Display
Sector Report / Display
August 16, 2011
Large AMOLED gets a cost edge over
LCD
Overweight (Maintain)
Company
Rating TP (KRW)
Cheil Ind. (001300)
BUY
140,000
Duksan Hi-Metal(077360)
BUY
37,000
SFA Engineering (056190)
BUY
80,000
BUY
98,000
ICD (040910)
AP Systems (054620)
Not rated
Advanced Nano Products (121600)
BUY
NA
25,000
Contents
1. Display capex fast shifts from LCD to
AMOLED .....................................................1
2. Large AMOLED manufacturing costs by
technology ..................................................3
3. Material and equipment makers have the
most investment appeal ...........................6
Large AMOLED to start pilot production in 2012 and enter
mass production stage in 2013
Samsung Mobile Display (SMD) and LG Display (LGD) should dip their
toes in the large AMOLED waters in 2012. Both SMD and LGD are
working on 8G AMOLED pilot lines, which should be ready for test runs in
2012. We expect the large-size AMOLED camp to be split between SMD’s
p-Si based TFT substrates and LGD’s a-Si based oxide TFT substrates.
SMD should outperform LGD in terms of substrate functionality but LGD
should deliver greater cost savings than its rival. Samsung Electronics
(Samsung) is reportedly developing oxide TFT technologies but the type of
technology, investment scale, or production timing remains uncertain.
Given the early mover’s advantage in the TV market, we expect the mass
production of large AMOLED panels to start from 2013 or 2014 at the
latest.
LCD capex reduction but ongoing AMOLED capex
As the recovery of the LCD market has been delayed, LCD panel makers
are rapidly scaling back capex. The global top four LCD players slashed
their 2011F capex by 30%-50% compared to initial plans (35% YoY).
Investments, however, remain intact in AMOLED and high-end LCD panels.
SMD should go ahead with 5.5G capex and AMOLED pilot lines, while
LGD is gearing up to pilot-run large AMOLED panel lines and Taiwanese
panel makers are shifting to oxide TFT lines.
Cost-competitive oxide TFT to lead large AMOLED
82-2-3276-6235
mskang@truefriend.com
As large panels are more cost-sensitive than small to mid segments, the
large AMOLED panel market is likely to adopt a-Si based oxide TFT
technology, not LTPS technology, to gain cost competitiveness. Oxide TFT
technology allows panel makers to diversify product mix because it is
widely applicable from AMOLED to glass-free 3D LCD panels and ultradefinition LCD panels. LTPS technology should improve and be
commercially viable over the long term. But we believe oxide TFT will lead
the development of large AMOLED because it reduces initial capex
requirements.
Matthew Yang
Beneficiaries of large AMOLED
82-2-3276-6174
matthew.yang@truefriend.com
The TV display market is worth 10 times more than the mobile display
market in terms of area surface. As such, if equipment or material vendors
can extend their market reach beyond the small to midsize to large
AMOLEDs, we believe they deserve high valuation. Our top-picks are
Cheil Ind and Duksan Hi-Metal, steadfast materials suppliers, and SFA and
ICD whose equipment can be used on large-size panel lines.
Jay Yoo, CFA
82-2-3276-6178
jongwoo.yoo@truefriend.com
Moon Sung Kang
Heuiseok Jeong
82-2-3276-6277
heuiseok.j@truefriend.com
Sector report focus
What is the report about?
Sector highlights
• Analyze large AMOLED capex and market developments
• Examine Samsung Mobile Display’s and LG Display’s cost
structure and technologies and forecast their business directions
• Identify beneficiaries from the expansion of the large-size
AMOLED market and recommend investment strategies
1) Oxide TFT to lead the large AMOLED panel market
• AMOLED market winners should be those who can roll out
Key assumptions and valuation
LCD capex by major panel makers
2008 2009
LG Display
SEC’s LCD
AUO
CMI
Total
2,667
3,896
3,081
3,203
12,846
3,209
1,683
2,004
1,423
8,319
(USD mn)
2010 2011F 2012F
4,377
4,109
2,639
2,671
13,796
2,759
2,858
1,714
1,701
9,032
1,810
1,357
1,086
1,086
5,339
2010-2011F
growth
-37.0%
-30.4%
-35.0%
-36.3%
-34.5%
2011-2012F
growth
-34.4%
-52.5%
-36.7%
-36.1%
-40.9%
products at a faster pace and at a cheaper price than rivals.
• It is important to secure cost competitive in the TFT process,
which is a major cost factor to AMOLED production.
• The Oxide-TFT AMOLED method is 34% more cost effective
than p-Si AMOLED and 28% than LCD a-Si method.
• LG Display and Samsung Electronics are likely to covert its
LCD lines to oxide-TFT AMOLED method.
Cost analysis by AMOLED technology
(won/m2 per month)
Capex per unit area
600,000
Cash cost per unit area
Total cost per unit area
Source: Company data, Korea Investment & Securities
500,000
400,000
AMOLED capex by major panel makers
( USD mn)
300,000
2009
LG Display
SEC’s LCD
AUO
CMI
Total
257
257
2010
2011F
2012F
183
1,833
2,016
642
4,125
4,766
452
6,829
452
452
8,186
2010-2011F
growth
250.0%
125.0%
136.4%
2011-2012F
growth
-29.5%
65.6%
71.8%
200,000
100,000
0
TFT-LCD
ELA+FMM
ELA+LITI
Ox ide+FMM
Source: Company data, Korea Investment & Securities
Source: Market data, Korea Investment & Securities
Sensitivity & scenario analysis
2) Materials and equipment vendors look attractive if they
• Large AMOLED TV to debut in 2012 and enter the mass
production stage in 2014 at the latest
can serve large AMOLED
• Order momentum may differ by AMOLED equipment maker as
Area-based demand for mobile panels and TV panels
their clients may change process technologies to produce
large AMOLED panels.
• AMOLED material suppliers should be able to easily extend
(Km2)
90,000
their market reach beyond small AMOLED to include large
AMOLED.
• Large AMOLED equipment vendors deserve a PER of 15x,
75,000
60,000
11.8 fold increase
which is the level that LCD equipment vendors traded at
during the expansion of the large LCD panel market in 20042005.
• Materials suppliers’ high valuation levels are justifiable
45,000
30,000
15,000
0
Panel demand f or handset in terms of area
Panel demand f or LCD TV in terms of area
because large AMOLED panels need material input.
Source: Company data, Korea Investment & Securities
Peer comparison
Risks/opportunities
• AMOLED materials and equipment vendors are overvalued to
• AMOLED investments should accelerate when the LCD market recovers.
• If the global economic slowdown drags on, the AMOLED
market faces investment delays or retrenchment.
• Peer group PER band.
other players in the display value chain.
Display
1. Display capex fast shifts from LCD to AMOLED
Capex is rapidly shifting
from LCD to
large AMOLED; SMD
leads the transition
As the LCD panel market remains weak, major panel makers continue to scale
back their LCD capex. During the 2Q11 earnings season, the top five panel
producers, which represent 82% of global LCD panel production capacity,
announced their decision to cut annual LCD capex by 30-50% compared to the
initial plans set in early 2011. As such, LCD capex should decline 35% YoY in 2011
and the pace of capex cuts should accelerate in 2012. But, LCD capex
retrenchment should allow market leaders to spend more on large AMOLED.
Samsung Mobile Display (SMD), which is operating a 5.5G AMOLED line is
expected to start 8G investments in 2012. LG Display (LGD) is also looking toward
the mass production of 8G from 2013.
Korean and Taiwanese
panel makers are
passive investors in
China
Unlike Chinese counterparts, Korean and Taiwanese panel makers are passive
LCD investors in China. Major foreign makers were in a hurry to obtain capex
approval from the Chinese government in early 2010. But most of these capex
projects are being delayed due to chronic market oversupply. LGD was the first to
clear the regulatory hurdle but is still sitting on its capex plan. Pending the approval
process, LGD has already secured LCD production capacity domestically, which
makes it unnecessary to rush overseas capex. In contrast, Samsung Electronics
(Samsung) needs additional LCD capacity because the company has not invested
in domestic facilities. Nevertheless, Samsung is likely to chew over its Chinese
capex. Taiwanese panel makers also said they do not plan capex in China in the
near term.
LCD capex by major panel makers
(USD mn)
2008
2009
2010
2011F
2012F
LG Display
2,667
3,209
4,377
2,759
1,810
2010-2011F
growth
-37.0%
2011-2012F
growth
-34.4%
Samsung LCD
3,896
1,683
4,109
2,858
1,357
-30.4%
-52.5%
AUO
3,081
2,004
2,639
1,714
1,086
-35.0%
-36.7%
CMI
3,203
1,423
2,671
1,701
1,086
-36.3%
-36.1%
Total
12,846
8,319
13,796
9,032
5,339
-34.5%
-40.9%
Source: Company data, Korea Investment & Securities
Quarterly LCD capex
(USD mn)
5000
4000
3000
2000
Capex
retrenchment stage
1000
1Q05
4Q05
3Q06
2Q07
1Q08
4Q08
3Q09
2Q10
1Q11
4Q11F
Source: DisplaySearch, Korea Investment & Securities
1
Display
While LCD capex projects face delays and reductions, the large AMOLED panel
market sees a looming capex race among Korean display makers. As the 8G pilot
line is fully equipped, SMD, which leads the capex race, should be ready for trial
runs. SMD is expected to invest in a mass production line in 1H12 when the pilot
test is complete. LGD scaled back its investments in LCD and small AMOLED but
remains committed to large AMOLED. LGD plans pilot-production of 55” AMOLED
TV panels in 2H12. LGD plans to build 60K-capacity large AMOLED panel lines
from 2013 with a goal to start mass production in 2014. Taiwanese panel makers
have yet to unveil large AMOLED panel capex but are likely to take their cues from
SMD and LGD.
Korean display makers
in an AMOLED capex
race
Major panel makers’ AMOLED timeline
Note: A2 P3 is expected to exclude TFT-process
Source: Korea Investment & Securities
Who can roll out
AMOLED faster and at a
cheaper price?
The TV market plays by marketing and cost competitiveness, rather than
technology. As such, AMOLED market winners should be those who can roll out
products at a faster pace and at a cheaper price than rivals. We believe SMD and
Samsung will make a faster advance to the AMOLED market than their rivals.
However, SMD still does not have production lines dedicated to large panels. SMD
cannot switch its LCD line to AMOLED, which erodes its cost competitiveness and
requires changes in production technologies. Given SMD’s weak cost
competitiveness, there is a growing possibility for Samsung to enter the large
AMOLED panel business. Samsung can convert its LCD lines to oxide TFT
AMOLED panels just as LGD does. Samsung can sharpen its competitive edge
quickly when its oxide TFT meets SMD’s organic deposition technologies. LGD
faces growing concerns over the large panel business due to its suspension of
small AMOLED panel business. To compensate for its weaker financing capacity
compared to Samsung, LGD will enhance cost competitiveness through line
conversion from LCD to AMOLED.
