Hoping for a stronger year Monthly InsighT 12 2015
Wonjae Park +822-768-3372 [email protected]
Jonathan Hwang +822-768-4140 [email protected]
Young Ryu +822-768-4138 [email protected] [email protected] Joon-ho Jang +822-768-3241 [email protected]
Chul-joong Kim +822-768-4162 [email protected] Contents
I. Key charts ...... 3 II. Investment strategy ...... 4 III. Sector view ...... 9 IV. Think big ...... 17 V. Global IT navigation ...... 25 VI. Key global peers ...... 28 Spotlight stocks & other notable stocks ...... 42
Monthly InsighT 2 I. Key charts
Share performances & OP consensus revision rates PC DRAM (DDR3 4Gb 1,600MHz) spot and contract Semiconductor equipment book-to-bill ratios for the for Korean IT large caps (1M) prices have sharply decreased US and Japan (%) Share performance (1M, L) (%) (US$)Spread (R) Spot price (L) (%) US semiconductor 4Q15 OP consensus revision rate (R) Japan semiconductor 5 Contract price (L) 30 3.0 20 12.2 34.8 10 Japan display 2.5 October: 4 20 US semiconductor 0.98 10 5 2.0 Japan semiconductor 0.72 Japan display 1.87 3 10 1.5 0 0 - 1.0 2 0 -10 -5 0.5
1 -10 0.0 1/14 7/14 1/15 7/15 2012 2013 2014 2015
Source: WISEfn, KDB Daewoo Securities Research Source: DRAMeXchange, KDB Daewoo Securities Research Source: SEMI, SEAJ, KDB Daewoo Securities Research
LCD panel inventory trend SEC smartphone shipments MSCI IT index performance by country
Shipments (L) (km2) Production Area (L) (%) (mn units) Galaxy (1/2012=100) QoQ (R) Galaxy Galaxy Note 4 16,000 Shipment Area (L) 15 120 YoY (R) Note 3 Galaxy 60% 240 MSCI US IT Note 2 Galaxy MoM inventory growth (R) Galaxy S6E+ MSCI Korea IT 10 Galaxy S6/E 220 Galaxy S5 Note 5 14,000 S4 MSCI Japan IT S3 200 5 80 30% MSCI Taiwan IT Galaxy QoQ 180 12,000 0 Note +13.5% 160 Galaxy -5 40 S2 0% 140 10,000 Galaxy S 120 -10 100 8,000 -15 0 -30% 80 1/13 7/13 1/14 7/14 1/15 7/15 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16F 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 1/16
Source: IHS, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research
Monthly InsighT 3 Monthly InsighT
II. Investment strategy
Large caps to outperform in light of risks related to F/X movement and year-end inventory clearing II. Investment strategy
KDB Daewoo IT universe share performance September: +7.7% for spotlight stocks vs. 5.0% for other notable stocks Monthly InsighT cumulative returns
Cumulative returns Avg. of spotlight stocks 7.7 Avg. of spotlight stocks 42.0
OCI Materials 18.2 Avg. of other notable stocks -41.9
KOSPI -3.7 SFA 13.2 KOSDAQ 20.7 (%) LG Innotek 7.4 Nov. -60 -40 -20 0 20 40 60 Spotlight Note: September 2014-November 2015 SEMCO 6.1 stocks Nov.
