August 30, 2013
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August 30, 2013 KOREA Company News & Analysis Major Indices Close Chg Chg (%) KOSPI 1,926.36 18.82 0.99 Partron (Buy/TP: W24,700) KOSPI 200 251.74 2.88 1.16 Beneficiary of mid- to low-end smartphone growth KOSDAQ 516.74 -3.63 -0.70 Turnover ('000 shares, Wbn) Soulbrain (Buy/TP: W60,000) Volume Value Balanced growth to continue KOSPI 296,211 4,961 KOSPI 200 67,262 3,519 Duksan Hi-Metal (Buy/TP: W34,000) KOSDAQ 392,253 1,938 Finding opportunity in uncertainty Market Cap (Wbn) Sungwoo Hitech (Buy/TP: W18,800) Value Back on track KOSPI 1,128,186 KOSDAQ 120,078 YG Entertainment (Buy/TP: W59,500) Lower TP KOSPI Turnover (Wbn) Potential of new artists and businesses has yet to be proven Buy Sell Net Foreign 1,781 1,283 498 Silicon Works (Buy/TP: W29,000) Institutional 1,236 1,282 -46 A long-awaited breakthrough Retail 1,927 2,366 -439 KOSDAQ Turnover (Wbn) SM Entertainment (Buy/TP: W46,000) Lower TP Buy Sell Net Royalty income recognition deferred to 2H Foreign 122 184 -61 Institutional 84 90 -6 Daesang (Trading Buy/TP: W36,000) Lower TP Retail 1,726 1,661 65 Taking a breather Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,091 821 271 KOSDAQ 35 23 12 Advances & Declines Advances Declines Unchanged KOSPI 419 376 79 KOSDAQ 411 500 71 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value NHN Entertainment 108,500 -19,000 555 Samsung Electronics 1,368,000 24,000 464 KODEX LEVERAGE 11,230 165 401 NHN 446,500 -33,500 342 KODEX INVERSE 7,860 -55 188 KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Celltrion 45,100 -7,900 478 Speco 4,140 -60 44 AHNLAB 58,000 2,400 34 Lumens 8,580 -530 34 SM 33,400 2,000 31 Note: As of August 30, 2013 This document is a summary of a report prepared by Daewoo Securities Co., Ltd. (“Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose. Partron (091700 KQ) Beneficiary of mid- to low-end smartphone growth Technology 2Q13 review: Record-high quarterly earnings Partron’s 2Q revenue came in at a record-high W318bn, up 61.1% YoY and 25.3% QoQ, Results Comment driven by a 147.9% YoY surge in antenna revenue (including laser direct structuring August 30, 2013 (LDS)) and a 45.8% YoY rise in camera module revenue. 2Q operating profit also rose to an all-time high of W38.7bn, up 118.7% YoY and 29.3% QoQ. OP margin remained in the double digits, gaining 3.2%p YoY to 12.2%. (Maintain) Buy That said, revenue and operating profit fell short of our estimates (W347.7bn and Target Price (12M, W) 24,700 W39.6bn) by 8.5% and 2.3%, respectively. We attribute the shortfall to the weaker- than-expected smartphone sales of the firm’s largest customer, which should continue Share Price (08/29/13, W) 17,750 to affect Partron’s earnings into 3Q. Expected Return 39% Earnings declined MoM through July after hitting a record high in May. Earnings appear to have improved in August, but with the Chuseok holidays coming in September, we think expectations should be lowered for 3Q. As such, we now forecast 3Q revenue and OP (13F, Wbn) 140 operating profit at W287.4bn (-9.6% QoQ) and W35.2bn, respectively, and thus revise Consensus OP (13F, Wbn) 141 down our full-year revenue and operating profit forecasts by 11.3% and 4.9%, respectively. EPS Growth (13F, %) 58.7 Market EPS Growth (13F, %) 22.4 Sustainable growth of camera modules and LDS antennae P/E (13F, x) 8.4 In 2012, Partron’s largest customer became the world’s top handset maker (including Market P/E (13F, x) 9.6 smartphones). We expect the handset maker to cement its market leadership in 2013 by KOSDAQ 520.37 building a larger footprint in the mid- to low-end segment, while raising its brand equity Market Cap (Wbn) 961 in the high-end market. The handset company is expected to focus on achieving Shares Outstanding (mn) 54 economies of scale by seeking