Large AMOLED technologies adopted by SMD, Samsung, LGD
Samsung Electronics
TFT-Backplane process
Deposition process
Encapsulation process
Oxide TFT
SMS (same as SMD)
glass/metal type (same as SMD)
SMD
poly-Si TFT
SMS
glass/metal type
LG Display
Oxide TFT
White OLED
glass/metal type
2
Display
2. Large AMOLED manufacturing costs by technology
Oxide TFT technology is
optimal for large
AMOLED panels
We view oxide TFT technology as the most optimal for large AMOLED panel
production. Although the oxide TFT AMOLED panel is technologically inferior to
LPTS AMOLED, it could be the best choice in terms of cost competitiveness, which
is crucial for the large panels used in TVs. In contrast to LTPS, oxide TFT
technology is compatible with the process and equipment of existing LCD-use TFT
lines, which sharply reduces the initial capex burden for AMOLED panel makers.
The technology has not been applied for mass production and thus the production
yield remains uncertain. However, many panel makers are now preparing for mass
production by applying oxide TFT technology to existing LCD lines and will soon
start the pilot test. In addition to AMOLED panels, high-end glassless 3D and ultradefinition LCD panels can be built on the oxide TFT technology. As such, the oxide
TFT technology will allow panel makers to diversify product lineups.
Evolution of small and midsized AMOLED panel
technology
Source: Industry data, Korea Investment & Securities
Oxide TFT AMOLED
manufacturing costs
34% less than LTPS
AMOLED or 28% less
than LCD panel
Evolution of large AMOLED panel technology
Source: Industry data, Korea Investment & Securities
Manufacturing of AMOLED panels on the existing LCD TFT line using the oxide
TFT technology will cost 34% less than LTPS AMOLED panels or 28% less than
LCD panels. AMOLED panels’ parts cost 40% less than those for LCD panels but,
to remain competitive in terms of total costs, the capex burden needs to be
contained. The area capex for excimer laser annealing (ELA)-based LTPS
AMOLED panels is four times greater than LCDs’. As it offsets cost reduction on
the parts front, the LTPS AMOLED’s total manufacturing costs surpass LCD
panels’ in the end. In contrast, capex increase is limited for oxide TFT AMOLED
panel production and thus its total costs should be 20% less than LCD panels’. As
such, we believe the oxide TFT technology, which uses the existing LCD TFT line,
will be adopted for large AMOLED panel production in the initial phase.
8G TFT technology by company
Company
SMD
Samsung
Electronics
LG Display
Technology
Mobility Uniformity Stability
Advanced
100cm2/Vs
ELA
SGC 10~40cm2/Vs
High
Oxide TFT
9cm2/Vs
High
Oxide TFT
9cm2/Vs
High
Low Very high
No. of
Temperature
masks
Cost
Technological
complexity
7~10
Low
High
High
High
4~6
High
Low
Low
High
4~5
Low
Low
Low
High
4~5
Low
Low
Low
Source: Company data, Korea Investment & Securities
3
Display
Unit costs by technology
Panel size (mm)
AMOLED 8G
(Oxide+FMM)
2,200x2,500
AMOLED 8G
(ELA+FMM)
2,200x2,500
AMOLED 8G
(ELA+LITI)
2,200x2,500
4
10
11
3
120
120
120
120
Capex (W trn)
Capacity (1,000 sheets per month)
Total capacity for 5yrs by area (1,000m2)
2
Capex per area (KRW/m per month)
Unit cash cost (KRW/m2 per month)
2
Total cost per area (KRW/m per month)
LCD 8G line
2,200x2,500
39,600
39,600
39,600
39,600
95,833
252,525
282,828
75,758
204,545
204,545
204,545
340,909
300,379
457,071
487,374
416,667
Note: Assuming useful life of five years
Source: Industry data, Korea Investment & Securities
Cost analysis: per area
AMOLED 8G
(Oxide+FMM)
95,833
LCD 8G line
Capex per area (KRW/m2 per month)
75,758
Capex per area (KRW/m2 per month)
TFT backplane process
40,152
TFT backplane process
CF & cell/module process
35,606
Deposition (evaporation) & encapsulation
20,076
75,758
Cash cost per area (KRW/m2 per month)
340,909
Cash cost per area (KRW/m2 per month)
204,545
Total cost per area (KRW/m2 per month)
416,667
Total cost per area (KRW/m2 per month)
300,379
Note: Key assumptions: 1) LCD cash cost per area: 4.5 times capex per area, 2) OLED line cash cost: 60% of LCD line, 3) Oxide OLED line can use the existing LCD line and thus
its TFT backplane process costs 50% less than its LCD counterpart
Source: Industry data, Korea Investment & Securities
Cost analysis: per area
AMOLED 8G
(ELA+FMM)
252,525
Capex per area (KRW/m2 per month
TFT backplane process
176,768
AMOLED 8G
(ELA+LITI)
282,828
Capex per area (KRW/m2 per month)
TFT backplane process
176,768
Deposition (evaporation) & encapsulation
75,758
Deposition (LITI) & encapsulation
Cash cost per area (KRW/m2 per month)
204,545
Cash cost per area (KRW/m2 per month)
204,545
106,061
Total cost per area (KRW/m2 per month)
457,071
Total cost per area (KRW/m2 per month)
487,374
Note: Key assumptions: 1) OLED line cash cost: 60% of LCD line, 2) LITI deposition: 40% greater than FMM method, 2) LITI deposition method costs 40% more in the deposition
process than the FMM method
Source: Industry data, Korea Investment & Securities
8G AMOLED (oxide) costs vs. 8G LCD
75,758
AMOLED 8G
(Oxide+FMM)
95,833
Cash cost per area (KRW/m2 per month)
340,909
204,545
-40.0%
Total cost per area (KRW/m2 per month)
416,667
300,379
-27.9%
AMOLED 8G
(ELA+FMM)
252,525
AMOLED 8G
(Oxide+FMM)
95,833
Cost reduction
or increase
-62.1%
176,768
20,076
-88.6%
75,758
75,758
0.0%
Cash cost per area (KRW/m2 per month)
204,545
204,545
0.0%
Total cost per area (KRW/m2 per month)
457,071
300,379
-34.3%
LCD 8G line
Capex per area (KRW/m2 per month)
Cost reduction
or increase
26.5%
Source: Industry data, Korea Investment & Securities
Oxide-based 8G AMOLED vs. ELA-based 8G AMOLED
Capex per area (KRW/m2 per month)
TFT backplane process
Deposition & encapsulation
Source: Industry data, Korea Investment & Securities
4
Display
AMOLED (oxide) costs vs. LCD
(won/m2 per month)
Capex per area
600,000
Total cost per area
Total cost per area
500,000
400,000
300,000
200,000
100,000
0
TFT-LCD
ELA+FMM
ELA+LITI
Oxide+FMM
Source: Industry data, Korea Investment & Securities
Panel makers should
speed up large
AMOLED panel
production to shore up
profitability
LCD panel makers’ profitability has continued to fall hit by slowing LCD TV
shipment growth. Their profitability moves up and down as the industry cycle
changes. Panel makers’ operating margin reached 20% in 2H07, the first upcycle
since they entered the full-scale production of LCD panels used in TVs. The
upcycle revisited the industry in 1H10 but the panel producers’ operating margin
averaged 10%, a sharp decline from the past. To shore up the operating margin,
panel makers are considering starting production of large AMOLED panels earlier
than scheduled as it is more cost competitive than LCD panel production. We
believe there will be intense competition to build presence in the market before the
rivals square off because profitability tends to be higher while the market is still
burgeoning.
Global panel makers’ OP margin
40%
30%
20%
10%
0%
1Q03
4Q03
3Q04
2Q05
1Q06
4Q06
3Q07
2Q08
1Q09
4Q09
3Q10
2Q11
-10%
-20%
-30%
Note: Global panel makers refer to Samsung Electronics (LCD business), LG Display, AUO and CMI.
Source: Company data, Korea Investment & Securities
5
Display
3. Material and equipment makers have the most
investment appeal
Material suppliers are
the most appealing
Material suppliers are the most appealing among AMOLED-related companies as
they can continue to benefit from the production of both small and large AMOLED
panels. Although there are differences between the materials used in small and
large AMOLED panels, it does not mean material suppliers have to drastically alter
their product mix. Thus, major material suppliers should continue to supply
products used in the production of small and large panels and their supply volume
should grow rapidly as well when the production area expands. In addition,
companies that can supply indium gallium zinc oxide (IGZO) required for oxideTFT processing should be able to benefit from the growth of the large AMOLED
panel industry.
Even if all handsets
were to adopt AMOLED
panels, demand for TV
panels would still be 12times more than that for
mobile panels
The TV panel market is appealing because its area-based demand is at least 12times bigger than that of the mobile display market. At present, AMOLED panels
have less than 5% share in the handset display market. Even if all handsets were
to adopt AMOLED panels (4-inch), the mobile display market’s area-based
demand would still be less than the 8% total demand for LCD TV panels that are
expected to sell in 2011. While mobile displays are more expensive than large
displays in terms of costs per unit area and prices, the TV panel market has much
stronger growth potential.
Area-based demand for mobile panels and TV panels
(Km2)
90,000
75,000
60,000
11.8 fold increase
45,000
30,000
15,000
0
Panel demand f or handset in terms of area
Panel demand f or LCD TV in terms of area
Source: DisplaySearch, Korea Investment & Securities
Material suppliers’
ability to satisfy
demand for both small
and large panels may
justify their high
valuation
6
As the TV panel market is enormous, the companies that can supply equipment or
materials used in the production of large AMOLED displays will have a wide
window of opportunity to achieve growth. In particular, as new technologies are
required for the production of large panels, the firms that can supply processing
equipment that satisfies such demand will be afforded fresh opportunities. As for
material suppliers, they are able to supply products for small and large panels
without drastically altering their product mix, which justifies their higher valuation
compared to equipment makers. At present, DS Hi-Metal’s stock trades at a PER
of 25x and 15x 2011F and 2012F EPS, respectively. But when we consider the
large panel market’s area-based demand for materials can grow more than 10times bigger than that of the mobile market, DS Hi-Metal’s high valuation is fully
justified.
Display
DS Hi-Metal’s PER band
Cheil Ind.’s PER band
(KRW)
(KRW)
70,000
160,000
x 48.0
60,000
x 18.0
140,000
x 15.0
x 36.0
50,000
120,000
100,000
40,000
x 24.0
80,000
x 12.0
60,000
x 9.0
30,000
20,000
x 15.0
10,000
40,000
x 6.0
20,000
0
Oct-05
Jul-06
Apr-07
Jan-08
Oct-08
Jul-09
Apr-10
0
Jan-03
Jan-11
Source: Company data, Korea Investment & Securities
May-04
Sep-05
Jan-07
May-08
Sep-09
Jan-11
Source: Company data, Korea Investment & Securities
SFA’s PER band
AP System’s PER band
(KRW)
(KRW)
18,000
90,000
x 17.0
x 12.0
16,000
80,000
70,000
x 9.0
14,000
60,000
12,000
50,000
10,000
x 13.0
x 9.0
8,000
40,000
x 6.0
6,000
30,000
x 4.0
20,000
x 5.0
4,000
2,000
10,000
0
Jan-03
May-04
Sep-05
Jan-07
May-08
Sep-09
0
Jan-03
Jan-11
Source: Company data, Korea Investment & Securities
May-04
Sep-05
Jan-07
May-08
Sep-09
Jan-11
Source: Company data, Korea Investment & Securities
SNU’s PER band
Display equipment makers’ PER band
(KRW)
(won bn)
40,000
3,500
x15.0
3,000
35,000
2,500
30,000
x 17.0
25,000
x 14.0
x12.0
2,000
20,000
x 11.0
x9.0
1,500
1,000
x6.0
500
15,000
0
10,000
x 8.0
-500
5,000
0
Jan-05
-1,000
Jan-06
Jan-07
Jan-08
Jan-09
Source: Company data, Korea Investment & Securities
Jan-10
Jan-11
-1,500
Dec-01
Mar-03
Jun-04
Sep-05
Dec-06
Mar-08
Jun-09
Sep-10
Note: Display equipment makers are SFA, DMS, KC Tech, Jusung Engineering, Top
Engineering
Source: Company data, Korea Investment & Securities
7
Display
Among equipment
makers, those with
steady order flows are
the most attractive
The technology switch at panel makers presents both opportunities and risks to
equipment suppliers. SMD’s technological changes at 5.5G fabs where capacity
additions are taking place have shed a positive light on some, but not all. SMD
plans to adopt the LITI (laser-induced thermal imaging) deposition method on its
5.5G P3 lines in parallel with the conventional fine-metal mask (FMM) method.
