[Click eStock] SoluM Faces Challenging External Environment but ESL Market Sails Smoothly

[Asia Economy Reporter Lee Seon-ae] Hi Investment & Securities announced on the 2nd that it maintains a buy rating and a target price of 38,000 KRW for SoluM.

This is because the multiples of comparable companies are rising. The stock price of SES-Imagotag, the No. 1 company in the electronic shelf label (ESL) industry, has increased by 31% over the past three months. It now reaches a price-to-earnings ratio (PER) of 46.8 based on the expected 2022 earnings. Despite supply chain disruptions caused by COVID-19, SES-Imagotag maintains a sales guidance of 400 million euros, a 40% growth compared to the previous year. This implies that the ESL market is sailing smoothly.

SoluM's ESL sales are also solid. This year's sales are expected to grow 61% year-on-year to 214 billion KRW. Despite supply chain issues with materials such as EPD modules and semiconductors, it shows the fastest top-line growth in the industry. Next year's sales are projected to double from this year to 422 billion KRW. Considering the rapid expansion of the order backlog (2Q21 800 billion KRW → 3Q21 1.2 trillion KRW) and that this backlog will be recognized over three years, visibility is high.

Ko Eui-young, a researcher at Hi Investment & Securities, explained, "Our expected net profit for the company's ICT division next year is 43 billion KRW. Applying the ESL industry average PER of 35 times to this results in a business value of 1.5 trillion KRW," adding, "This means that the current market capitalization of over 1.27 trillion KRW can be explained by the ESL business alone. Ultimately, looking ahead to next year, confirming the profit leverage of ESL could be a trigger for the stock price."

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