SEC -6.4 Avg. of spotlight stocks 7.7
Avg. of other notable stocks 5.0 Avg. of other notable stocks 5.0 KOSPI -1.8
LGD 17.6 KOSDAQ 0.7 (%)
-10 -5 0 5 10 15 Samsung SDI 12.7 Oct. LGE 10.4 Avg. of spotlight stocks 5.3
Nov. Avg. of other notable stocks 3.1 SK Hynix 2.9 Other notable KOSPI 3.4 HTW -3.4 stocks KOSDAQ 0.8 (%)
SSC -10.3 (%) -10 -5 0 5 10
-15 -10 -5 0 5 10 15 20
Monthly InsighT 5 II. Investment strategy
Large caps to outperform in light of risks related to F/X movement and year-end inventory clearing
■ IT market Share performance & OP consensus revision rates for Korean IT large caps (1M) - Semiconductor: Memory prices slightly stabilized in November, but may fall further with the arrival of the off-season. Process migration of latecomers appears to be (%) Share performance (1M, L) 4Q15 OP consensus revision rate (R) (%) progressing slower than expected. 20 10 - Display: Price weakness continued in November. Expectations are growing for OLED, 12.2 34.8 but such anticipations are already priced in, and short-term earnings will likely remain weak. 10 5 - Mobile/components: Samsung Electronics (SEC) is expected to see relatively stable earnings despite unfavorable seasonality, supported by the release of mid-/low-end models. 0 0 - Demand should remain soft for most IT products, including PCs, TVs, and -98.9 smartphones. -10 -5 ■ Strategy: Focus on large caps 1) IT companies’ 4Q earnings will likely contract QoQ due to year-end destocking. 2) Among small/mid-caps, we believe investors should narrow their focus to companies with strong earnings visibility for 4Q. ■ Preferred stocks Source: WISEfn, KDB Daewoo Securities Research - Large cap: SEC, Samsung SDI, Samsung Electro-Mechanics (SEMCO), LG Innotek - Small/mid caps: Wonik IPS
KDB Daewoo IT large-cap universe (W, %, x) Current Upside Share performance P/E P/B ROE Company Rating TP price (11/30) potential 1W 1M 15F 16F 15F 16F 15F 16F SEC BUY 1,700,000 1,284,000 32.4 0.2 -6.4 10.5 10.0 1.2 1.1 12.2 11.7 Samsung SDI BUY 148,000 120,000 23.3 -5.5 12.7 26.3 5.4 0.7 0.6 2.7 12.3 SEMCO BUY 93,000 69,200 34.4 -2.0 6.1 67.4 19.8 1.2 1.1 1.8 6.0 LG Innotek BUY 123,000 99,600 23.5 -1.4 7.4 19.9 12.2 1.3 1.2 6.7 10.2 SK Hynix BUY 45,000 31,600 42.4 3.1 2.9 5.3 6.9 1.0 0.9 21.5 14.1 LG Display BUY 31,000 25,400 22.0 15.7 17.6 8.2 14.7 0.7 0.7 9.2 4.9 LGE BUY 70,000 54,200 29.2 -2.5 10.4 26.4 10.4 0.8 0.8 3.1 7.6 Hanwha Techwin BUY 49,000 36,050 35.9 -0.6 -3.4 50.5 15.7 1.0 0.9 2.1 6.0 Seoul Semiconductor BUY 24,000 17,050 40.8 -9.8 -10.3 46.8 19.6 1.7 1.6 3.8 8.6 Source: WISEfn, KDB Daewoo Securities Research
Monthly InsighT 6 II. Investment strategy
Earnings forecast revisions for large caps in the KDB Daewoo IT universe (Wbn, %) Previous Revised % chg. Notes 4Q15F 2015F 2016F 4Q15F 2015F 2016F 4Q15F 2015F 2016F SEC Revenue 53,602 200,937 211,987 53,602 200,937 211,987 0.0 0.0 0.0 OP 6,921 27,188 27,785 6,921 27,188 27,785 0.0 0.0 0.0 NP 5,355 20,764 21,872 5,355 20,764 21,872 0.0 0.0 0.0 Samsung SDIRevenue 1,999 7,707 8,529 1,999 7,707 8,529 0.0 0.0 0.0 OP 1 21 122 1 21 122 0.0 0.0 0.0 NP 64 321 1,556 64 321 1,556 0.0 0.0 0.0 SEMCO Revenue 1,525 6,556 6,640 1,525 6,556 6,640 0.0 0.0 0.0 OP 79 334 418 79 334 418 0.0 0.0 0.0 NP 52 80 271 52 80 271 0.0 0.0 0.0 LG InnotekRevenue 1,716 6,263 6,400 1,716 6,263 6,400 0.0 0.0 0.0 OP 63 241 322 63 241 322 0.0 0.0 0.0 NP 35 118 194 35 118 194 0.0 0.0 0.0 SK Hynix Revenue 4,561 18,943 18,323 4,561 18,943 18,323 0.0 0.0 0.0 OP 1,151 5,498 4,295 1,151 5,498 4,295 