This offers fewer chances of orders for FMM-based equipment makers such as
SFA and SNU Precision but more opportunities for AP Systems, a supplier of laser
deposition equipment that is key to the LITI process. SFA has the potential to
offset the negative effect as it also produces equipment necessary for the LITI
process. Like this, technological changes made by panel makers will continue to
be a mixed bag of pros and cons for vendors. If the technology norm shifts from
LTPS to oxide TFT in the TFT backplane process with the heaviest capex burden
across the entire AMOLED panel process, the equipment order momentum should
vary from company to company.
Producers of oxide TFT
process equipment
merit attention given the
high applicability to
larger panels
Among equipment vendors, we draw attention to producers of the oxide TFT
process equipment as the process is likely to go mainstream in the large AMOLED
panel market. The necessity of the new processes in addition to the TFT-LCD
substrate manufacturing underlines the need for new equipment such as highdensity plasma etchers or heat treatment equipment. Accordingly, suppliers of
such equipment are worthy of attention.
LCD equipment makers’
PER peaked at 15x in
2004
LCD equipment makers’ PER rose to 15x during 2004-2005 when capex to
produce 40-inch or larger LCD TV panels was underway. We believe the PER of
vendors for large AMOLED panels has the potential to reach the same level as
capex for large AMOLED TV panels should start from 2012 and this will, in turn,
give a boost to equipment makers. As such, we applied a PER of 15x to SFA and
ICD that serve large panel makers.
AMOLED technology by generation and process
5.5G (1,500X1,300) A2 P3
5.5G (1,500X1,300) A3
8G V1
1) 24K (P1)+40K (P2)
5.5G (1,500X1,300) A2 P1-P2
32K
100K
8K
2) ELA (two-scan)
ELA (two-scan)
ELA (one-scan)
Advanced ELA
SGC
A-SPC
FMM (horizontal, cut a mother glass LITI (cut mother glass into 4 units,
into 4 units)
for red, green materials)
FMM (horizontal, cut a mother glass
into 4 units for blue and other
materials)
Glass-type
4) Glass-type
3)
Thin-film-type
LITI (mother glass, for red, green
materials)
FMM (vertical, mother glass for blue
and other materials)
Metal-type
Glass-type
Thin-film-type
Metal-type
Note: 1) capacity per month, 2) TFT backplane process, 3) deposition process, 4) encapsulation process
Source: Industry data, Korea Investment & Securities
8
Oxide (IGZO)
SMS (horizontal, cut a mother glass
into 6 units)
Display
Oxide flow chart (backplane manufacturing)
Source: Korea Investment & Securities
LTPS flow chart (backplane manufacturing)
Source: Korea Investment & Securities
9
Display
AMOLED supply chain
Product
Company type
Company
Domestic
Domestic
DS Hi-Metal, Doosan Corp. Electro-Materials, Cheil Ind.
NSC (Japan)*, Idemitsu Kosan (Japan), Hodogaya (Japan), Merck (Germany), Toyo Ink (Japan), Kodak
(US)
LG Chem., DS Hi-Metal
Foreign
NSC(Japan)*, Idemitsu Kosan (Japan), Hodogaya (Japan)
AMOLED material
HTL
Foreign
HIL
ETL
EIL
EML (red)
Domestic
LG Chem., Cheil Ind.
Foreign
NSC (Japan)*, Idemitsu Kosan (Japan), Merck (Germany), Toyo Ink (Japan), DuPont (US)
Domestic
LG Chem
Foreign
NSC (Japan)*, Cerac (US)*, DuPont (US)
Domestic
Dow Chemical*
Foreign
NSC (Japan)*, Idemitsu Kosan (Japan), Merck (Germany), Kodak (US), DuPont (US)
EML (green)
Domestic
Doosan Corp. Electro-Materials
Foreign
NSC (Japan)*, Idemitsu Kosan (Japan), Eray (Taiwan)*
EML (blue)
Domestic
SFC*, Dongwoo Fine-Chem*, Daejoo Electronic Materials
Foreign
Idemistus Kosan (Japan), Merck (Germany), Kodak (US), DuPont (US)
ITO
Shadow mask
Domestic
Advanced Nano Products
Foreign
-
Domestic
-
Foreign
DNP (Japan), Mitani (Japan)*
Desiccant
Domestic
-
Foreign
Dynic (Japan)*, Gore-tex (US)*, Saes Getters (Italy)
Sealants
Domestic
-
Encapsulant
Foreign
Nagase (Japan), Kyoritsu (Japan)*
Domestic
Nanonix*
Foreign
Donor film for laser evaporation Domestic
NSG (Japan)*
Cheil Ind.
Foreign
Kodak (US)
Domestic
AP System
AMOLED equipment makers
ELA
Foreign
-
FMM deposition
Domestic
SFA, SNU, Avaco, Dong A Eltek, Jusung Engineering, Top Engineering
Foreign
Tokki (Japan)*, Hitachi (Japan)*, ULVAC (Japan)
Laser deposition
Domestic
AP System
Foreign
-
Encapsulation
Domestic
AP System, SFA, SNU, LTS, Avaco, Jusung Engineering
Foreign
Miwa MFG (Japan)*, Vitex (US)*, Lantechnical (Japan)*
Etchers
Domestic
ICD
Foreign
Y.A.C. (Japan)*
Sputtering equipment
Domestic
Avaco
Foreign
ULVAC (Japan)
Domestic
Cheil Ind.
AMOLED material makers
AMOLED polarizer
Foreign
Shenzen Sunnypol Optoelecronic (China), Optimax (Taiwan)
AMOLED donor film
Domestic
Cheil Ind.
Foreign
Kodak (US)
AMOLED driver-IC
Domestic
LDT, Clover Hitech, Silicon Works, Nepes
Foreign
-
AMOLED bezel
Domestic
Sangsin EDP
Foreign
-
Note: Non-listed companies are marked with *
Source: Industry data, Korea Investment & Securities
10
Company
Cheil Ind. (001300)
......................................................................................................................................................................
12
Duksan Hi-Metal (077360) ................................................................................................................................................... 15
SFA Engineering (056190) .................................................................................................................................................. 18
ICD (040910) ........................................................................................................................................................................................ 21
AP Systems (054620) ................................................................................................................................................................ 24
Advanced Nano Products (121600) ......................................................................................................................... 25
Display
Cheil Ind. (001300)
BUY (Maintain), TP: W140,000 (Maintain)
Hopeful 4Q11
Potential dominant supplier of large AMOLED materials to Samsung: Cheil
Ind. (Cheil) should become a dominant supplier of large AMOLED materials to
Samsung. Although development and production of materials for large AMOLED
panels are behind schedule, we remain confident that the company will ultimately
secure a dominant supply share at Samsung. A bright spot is that the company
has started developing films suitable for the LITI (laser-induced thermal imaging)
method in line with the adoption of the LITI technique. Accordingly, its product
portfolio of AMOLED materials is growing more diverse. As Cheil’s forte lies in
large panels rather than mobile panels, panel makers’ ongoing shift to large
AMOLED panel production hints at more business opportunities going forward.
AMOLED materials supply to kick off in Sep upon the completion of mass
production lines: The last phase of Cheil’s AMOLED material development is
testing the prototypes produced at the mass production lines set for completion in
Sep. After Sep, products such as electron transport layer (ETL), pixel defining layer
(PDL) and hole transport layer (HTL) should come on stream, in that order.
Moreover, as the supply dates fall within a similar timeframe as SMD’s ramp-up of
the 5.5G P2 and P3 lines and V1 (8G pilot) lines, shipments should fast increase
after decisions are made to supply the products. In 2012, Cheil will also supply one
or two new AMOLED materials, polarizer and donor films, which should complete
the product mix of 7-8 AMOLED materials.
TV polarizer film business to normalize: We believe the TV polarizer film
business will normalize because its production yield improved to the normal level
at end-2Q11 and shipment volumes are expected to increase. It is also positive
that Cheil’s organization has stabilized with the completion of the post-merger
integration process after taking over its subsidiary Ace Digitech. Although new
product development and market share growth have been slower than our
expectations due to the lackluster LCD market, top-line growth should gain
momentum in 2H11 or 2012. We estimate polarizer film sales at W660bn in 2011F
but the figure should jump to W1.2trn in 2012F. The bottom line is unlikely to turn
profitable in 2011 but the operating margin should climb to 8% in 2012F.
Maintain BUY and TP of W140,000: The stock lost 19% since early Aug due to
disappointing earnings and the stock market crash. The stock trades at the 2011F
PER of 15x and 2012F PER of 11x, the lowest level since Oct 2009. The supply of
new AMOLED materials has been delayed but the start is a matter of when, not if.
We believe the recent correction offers a long-awaited entry point. We maintain
BUY and our TP of W140,000 (target PE 18x the 2011F-2012F average EPS). The
stock has 44% upside. OP should skyrocket 101% QoQ in 3Q11F. Despite
lingering uncertainties over the global economy and the demand side, we believe
Cheil looks more attractive than other IT plays because of its high earnings stability.
August 12, 2011 / W97,500 won / Mkt cap: USD4,520.2mn, KRW4,520.2bn
Yr to
Sales
OP
EBT
NP
PBR
ROE
Dec
(W bn)
(W bn)
(W bn)
(W bn)
(won)
(YoY)
(W bn)
(x)
(x)
(x)
(%)
2009A
4,261
264
155
127
2,654
(18.5)
395
21.3
8.0
1.4
7.1
2010A
5,019
334
314
259
5,395
103.3
468
20.6
12.3
2.0
10.9
Heuiseok Jeong
2011F
5,982
384
369
316
6,448
19.5
540
15.1
9.4
1.7
10.9
82-2-3276-6277
2012F
7,124
573
558
463
9,172
42.2
767
10.6
6.6
1.5
14.3
heuiseok.j@truefriend.com
2013F
8,549
691
686
569 11,269
22.9
915
8.7
5.6
1.5
16.4
Jay Yoo, CFA
82-2-3276-6178
jongwoo.yoo@truefriend.com
12
EPS % chg.
