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Earnings growth expected in 2H25

1Q25 review: Profitability weakens on higher fixed costs from global expansion

For 1Q25, SoluM reported revenue of W397.4bn (+3.3% YoY) and operating profit of W11.5bn (-43.5% YoY; OP margin of 2.9%). While revenue grew modestly YoY, operating profit declined sharply due to an increase in fixed costs. We believe this was largely driven by up-front spending on global expansion efforts, including the establishment of subsidiaries in North America and Japan and the hiring of local personnel.

By division, the electronic components and ICT businesses posted OP margins of 2% and 5.8%, respectively. Notably, most of the aforementioned fixed cost spending appears to have been concentrated in the ICT division. We believe the cost increase was largely temporary and expect operating leverage to materialize gradually from 2H25.

Strong order visibility and North America momentum to drive recovery in 2H25

For 2025, we look for revenue of W1.76tr (+10.6% YoY) and operating profit of W98bn (+41.9% YoY; OP margin of 5.6%). As of end-1Q25, the order backlog stood at W2.1tr, mostly consisting of long-term projects expected to be reflected in revenue over three years. With many of these projects set to begin contributing to revenue in 2H25, we anticipate a meaningful pickup in quarterly earnings.

Global customer base expansion accelerating on increased trial deployments

In 2024, SoluM’s trial (proof-of-concept) deployments increased sevenfold YoY, with a reported success rate of over 80% in Japan. By expanding its overseas operations, the company has successfully carried out various electronic shelf label (ESL) pilot projects across key markets, which are now translating into actual orders.

Additionally, four major projects are currently underway with large North American customers, signaling a full-fledged push into the key North American market (which the company has prioritized since its stock began to diverge from VusionGroup in Jun. 2023). With several more projects in the pipeline, we expect order growth and customer base expansion to continue.

Cut TP to W20,000 (from W29,000), but maintain Buy

We maintain our Buy rating on SoluM but cut our target price to W20,000, which we derived by applying the stock’s average P/B over the past year to our 2025F BPS of W11,772. Despite rising fixed costs, we expect the company to stage a meaningful turnaround on the back of an earnings recovery in 2H25, enhanced order visibility in North America, and an expanding global customer base.