SIMMTECH(222800) will undertake a new facilities investment worth 270 billion won to respond to the expansion of the artificial intelligence (AI) server memory module market. Hana Securities said that while short-term dilution risk is a concern, growth is expected in the mid to long term on rising demand for substrates for AI servers.
On the 26th, Kim Min-kyung, an analyst at Hana Securities, said in a report, "In the short term, dilution and overhang pressure from external financing could increase share-price volatility," but noted, "In the mid to long term, the stock's direction will be determined more by post-expansion revenue growth and profitability improvement than by the size of dilution."
SIMMTECH said in a filing that it decided on a new facilities investment totaling 274.2 billion won. The investment is to build a dedicated plant for SOCAMM module substrates and to proactively respond to rising demand for high-layer MSAP substrates. New production equipment is scheduled to come online sequentially from the first quarter of 2028.
The largest investment will focus on AI server SOCAMM module PCBs (HDI). SIMMTECH plans to invest 145.9 billion won, including the land and buildings of the dedicated plant, to expand related production capacity by more than 50%.
It will invest 105.1 billion won in MSAP substrates to increase production capacity by 10%, and 23.2 billion won in System IC substrates to expand capacity by 25%.
Kim said, "Rising demand for SOCAMM for AI servers will lead to greater demand for memory package substrates, including MCP," adding, "This is why the company decided proactively to expand capacity even though current utilization for package substrates is in the high-70% range."
The market is also focused on how the large-scale facilities investment will be financed. SIMMTECH said it plans to fund the investment through internal reserves or external financing.
Hana Securities said that since the company explicitly ruled out a rights offering, it is highly likely to use internal funds from operating cash flow alongside external financing such as convertible bonds (CB).
If the 270 billion won in facilities investment is raised entirely through CBs at the current share price, about 2.25 million potential shares could be added. Including roughly 2.32 million shares convertible from the existing seventh CB issuance of 50 billion won, the fully diluted market capitalization is estimated at about 4.9 trillion won.
Kim said, "Applying the 2027 estimate for profit attributable to controlling shareholders of 394.5 billion won, the fully diluted price-earnings ratio (PER) is about 12.5 times, making an increase in the valuation multiple unavoidable compared with before the financing."
The mid to long-term growth outlook remains intact. Kim said, "Even after fully reflecting the increase in potential shares from external financing, the mid to long-term valuation burden is limited," adding, "If demand for SOCAMM and high-layer MSAP expands as expected, utilization of the new capacity and an improved product mix could lead to further upward revisions to earnings estimates after 2028."