[Edaily Reporter Shin Ha-yeon ] On the 7th, HYUNDAI MOTOR SECURITIES assessed that MKElectron(033160)has entered an upswing characterized by simultaneous improvements in volume (Q) and price/product mix (P), driven by increased wire bonding volumes for memory chips and growth in high-margin non-memory products. Noting that the stock’s valuation remains significantly low relative to the improvement in its earnings fundamentals, the firm maintained its “Buy” rating and raised the target price by 28.3% from 23,000 won to 29,500 won.

Kim Jong-bae, an analyst at HYUNDAI MOTOR SECURITIES, “Demand for wire bonding is surging in line with global OSAT (outsourced semiconductor assembly and test) demand, and this is consistently reflected in MKElectron’s quarterly earnings,” he said. “This is primarily driven by increased demand for gold wire in the memory sector, and if LPDDR5 demand rises due to the accelerated ramp-up of SOCAMM2, related demand is expected to skyrocket.”

In particular, he highlighted the steep growth in non-memory products—rather than the increase in memory volumes—and the resulting improvement in product mix as areas deserving immediate attention. This is because demand for plated wire for non-memory applications is growing rapidly at both the headquarters and the Chinese subsidiary.

To meet increased customer demand next year, MKElectron plans to expand its headquarters’ plating wire production capacity (CAPA) by 40–50% year-over-year, based on equipment capacity. Although plating wire accounts for less than 10% of total revenue, it is a highly profitable product contributing more than 30% to overall profits.

Analyst Kim predicted, “As volumes increase in the future, this will positively impact MKElectron’s core product mix,” adding, “In China, earnings are already rising every quarter due to demand for non-memory plating wire, and since the business is not significantly affected by external variables such as gold prices and exchange rates, it is expected to record a sustained upward trend in earnings linked to actual demand.”

He projected that the Chinese subsidiary’s plating wire volume would increase by 10–15% in the third quarter of this year compared to the previous quarter. For next year, he forecast a volume increase of approximately 20–30% compared to current levels.

Palladium alloy (Pd Alloy) was also identified as a new growth driver. This is because demand for pogo pins used in semiconductor testing is rising as demand for chips—such as AI accelerators and FPGAs—increases. Domestic pogo pin manufacturers, including LEENO Industrial Inc. and Megatouch Co., Ltd., are also expanding their production capacity in response.

MKElectron is the sole domestic supplier of the Pd Alloy used in the top plungers of pogo pins. Shipments of this material have already more than doubled compared to the first half of the year, and demand is expected to more than double again next year compared to current levels.

Research Analyst Kim explained, “Ultimately, the company is repositioning itself as a key supplier of Pd alloy for pogo pins, which are even supplied to major U.S. tech companies,” adding, “Pd alloy is a high-margin material; despite its price competitiveness compared to overseas competitors, it generates high profitability, which will enable MKElectron to continuously improve its product mix.”

Solder balls were also assessed as a key material that will drive improvements in the profit structure. Analysts note that while MKElectron has primarily been recognized as a key supplier of wire bonding, its growth potential in this area has been relatively undervalued due to its lower market share in the solder ball sector compared to competitors.

However, as foundry and OSAT utilization rates rise, both solder ball sales volume and prices are increasing simultaneously. HYUNDAI MOTOR SECURITIES projected that third-quarter solder ball profits would increase by more than 30% compared to the previous quarter.

Analyst Kim emphasized, “As foundry and OSAT utilization rates rise, both quantity (Q) and price (P) will continue to increase, causing third-quarter solder ball profits to surge by more than 30% compared to the previous quarter,” adding, “This is a key material that can drive MKElectron’s profits.”

Third-quarter earnings on a standalone basis are expected to fall short of previous forecasts due to exchange rate fluctuations. Standalone revenue is projected to reach 312.6 billion won, up 40.1% year-over-year, while operating profit is expected to rise 18.3% to 6 billion won. The operating profit margin is estimated at 1.9%.

In contrast, the semiconductor materials division—including the Chinese subsidiary—is estimated to post revenue of 432.7 billion won and operating profit of 15.5 billion won, representing year-over-year increases of 40.9% and 73.4%, respectively. Analyst Kim explained, “We expect standalone results to fall short of previous estimates, which is attributable to a sharp short-term drop in exchange rates—an exogenous variable unrelated to the company’s core business,” adding, “This impact will be limited to the current quarter and is expected to be offset starting in the fourth quarter.”

Consolidated earnings are expected to show even more pronounced growth. This year’s consolidated revenue is projected to reach 1.9616 trillion won, up 39.7% year-over-year, while operating profit is expected to surge 627.9% to 103.2 billion won. For next year, revenue is forecast to reach 2.5823 trillion won and operating profit 157.8 billion won, representing increases of 31.6% and 52.9%, respectively.

The company was also assessed as having ample room for further upside in terms of valuation. HYUNDAI MOTOR SECURITIES analyzed that the expected price-to-earnings ratio (PER) for next year, based on the semiconductor materials business, is only 6.9 times. Considering that revenue is expanding due to increased memory-related volume, while high-margin products such as plated wire, Pd Alloy, and solder balls are transforming the company’s profit structure, the firm believes a revaluation is warranted.

Analyst Kim emphasized, “While both price and volume have entered an upswing, it is time to simultaneously consider the significantly low valuation attractiveness,” adding, “The company’s scale is expected to continue expanding due to rising volume in the memory sector, and when combined with the shift in profit structure driven by gold-plated wire, Pd Alloy, and solder balls, a re-rating based on a fundamentally different portfolio should take place immediately.”