0.0 0.0 0.0 NP 883 4,335 3,344 883 4,335 3,344 0.0 0.0 0.0 LG Display Revenue 7,357 28,245 28,761 7,357 28,245 28,761 0.0 0.0 0.0 OP 212 1,777 1,050 212 1,777 1,050 0.0 0.0 0.0 NP 111 1,103 619 111 1,103 619 0.0 0.0 0.0 LGE Revenue 14,951 56,900 57,817 14,951 56,900 57,817 0.0 0.0 0.0 OP 286 1,129 1,850 286 1,129 1,850 0.0 0.0 0.0 NP 98 371 941 98 371 941 0.0 0.0 0.0 Hanwha Revenue 785 2,643 2,902 785 2,643 2,902 0.0 0.0 0.0 Techwin OP 27 -18 104 27 -18 104 0.0 0.0 0.0 NP 33 38 122 33 38 122 0.0 0.0 0.0 Seoul Revenue 258 1,014 1,161 258 1,014 1,161 0.0 0.0 0.0 Semiconductor OP 18 52 87 18 52 87 0.0 0.0 0.0 NP 10 21 51 10 21 51 0.0 0.0 0.0 Source: KDB Daewoo Securities Research
Monthly InsighT 7 II. Investment strategy
Consensus vs. KDB Daewoo estimates (Wbn, %) KDB Daewoo Consensus % diff. Notes 4Q15F 2015F 2016F 4Q15F 2015F 2016F 4Q15F 2015F 2016F SEC Revenue 53,602 200,937 211,987 53,553 200,815 205,535 0.1 0.1 3.1 OP 6,921 27,188 27,785 6,797 27,038 26,974 1.8 0.6 3.0 NP 5,355 20,764 21,872 5,346 21,205 21,534 0.2 -2.1 1.6 Samsung SDIRevenue 1,999 7,707 8,529 1,888 7,261 7,285 5.9 6.1 17.1 OP 1 21 122 -1 -3 103 - - 18.5 Reflect proceeds from sale of the chemicals unit in NP 64 321 1,556 71 297 500 -9.4 8.0 211.5 2016 SEMCO Revenue 1,525 6,556 6,640 1,542 6,451 6,723 -1.1 1.6 -1.2 OP 79 334 418 77 345 402 3.4 -3.2 4.1 NP 52 80 271 57 104 283 -8.7 -23.8 -4.1 LG Innotek Revenue 1,716 6,263 6,400 1,757 6,311 6,705 -2.3 -0.8 -4.5 OP 63 241 322 74 254 331 -14.6 -4.9 -2.7 Unfavorable F/X NP 35 118 194 43 129 201 -19.3 -8.0 -3.7 SK Hynix Revenue 4,561 18,943 18,323 4,616 18,990 18,586 -1.2 -0.2 -1.4 OP 1,151 5,498 4,295 1,138 5,475 4,329 1.1 0.4 -0.8 NP 883 4,335 3,344 913 4,353 3,428 -3.3 -0.4 -2.5 LG Display Revenue 7,357 28,245 28,761 7,228 28,115 27,129 1.8 0.5 6.0 OP 212 1,777 1,050 195 1,758 994 9.0 1.1 5.6 NP 111 1,103 619 134 1,141 672 -17.1 -3.3 -7.9 LGE Revenue 14,951 56,900 57,817 14,849 56,629 58,688 0.7 0.5 -1.5 OP 286 1,129 1,850 290 1,110 1,423 -1.5 1.7 29.9 NP 98 371 941 124 400 678 -20.4 -7.2 38.7 Hanwha Revenue 785 2,643 2,902 707 2,560 2,708 11.1 3.2 7.2 Techwin OP 27 -18 104 15 -30 63 82.7 - 65.7 NP 33 38 122 23 23 84 43.8 62.9 45.4 Seoul Revenue 258 1,014 1,161 260 1,012 1,094 -0.6 0.2 6.1 Semiconductor OP 18 52 87 15 47 63 17.8 9.5 37.8 Improvement of Handset division NP 10 21 51 9 20 32 10.7 3.7 59.6 Source: WISEfn, KDB Daewoo Securities Research
Monthly InsighT 8 MonthlyMonthly InsighTTECH
III. Sector view
• Semiconductor: Process migration to 20nm to be delayed at latecomers
• Display: Heightening expectations for OLED
• Telecom equipment: New businesses (IoT and automotive electronics) raise expectations amid the maturing smartphone market Semiconductor III. Sector view
Large caps to outperform in light of risks related to F/X movement and year-end inventory clearing
■ Event PC DRAM (DDR3 4Gb 1,600MHz) spot price and forecasts - DRAM contract price fell at a slower pace in November (DDR3 4GB (US$)Spread (R) Spot price (L) Contract price (L) (%) US$16.3, -3.0% MoM); NAND flash contract price edged down in November (8GB MLC US$2.15, -1.8% MoM) 5 30 - PC DRAM price tanked 45% from early-year level of US$29.5 (30nm prices are believed to have fallen below production costs) 4 20 - DDR4 premium continued to narrow (4GB, priced at US$17, has only a 4% price premium) 3 10 - NAND spot prices recovered 6% from low despite weak demand 2 0 ■ Implication
