[Click eStock] 5G Investment Resumes and Semiconductor Equipment Advances... Seojin System 'Clear Skies'

Issuance of 110 Billion Won Convertible Bonds Seen Positively... Conversion Price Premium Over 10%

[Asia Economy Reporter Minwoo Lee] Seojin System is expected to benefit from the resumption of investments in the telecommunications sector and the increasing demand for semiconductor equipment. The recently announced issuance of convertible bonds worth 110 billion KRW is also analyzed to have little impact on growth.

On the 18th, SK Securities maintained a 'Buy' investment rating on Seojin System for these reasons and raised the target price by 10.9% to 51,000 KRW. The closing price the previous day was 44,250 KRW. This target price was calculated by applying a price-earnings ratio (PER) of 15 times. Considering that the average 12-month forward PER of leading domestic telecommunications equipment companies is around 22 to 23 times, it is still judged to be undervalued. Last September, Seojin System's PER rose to about 20 times following news of large overseas orders for domestic telecommunications equipment companies.

With the resumption of investments in 5G telecommunications services delayed by the spread of COVID-19, Seojin System's telecommunications equipment segment is expected to return to a normal growth trajectory. Demand for semiconductor equipment is also increasing, raising expectations for the semiconductor equipment parts segment's strong performance. Recovery in the energy storage system (ESS) market and external growth due to client diversification are also anticipated. SK Securities analyst Seungdoo Na stated, "Especially, the sales growth in the other segments will be significant," adding, "The trade dispute between the U.S. and China is expected to prominently manifest this year through manufacturers' de-China strategies and the spillover benefits to Vietnam."

The recently announced convertible bond (CB) issuance was also positively evaluated. The day before, Seojin System disclosed plans to issue convertible bonds totaling 110 billion KRW (66 billion KRW for facility funds and 44 billion KRW for operating funds). On the 17th, Seojin System announced through two disclosures plans to raise a total of 110 billion KRW (66 billion KRW for facility funds and 44 billion KRW for operating funds) via convertible bond issuance. This is another large-scale issuance following the issuance of convertible bonds totaling 110 billion KRW (55 billion KRW each for facility and operating funds) in March and May of last year.

Generally, when convertible bonds are issued, concerns about short-term financial soundness deterioration and supply-demand pressure due to future conversion volume often lead to stock price adjustments. However, on March 24 of last year, the day the 90 billion KRW convertible bond issuance was announced, Seojin System closed up 7.17%. Analyst Na explained, "Unlike other convertible bond issuances, this was issued at a conversion price with more than a 10% premium without any downward adjustment of the conversion price," adding, "This was seen as a strong confidence in business growth."

Similar to last year, the recent convertible bond issuance disclosure did not include any downward adjustment of the conversion price. It was issued at a conversion price with more than a 10% premium. Analyst Na said, "Although investments in front-end industries were temporarily reduced or deferred due to COVID-19 last year, explosive growth potential during the COVID-19 recovery process this year has been verified," and explained, "In fact, after last year's convertible bond issuance, factory facility expansions were carried out, steadily increasing non-current assets."

However, since the conversion request period for the convertible bonds issued last year is April 1, it could act as a short-term supply-demand burden. But considering that the average daily trading volume over the past year has reached about 30 billion KRW, the impact of the supply release may be less than expected. Analyst Na forecasted, "Rather, as expectations for performance growth this year are high, the investment attractiveness is expected to increase further."

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