EBITDA
P/E EV/EBITDA
Display
Quarterly earnings estimates
(W bn, %)
2008
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q11P
3Q11F
4Q11F
2011F
2012F
3,728
4,261
1,164
1,309
1,234
1,311
5,019
1,400
1,481
1,519
1,583
5,982
7,124
815
1,209
321
367
370
351
1,410
382
402
470
488
1,742
2,649
Chemicals
1,774
1,827
519
592
568
551
2,231
621
650
694
675
2,641
2,904
Fashion
1,139
1,142
311
325
273
390
1,298
377
397
355
420
1,547
1,571
CGS
2,610
3,018
820
922
880
913
3,534
998
1,105
1,137
1,183
4,424
5,202
% of sales
70.0
70.8
70.4
70.4
71.3
69.6
70.4
71.3
74.7
74.9
74.7
74.0
73.0
SG&A
878
980
267
285
258
341
1150
299
313
256
306
1174
1,349
% of sales
23.5
23.0
22.9
21.7
20.9
26.0
22.9
21.3
21.1
16.9
19.4
19.6
18.9
Operating profit
240
264
77
103
97
57
334
103
63
126
93
384
573
Electronic materials
95
95
30
41
42
19
131
36
27
81
42
186
290
Chemicals
91
124
23
49
43
27
142
35
23
31
30
119
189
Fashion
47
52
25
13
12
13
63
29
11
14
21
75
94
Operating margin (%)
6.4
6.2
6.7
7.9
7.8
4.4
6.7
7.3
4.2
8.3
5.9
6.4
8.0
Sales
Electronic materials
Electronic materials
11.7
7.8
9.4
11.1
11.2
5.3
9.3
9.5
6.6
17.2
8.6
10.7
11.0
Chemicals
5.1
6.8
4.5
8.2
7.6
4.8
6.3
5.7
3.5
4.5
4.5
4.5
6.5
Fashion
4.1
4.6
7.9
3.9
4.4
3.4
4.8
7.6
2.8
4.0
5.0
4.8
6.0
EBT
191
155
80
101
79
54
314
110
55
118
86
369
558
EBT margin (%)
5.1
3.6
6.9
7.7
6.4
4.1
6.3
7.8
3.7
7.8
5.4
6.2
7.8
Net profit
157
127
66
83
65
45
259
92
55
98
71
316
463
Net margin (%)
4.2
3.0
5.7
6.3
5.3
3.4
5.2
6.6
3.7
6.5
4.5
5.3
6.5
Note: K-GAAP stand-alone until 2010 and K-IFRS consolidated from 2011.
Source: Company data, Korea Investment & Securities
13
Display
Balance Sheet
Fiscal year ending Dec. (W bn)
Current assets
Income Statement
2009A 2010A
2011F
2012F 2013F
1,146
1,200
1,360
1,620
1,944
80
18
22
26
31
Accounts receivable
444
461
479
570
684
Inventory
488
562
670
798
958
Cash & cash equivalent
Fixed assets
1,972
2,815
3,312
3,951
4,649
Investments
812
1,573
1,730
2,061
2,473
Tangible assets
988
1,104
1,417
1,694
1,941
Intangible assets
Fiscal year ending Dec. (W bn)
2011F
2012F
2013F
Sales
2009A 2010A
4,261
5,019
5,982
7,124
8,549
Gross profit
1,244
1,484
1,558
1,922
2,306
SG&A expense
980
1,150
1,174
1,349
1,616
Operating profit
264
334
384
573
691
Non-op. profit
179
176
80
80
83
6
2
1
1
1
113
74
15
59
59
Equity gains
26
42
42
42
42
Non-op. expense
287
196
95
95
88
41
27
27
27
20
116
75
15
60
60
17
20
5
6
6
155
314
369
558
686
28
56
53
95
117
0
0
0
0
0
Interest income
61
29
35
42
50
3,119
4,015
4,672
5,570
6,593
607
809
1,125
1,521
2,409
292
344
410
488
586
Short-term borrowing
50
0
0
0
0
Current portion of LT debt
62
191
191
191
191
Interest expense
Long-term debt
542
444
510
588
685
FX losses
Debentures
292
100
100
100
100
90
3
3
3
3
1,149
1,253
1,634
2,109
3,093
Paid-in capital
250
250
262
262
262
Capital surplus
431
429
417
417
417
Capital adjustments
(55)
(51)
(51)
(51)
(51)
Retained earnings
926
1,149
1,425
1,850
2,379
Net profit
127
259
316
463
569
Shareholders' equity
1,970
2,761
3,038
3,462
3,499
EBITDA
395
468
540
767
915
2012F
2013F
Total assets
Current liabilities
Accounts payable
Long-term borrowings
Total liabilities
Cash Flow
Fiscal year ending Dec. (W bn)
C/F from operating
FX gains
Equity losses
Earnings before tax
Income taxes
Profit from discontinued
Key Financial Data
2009A
2010A
2011F
2012F
2013F
Fiscal year ending Dec.
2009A
2010A
2011F
per share data (won)
457
448
602
773
1,340
EPS
2,654
5,395
6,448
9,172
11,269
Net profits
127
259
316
463
569
BPS
39,287
55,682
58,257
66,216
66,774
Depreciation
112
126
150
187
217
DPS
750
750
750
750
750
SPS
Amortization
19
8
6
7
8
Net incr. in W/C
72
(11)
149
131
559
Others
C/F from investing
127
66
(18)
(170)
(274)
(619)
(15)
(13)
(800) (1,383)
Growth (%)
Sales growth
14.3
17.8
19.2
19.1
20.0
OP growth
9.9
26.7
15.0
49.2
20.5
NP growth
(19.4)
103.7
22.0
46.8
22.9
EPS growth
(18.5)
103.3
19.5
42.2
22.9
11.7
18.6
15.4
42.1
19.3
OP margin
6.2
6.7
6.4
8.0
8.1
NP margin
3.0
5.2
5.3
6.5
6.7
EBITDA margin
9.3
9.3
9.0
10.8
10.7
ROA
4.3
7.3
7.3
9.0
9.4
ROE
7.1
10.9
10.9
14.3
16.4
Dividend yield
1.3
0.7
0.8
0.8
0.8
EBITDA growth
Capex
Decr. in fixed assets
(124)
(248)
(470)
(470)
(470)
7
1
1
1
1
Net incr. in current assets
(8)
16
(0)
(0)
(0)
Incr. in investment
(9)
(21)
(118)
(293)
(867)
Others
C/F from financing
(36)
(22)
(32)
(38)
(47)
(224)
(235)
20
31
48
Incr. in equity
0
0
0
0
0
Incr. in debts
(189)
(200)
(0)
(1)
(1)
85,222 104,656 122,165 141,013 169,216
Profitability (%)
Stability
Net debt (W bn)
403
274
270
266
260
Int. coverage (x)
6.4
12.5
14.5
21.6
34.6
25.1
10.6
9.6
8.5
8.4
D/E ratio (%)
Valuation (x)
Dividends
Others
Increase in cash
14
(36)
1
64
(36)
1
(61)
(36)
57
3
(39)
71
4
(39)
PER
21.3
20.6
15.1
10.6
8.7
89
PBR
1.4
2.0
1.7
1.5
1.5
PSR
0.7
1.1
0.8
0.7
0.6
EV/EBITDA
8.0
12.3
9.4
6.6
5.6
5
Display
Duksan Hi-Metal (077360) BUY (Maintain), TP: W37,000 (Maintain)
OLED materials to keep thriving backed by larger AMOLED
Ample upside despite demanding valuation: Duksan Hi-Metal (Duksan)
currently trades at a high 2011F PE 25x, which we view as tenable on the back of
strong growth potential for its AMOLED materials business. We have an upbeat
outlook due to the following. 1) As AMOLED panels get larger, the materials market
will fast expand. 2) Given rivals’ delayed entry to the HTL (hole transport layers)
market, Duksan should be able to hold on to its large share at Samsung Mobile
Display (SMD) after 2011. We peg the 2011F EPS at W1,056, up 116% YoY, and
expect a decent rise of 67% for 2012F. We maintain BUY and a TP of W37,000
that equals a target PE 25x the 2011-2012F average EPS W1,412 (2012F
earnings growth potential priced in). We applied the current PE 25x as the target
multiple given the company’s good earnings visibility.
Larger AMOLED spurs materials market growth: As AMOLED formats get
larger, we expect the OLED materials market to grow rapidly as well. An 8G
AMOLED substrate requires OLED materials 2.8-fold more than a 5.5G substrate.
As AMOLED panel makers make full-fledged investment in 8G lines from 2012, the
HTL market’s growth would get into high gear at the same time. In particular,
Duksan can offer a steady supply of OLED materials regardless of possible
technology changes to the deposition process at 5.5G and 8G lines. Unlike
AMOLED equipment vendors whose orders momentum can slow with the
technology shift, materials suppliers including Duksan face limited risk to sales.
Large presence at SMD to remain intact: Duksan is an exclusive supplier of HTL
to SMD. There is concern that it will face a threat from emerging rivals but we
believe chances of its vendor share shrinking are remote. SMD’s 5.5G phase 2 line
ready to be operational in 2H11 will use the same materials as phase 1 and thus
chances are good that it will continue to use Duksan’s products. It is difficult for a
manufacturer to change a supplier of materials used at the current production line.
Given this, Duksan being equipped with the most stable mass-production lines
should keep the upper hand over rivals. The company’s vendor share could shrink
from the current level when large-size AMOLED panels are made at the phase 3
line as major rivals will pose competitive threats at that time. However, its supply
volume would expand thanks to larger panels. We estimate OLED materials sales
to jump 119% YoY to W74.1bn in 2011F and gain 114% YoY to W158.3bn in 2012F.
August 12, 2011 / W26,700 won / Mkt cap: USD727.7mn, KRW727.7bn
Yr to
Sales
OP
EBT
NP
PBR
ROE
Jay Yoo, CFA
Dec
(W bn)
(W bn)
(W bn)
(W bn)
(won)
(YoY)
(W bn)
(x)
(x)
(x)
(%)
82-2-3276-6178
jongwoo.yoo@truefriend.com
2009A
32
5
6
5
251
NM
8
52.0
35.4
5.1
8.7
2010A
72
13
13
10
489
94.8
22
41.5
22.6
6.7
12.4
2011F
125
33
34
31
1,055
115.7
43
25.3
17.7
6.7
28.4
2012F
213
56
57
52
1,766
67.4
67
15.1
11.0
4.7
34.4
2013F
261
66
67
61
2,084
18.0
78
12.8
9.1
3.5
29.5
Heuiseok Jeong
82-2-3276-6277
heuiseok.j@truefriend.com
EPS % chg.
