April 12, 2011 Company Report Electronic Parts Cheil Industries (001300 KS) and Materials Growth engines remain intact Will Cho +822-768-4306
[email protected] Maintain Buy call with TP of W150,000 (vs. current share price of W117,000) We reiterate our Buy call on Cheil Industries with a target price of W150,000. Cheil IndustriesÊ share price has underperformed the KOSPI by 10.2% over the last two months, due to worries about weak 1Q earnings and delays in the companyÊs development of AMOLED materials. However, these weak 1Q earnings projections have already been priced in, and the company is anticipated to roll out AMOLED materials this year as scheduled. In light of rosy growth prospects for 2Q and beyond, we believe that now is the optimal time to buy Cheil Industries. 1Q11 Preview: OP to fall shy of market forecast, reaching W72.5bn Buy (Maintain) Cheil IndustriesÊ 1Q earnings are projected to fall shy of market consensus forecasts in the wake of the slow recovery of IT demand. Sales in 1Q are forecast Target Price (12M, W) 150,000 to remain flat QoQ at W1.31tr (down 0.1% QoQ; up 12.5% YoY), while operating Share Price (04/11/11, W) 117,000 profit is estimated to reach W72.5bn (up 28.3% QoQ; down 7.3% YoY; OP margin Expected Return (%): 28.2 28.2 of 5.5%), failing to meet the market consensus estimate of W83.5bn. EPS Growth (11F, %) 27.4 Market EPS Growth (11F, %) 23.2 Despite sluggish sales growth of polarizer and display materials from contraction in P/E (11F, x) 17.7 LCD TV demand, operating profit at the ECM division is forecast to jump 42.3% Market P/E (11F, x) 10.8 thanks to strong semiconductor materials sales.