- DRAM production based 30nm tech is projected to fall due to price decline 1 -10 - Prices will likely fall further with the arrival of low-demand season 1/14 7/14 1/15 7/15 - Mobile DRAM prices are projected to stabilize despite tech migration Source: DRAMeXchange, KDB Daewoo Securities Research - Process migration at SK Hynix and Micron appears delayed NAND (64Gb MLC) spot price and forecasts - SSD demand is likely to grow as NAND prices decline (US$)Spread (R) Spot price (L) Contract price (L) (%) ■ Market forecast 4.0 15 - Process migration at SK Hynix and Micron is expected to begin in 2Q16 3.5 10 - SEC’s 48-layer 3D NAND production should result in profitability growth 3.0 5 - In 2016, investments are expected to fall 15% in DRAM, but climb 33% in NAND 2.5 0
2.0 -5 Check point 1.5 -10 2016 memory market outlook: US$45.8bn (W52tr, -3% YoY) for DRAM, and 1.0 -15 US$31.9bn (W38tr, +7% YoY) for NAND 1/14 7/14 1/15 7/15 Source: DRAMeXchange, KDB Daewoo Securities Research
Monthly InsighT 10 Semiconductor III. Sector view
Key charts
Global memory players’ share performances have weakened this year Semiconductor equipment book-to-bill ratios for US and Japan
(-1Y=100) SEC SK Hynix Micron 3.0 US semiconductor Japan semiconductor Japan display 160 SanDisk Toshiba October: 2.5 US semiconductor 0.98 120 2.0 Japan semiconductor 0.72 Japan display 1.87 80 1.5 1.0 40 0.5
0 0.0 11/13 5/14 11/14 5/15 11/15 2012 2013 2014 2015
Source: Gartner, KDB Daewoo Securities Research Source: SEMI, SEAJ, KDB Daewoo Securities Research
Global DRAM supply/demand forecasts Global NAND supply/demand forecasts
(1Gb eq, bn units) (%) (8Gb eq, bn units) (%) 25 Supply (L) Demand (L) Over supply ratio (R) 15 40 Supply (L) Demand (L) Over supply ratio (R) 15 35 20 10 10 30 15 5 25 5 20 10 0 15 0 10 5 -5 -5 5 0 -10 0 -10 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16F 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16F
Source: Gartner, IDC, WSTS, KDB Daewoo Securities Research Source: Gartner, IDC, WSTS, KDB Daewoo Securities Research
Monthly InsighT 11 Display III. Sector view
Heightening expectations for OLED
■ Event Panel shipments share (for smartphone) - Panel prices remained weak across all panel types (TV -6~7% / IT -1~2%) a-Si LCD LTPS LCD Oxide LCD AMOLED - LG Display decided to invest W1.84tr in display facilities (including P10) 100% 12 16 - Apple is likely to adopt OLED panels for the iPhone 1 80% 2 - Samsung Display is preparing to convert to 8th-generation oxide panels 30 32 60% ■ Implication - Prices are likely to continue to slide due to the onset of slow season. 40% 57 - 50 Capacity utilization adjustment is likely, but any impact should be limited to 20% seasonally low demand. - LG Display seems set to strengthen its large-sized OLED panel business. 0% 1/15 9/15 - Apple is very likely to adopt a foldable OLED display in 2017 or beyond. - Samsung Display investments seems intended to stay ahead of Chinese Source: IHS, KDB Daewoo Securities Research competition and mass-produce large-sized OLED panels. LCD panel inventory growth (MoM) ■ Strategy - Panel prices are likely to continue sliding, as demand remains tepid. (km2) Production Area (L) (%) 16,000 Shipment Area (L) 15 - Top-tiers will focus on high value-added products to make it through an MoM inventory growth (R) unfavorable business environment. 10 14,000 - OLED is well positioned to become the next-generation display. 5 - But market expectations are already priced in, and short-term earnings are likely to disappoint. 12,000 0 -5 10,000 Check point -10 OLED investments to increase 8,000 -15 Inventory burden to continue into 2016 unless demand recovers visibly 1/13 7/13 1/14 7/14 1/15 7/15