EBITDA
P/E EV/EBITDA
15
Display
OLED materials sales
(won bn)
Ramp-up of A2
P3 and A3
50
Ramp-up of A2
P2
40
Ramp-up of A2 P1 at
8G line
30
20
10
0
1Q10
3Q10
1Q11
3Q11F
1Q12F
3Q12F
Source: Company data, Korea Investment & Securities
Quarterly earnings estimates
(W bn)
2009
2010
1Q11
2Q11F
3Q11F
4Q11F
2011F
1Q12F
2Q12F
3Q12F
4Q12F
2012F
Sales
32.1
72.5
23.3
29.9
34.3
37.9
125.3
46.0
53.0
53.5
60.1
212.6
OLED
18.1
33.9
10.7
16.9
21.3
25.2
74.1
33.3
39.7
39.4
45.9
158.3
Semiconductor materials
25.7
38.6
12.6
13.0
13.1
12.6
51.3
12.7
13.4
14.1
14.2
54.3
COGS
19.7
42.7
14.8
18.2
20.8
23.1
76.9
28.0
32.4
32.9
37.3
130.7
61.3%
59.0%
63.5%
61.1%
60.7%
60.8%
61.3%
60.9%
61.2%
61.5%
62.1%
61.5%
4.7
13.1
5.6
8.0
9.4
10.3
33.3
12.4
14.2
14.1
15.5
56.3
14.6%
18.1%
24.3%
26.9%
27.3%
27.2%
26.6%
27.0%
26.7%
26.4%
25.9%
26.5%
(% of sales)
OP
OP margin (%)
EBT
EBT margin (%)
NP
NP margin (%)
5.7
12.5
5.8
8.1
9.5
10.4
33.8
12.5
14.3
14.2
15.6
56.6
17.7%
17.3%
24.9%
27.3%
27.6%
27.4%
27.0%
27.2%
26.9%
26.6%
26.0%
26.6%
4.7
10.1
5.3
7.5
8.7
9.5
31.0
11.5
13.1
13.0
14.3
51.9
14.7%
14.0%
22.9%
25.0%
25.3%
25.2%
24.7%
24.9%
24.7%
24.4%
23.8%
24.4%
Note: 1) Accounting changes from K-GAAP to K-IFRS as of 2011. 2) OLED sales figures until 2009 are based on Ludis prior to the merger with Duksan Hi-Metal.
Source: Company data, Korea Investment & Securities
16
Display
Balance Sheet
Fiscal year ending Dec. (W bn)
Current assets
Income Statement
2009A 2010A
2011F
2012F 2013F
26
22
47
90
136
14
5
19
43
76
Accounts receivable
4
7
12
21
26
Inventory
4
7
12
20
26
Fixed assets
Cash & cash equivalent
66
90
103
121
135
Investments
15
16
19
22
25
Tangible assets
18
44
52
60
69
Intangible assets
30
27
29
33
35
Total assets
92
112
150
211
271
Current liabilities
16
11
13
19
15
Accounts payable
1
3
4
8
10
Short-term borrowing
6
2
0
0
0
Current portion of LT debt
0
3
5
8
5
Long-term debt
6
7
12
15
18
Debentures
3
1
1
2
2
Long-term borrowings
2
6
10
12
14
21
18
25
34
33
Total liabilities
Fiscal year ending Dec. (W bn)
2011F
2012F
2013F
Sales
2009A 2010A
32
72
125
213
261
Gross profit
12
30
48
82
97
SG&A expense
8
17
15
26
31
Operating profit
5
13
33
56
66
Non-op. profit
5
2
2
2
2
Interest income
1
0
0
0
1
FX gains
1
0
0
0
1
Equity gains
2
0
0
0
0
Non-op. expense
4
2
1
1
1
Interest expense
2
1
0
0
0
FX losses
0
1
0
0
0
Equity losses
0
0
0
0
0
Earnings before tax
6
13
34
57
67
Income taxes
1
2
3
5
6
Profit from discontinued
0
0
0
0
0
Paid-in capital
5
6
6
6
6
Capital surplus
68
76
76
76
76
(20)
(18)
(18)
(18)
(18)
Retained earnings
21
31
62
114
175
Net profit
5
10
31
52
61
Shareholders' equity
70
93
125
177
238
EBITDA
8
22
43
67
78
Capital adjustments
Cash Flow
Fiscal year ending Dec. (W bn)
C/F from operating
Key Financial Data
2009A
2010A
2011F
2012F
2013F
Fiscal year ending Dec.
2009A
2010A
2011F
2012F
2013F
per share data (won)
10
10
30
47
59
EPS
251
489
1,055
1,766
2,084
Net profits
5
10
31
52
61
BPS
2,558
3,048
3,993
5,628
7,639
Depreciation
1
2
3
4
4
DPS
0
0
0
0
0
SPS
1,702
3,494
4,264
7,233
8,864
Sales growth
41.8
125.5
73.0
69.6
22.5
OP growth
(4.4)
179.2
154.1
68.7
17.5
NP growth
NM
114.0
205.6
67.4
18.0
EPS growth
NM
94.8
115.7
67.4
18.0
37.1
164.3
98.4
56.0
16.4
OP margin
14.6
18.1
26.6
26.5
25.4
NP margin
14.7
14.0
24.7
24.4
23.5
25.5
29.9
34.3
31.6
30.0
Amortization
2
6
6
7
8
Net incr. in W/C
4
(12)
(10)
(16)
(14)
Others
C/F from investing
(2)
4
(0)
0
(0)
(10)
(28)
(22)
(28)
(26)
Growth (%)
EBITDA growth
Capex
Decr. in fixed assets
Net incr. in current assets
Incr. in investment
Others
C/F from financing
(7)
(28)
(11)
(12)
(13)
0
0
0
0
0
Profitability (%)
(3)
3
(0)
(0)
(0)
EBITDA margin
1
1
(2)
(3)
(1)
ROA
6.1
10.0
23.7
28.8
25.4
ROE
8.7
12.4
28.4
34.4
29.5
Dividend yield
0.0
0.0
0.0
0.0
0.0
(0)
(4)
(9)
(13)
(11)
0
9
6
5
(0)
Incr. in equity
0
6
0
0
0
Incr. in debts
(12)
2
6
5
(0)
Stability
Net debt (W bn)
(7)
6
(3)
(22)
(56)
Int. coverage (x)
3.1
19.1
114.1
153.6
184.1
15.8
11.8
12.7
11.8
8.5
D/E ratio (%)
Valuation (x)
Dividends
Others
Increase in cash
0
12
0
0
0
(9)
0
0
14
0
0
24
0
PER
52.0
41.5
25.3
15.1
12.8
0
PBR
5.1
6.7
6.7
4.7
3.5
PSR
7.7
5.8
6.3
3.7
3.0
35.4
22.6
17.7
11.0
9.1
33
EV/EBITDA
17
Display
SFA Engineering (056190) BUY (Maintain), TP: W80,000 (Maintain)
Large AMOLED capex projects need SFA
Changes in TFT backplane and deposition technology to have limited effect:
SFA Engineering’s (SFA) wide product mix gives the equipment maker a sharper
competitive edge over domestic rivals. Moreover, SFA is capable of adapting to the
technological changes that occur when panel makers shift their capex from LCD to
AMOLED or when the production of small and midsize panels expands to include
large panels. In 2011, SFA’s overall new orders for equipment are expected to
reach W834.2bn, of which LCD-related equipment should be a mere W200bn.
Given that SFA’s AMOLED-related equipment orders already amount to W400bn,
the company boasts strong product competitiveness.
To supply deposition equipment to A3 line: In 2H11, SFA will likely receive new
orders worth W200bn from SMD, which is expanding the deposition process for its
A2 lines. In addition to the existing orders for logistic systems, the company should
supply new equipment required for the newly implemented laser-induced thermal
imaging (LITI) method. SFA was preparing to supply vertical deposition equipment
for 5.5G lines but technological changes have delayed their application in A3 lines.
Instead, SFA is now supplying blank deposition equipment and donor handlers,
which minimizes the effect caused by the supply delay of vertical deposition
equipment. At present, SFA is making plans to supply vertical deposition
equipment for the FMM method used in A3 lines in 2012.
Equipment for 8G oxide-TFT and deposition methods: SFA is also preparing
equipment for the oxide-TFT method when it is adopted for 8G AMOLEDs. As for
front-end equipment, the company already has experience with supplying plasmaenhanced chemical vapor deposition (PECVD) equipment and it is currently
developing equipment for the oxide deposition process. In addition to the vertical
deposition equipment for the FMM method currently in development, SFA is
developing equipment for the SMS method that could be applied to 8G AMOLEDs.
Although it is premature to say whether every piece of equipment will be
successfully developed and supplied, the company faces limited risk from failing to
supply equipment due to its a wide product mix.
Maintain BUY and TP of W80,000: We maintain BUY and our TP of W80,000 on
SFA, which has been shifting its sales portion from LCD to AMOLED equipment
and from logistics systems to front-end equipment. We derived the TP by applying
the AMOLED equipment suppliers’ target PE of 15x the 2011F and 2012F average
EPS. SFA should see its overall new orders for equipment used in AMOLED panel
production jump from the mid-40% level in 2011 to more than 70% in 2012 when
new orders flow in from SMD’s A3 lines and 8G lines. Even if Samsung Electronics
starts investing in the oxide-TFT method for 8G AMOLEDs, it would not greatly
affect SFA’s equipment orders.
August 12, 2011 / W55,500 won / Mkt cap: USD923.9mn, KRW923.9bn
Yr to
Sales
OP
EBT
NP
Dec
(W bn)
(W bn)
(W bn)
(W bn)
(won)
(YoY)
(W bn)
(x)
(x)
(x)
(%)
2008A
431
54
69
50
5,570
20.7
58
9.9
6.5
2.1
23.4
2009A
307
15
25
18
2,038
(63.4)
20
16.4
9.9
1.2
8.0
2010A
423
38
50
39
2,192
7.6
42
22.4
16.1
3.1
16.0
Heuiseok Jeong
2011F
790
103
106
85
4,731
115.8
108
11.7
7.5
2.8
28.1
82-2-3276-6277
2012F
975
136
139
111
6,206
31.2
141
8.9
5.5
2.2
28.5
Jay Yoo, CFA
82-2-3276-6178
jongwoo.yoo@truefriend.com
heuiseok.j@truefriend.com
18
EPS % chg.