a more balanced product portfolio. This will undoubtedly Free Float (%) 74.5 continue to benefit Partron, which has a high exposure to the standardized parts used in Foreign Ownership (%) 24.0 the mid- to low-end segment. Beta (12M) 1.12 52-Week Low (W) 10,700 We expect Partron’s camera module mix to shift away from two-megapixel modules (for 52-Week High (W) 30,000 video calling) to five-megapixel and eight-megapixel modules, which should drive up ASP. We are also upbeat on Partron’s new growth driver, antennae, especially with the (%) 1M 6M 12M recent development of the firm’s proprietary LDS. The technology is essential to making Absolute 11.6 4.9 120.0 antennae thinner to create room for installing both LTE and 3G antennae. Even under Relative 11.2 10.7 121.1 the most bearish scenarios, we believe Partron has the highest growth potential among Share price smartphone part suppliers in 2014. That said, we believe the company preferably needs 320 KOSDAQ to identify its next growth engine beyond antennae and camera modules. 270 220 Maintain Buy and TP of W24,700 170 120 We keep our Buy rating and target price of W24,700, which was derived by applying a 70 P/E of 10.4x to our 2014F EPS of W2,378. Our target price represents 39.2% upside 8/12 12/12 4/13 8/13 from current levels. Daewoo Securities Co., Ltd. FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F Revenue (Wbn) 273 426 873 1,165 1,474 1,741 Telecom equipment/ OP (Wbn) 27 30 91 140 176 209 Electronic components OP Margin (%) 9.9 7.1 10.4 12.1 11.9 12.0 Wonjae Park NP (Wbn) 23 26 72 115 129 153 +822-768-3372 EPS (W) 432 484 1,334 2,117 2,378 2,815 [email protected] ROE (%) 22.8 20.6 43.3 48.5 40.0 36.1 P/E (x) 18.8 16.5 10.5 8.4 7.5 6.3 P/B (x) 4.2 3.4 4.2 3.7 2.8 2.1 Notes: Based on consolidated K-IFRS since 1Q13; NP refers to net profit attributable to controlling interests Source: Company data, KDB Daewoo Securities Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. Soulbrain (036830 KQ) Balanced growth to continue Technology What’s new: 2Q margins significantly surprise to the upside 2Q review: Soulbrain’s 2Q revenue came in below the consensus (W176bn) at W167.4bn Results Comment (+3.6% YoY), but operating profit was a much better-than-expected W33bn (+44% YoY; August 30, 2013 vs. consensus of W28.7bn). Top line was dragged down by customers’ lower utilization, which resulted in QoQ revenue contractions in semiconductor etchants and rechargeable battery electrolytes. Still, OP margin advanced 4.8%p QoQ, aided by: 1) (Maintain) Buy top-line growth of high-margin thin glass and 2) cost savings from the internal sourcing of raw materials. Target Price (12M, W) 60,000 3Q preview: We expect earnings growth to continue in the seasonally strong 3Q, driven by 1) Samsung Electronics’ (SEC) growing shipments of OLED smartphones (thin glass), Share Price (08/29/13, W) 46,700 2) a pickup in SEC’s semiconductor utilization (etchants), and 3) Samsung SDI’s full- fledged capacity expansion (electrolytes). We estimate revenue to rise 7.3% QoQ to Expected Return 28% W179.5bn and operating profit to grow 2.6% QoQ to W33.9bn (OP margin of 18.9%) in the quarter. OP (13F, Wbn) 123 Catalyst: Thin glass in 2013, semiconductor materials in 2014 Consensus OP (13F, Wbn) 116 Continued growth of thin glass: Despite worries over growth stagnating, thin glass EPS Growth (13F, %) 18.3 revenue has continued to grow. For 2013, we estimate thin glass revenue (including Market EPS Growth (13F, %) 22.4 scribing) to rise 39% YoY to W254.8bn, as we see SEC’s OLED smartphone shipments P/E (13F, x) 8.6 jumping 67% YoY (from around 120mn units in 2012 to 200mn units in 2013). If Market P/E (13F, x) 9.6 Soulbrain takes over Samsung Display’s (SDC) thin glass and ITO coating business, we KOSDAQ 520.37 could see additional upside to top-line growth.