"Dollar 1400 Won Is the New Normal"... Small and Mid-Cap Export Stocks Benefit from 'Strong Dollar' Boom

As the 'strong dollar' phenomenon is expected to persist for a long time, the investment attractiveness of domestic small and mid-cap export stocks is increasing. It is analyzed that small and mid-cap export stocks, which experienced valuation declines last year, can greatly benefit from the earnings growth effect due to the base effect, rather than large corporations that can internally hedge exchange rate risks.

NH Investment & Securities stated in a report on the 3rd, "Considering the relative economic advantage of the United States and changes in supply and demand in the foreign exchange market, the high exchange rate trend is expected to continue for the long term." They emphasized the need to focus on 'small and mid-cap export growth stocks,' which are expected to show a high base effect in quarterly earnings in 2025, supported by exchange rate effects.

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After the pandemic and the Russia-Ukraine war, the won-dollar exchange rate, which had surged, maintained a high level, breaking through the 1,470 won per dollar mark on this day as well. Amin Kwon, a researcher at NH Investment & Securities, explained, "The annual floor of the won-dollar exchange rate has risen from the 1,000 won level to the 1,300 won level for four consecutive years, and the annual volatility has reached an average of 170 won over the past three years." Ji-Young Han, a researcher at Kiwoom Securities, also evaluated that "the won-dollar exchange rate environment has become a high exchange rate environment where it is difficult to fall below the 1,400 won level."

In addition, various tariff policies issued by former President Trump have been pointed out as factors fueling the strong dollar, drawing domestic investors' attention to export stocks such as shipbuilding, machinery, and semiconductors. Particularly, in the domestic stock market last month, where bargain buying was active, small and mid-cap stocks recorded a 5.9% increase, slightly outperforming large-cap stocks' returns (5.2%), effectively benefiting from the 'January effect.'

Seop Shim, a researcher at NH Investment & Securities, said, "In phases where exchange rate volatility expands, earnings forecasts are quickly adjusted for large-cap stocks, whereas small and mid-cap stocks, which have slower adjustments, fewer earnings estimate reports, or lack consensus, tend to generate expectations of earnings surprises." He selected Sebang Battery, Chips&Media, Tobis, and Suprema as notable small and mid-cap export growth stocks.

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In the case of Sebang Battery, it is a battery manufacturer expected to experience rapid growth as the hybrid vehicle market, which primarily uses high-performance Absorbent Glass Mat (AGM) products, expands rapidly. The price of lead, which accounts for 60-70% of raw material purchases, continues to decline, and since 60% of exports are settled in dollars, significant profits are expected from the rising exchange rate.

Chips&Media, which holds a dominant position in the global video IP market, is expected to see royalty revenue growth as demand for video processing and video analysis solutions expands due to the growth of AI data centers and the autonomous driving industry. Particularly, it is evaluated that a favorable exchange rate environment is established, with 92.5% of cumulative sales as of the third quarter of 2024 generated overseas. Additionally, Tobis, which operates a casino monitor business, and Suprema, which holds the number one global market share in access control systems, are also considered stocks that will benefit from the prolonged strong dollar due to their high dollar export ratios.

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