EBITDA
P/E EV/EBITDA
PBR
ROE
Display
Quarterly earnings estimates
(W bn)
2008
2009
1Q10
2Q10
3Q10
4Q10
2010
1Q11
2Q12F
3Q11F
4Q11F
2011F
430.8
307.1
48.8
91.8
98.9
183.5
423.0
134.1
204.9
213.5
237.3
789.8
40.4
(28.7)
3.9
45.8
32.5
49.8
37.8
174.8
123.2
115.9
29.3
86.7
355.1
270.4
41.0
77.2
85.2
149.4
352.8
109.0
170.0
175.3
192.2
646.5
Operating profit
53.5
15.2
1.5
7.1
5.6
23.6
37.8
17.3
25.0
27.2
33.6
103.1
OP margin (%)
12.4
4.9
3.0
7.7
5.7
12.9
8.9
12.9
12.2
12.7
14.2
13.1
Non-OP gains
14.9
9.9
3.1
0.0
3.9
5.3
12.3
0.7
0.8
0.8
0.8
3.1
EBT
68.5
25.1
4.5
7.1
9.5
28.9
50.0
18.1
25.8
28.0
34.4
106.2
Net profit
49.8
18.0
3.5
5.5
7.4
22.9
39.4
14.4
20.6
22.4
27.5
84.9
Sales
Growth (% YoY)
COGS
11.6
5.9
7.2
6.0
7.5
12.5
9.3
10.7
10.1
10.5
11.6
10.8
New orders
Net margin (%)
409.5
254.4
143.0
197.0
240.7
158.4
743.4
114.2
210.0
240.0
270.0
834.2
Backlog
228.7
176.0
270.2
379.3
521.5
496.4
496.4
235.4
240.5
267.0
299.7
540.8
Note: Figures up to FY2010 based on K-GAAP; Figures from FY2011 and onward based on K-IFRS
Source: Company data, Korea Investment & Securities
19
Display
Balance Sheet
Fiscal year ending Dec. (W bn)
Current assets
Income Statement
2008A 2009A 2010A
2011F 2012F
2011F
2012F
431
307
423
790
975
Gross profit
76
37
70
143
180
85
SG&A expense
22
22
32
42
44
Operating profit
54
15
38
103
136
Non-op. profit
274
167
494
361
445
Cash & cash equivalent
36
26
66
63
78
Accounts receivable
46
38
86
99
122
Inventory
109
27
216
69
Fixed assets
143
143
136
161
184
Investments
43
44
33
42
52
Tangible assets
90
91
94
104
113
Intangible assets
0
0
1
0
0
Total assets
417
310
630
521
629
Current liabilities
178
69
357
150
148
41
30
104
78
96
Short-term borrowing
0
0
0
0
0
Current portion of LT debt
0
0
0
0
0
Long-term debt
16
12
9
31
38
Debentures
0
0
0
0
0
Long-term borrowings
0
0
0
0
0
194
81
366
181
187
Accounts payable
Total liabilities
Fiscal year ending Dec. (W bn)
Sales
2008A 2009A 2010A
22
15
17
4
4
Interest income
8
5
7
9
9
FX gains
6
1
1
1
1
Equity gains
2
3
3
3
3
Non-op. expense
7
5
5
1
1
Interest expense
0
0
0
0
0
FX losses
1
3
3
3
3
Equity losses
1
2
2
2
2
Earnings before tax
69
25
50
106
139
Income taxes
19
7
11
21
28
0
0
0
0
0
Paid-in capital
5
5
9
9
9
Capital surplus
25
25
20
20
20
Capital adjustments
(17)
(17)
(17)
(17)
(17)
Retained earnings
210
216
252
328
430
Net profit
50
18
39
85
111
Shareholders' equity
223
228
264
340
442
EBITDA
58
20
42
108
141
2011F
2012F
Cash Flow
Fiscal year ending Dec. (W bn)
C/F from operating
Net profits
Depreciation
Amortization
Net incr. in W/C
Others
C/F from investing
Capex
Decr. in fixed assets
Key Financial Data
2008A
2009A
2010A
2011F
2012F
2008A
2009A
2010A
per share data (won)
(3)
85
29
76
EPS
5,570
2,038
2,192
4,731
6,206
50
18
39
85
111
BPS
26,302
26,916
15,615
19,877
25,583
4
5
5
5
5
DPS
1,400
400
500
500
500
SPS
47,291
33,707
23,559
43,991
54,304
Sales growth
40.4
(28.7)
37.7
86.7
23.4
OP growth
21.4
(71.6)
148.6
173.0
32.0
NP growth
18.4
(63.8)
118.3
115.8
31.2
EPS growth
20.7
(63.4)
7.6
115.8
31.2
EBITDA growth
21.0
(65.9)
115.0
154.0
30.7
OP margin
12.4
4.9
8.9
13.1
14.0
NP margin
11.6
5.9
9.3
10.8
11.4
EBITDA margin
13.5
6.4
10.0
13.7
14.5
ROA
12.5
5.0
8.4
14.8
19.4
ROE
23.4
8.0
16.0
28.1
28.5
4.2
1.2
1.0
0.9
0.9
Net debt (W bn)
(110)
(91)
(179)
(169)
(208)
Int. coverage (x)
NM
NM
NM
NM
NM
D/E ratio (%)
0.0
0.0
0.0
0.0
0.0
0
0
0
0
0
(25)
(26)
33
(87)
(50)
1
0
8
26
10
27
6
(46)
(22)
(52)
(12)
(5)
(8)
(15)
(15)
0
0
0
0
0
46
12
(30)
8
(25)
Incr. in investment
(5)
(1)
(4)
(8)
(9)
C/F from financing
Fiscal year ending Dec.
31
Net incr. in current assets
Others
Profit from discontinued
(2)
(0)
(3)
(6)
(3)
(30)
(12)
1
(10)
(10)
Incr. in equity
0
0
0
0
0
Incr. in debts
0
0
0
(1)
(1)
Growth (%)
Profitability (%)
Dividend yield
Stability
Valuation (x)
Dividends
Others
Increase in cash
20
(13)
(17)
28
(12)
0
(10)
(4)
4
40
(9)
0
(3)
(9)
PER
5.9
16.4
22.4
11.7
8.9
0
PBR
1.3
1.2
3.1
2.8
2.2
PSR
0.7
1.0
2.1
1.3
1.0
EV/EBITDA
3.0
9.9
16.1
7.5
5.5
15
Display
ICD (040910)
BUY (Maintain), TP: W98,000 (Maintain)
8G oxide-TFT needs HDP etchers
Supplying HDP etchers to SMD’s 5.5G: The 2011F sales should hit W156.8bn
and the operating margin jump to 23.6% with the sharp increase in high-density
plasma (HDP) etcher sales. Japan’s TEL and YAC met most of SMD’s equipment
demand until 4.5G but ICD supplies more than 90% of the equipment for the 5.5G
line. We expect ICD to retain its dominant supply share at SMD as it will be difficult
for rivals to match ICD’s large-area plasma source technology in the short-term.
We estimate ICD’s HDP etcher sales to jump from W7.4bn in 2010 to a whopping
W120.7bn in 2011F.
Supply to A3 line to boost 2012F sales and OP 83% and 84%, respectively:
We estimate 2012F sales at W286.4bn and OP at W68bn. Our decent YoY growth
outlook is attributed to the start of SMD’s order placements for its 5.5G A3 lines in
early 2012. The A3 lines have a monthly capacity of 100Kcps, 56% greater than
64Kcps at the current A2 lines and this will fuel ICD’s equipment supply growth.
Additional orders momentum when 8G oxide-TFT technique is adopted: We
expect the oxide-TFT method to become the trendsetter in the 8G technology
evolution as it costs 28% and 34% less than the current TFT-LCD and AMOLED
excimer-laser annealing (ELA) and fine-metal mask (FMM) methods, respectively.
Despite the technology shift, we believe ICD can continue to supply HDP etchers
as oxides have more than 68% greater bond energy than hydrogenate amorphous
silicone (a-Si:H) and thus, oxides require a more elaborate etching process. We
estimate ICD’s HDP etcher sales to jump 26% YoY to W314.9bn in 2013F. We
believe related sales will likely exceed our estimate when capex projects for 8G
mass-production lines get underway from 2H12F in full force.
Maintain BUY and TP of W98,000: We maintain BUY and a 12M TP of W98,000
using 15x 2012F EPS. We applied the peak multiple LCD equipment makers
received in 2004-2005 when LCD capex was aggressive. We considered: 1)
potential benefits from greater AMOLED capex given its sales structure being
skewed toward the panels (89% of total in 2011F, a sector-high), 2) strong sales
growth in 2011F (+342% YoY) and 2012F (+83% YoY) on its HDP etcher sales to
SMD’s 5.5G production line, and 3) further orders backlog growth with the adoption
of the oxide-TFT method for 8G AMOLED. Our price target implies 40% upside.
August 12, 2011 / W69,000 won / Mkt cap: USD539.8mn, KRW539.8bn
Yr to
Sales
OP
EBT
NP
Matthew Yang
Dec
(W bn)
(W bn)
(W bn)
(W bn)
(won)
EPS % chg.
(YoY)
EBITDA
(W bn)
P/E EV/EBITDA
(x)
(x)
PBR
(x)
ROE
(%)
82-2-3276-6174
2009A
8
(0)
(1)
(1)
(178)
0.0
1
0.0
12.0
0.0
(11.7)
matthew.yang@truefriend.com
2010A
35
4
3
3
504
0.0
6
0.0
1.5
0.0
29.6
Jay Yoo, CFA
2011F
157
37
36
28
3,668
627.8
40
19.1
13.1
5.9
54.9
82-2-3276-6178
jongwoo.yoo@truefriend.com
2012F
286
68
66
50
6,526
77.9
70
10.7
7.5
3.8
43.0
2013F
344
72
71
54
6,938
6.3
74
10.1
6.7
2.8
31.7
21
Display
SMD equipment orders and ICD’s HDP etcher sales
(W bn)
A3 5.5G (100Kcps/month)
90
80
70
A2 5.5G phase 1,2,3 (96Kcps/month)
60
50
40
30
20
10
0
1Q11
2Q11
3Q11F
4Q11F
1Q12F
2Q12F
3Q12F
4Q12F
Source: Company data , Korea Investment & Securities
Bond energy by technology
(kJ/mol)
600
Bond energy
500
400
300
200
100
0
Poly cry stalline silicon
(P-Si)
Hy drogenate amorphous
silicon (a-Si:H)
Oxide-TFT (IGZO)
Source: Company data , Korea Investment & Securities
(W bn)
Quarterly earnings estimates
FY10
1Q11
2Q11
3Q11F
4Q11F
FY11F
1Q12F
2Q12F
3Q12F
4Q12F
FY12F
35.5
12.2
28.1
52.5
64.2
156.8
76.7
54.5
74.7
80.5
286.4
325%
71%
131%
87%
22%
342%
19%
-29%
37%
8%
83%
10.4
12.2
28.1
52.3
46.7
139.3
68.3
54.1
74.3
80.2
276.9
HDP etcher
7.4
10.5
24.7
47.5
37.9
120.7
60.5
47.0
67.9
74.5
249.9
Plasma asher
3.0
1.7
3.4
4.8
8.7
18.6
7.8
7.1
6.4
5.7
27.0
23.9
0.0
0.0
0.0
17.5
17.5
8.0
0.0
0.0
0.0
8.0
4.3
1.8
6.4
14.1
14.7
37.0
18.0
12.7
18.3
19.0
68.0
Sales
QoQ, YoY (%)
AMOLED
TFT-LCD
OP
QoQ, YoY (%)
NM
1%
263%
120%
4%
764%
23%
-29%
43%
4%
84%
AMOLED
0.0
1.8
6.4
14.1
12.3
34.7
17.2
12.7
18.3
19.0
67.2
TFT-LCD
1.1
0.0
0.0
0.0
2.1
2.1
0.8
0.0
0.0
0.0
0.8
12.1%
14.6%
22.8%
26.9%
22.9%
23.6%
23.5%
23.4%
24.4%
23.6%
23.8%
AMOLED
0.0%
14.6%
22.8%
27.0%
26.5%
24.9%
25.2%
23.5%
24.6%
23.7%
24.3%
TFT-LCD
4.6%
12.0%
12.0%
12.0%
12.0%
12.0%
10.0%
10.0%
10.0%
10.0%
10.0%
2.9
1.5
6.3
14.0
14.6
36.4
17.7
12.3
17.9
18.6
66.5
8.2%
12.1%
22.3%
26.7%
22.7%
23.2%
23.0%
22.6%
23.9%
23.1%
23.2%
OP margin (%)
EBT
EBT margin (%)
NP
NP margin (%)
2.8
1.5
5.2
10.6
11.1
28.3
13.4
9.4
13.5
14.1
50.4
8.0%
12.1%
18.4%
20.2%
17.2%
18.1%
17.4%
17.2%
18.1%
17.5%
17.6%
Source: Company data , Korea Investment & Securities
22
Display
Balance Sheet
Fiscal year ending Dec. (W bn)
Current assets
Income Statement
2009A 2010A
2011F
2012F 2013F
2011F
2012F
2013F
Sales
8
35
157
286
344
Gross profit
2
10
53
78
82
99
SG&A expense
2
6
16
10
10
Operating profit
0
0
0
0
0
12
28
129
214
285
Cash & cash equivalent
0
3
24
22
55
Accounts receivable
8
13
59
108
129
Inventory
2
10
45
83
Fixed assets
13
19
26
36
41
Investments
0
0
0
0
0
Tangible assets
5
11
18
28
33
Intangible assets
Fiscal year ending Dec. (W bn)
Non-op. profit
(0)
4
37
68
72
Interest income
0
0
0
2
8
FX gains
0
0
0
0
0
Equity gains
1
1
1
2
2
Non-op. expense
1
1
1
0
0
(0)
(0)
(0)
(2)
(2)
0
0
0
0
0
(1)
3
36
66
71
Earnings before tax
(0)
0
8
16
17
Income taxes
(1)
3
28
50
54
0
0
0
0
0
(1)
3
16
73
313
1
6
40
70
74
2012F
2013F
8
7
7
7
7
Total assets
25
47
155
250
326
Current liabilities
14
28
62
106
128
Accounts payable
3
11
44
88
111
Short-term borrowing
9
6
6
6
6
Current portion of LT debt
3
0
0
0
0
Interest expense
Long-term debt
2
8
2
2
2
FX losses
Debentures
1
3
0
0
0
Long-term borrowings
0
3
2
2
2
17
36
63
108
130
Paid-in capital
3
3
4
4
4
Capital surplus
2
2
54
54
54
Capital adjustments
0
0
0
0
0
Retained earnings
4
6
35
85
139
Net profit
Shareholders' equity
8
11
92
142
196
EBITDA
Total liabilities
Cash Flow
C/F from operating
2009A
2010A
2011F
2012F
2013F
(0)
10
(11)
11
40
(1)
3
28
50
54
Depreciation
0
0
3
2
Amortization
1
1
0
(1)
1
(47)
Net profit
Net incr. in W/C
Others
C/F from investing
CAPEX
Profit from discontinued
Incr. in investment
in
Others
intangible
Fiscal year ending Dec.
