248070 KS

Publicly traded companies mentioned herein: BOE Technology Group Co Ltd (000725 CH), Macy’s Inc (M), Pricer AB (PRICB SS), Samsung Electro-Mechanics Co Ltd (009150 KS), Samsung Electronics Co Ltd (005930 KS), SES-imagotag SA (SESL FP), Solum Co Ltd (248070 KS), Walmart Inc (WMT)

Highlights

The presenter is long shares of Solum Co Ltd (248070 KS), which was spun out of Samsung Electro-Mechanics in 2015 and operates two business segments. The first business manufactures components for consumer electronics devices, most of which go into Samsung Electronics products like TVs. This segment has grown LDD% each of the last two years with LSD% – MSD% operating margins and is expected to grow topline HSD% this year (trending toward MSD% longer term). He is neutral towards this segment but is bullish on the second business, which sells electronic shelf label (ESL) products to retailers and accounts for ~1/3 of sales and ~2/3 of operating profits. Solum is one of three players globally in an oligopolistic ESL market and maintains ~30% market share, behind the #1 player SES and ahead of Pricer. Solum’s ESL segment has grown ~60% each of the last two years and is expected to grow ~80% this year with ~10% margins as penetration continues in Europe and just begins in the US (5% penetration in the US). The stock is trading at just under 15x consensus 2023 EPS of ₩1,860, which he considers undervalued given his forecast for 30% growth for several years, the attractive industry structure, and the valuation discount to SES which currently trades at 45x consensus 2023 earnings and traded above 60x consensus earnings in early 2022.