[Edaily Reporter Kim Hyung-il ] Meritz Securities forecasts that NEO TECHNICAL SYSTEM CO., LTD(085910)will continue its medium- to long-term growth momentum, driven by a structural shortage of Microbit and an expansion of production capacity.

On the 16th, Yang Seung-soo, an analyst at Meritz Securities, highlighted the increasing consumption of microvias driven by growing demand for high-specification printed circuit boards (PCBs) for artificial intelligence (AI) servers, as well as a supplier-dominated market environment. The analysis indicates that NEO TECHNICAL SYSTEM CO., LTD.’s projected price-to-earnings ratio (PER) for next year is 8.6x, which is below the global industry average of 22.2x and the domestic PCB industry average of 14.6x, suggesting attractive valuation.

NEO TECHNICAL SYSTEM CO., LTD.’s third-quarter consolidated revenue is estimated at 23.9 billion won, a 32.6% increase year-over-year, while operating profit is projected to rise 91.4% to 5.0 billion won. The operating profit margin is forecast at 21.1%.

However, reflecting sluggish sales of shafts and lens polishing machines due to a strong won and a slowdown in industry conditions, revenue and operating profit estimates were revised downward by 10.5% and 8.3%, respectively, from previous projections. The Microbit division is expected to continue its robust growth, driven by a combination of expanding Chonbang demand and rising average selling prices (ASP) due to supply shortages. In particular, with sales of routers for SoCAMM applications increasing significantly, the company forecasts that these sales will surpass drill bit sales in the third quarter.

The expansion in Microbit demand is driven by the capital expenditure (Capex) cycle across the PCB industry as a whole. Analysts note that medium- to long-term demand visibility is improving as major domestic PCB manufacturers—the company’s key customers—have been announcing large-scale capacity expansion plans in preparation for the period after 2028.

As specifications for AI servers, high-speed switches, and optical communication products become more sophisticated, the use of high-layer-count, thick-board PCBs, and high-specification materials is expanding. Consequently, the difficulty of the drilling process is increasing. This is because as material hardness increases and PCB thickness grows, drill bit wear accelerates, leading to higher consumption per unit area of PCB. With rising demand driven by customer capacity expansions and increased consumption resulting from more sophisticated PCB designs, a structural shortage of micro-bits is expected to persist.

NEO TECHNICAL SYSTEM CO., LTD is also increasing its production capacity to meet this growing demand. Production capacity in the second half of 2026 is scheduled to increase by 14% compared to the first half, and by 2027, production capacity is expected to rise by more than 50% compared to 2026 through additional expansions.

Customer demand for stable supply is also growing. The firm explained that as awareness of the structural supply shortage of MicroBits spreads among major customers, the need for long-term supply agreements (LTAs) is increasing. Meritz Securities analyzed that the participation of major customers—including Unimicron, Zhen Ding, and GCE—in the convertible bond (CB) issuance by Taiwanese competitor Topoint further underscores the importance of securing a supply chain for high-specification drill bits. NEO TECHNICAL SYSTEM CO., LTD. also expects that as its strategic importance within the supply chain increases, its bargaining power with customers and its position within the value chain will be strengthened.

Although concerns about a decline in microbit prices have surfaced due to recent adjustments in tungsten carbide prices, the firm believes that, given the structural supply shortage and a market environment favoring suppliers, a further increase in the average selling price (ASP) is actually possible.