(178)
504
3,668
6,526
6,938
1,440
1,970
11,924
18,450
25,388
2
DPS
0
0
0
0
0
0
0
Growth (%)
(42)
(16)
Sales growth
(49.6)
324.7
342.0
82.7
20.0
OP growth
0.0
0.0
763.7
83.9
6.2
NP growth
0.0
0.0
900.5
77.9
6.3
0.0
0.0
627.8
77.9
6.3
(69.4)
472.7
584.6
75.4
6.0
1
0
(1)
(7)
(15)
(12)
(7)
EPS growth
(5)
EBITDA growth
(10)
Profitability (%)
0
0
0
0
0
OP margin
(2.1)
12.1
23.6
23.8
21.0
(0)
0
0
0
0
NP margin
(12.0)
8.0
18.1
17.6
15.6
(1)
(0)
0
0
0
EBITDA margin
12.2
16.5
25.5
24.5
21.6
ROA
(3.7)
7.8
28.0
24.9
18.6
ROE
(11.7)
29.6
54.9
43.0
31.7
0.0
0.0
0.0
0.0
0.0
0
0
(8)
(2)
(2)
1
(0)
46
0
0
Dividend yield
Incr. in equity
0
0
52
0
0
Stability
Incr. in debts
1
(0)
(6)
0
0
C/F from financing
2011F
BPS
5
(7)
2010A
EPS
5
(7)
2009A
per share data (KRW)
1
(0)
Decr. in fixed assets
incr.
Equity losses
Key Financial Data
Fiscal year ending Dec. (W bn)
Net
assets
2009A 2010A
Net debt (W bn)
Debt/equity ratio (%)
12
9
(16)
(14)
(47)
159.0
113.2
8.9
5.8
4.2
Dividends
0
0
0
0
0
Valuation (X)
Others
0
0
0
0
0
PER
0.0
0.0
19.1
10.7
10.1
0
PBR
0.0
0.0
5.9
3.8
2.8
PSR
0.0
0.0
3.4
1.9
1.6
12.0
1.5
13.1
7.5
6.7
C/F from others
Increase in cash
0
(0)
0
3
0
21
0
(2)
33
EV/EBITDA
23
Display
AP Systems (054620)
Not rated
Momentum to boom for SMD’s 5.5G capex but burst for 8G
SMD AMOLED equipment supplier: AP Systems supplies Samsung Mobile
Display (SMD) with AMOLED equipment such as ELA (excimer laser annealing)
and glass-type encapsulation. AMOLED panels must feature a high level of
brightness and uniformity and thus go through the LTPS (low temperature
polysilicon) process that converts a-Si backplane to poly-Si. ELA equipment
formulates poly-Si during the TFT LTPS process. AP Systems exclusively supplies
ELA equipment to SMD’s AMOLED line. Moreover, the company sells SMD
encapsulation equipment that applies a glass cap to prevent oxidation and
moisture deformation in OLED materials.
Largest beneficiary of SMD’s 5.5G capex: SMD is ready to apply LTPS
technology for the AMOLED 5.5G A3 line to increase brightness and uniformity of
substrates. We believe AP Systems will exclusively supply ELA equipment to
SMD’s 5.5G line (up to A3) as SMD has no other ELA equipment vendors. Besides,
AP Systems is likely to win laser deposition equipment orders for the 5.5G line.
SMD plans to partly introduce LITI (laser-induced thermal imaging) technology for
the organic materials deposition process at the 5.5G A2 P3 line. AP Systems
should be SMD’s exclusive supplier of laser deposition equipment as it is the only
Korean company with the technology.
Orders momentum likely to weaken for 8G AMOLED: The stock gained 114%
from the trough in Dec 2010 on mounting orders momentum where AP Systems
would sell ELA and laser deposition equipment for SMD’s 5.5G. But we expect
orders momentum to slow as SMD is shifting toward large-size AMOLED panels.
Chances are SMD will introduce more cost-competitive technologies, not capitalintensive LTPS and LITI, for its large AMOLED segment. SMD is likely to introduce
oxide method to the backplane process starting with 8G, departing from LTPS that
5.5G and earlier generations used. While 5.5G partly uses laser deposition
technology, the 8G process is likely to introduce non-laser SMS (small-mask
system) deposition. As such, AP Systems’ front-end equipment orders momentum
will likely fizzle out after 5.5G. The stock’s 2011F PE stands at 17x compared to the
average 14x among AMOLED equipment vendors. Given high earnings volatility or
sensitivity to orders momentum inherent to equipment makers, we believe the
stock is overvalued. Its orders momentum remains intact for 5.5G but we call for a
prudent approach to AP System. The company is less likely to win new orders for
8G as large AMOLED panels go mainstream.
August 12, 2011 / W14,300 won / Mkt cap: USD308.0mn, KRW308.0bn
Yr to
Sales
OP
EBT
NP
PBR
ROE
Dec
(W bn)
(W bn)
(W bn)
(W bn)
(won)
EPS % chg.
(YoY)
EBITDA
(W bn)
P/E EV/EBITDA
(x)
(x)
(x)
(%)
9.5
Jay Yoo, CFA
2008A
20
1
3
4
466
NA
3
10.8
1.0
1.5
82-2-3276-6178
jongwoo.yoo@truefriend.com
2009A
92
4
0
2
124
(73.4)
10
42.2
2.9
1.7
3.2
2010A
145
4
1
(4)
NA (260.0)
16
NA
16.5
0.0
(6.2)
2011F
251
20
20
18
823
NA
33
17.0
9.0
4.0
26.4
2012F
406
39
37
34
1,589
93.2
49
8.8
6.2
2.4
33.9
Heuiseok Jeong
82-2-3276-6277
heuiseok.j@truefriend.com
24
Display
Advanced Nano Products (121600)
BUY (Maintain), TP: W25,000 (Maintain)
Biggest gainer from probable adoption of oxide
semiconductor in display technology
Transparent conductive oxide (TCO) target maker: Having a source technology
for nano-sized powder, Advanced Nano Products (ANP) makes electronic
materials targeting TCO (transparent-conductive oxides), CMP (chemical
mechanical planarization) slurries and silver pastes. TCO target is now used
mainly to make transparent electrodes for solar cells, flat panel displays such as
LCD and touch panels, and its application will expand when oxide TFT technology
enters the industry. CMP slurries are used to polish semiconductor wafers. ANP
sells intermediate materials to Cabot Microelectronics, the leading supplier of
polishing slurries and CMP pads in the world. Silver pastes are used in the
formation of electrodes for crystalline silicon solar cells and product testing is
ongoing at Chinese and Taiwanese companies. ANP’s sales break down to 56%
TCO target for solar cells, 20% TCO target for displays and 9% CMP slurries.
TCO target is sluggish for solar cells but promising for displays: ANP’s 1H11
sales and operating profit came in at W15bn and W4bn, respectively. The figures
met 39% and 36% of the company’s full-year guidance (W39bn sales and W11bn
operating profit) due to poorer-than-expected sales of its flagship TCO target for
solar cells. Chances are the sluggishness will continue given the unfavorable solar
PV industry conditions. Nonetheless, we believe the full-year guidance is easily
achievable backed by seasonally strong demand in 2H and likely substantial
growth of TCO target sales for displays. More and more manufacturers of displays
and touch panels are adopting sputters loaded with AKT’s rotary-type target, which
should benefit ANP, a vendor to AKT. We expect the positive changes to become
visible in 2H11 and in 2012, the display TCO target should emerge as a main sales driver.
To benefit from probable adoption of oxide semiconductor in display
backplane technology: Oxide semiconductor is gradually being adopted in
display backplane technology as LCD goes high-definition and AMOLED grows
larger. Oxide semiconductor is known to be crucial for flexible display fabrication.
As such, we believe the use of oxide semiconductor in the display process is a
matter of when, not if. The adoption of oxide semiconductor in the backplane
would lead to a significant increase in demand for TCO target using indium gallium
zinc oxide (IGZO) as a material. When adopted, consumption of the IGZO target
will be multiple times greater than for ITO target.
August 12, 2011 / W18,950 won / Mkt cap: USD127.1mn, KRW127.1bn
Moonsung Kang
82-2-3276-6235
mskang@truefriend.com
Yr to
Sales
OP
EBT
NP
Dec
(W bn)
(W bn)
(W bn)
(W bn)
(won)
EPS % chg.
