iM Securities on the 19th said Daeduck Electronics is expected to extend its growth as demand for substrates centered on data centers expands. It maintained a Buy rating and raised the target price to 105,000 won. Daeduck Electronics' previous closing price was 74,800 won.
iM Securities said Daeduck Electronics is undervalued compared with other overseas package substrate makers and judged that profitability will improve as data center demand increases going forward.
Ko Ui-young, an analyst at iM Securities, said, "Daeduck Electronics' price-earnings ratio (PER) this year is 24, still significantly undervalued compared with the average PER of 42 for global package substrate makers."
It analyzed that this is because, for global package substrate makers, since December last year the visibility of demand for artificial intelligence (AI) servers has improved and expectations for capital expenditure (capex) expansion and price hikes have been reflected, whereas domestic makers have been weighed down by concerns about profitability due to raw material burdens.
Ko assessed that Daeduck Electronics' profitability will improve this year, driven by data centers.
Ko said, "We believe the focus should be on profitability improvement centered on data center applications and the possibility of capacity expansion," adding, "We expect the multiple gap between domestic and overseas makers to narrow, with Daeduck Electronics at the center."
Ko explained that Daeduck Electronics' key businesses—flip chip ball grid array (FC-BGA), memory substrates, and multilayer board (MLB)—are improving on the back of data center demand.
Ko explained that the yardstick for AI server performance is shifting from the individual chip level to the efficiency of connections among chips, racks, and data centers, and that demand for the network semiconductors and substrates needed for this is expanding in tandem.
Ko added, "Daeduck Electronics, too, is seeing results improve, centered on AI data center enterprise solid-state drive (eSSD) controllers and optical module FC-BGA," noting, "in the fourth quarter of last year, data centers accounted for a share in the 30% range of FC-BGA sales."
It also analyzed that there is a strong possibility of expanding production facilities in the FC-BGA segment due to the mass-production roadmap for new projects, including an FC-BGA ramp-up for autonomous driving in the first quarter of this year and mass production of substrates for physical AI next year.
The memory substrate and MLB businesses also retain growth drivers. Ko explained, "For memory substrates, based on the growth of high value-added data center substrates such as DDR5 and GDDR, as utilization for memory substrates approaches 100%, Daeduck Electronics has said that investment in memory substrates may be necessary to meet mid- to long-term demand."
Ko also projected that MLB growth will continue on demand for defense and AI accelerators. Ko said, "From the third quarter of this year, the effect of capacity expansion will add to growth in scale," adding, "given MLB makers' high valuations, improvement in Daeduck Electronics' MLB results in the second half could act as a potential re-rating catalyst."