CME Earnings Expected to Rise Despite Memory Downturn

This is attributed to the transitional characteristic of investment shifting from HBM (High Bandwidth Memory) centric to general-purpose semiconductors.

"In fact, it seems the entire CME sector is not moving at the same pace. I believe there are significant differences in the timing of orders received and when earnings are reflected among individual companies."

In the past, investment was concentrated on HBM (High Bandwidth Memory), and the performance of related companies stood out. Currently, it is a time when earnings growth is expected in general-purpose semiconductor areas other than HBM.

It is expected that as investment in these general-purpose semiconductor areas becomes full-fledged and earnings are reflected, it will bring about a change in the overall atmosphere of the CME sector.

"Because earnings were concentrated in HBM, related investment and collections were also focused. However, earnings for the remaining parts have not yet risen. But since earnings will rise in the future, I think the atmosphere will change from that perspective."

Even in a challenging macro economic environment, a selective approach to individual stocks is crucial. Especially among small-cap stocks, profit opportunities can be found in companies with expected earnings improvement.

A top-down approach is effective to identify opportunities arising from changes in the macro environment and, within that, discover small-cap stocks with potential for earnings growth.

"Our team members themselves have moved from sectors to small caps, so they tend to approach things from a top-down perspective within a large framework. When the macro situation improves, there will certainly be areas that can be seen as resolution, and within that, there are definitely opportunities for profit even in small-cap stocks where earnings are rising."

The core of semiconductor investment is shifting from merely changing product configurations on existing lines to expanding production capacity itself. From the perspective of CME companies, this is positive as it means an increase in actual volume to be processed.

The trend that had been focused on HBM investment for the past 2-3 years is now moving to new expansions, with the ramp-up of Samsung Electronics' Pyeongtaek P4 and M15X beginning, and the 4-year expansion roadmap expected to be fully underway.

"The core is that investment is being added not just to change product configurations on existing lines but to expand production capacity itself. From the CME perspective, it is truly meaningful that the actual volume to be processed will increase, and looking at the past 2-3 years, investment was concentrated on HBM, but now it's moving to new expansions."

From this year, the ramp-up of Samsung Electronics' P4 and M15X will officially begin, with an expected increase in volume. From next year, Samsung Electronics' P5 equipment delivery is scheduled to expand.

For SK Hynix, the Y1 fab is scheduled to operate in February next year, which means that back-end volume linked to this can also receive sufficient attention.

These expansions are expected to have a positive impact on CME companies across the entire semiconductor ecosystem.

In particular, the benefits could extend not only to front-end equipment companies but also to outsourced semiconductor assembly and test (OSAT) companies.

"This year, volumes are starting, and from next year, for Samsung Electronics, P5 and other equipment will actually begin to be brought in. For Hynix, I understand the Y1 fab will be operational in February next year. Accordingly, there will be volumes, including back-end, that can receive a lot of attention."

In particular, 2027 is projected as a time when the effects of this volume (Q) expansion can richly and intersectingly be reflected in earnings.

This is analyzed to create an earnings improvement trend that extends not only to front-end processes but also to outsourced semiconductor assembly and test (OSAT) companies.

"You can view 2027 as a point where earnings can be more richly reflected in an intersecting manner."

Traditional market investment sentiment tended to focus on front-end equipment companies. However, actual data shows superior EPS (Earnings Per Share) growth rates for test equipment companies and OSAT (Outsourced Semiconductor Assembly and Test) companies.

This indicates that the higher earnings stability of back-end related companies compared to front-end equipment companies is a factor differentiating investment sentiment.

"Even looking at EPS growth rates, the EPS growth rates for our test equipment companies and OSAT companies are very good."

In particular, an increase in wafer tester volume is expected from 2025 due to the expanded operation of SK Hynix's M16 and other fabs.

Unitest entered the market as a latecomer compared to its existing competitor DI, but it is securing new growth engines through stable technology and market expansion.

"I believe that Unitest will be among the stocks that can be more anticipated starting next year."

However, from next year, uncertainties in the solar power business are expected to resolve, and semiconductor sector earnings are anticipated to improve significantly.

Through this simultaneous earnings improvement, Unitest is expected to recover to its past peak levels.

