[Edaily Reporter Shin Ha-yeon ] On the 14th, Meritz Securities assessed that Pharmicell(005690)is not only seeing growth in low-dielectric-constant materials driven by demand for artificial intelligence (AI) but is also diversifying its revenue structure through overseas production sites and new materials. The analysis notes that the company’s medium- to long-term growth potential remains valid, as it plans to expand production capacity next year by bringing its third plant online. The firm did not provide an investment opinion or a target price.

Yang Seung-soo, an analyst at Meritz Securities, stated, “Although the stock’s slump has persisted recently, in line with that of major clients, we believe its medium- to long-term growth potential remains valid as a core material in the AI era’s value chain,” adding, “We expect an upward trend in enterprise value in the second half of the year, in tandem with earnings growth.”

On a standalone basis, Pharmicell’s second-quarter revenue rose 45.7% year-over-year to 39 billion won, while operating profit increased 62.1% to 13.2 billion won. The operating profit margin stood at 33.9%. Revenue and operating profit fell short of market consensus by 1.6% and 7.0%, respectively.

This was due to weaker-than-expected sales of low-dielectric-constant materials to domestic copper-clad laminate (CCL) customers, resulting from major supply disruptions of key raw materials in April. Sales of low-dielectric-constant materials rose only slightly from 26 billion won in the first quarter to 26.3 billion won in the second quarter.

However, as the supply of raw materials normalized starting in May, revenue from May through June is understood to have shown a clear upward trend. Although the Medical Division continued to post a loss, the company maintained high profitability thanks to growth in high-margin pharmaceutical raw materials such as mPEG and nucleosides.

Researcher Yang commented, “Although the Medical Division’s losses persisted, it is positive that the company once again demonstrated differentiated profitability within the PCB and CCL value chain by recording an operating profit margin of 33.9%, driven by the growth of high-margin pharmaceutical raw materials such as mPEG and nucleosides.”

In particular, he highlighted two changes in sales to major customers during the first half of the year. “The proportion of sales to major customers’ overseas production sites is gradually expanding,” he noted, attributing this to “an increase in shipments for network applications such as 800G.”

He also noted, “Products supplied to overseas production sites are delivered as a mixture of resin and hardener, so they are expected to yield relatively higher profitability than those for the domestic market.” Given that major customers are scheduled to complete brownfield expansions at their overseas production sites during the fourth quarter of this year, he projected that overseas sales will continue to expand and the product mix will improve going forward.

He also viewed the rapid growth in sales of new materials—which differ from existing low-dielectric-constant materials—as a positive development. These materials are understood to be applied to CCLs for optical modules used by major customers and are believed to contribute to improved heat control and heat dissipation characteristics.

Research Analyst Yang predicted, “Revenue for the first half of this year has already exceeded last year’s full-year revenue, and given that the photovoltaic module market is expected to grow more than 2.5 times larger next year compared to this year, the company’s revenue from new materials is also expected to enter a phase of full-scale growth alongside the expansion of demand for related CCL.”

An expansion of production capacity is also planned. Pharmicell plans to begin operations at Plant 3 next year, which will have a combined capacity equal to that of its existing Plants 1 and 2. Meritz Securities projected that this will mark the start of a full-scale expansion of production capacity.

The firm also highlighted the potential for expansion into next-generation materials. Pharmicell is actively developing next-generation resins, such as hydrocarbons. Meritz Securities assessed that Pharmicell’s materials are highly likely to be adopted as key raw materials in next-generation CCL as well.