[Click e-Stock] "Neotis Benefiting from AI PCB Drill Bit Shortage... Still in the Early Stages"

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On April 20, Meritz Securities analyzed that Neotis is entering a phase of significant benefit amid a worsening shortage of PCB (printed circuit board) drill bits used in AI semiconductors. In particular, expectations for mid- to long-term growth are rising as price increases in the microbit segment coincide with the effects of expanded production capacity.

Seungsoo Yang, a researcher at Meritz Securities, stated, "The microbit segment is operating at full capacity, and further growth is expected based on price increases," adding, "Improvements in the product mix, focusing on high value-added items, combined with sharp increases in costs due to the surge in prices of key raw materials such as tungsten carbide, are being smoothly reflected in average selling prices in a tight supply-demand environment, supporting the upward trend of ASP."

Growth is expected to accelerate further from the second quarter. For the full year, revenue is projected at 9.32 billion won (up 35.7% year-on-year), and operating profit at 1.65 billion won (up 112.4% year-on-year), representing significant improvement in performance. Yang noted, "From the second quarter, the effects of production expansion will be fully reflected, and production capacity is expected to increase by approximately 20% on an annualized basis."

He added, "In the third quarter, an additional 15% expansion effect compared to the previous quarter is expected, and the simultaneous increase in selling prices due to higher raw material costs and volume growth will drive P·Q growth together."

The structural growth of downstream industries is also positive. Currently, demand for drill bits is outstripping supply due to the expansion of demand for high value-added substrates, including FC-BGA. In particular, supply to domestic FC-BGA companies is visibly increasing, and considering clients' aggressive expansion plans, there is potential for further large-scale capacity additions.

Yang explained, "Amid continued excess demand for microbits based on robust downstream industry trends, the company is expanding its supply volume to domestic FC-BGA companies significantly."

In fact, competition to secure drill bits is intensifying in the global supply chain. Taiwanese drill manufacturer Topoint issued convertible bonds worth about 600 million New Taiwan dollars to major PCB companies such as Unimicron, Zhending, and Gold Circuit. This is significant as it shows that major substrate manufacturers are making proactive investments to secure a stable drill supply chain.

Yang observed, "As the number of layers and thickness of IC substrate, HDI, and HLC substrates increase, demand for advanced coated drills is exceeding supply," and added, "PCB drill bits, together with fiberglass, copper foil, and CCL, are emerging as core strategic materials in the PCB value chain."

He continued, "Given the aggressive expansion stance of downstream PCB companies, the shortage of PCB drill bits is likely to continue at least until 2027," emphasizing, "As the only beneficiary in Korea, the company stands out for its relative investment attractiveness."

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