1. Explosive Revenue Growth Overshadowed by Net Income Shock

Avaco reported Q2 revenue of KRW 159 billion, a remarkable 77% increase year-over-year. The robust growth in the OLED equipment segment and increased investments from key clients fueled this surge. However, net income came in at KRW 6.7 billion, significantly below the market consensus of KRW 18.4 billion, leading to concerns about a “net income shock.” Potential reasons include allowances for bad debts related to long-term accounts receivable or one-off expenses, necessitating further investigation.

2. Fundamental and Historical Performance Analysis: Growth and Risk

Driven by strong performance in the OLED equipment segment, Avaco continues its rapid growth trajectory. Half-year revenue has already surpassed the previous year’s total, and the operating profit margin reached 8.65%, marking a successful turnaround. However, high inventory levels, substantial accounts receivable, and particularly the high allowance for doubtful accounts related to long-term receivables, pose financial risks.

3. Market Environment Analysis: Opportunities and Uncertainties

Increased investments in the display market and growing demand for OLED panels are positive indicators for Avaco. Expansion into new business areas like secondary batteries, semiconductors, and MLCCs further enhances growth prospects. However, macroeconomic uncertainties, such as increasing volatility in the KRW/USD exchange rate and the possibility of sustained high interest rates, require ongoing monitoring.

4. Action Plan for Investors

  • Analyze Net Income Decline: Carefully examine the company’s official announcements to understand the specific reasons behind the decline in net income and assess their plans for future improvement.
  • Monitor Financial Health: Continuously track key financial indicators, such as inventory turnover, accounts receivable turnover, and allowance for doubtful accounts, to manage financial risks.
  • Evaluate New Business Performance: Assess the actual performance and growth contribution of new business areas like secondary batteries, semiconductors, and MLCCs.
  • Consider Macroeconomic Factors: Analyze the impact of macroeconomic factors, including exchange rate and interest rate fluctuations, on Avaco’s performance and incorporate these into your investment strategy.