20160407-三星证券-Tech__OVERWEIGHT__Semiconductor_materials_firms_growing_11页_795kb

Sector Update Summary: Tech (OVERWEIGHT)

Core Content

This document provides an investment analysis and update on semiconductor materials firms, focusing on SK Materials and Hansol Chemical. It outlines the current market conditions, growth opportunities, and financial performance expectations for these companies in the context of the broader semiconductor industry.

Main Points

• Market Conditions: Semiconductor materials stocks were previously undervalued due to weak demand forecasts, but recent changes in supply-demand dynamics suggest potential for renewed growth.
• Investment Strategy: The report highlights that the market has underestimated the growth potential of 3D NAND flash memory and OLED technologies, which are key drivers for growth.
• M&A Activity: Korean semiconductor materials firms are actively pursuing mergers and acquisitions to expand their product lines and enhance growth, with SK Materials and Hansol Chemical being notable examples.
• Company Performance: Both SK Materials and Hansol Chemical are recommended with a BUY rating, as they are expected to benefit from the growth in downstream technologies and potential M&A activity.
• Target Prices:
  • SK Materials: Target price raised to KRW150,000, representing a 25% upside from the current price of KRW120,000.
  • Hansol Chemical: Target price set at KRW80,000, with a 19.8% upside from the current price of KRW66,800.

Key Information

SK Materials (036490 KS)

• Current Price: KRW120,000
• Market Cap: KRW1.3t / USD1.1b
• Shares (Float): 10,547,673 (50.9%)
• 52-Week High/Low: KRW143,200 / KRW80,700
• Avg Daily Trading Value (60-day): KRW16.7b / USD14.4m
• 1Q16 Sales: KRW104.5b (up 7.8% q-q, 39.1% y-y)
• 1Q16 Operating Profit: KRW38.2b (up 5.5% q-q, 75.8% y-y)
• 1Q16 Net Profit: KRW28.6b (up 136.2% q-q, 82.5% y-y)
• Full-Year Forecast Revisions: Sales increased by 16.1% to KRW486.8b, Operating Profit by 9.9% to KRW167.8b, Pre-tax Profit by 8.9% to KRW155.1b, and Net Profit by 6.5% to KRW121.4b.
• Target Price Calculation: Based on a PBR of 3.42, the target price is KRW150,000.
• Financial Highlights:
  • Revenue growth expected to reach KRW512b in 2018.
  • Net profit (adj) projected to increase from KRW66b in 2015 to KRW115b in 2018.
  • ROE expected to improve from 18.9% in 2015 to 18.5% in 2018.
  • P/E ratio is expected to decrease from 19.1 to 11.0 over the period.
  • P/B ratio is expected to decline from 3.4 to 1.9.
  • EV/EBITDA is projected to drop from 8.5 to 5.7.
  • EBITDA margin is expected to decrease from 49.9% in 2015 to 45.5% in 2018.
• Acquisition Impact: SK Materials acquired SK Airgas, which is expected to boost ROE by 1.6% points and improve financial performance.
• Capex Adjustments: The company is planning to increase capacity at its China plant by 500 tonnes in 2016, indicating flexibility in capital expenditure.

Hansol Chemical (014680 KS)

• Current Price: KRW66,800
• Market Cap: KRW754.52b / USD652.64m
• Shares (Float): 11,295,195 (68.6%)
• 52-Week High/Low: KRW101,500 / KRW52,200
• Avg Daily Trading Value (60-day): KRW3.6b / USD3.1m
• 1Q16 Sales: KRW98.2b (up 5.6% q-q, 11.2% y-y)
• 1Q16 Operating Profit: KRW18.6b (up 115.2% q-q, 56.4% y-y)
• 1Q16 Net Profit: KRW13.9b (up 386.6% q-q, 43.0% y-y)
• Full-Year Forecast Revisions: Sales revised slightly downward to KRW420.7b, Operating Profit up 2.8% to KRW76.7b, Pre-tax Profit up 3.2% to KRW72.2b, and Net Profit up 3.2% to KRW60.8b.
• Target Price Calculation: Based on a P/B of 16, the target price is KRW80,000.
• Financial Highlights:
  • Revenue growth expected to reach KRW495b in 2018.
  • Net profit (adj) projected to increase from KRW34b in 2015 to KRW68b in 2018.
  • EPS (adj) is expected to rise from KRW3,023 in 2015 to KRW5,979 in 2018.
  • ROE is expected to increase from 15.0% in 2015 to 18.2% in 2016.
  • P/E ratio is projected to decrease from 22.1 to 11.2.
  • P/B ratio is expected to decline from 3.1 to 1.8.
  • EV/EBITDA is projected to drop from 13.2 to 7.5.
  • EBITDA margin is expected to increase from 19.4% in 2015 to 22.5% in 2018.
• Growth Drivers: Hansol Chemical is expected to benefit from Samsung Electronics' continued investment in quantum dot TV technology and the Pyeongtaek factory.
• Industry Outlook: Despite tepid demand for semiconductors and TVs, Hansol's business portfolio aligns well with technology trends, offering potential for growth.

Conclusion

Both SK Materials and Hansol Chemical are recommended as BUYs due to their strategic positioning in the semiconductor materials market, anticipated growth from downstream technologies like 3D NAND and OLED, and potential from M&A activity. The report emphasizes that while current market conditions are challenging, there are signs of improvement that could positively impact their share prices.