[Edaily Reporter Kim Hyung-il ] Meritz Securities maintained its “Buy” rating on PI Advanced Materials Co., Ltd.(178920)but lowered its target price to 25,000 won from the previous 31,000 won. The firm noted that while revenue recovery is being delayed due to slowing smartphone demand, the company is defending its profitability through an improved revenue structure centered on high-value-added products.

On the 13th, Yang Seung-soo, an analyst at Meritz Securities, reported that PI Advanced Materials Co., Ltd.’s third-quarter revenue fell 18.9% year-over-year to 55.5 billion won, while operating profit rose 7.7% to 12.5 billion won. Although the operating profit margin stood at 22.5%, both revenue and operating profit fell short of market consensus estimates by 30% and 36.4%, respectively.

Sales in both the flexible printed circuit board (FPCB) and heat-dissipating sheet segments were sluggish due to a slowdown in smartphone demand caused by chip inflation. In particular, sales of heat-dissipating sheets fell sharply as the number of new product models launched by clients decreased. However, even as the capacity utilization rate fell to the 40% range, the proportion of high-value-added products within the FPCB segment expanded from 47% in the second quarter to 55% in the third quarter, driving up the average selling price (ASP). As a result, the company maintained an operating profit margin of over 20%.

The company expects customer inventory adjustments to continue in the fourth quarter. Meritz Securities forecasts fourth-quarter revenue of 55 billion won and operating profit of 12 billion won. While revenue is projected to decline by 5.8% year-over-year, operating profit is expected to increase by 82.5%. The firm cited the ongoing slowdown in Chonbang demand and the fact that Taimide, a Taiwanese competitor, has also been experiencing negative revenue growth since July.

However, the firm predicted that an expanding revenue share from high-value-added products would underpin profitability. Next year, the share of high-value-added products within the FPCB segment is expected to exceed 70%, and the majority of heat-dissipating sheet shipments are projected to shift to high-density products. The expansion of high-value-added products and the full-scale shipment of high-density heat-dissipating films are expected to drive up the average selling price (ASP), allowing the company to maintain high profitability despite sluggish Chonbang demand.

In the medium to long term, the company also highlighted the potential to expand its business scope into new application areas—such as industrial, aerospace, and humanoid robots—based on synergies with its parent company, Arkema. Analysts note that the advanced industrial sector has relatively low dependence on the mobile market, and as applications are expanding into industrial and aerospace markets, revenue diversification is expected.

However, the report noted that the company’s high dependence on smartphone sales makes it difficult to escape the slowdown in Chonbang demand, and that it will take time for full-scale revenue growth to resume. While the fair value estimate was lowered to reflect downward revisions to earnings forecasts, the “Buy” rating was maintained, considering that the 12-month forward price-to-earnings ratio (P/E) is at a historic low not seen since 2015 and the company’s medium- to long-term growth potential.