(YoY)
EBITDA
(W bn)
P/E EV/EBITDA
(x)
(x)
P/B
(x)
ROE
(%)
2009A
20
5
5
5
900
72.9
7
NM
NM
NM
31.1
2010A
28
9
8
7
1,311
45.7
10
NM
NM
NM
31.7
2011F
40
12
11
9
1,327
1.2
13
14.3
11.5
3.8
29.2
2012F
57
17
17
14
1,872
41.1
19
10.1
7.5
2.8
30.7
2013F
77
22
22
17
2,410
28.8
25
7.9
5.5
2.1
29.3
25
Display
Maintain BUY with TP W25,000: We maintain BUY with a price target of
W25,000(TP equals target PE 17x 12 fwd EPS). The stock trades at 2011F PE of
14x that is a premium to the market average. The premium is justified by
expectations for sustainable growth fueled by: 1) display targets growth, 2) probable
adoption of oxide semiconductor in the display backplane process, and 3) diverse growth
drivers such as silver pastes. We peg the company’s earnings CAGR at 37% over the
next three years and give a target PE of 17x.
26
Display
Balance Sheet
Fiscal year ending Dec. (W bn)
Current assets
Income Statement
2009A 2010A
2011F
2012F 2013F
2011F
2012F
2013F
20
28
40
57
77
Gross profit
9
14
19
27
35
32
SG&A expense
4
5
8
10
13
28
29
Operating profit
5
9
12
17
22
0
0
Non-op. profit
26
26
23
28
35
47
61
Cash & cash equivalent
2
3
4
7
10
Accounts receivable
4
8
10
13
17
Inventory
16
16
19
25
Fixed assets
15
21
28
0
0
0
14
19
26
Investments
Tangible assets
Intangible assets
Fiscal year ending Dec. (W bn)
2009A 2010A
Sales
2
1
0
1
1
Interest income
0
0
0
0
0
FX gains
1
1
0
0
0
Equity gains
0
0
0
0
0
Non-op. expense
2
2
1
1
1
Interest expense
1
1
1
1
1
FX losses
1
1
0
0
0
Equity losses
0
0
0
0
0
Earnings before tax
5
8
11
17
22
Income taxes
0
1
2
3
5
Profit from discontinued
0
0
0
0
0
1
1
1
2
2
Total assets
38
49
62
75
90
Current liabilities
11
11
12
11
10
Accounts payable
0
0
1
1
2
Short-term borrowing
8
5
5
3
3
Current portion of LT debt
1
2
1
1
0
Long-term debt
10
13
13
13
12
Debentures
1
2
2
2
2
Long-term borrowings
7
9
9
9
7
20
23
25
24
22
Paid-in capital
3
3
4
4
4
Capital surplus
5
7
8
8
8
Capital adjustments
0
0
0
0
0
Retained earnings
10
17
26
39
57
Net profit
5
7
9
14
17
Shareholders' equity
17
26
37
51
68
EBITDA
7
10
13
19
25
Total liabilities
Cash Flow
Fiscal year ending Dec. (W bn)
C/F from operating
Key Financial Data
2009A
2010A
2011F
2012F
2013F
Fiscal year ending Dec.
2009A
2010A
2011F
2012F
2013F
per share data (won)
(2)
7
8
8
10
EPS
900
1,311
1,327
1,872
2,410
Net profits
5
7
9
14
17
BPS
3,231
4,676
4,976
6,796
9,138
Depreciation
1
1
1
2
3
DPS
0
0
0
0
0
SPS
38,677
5,295
5,674
7,937
10,686
Sales growth
63.4
39.3
42.0
45.3
34.6
OP growth
46.3
67.7
33.3
47.9
29.0
NP growth
171.1
48.2
34.1
46.5
28.8
EPS growth
72.9
45.7
1.2
41.1
28.8
EBITDA growth
40.0
54.0
30.1
48.4
30.1
OP margin
25.9
31.1
29.2
29.8
28.5
NP margin
23.3
24.8
23.4
23.6
22.6
Amortization
Net incr. in W/C
Others
C/F from investing
Capex
Decr. in fixed assets
Net incr. in current assets
Incr. in investment
Others
C/F from financing
0
0
0
0
0
(8)
(2)
(3)
(8)
(11)
0
1
0
0
0
(6)
(8)
(8)
(3)
(4)
(6)
(7)
(8)
(2)
(3)
0
0
0
0
0
Growth (%)
Profitability (%)
0
0
(0)
(0)
(0)
EBITDA margin
32.8
36.3
33.2
33.9
32.8
(0)
0
(0)
(0)
(0)
ROA
15.3
15.8
16.5
19.7
21.1
ROE
31.1
31.7
29.2
30.7
29.3
NM
NM
0.0
0.0
0.0
(1)
(1)
0
(1)
(1)
Dividend yield
Stability
8
3
1
(2)
(3)
Incr. in equity
0
2
1
0
0
Incr. in debts
8
1
0
(2)
(3)
Net debt (W bn)
16
16
14
9
2
Int. coverage (x)
8.9
12.3
15.9
25.7
39.1
98.2
72.4
47.2
30.7
18.4
D/E ratio (%)
Valuation (x)
Dividends
Others
Increase in cash
0
0
0
0
(0)
2
0
0
1
0
0
3
0
PER
NM
NM
14.3
10.1
7.9
0
PBR
NM
NM
3.8
2.8
2.1
PSR
NM
NM
3.3
2.4
1.8
EV/EBITDA
NM
NM
11.5
7.5
5.5
3
27
Display
Changes to recommendation and price target
Company (Code)
Cheil Ind. (001300)
Date
Recommendation
Price target
Company (Code)
Date
Recommendation
Price target
10-09-09
BUY
W63,000
SFA Engineering
08-31-09
BUY
W52,000
01-14-10
BUY
W75,000
(056190)
11-08-09
BUY
W45,000
04-11-10
BUY
W89,000
10-14-10
BUY
W58,000
05-05-10
BUY
W101,000
01-16-11
BUY
W75,000
07-18-10
BUY
W115,000
02-14-11
BUY
W80,000
01-26-11
BUY
W130,000
Duk San Hi Metal
03-20-11
BUY
W31,500
05-29-11
BUY
W165,000
(077360)
07-20-11
BUY
W37,000
08-04-11
BUY
W140,000
08-11-11
BUY
W98,000
Advanced Nano
Products (121600)
05-04-11
BUY
W25,000
ICD (040910)
Cheil Ind.(001300)
ICD(040910)
180,000
120,000
160,000
100,000
140,000
120,000
80,000
100,000
60,000
80,000
40,000
60,000
40,000
20,000
20,000
0
A u g -09
D ec-09
A p r-10
A u g -10
D ec-10
A p r-11
A u g -11
SFA Engineering(056190)
0
A u g -09
D ec-09
A p r-10
A u g -10
D ec-10
A p r-11
Duk San Hi Metal(077360)
90,000
40,000
80,000
35,000
70,000
30,000
60,000
25,000
50,000
20,000
40,000
15,000
30,000
10,000
20,000
5,000
10,000
0
A u g -09
D ec-09
A p r-10
A u g -10
D ec-10
A p r-11
Advanced Nano Products(121600)
30,000
25,000
20,000
15,000
10,000
5,000
0
A u g -09
28
D ec-09
A p r-10
A u g -10
D ec-10
A p r-11
0
A u g -09
D ec-09
A p r-10
A u g -10
D ec-10
A p r-11
Display
■
Guide to Korea Investment & Securities Co., Ltd. stock ratings based on absolute 12-month forward share price performance
BUY: Expected to give a return of +15% or more
Hold: Expected to give a return between -15% and +15%
Underweight: Expected to give a return of -15% or less
■
Guide to Korea Investment & Securities Co., Ltd. sector ratings for the next 12 months
Overweight: Recommend increasing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market
capitalization.
Neutral: Recommend maintaining the sector’s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization.
Underweight: Recommend reducing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market
capitalization.
■
Analyst Certification
I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal
views about the subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or
indirectly related to the specific recommendations or views contained in this research report.
■ Important Disclosures
As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent
month if the publication date is less than 10 calendar days after the end of the most recent month), Korea Investment & Securities Co., Ltd., or its affiliates does
not own 1% or more of any class of common equity securities of the companies mentioned in this report.
There is no actual, material conflict of interest of the research analyst or Korea Investment & Securities Co., Ltd., or its affiliates known at the time of publication of
the research report or at the time of the public appearance.
Korea Investment & Securities Co., Ltd., or its affiliates has not managed or co-managed a public offering of securities for the companies mentioned in this report
in the past 12 months;
Korea Investment & Securities Co., Ltd., or its affiliates has not received compensation for investment banking services from the companies mentioned in this
report in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates does not expect to receive or intends to seek compensation for investment
banking services from the companies mentioned in this report in the next 3 months.
Korea Investment & Securities Co., Ltd., or its affiliates was not making a market in securities of the companies mentioned in this report at the time that the research
report was published.
Korea Investment & Securities Co., Ltd. does not own over 1% of Cheil Ind.,ICD,SFA Engineering,Duk San Hi Metal,Advanced Nano Products shares as of August
12, 2011.
Korea Investment & Securities Co., Ltd. has not provided this report to various third parties.
Neither the analysts covering these companies nor their associates own any shares of as of August 12, 2011.
Korea Investment & Securities Co., Ltd. has issued ELW with underlying stocks of Cheil Ind. and is the liquidity provider.
Korea Investment & Securities Co., Ltd. has lead-managed an initial public offering of the companies mentioned in this report in the past 12 months.
Prepared by: Jay Yoo, CFA, Heuiseok Jeong
This report was written by Korea Investment & Securities Co., Ltd. to help its clients invest in securities. This material is copyrighted and may not be copied, redistributed,
forwarded or altered in any way without the consent of Korea Investment & Securities Co., Ltd. This report has been prepared by Korea Investment & Securities Co., Ltd.
and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. We make no
representation as to its accuracy or completeness and it should not be relied upon as such. The company accepts no liability whatsoever for any direct or consequential
loss arising from any use of this report or its contents. The final investment decision is based on the client’s judgment, and this report cannot be used as evidence in any
legal dispute related to investment decisions.
29
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WON-JAE RHEE, Executive Managing Director (wonjae@truefriend.com +822 3276 5660)
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ELAINE LIM, Head of Sales (Elaine@kisamerica.com +1 212 314 0686)
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SUNG NAMGOONG, Managing Director, Head of Singapore Sales (snamgoong@truefriend.com +65 6501 5601)
ALEX JUN, Managing Director (alex.jun@truefriend.com +65 6501 5602)
Korea Investment & Securities Singapore Pte Ltd
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048616 Singapore
Fax: 65 6501 5617
LONDON
JJ MOON, Managing Director (jamesmoon@kiseurope.com +44 207 065 2765)
MINGOO KANG, Sales (mingookang@kiseurope.com, +44 207 065 2760)
Korea Investment & Securities Europe, Ltd.
2nd Floor, 35 Moorgate
London EC2R 6AR
Fax: 44-207-236-4811
Telex: 8812237
This report has been prepared by Korea Investment & Securities Co., Ltd. and is provided for information purposes only. Under no circumstances is it to be used or
considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue
or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. This report is provided
solely for the information of professional investors who are expected to make their own investment decisions without undue reliance on this report and the company
accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is not intended for the use of private
investors.
2011. All rights reserved. No part of this report may be reproduced or distributed in any manner without permission of Korea Investment & Securities Co.,Ltd.