Hana Securities said on the 28th that while earnings growth is expected to continue for RF Materials(327260), its multiple is undervalued because the stock's decline has been excessive compared with global peers. It maintained a Buy rating and, reflecting the stock split, changed its target price to 75,000 won from 150,000 won. RF Materials' previous closing price was 23,700 won.
Kim Hong-sik of Hana Securities said, "By supplying pump lasers to Lumentum, this year's operating profit is expected to reach 20 billion won, and earnings growth is expected to continue," adding, "Once the new production facility is completed, production capacity will double, which bodes well for long-term results."
It also noted that Chinese competitor Innolight was finally included on the U.S. Department of Defense sanctions list in June, so market share (MS) is expected to expand due to the phaseout of Chinese components.
Kim assessed, "The stock's decline is excessive versus global peers, and the multiple is undervalued."
RF Materials posted consolidated second-quarter revenue of 25 billion won, up 52% from a year earlier. Operating profit rose 182% to 5.3 billion won.
Kim explained, "Although results at subsidiary RF Systems improved slightly year over year and helped support the group's fundamentals, the current earnings growth is thanks to pump laser supply to Lumentum," adding, "We expect Lumentum-driven earnings growth to continue in the second half and in 2027."
If new Lumentum-oriented facilities are expanded, production capacity will double, and as the global data center capital expenditure (CAPEX) trend remains intact, annual guidance at companies such as Lumentum and Coherent is also solid. Accordingly, demand to absorb the added output is expected to be sufficient.
Given this, RF Materials' annual operating profit forecast is expected to slightly exceed 20 billion won.
Kim said, "Domestic optical communication stocks remain in a correction phase, and some investors are voicing concerns about valuation after RF Materials' share price climbed more than 20-fold from its bottom," adding, "But if the current earnings growth continues, operating profit is expected to reach 20 billion won this year and 30 billion won in 2027."
In this case, the 12-month forward price-to-book ratio (PBR) for 2027 would be around 8 times. Because most of the future earnings growth will come from export volumes, the multiple should be compared with global peers, and this is said to be absolutely lower than the global peer range of 16 to 22 times.
Kim said, "Because global optical communication stocks have fallen only 20% to 30% from their peaks, RF Materials' current share price is in a temporarily excessive decline phase," adding, "With earnings and the multiple providing support, a buy strategy remains valid."