"From next year, the solar power segment could also improve, and additionally, semiconductor earnings that weren't there before will rise, so from that perspective, I believe it will fully recover its previous highs."

EO Technics possesses global competitiveness, ranking 1st or 2nd in marker and laser dicing equipment. Samsung Electronics' increased investment and expanded back-end investment are expected to lead to increased demand for EO Technics' new equipment.

In particular, as TSMC's outsourcing strategy leads to increased orders for domestic and international OSAT (Outsourced Semiconductor Assembly and Test) companies, EO Technics is also expected to directly benefit. Analysis suggests that orders from global OSAT companies will be fully reflected in earnings starting next year.

"Global OSATs are also receiving orders, and that will be fully reflected in earnings next year. So, EO Technics can also be mentioned."

Considering that the semiconductor industry is a cyclical industry, there is concern that expansion investment at the current cycle peak could lead to oversupply in the future. Investors need to be cautious about this possibility based on past examples.

The possibility of a slowdown in memory prices still exists, but the investment perspective for CME companies should be approached independently of memory prices, according to analysis.

"It's ultimately a cyclical industry. So, if we expand now when demand is good at the peak of the cycle, won't it come back to haunt us later?"

Even if memory prices decline, CME companies can benefit if wafer input increases. This is due to structural changes that lead to longer testing times or greater material usage.

Due to these factors, it is analyzed that the earnings of lower-tier CME companies will inevitably continue to improve as we move towards 2028-2029.

Therefore, selecting stocks based on EPS (Earnings Per Share) growth rate is an effective strategy.

"Even if memory prices fall, if our wafer input increases, there are benefits to be gained. If testing times lengthen or material usage increases, then from an earnings perspective, the lower-tier CME companies will inevitably see improved earnings as we head towards 2028 and 2029."

It is suggested that the back-end sector should be noted as a prime investment opportunity in the current semiconductor market. The back-end sector continues to show structural growth despite relatively low market attention compared to the front-end.

"I believe you should look at the back-end at this point in time."

SFA Semiconductor is considered the company most likely to benefit if Samsung Electronics expands its outsourcing of general-purpose semiconductors. It previously experienced strong earnings during the DDR4 era due to outsourcing.

Although it experienced a temporary stagnation during the transition to DDR5, dramatic earnings improvement is expected next year if capacity utilization begins to rise from the fourth quarter of this year.

"I believe they are the company that will benefit the most when Samsung Electronics outsources general-purpose parts. If the utilization rate goes up from the fourth quarter, their earnings will likely improve dramatically next year."

OSAT (Outsourced Semiconductor Assembly and Test) companies typically have high depreciation costs. SFA Semiconductor also incurs annual depreciation expenses of approximately 35-40 billion KRW, which can lower its accounting profit margin.

However, the ongoing capacity (production capacity) expansion is expected to lead to an improved financial structure next year. Therefore, the significant improvement potential next year should be viewed positively rather than focusing on this year's financial performance.

"Actually, depreciation costs for OSAT companies are typically high. Roughly 35-40 billion won in depreciation will be incurred annually. While this year's financials are important, next year's financials are expected to improve so much that it might be good to view SFA Semiconductor more positively."

YC is a company that has made its mark in the advanced process wafer tester field based on its technology. It succeeded in localizing a market that was monopolized by global company Advantest within Samsung Electronics, leading to a significant increase in orders this year.

YC also has expandability into affiliated companies and component suppliers, which is expected to highlight its valuation attractiveness and restore investment sentiment next year.

"YC is a company that truly made its move in advanced process wafer testers. It succeeded in localizing a market within Samsung Electronics that was dominated by Advantest, a global company, and as a result, orders have been increasing significantly since this year."

However, with the recent significant increase in interest in the KOSDAQ market, seminar requests from institutional investors are pouring in.

This is analyzed as a result of institutional managers adjusting their KOSPI portfolios and shifting their interest to the KOSDAQ market, along with market expectations based on government policy guidelines.

"When there was no interest in KOSDAQ, seminars were sometimes canceled. These days, as interest in the KOSDAQ market is growing, we are receiving many seminar requests."