Hanmi Semiconductor's 1,200% Surge Tests Investor Nerves Amid AI Chip Boom

Key Takeaway

• Hanmi Semiconductor's stock surged 1,200% since end-2022, driven by AI chipmaking equipment demand and CEO Kwak Dong Shin's significant stake.
• Despite gains, foreign ownership dropped to 13.2% from 16.5%, reflecting concerns over high valuations at 80 times estimated earnings.
• Nvidia’s bullish sales forecast boosted broader Asian semiconductor stocks; TSMC hit record highs amid strong AI semiconductor demand projections until 2025.

Hanmi Semiconductor's Stock Surge

Hanmi Semiconductor Co. has experienced a remarkable 1,200% increase in its share price since the end of 2022, driven by strong demand for its AI-related chipmaking equipment. This surge has made Hanmi the most expensive stock on a regional gauge of chip-related peers, relative to forward earnings estimates. The company's thermal compression bonders, which are supplied to SK Hynix Inc. for high-bandwidth memory used by Nvidia Corp., have been a significant factor in this growth. Additionally, Hanmi recently secured an order from Micron Technology Inc.

CEO Kwak Dong Shin has played a pivotal role in this surge, amassing a nearly 36% stake in the company, valued at $3.7 billion. His continuous share purchases over the past year and expectations of Hanmi's addition to the blue-chip Kospi 200 Index in the June review have further fueled investor enthusiasm. "It’s very unique that the CEO keeps buying shares," said Ahn Hyunsang, CEO at Korea Investment Research Institute. However, Ahn also noted, "The stock is very expensive based on the price-to-earnings ratio, so I’m not sure if there are any more legs to this rally."

Foreign Investors' Caution

Despite the impressive gains, some investors are beginning to cash out due to the high valuations. Foreign ownership of Hanmi Semi has declined to 13.2% as of Wednesday from 16.5% in mid-February. "People who bought out of ignorance have left, and now some investors are having second thoughts," said Yoon Joonwon, a fund manager at DS Asset Management Co. While foreign investors may still see potential, they are less certain now, whereas local funds "seem to be holding despite doubts."

Hanmi Semiconductor is currently trading at around 80 times estimated earnings for the next year, more than any other stock in the 40-member FactSet Asia Semiconductor Index. According to DS Asset’s Yoon, the company would need to make 1 trillion won ($730 billion) in annual net income to justify its current valuation, yet it reported a net income of 267 billion won for 2023.

Broader Market Impact

The broader market for chip-related stocks in Asia has also seen a boost, largely due to Nvidia Corp.'s latest bullish sales forecast. The Bloomberg Asia Pacific Semiconductors Index climbed as much as 1.7% to its highest level since February 2021. Among major Nvidia suppliers, Taiwan Semiconductor Manufacturing Co. (TSMC) gained as much as 1.5% to a record high. Nvidia’s shares jumped more than 7% in late US trading after the company reported results and a revenue outlook that beat analyst expectations, while also announcing a 10-for-1 stock split.

Bloomberg Intelligence analyst Charles Shum noted, "Nvidia’s guidance and rising capex by majors suggest continuously strong demand for AI semiconductors, at least until 2025." TSMC, as the exclusive manufacturer of some of Nvidia’s key chips, is "on track to achieve mid-20% sales growth despite a slow recovery in smartphone and PC chips," he added.

Street Views

• Yoon Joonwon, DS Asset Management Co. (Neutral on Hanmi Semiconductor):

  "People who bought out of ignorance have left, and now some investors are having second thoughts... Foreigners may still be attracted to the potential but are less certain now, while local funds seem to be holding despite doubts."

• Ahn Hyunsang, Korea Investment Research Institute (Bearish on Hanmi Semiconductor):

  "The stock is very expensive based on the price-to-earnings ratio, so I’m not sure if there are any more legs to this rally."

• Jay Kwon, JPMorgan Chase & Co. (Bullish on Hanmi Semiconductor):

  "Hanmi projects a strong recovery in 2024 with potential upside from additional order wins... The company expects thermal compression to be the mainstream at AI memory makers for the next three years, and that its superior technology will help it beat competitors like ASMPT Ltd."