cholhee Jo, a researcher at Korea Investment & Securities, said, “Considering that 4G and 5G infrastructure investment projects are being delayed in Europe, the US, Japan, and other regions, some uncertainty remains,” adding, “The company’s expected sales growth rate this year is projected to be 27.8%, significantly below the target of 50%.”

Opinions on the timing of purchase are divided in the securities industry. Some securities firms recommend a conservative approach to KMw and have downgraded their investment ratings from buy to neutral. Jongseon Park, a researcher at Eugene Investment & Securities, explained, “Although overseas sales are beginning in earnest, the investment rating is adjusted reflecting concerns about the level and timing of earnings recovery.”

On the other hand, Hongsik Kim, a researcher at Hana Financial Investment, advised, “Filter volumes from ZTE are expected to gradually increase after June,” adding, “Considering that exports to the US may begin in the third quarter, it is advisable to buy before June to July, when sharp profit growth is expected.”

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