In the semiconductor equipment industry, stock prices reflect technological expectations first, and actual earnings follow years later through orders. Jusung Engineering is also standing in the middle of this "time lag."
Jusung Engineering's operating profit last year was 31.3 billion won, down 68% from a year earlier, and it swung to a loss in the first quarter of this year. In contrast, the share price has more than quadrupled from the start of the year, extending its rally. The market also expects this year's operating profit to come in around 120 billion won, nearly four times last year's level, rekindling the "super cycle" of 2022.
◇ Weak earnings on fewer orders and higher R&D expense
Jusung Engineering posted revenue of 310.7 billion won and operating profit of 31.3 billion won last year. Those were down 24% and 68%, respectively, from a year earlier. The slump continued in the first quarter of this year. Revenue fell 54.6% on-year to 54.8 billion won, and operating profit turned to a loss, shifting from 33.9 billion won to an operating loss of 7 billion won.
Behind this is a change in customers' investment approach. SK hynix, in its initial investment for the M15X HBM-dedicated fab, chose to transfer and retrofit existing validated equipment for Production yield stability and risk minimization instead of placing new equipment orders. Customers in the Greater China region, including China, also focused on retrofits rather than new investments, creating a similar impact.
On top of that, an increase in research and development (R&D) expense was a burden. Last year's R&D expense was 106.9 billion won, up 13.5% from a year earlier, and the ratio to revenue rose to 34.4%.
Despite this weakness, the share price, which was in the low 30,000-won range at the start of the year, climbed to an intraday record of 138,900 won on the 24th of last month. According to the Korea Exchange (KRX), from the 13th to the 24th over two weeks, it ranked No. 1 in net foreign buying (153.88 billion won) and No. 2 in net institutional buying (58.35 billion won).
Brokerages see operating profit possibly rising by as much as fourfold this year. Hana Securities projected revenue of 450 billion won and operating profit of 121.3 billion won, while SK Securities forecast revenue of 485 billion won and operating profit of 116 billion won. That is similar to the 123.9 billion won in 2022, the highest operating profit since the company's founding.
◇ Seeking expansion in solar on order recovery hopes
This optimism is based on expectations for an order cycle recovery. Forecasts are emerging that SK hynix's capital expenditure will exceed 30 trillion won this year. In particular, there is a possibility that the investment focus will shift to new equipment orders. In addition, signs that China's CXMT is resuming investment in a new fab are cited as factors raising expectations for an order recovery.
Expectations for demand expansion are tied to technological competitiveness. Jusung Engineering's mainstay is atomic layer deposition (ALD) equipment, and as of 2024, the company ranks No. 4 in global market share. As of the end of last year, its order backlog was 88.5 billion won.
Moreover, as process miniaturization deepens, the importance of ALD is growing. The industry believes that in key memory processes, ALD's share has reversed to a level of 8 to 2 compared with conventional chemical vapor deposition (CVD).
The company has also developed atomic layer growth (ALG), a higher-level technology, and is pushing to expand beyond semiconductors into displays and solar. Expectations are particularly high for the solar business. There is analysis that the application scope of deposition equipment could widen around perovskite and heterojunction (HJT) technologies, which are considered next-generation solar cells.
Brokerages expect the solar business to enter a full-fledged earnings phase starting next year. Korea Investment & Securities Co. suggested the possibility in the second half of this year of orders for deposition equipment for perovskite solar of over 1 gigawatt (GW).
◇ Valuation concerns, with customer concentration and industry volatility as variables
Caution is also being raised. Some analyses say the stock has already priced in much of the major positives and entered an overvalued zone. BNK Investment & Securities cut its investment view to "hold" from "buy" on the 27th of last month.
There is no shortage of uncertainties. First is customer concentration risk. With heavy reliance on SK hynix, earnings volatility could increase depending on changes in its investment approach. The memory chip cycle is also key. As seen in the precedent where operating profit plunged from 123.9 billion won in 2022 to 28.9 billion won in 2023, a slowdown in AI investment or oversupply could recreate a similar shock.
As global equipment makers speed up technology development, the competitive landscape is not easy. For Jusung Engineering, non-memory and compound semiconductors still have limited verified mass-production track records. The solar and display businesses also need time to become stable revenue sources.
The company said it is working to expand its customer base in North America, Taiwan and China. It explained that new revenue is expected to be reflected after 2028. On the solar business, it said, "There is a possibility of demand expansion centered on next-generation technologies after next year."