[Beginner's Guide to Stock Investing] The Impact of Corporate New Facility Investments on Stock Prices

▲Overview of Hankook Tire's Tennessee plant in the United States

[Asia Economy Reporter Kwon Jaehee] Recently, plastic injection molding company Woojin Plaimm announced a facility expansion investment worth 17.7 billion KRW. Following this, Woojin Plaimm's stock price showed a strong gain of over 7%. Earlier, when Hankook Tire & Technology announced a factory investment in Tennessee, USA, its stock price also rose by over 5%. Why do news of new facility investments have a positive impact on stock prices, and what characteristics do companies that benefit from such investments have? Let's find out.

Are there specific companies for which facility investments are a positive factor?

Our stock market lists a wide variety of companies. Let's take Samsung Electronics, NCSoft, and KB Financial Group as examples. As you know, Samsung Electronics is a manufacturing-based company producing semiconductors and smartphones, NCSoft holds intellectual property (IP) such as games like Lineage, and KB Financial Group is a financial company holding capital. The products affecting each company's performance and profit structure have very different characteristics.

The business structures are also different. In the case of NCSoft, investment costs are incurred when developing new games, but once the game is released, only maintenance is required. No separate facility investment is necessary. The same goes for KB Financial Group. Its profit structure depends on interest rates and is unrelated to facility investments. However, Samsung Electronics is different. Without massive facility investments, it is difficult to survive in the semiconductor market.

Why should we pay close attention to facility investment disclosures?

Earlier, we looked at the characteristics of companies for which facility investment is important. Companies must disclose important management matters. Facility investments are no exception.

Daeduck Electronics, a leading domestic printed circuit board (PCB) company, disclosed a new facility investment in July 2020. The facility investment involved establishing production equipment to respond to the expanding demand in the new non-memory semiconductor market. The investment amount was 90 billion KRW, a large-scale investment accounting for 13.83% of the company's capital.

Daeduck Electronics manufactures PCBs used in semiconductors, smartphones, and automobiles. Through the disclosure, the company announced investment in FCBGA, the most complex type of PCB. This board is used in CPUs, TVs, graphics cards, 5G, and automobiles, and in Korea, Samsung Electro-Mechanics is the only company capable of producing this high-difficulty product. In other words, Daeduck Electronics is entering a market already dominated by Samsung Electro-Mechanics as a latecomer. Although it already generates stable profits from existing businesses, this shows the company's intention to pioneer new markets and expand its business.

[Image source=Yonhap News]

Hana Securities forecasted in a report that Daeduck Electronics' new facility investment would generate annual sales exceeding 160 billion KRW. After the announcement of the new facility investment, the stock price surged 30% the next day, hitting the upper limit. The market responded immediately.

As such, for manufacturing companies?especially those where proactive investment directly leads to profits?investment is essential for growth. Although it may seem like a huge cost at first, it serves as a stepping stone to earn greater profits. If you hold stocks in companies with such business structures, be sure to pay close attention to new facility investment disclosures.

Editor's Note[Beginner's Guide to Stocks] is a smart investment guide for 'Joorini' (stock + children). We will kindly and easily explain stock stories unfamiliar to beginners.

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