Source: IHS, KDB Daewoo Securities Research
Monthly InsighT 12 Display III. Sector view
Key charts
LCD panel price changes Monthly LCD panel shipment area (by application)
(%) Notebook Monitor (mn m²)TV panel (L) Tablet panel (L) (%) 2 TV (Open-cell) TV (4K x 2K) 16 Notebook panel (L) Monitor panel (L) 30 YoY growth (R) 1 12 20 0
-1 8 10
-2 4 0 -3
-4 0 -10 1/14 4/14 7/14 10/14 1/15 4/15 7/15 10/15 1/16 1/14 4/14 7/14 10/14 1/15 4/15 7/15 10/15
Source: WitsView, KDB Daewoo Securities Research Source: IHS, KDB Daewoo Securities Research
Monthly LCD TV shipments LCD panel inventory trend (vs. normal level) LCD TV shipments (L) (mn units) (%) (weeks) 28 YoY growth (R) 20 1.0 IT TV Overall
21 10 0.5
0.0 14 0 -0.5 7 -10 -1.0
0 -20 -1.5 1/14 4/14 7/14 10/14 1/15 4/15 7/15 10/15 1/14 4/14 7/14 10/14 1/15 4/15 7/15 10/15
Source: IHS, KDB Daewoo Securities Research Source: IHS, KDB Daewoo Securities Research
Monthly InsighT 13 Display III. Sector view
Key charts
14.0” notebook panel price performance 21.5” monitor panel price performance
(US$) (1/14=100) (US$) (1/14=100) 42 Notebook 14.0" 110 80 Monitor 21.5" 110 Panel Price Index (R) Panel Price Index (R) 105 75 105 38 100 100 70 95 95 34 65 90 90 60 85 30 85 80 55 80 26 75 50 75 1/14 7/14 1/15 7/15 1/14 7/14 1/15 7/15
Source: WitsView, KDB Daewoo Securities Research Source: WitsView, KDB Daewoo Securities Research
32” TV (open-cell) panel price performance 40” TV (open-cell) panel price performance
(US$) (1/14=100) (US$) (1/14=100) 100 TV 32" (Open-cell) 110 140 TV 40" (Open-cell) 110 Panel Price Index (R) Panel Price Index (R) 105 105 130 90 100 100 95 120 95 80 90 110 90 70 85 85 100 80 80 60 75 90 75 1/14 7/14 1/15 7/15 1/14 7/14 1/15 7/15
Source: WitsView, KDB Daewoo Securities Research Source: WitsView, KDB Daewoo Securities Research
Monthly InsighT 14 Handsets/ components III. Sector view
New businesses (IoT and automotive electronics) raise expectations
■ Event SEC smartphone shipments - Smartphone market is maturing. 355mn smartphones were sold in 3Q15 (mn units) Shipments (L) Galaxy (+6.8% YoY, +4.1% QoQ), continuing single-digit QoQ growth. Next year, Galaxy QoQ (R) Galaxy Note 4 annual smartphone sale growth is expected to fall below 10% for the first 120 Note 2 Note 3 Galaxy 60% YoY (R) Galaxy Galaxy time (+9.4%, 1.58bn units). Galaxy S6E+ S5 S6/E Galaxy S4 Note 5 - SEC sold 84mn smartphones in 3Q15 (M/S 23.8%, -0.1%p YoY); 3Q15 S3 ranking based on shipments: SEC, Apple, Huawei, Lenovo, Xiaomi 80 30% Galaxy QoQ - SEC released new flagship models and saw robust sales of mid-end Note +13.5% models. Going forward, the firm will need to regain market share (brand Galaxy value). 40 S2 0% Galaxy S - Smartphone markets in China and India are showing signs of a slowdown. China’s smartphone makers are likely to attempt overseas expansion. 0 -30% ■ Implication 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16F
- SEC will need to regain market share and strengthen its brand power to stay Source: Company data, KDB Daewoo Securities Research ahead of competition amid a maturing smartphone market. High-end: Original design and various functions (OIS, wireless charging, etc.) Apple smartphone shipments Low/mid-end: Price competitiveness (no. 2 Vietnam production facilities) (mn units) iPhone 84 ■ Strategy 6/+ iPhone 6S/+ - The slowdown in the market seems to have been mostly priced in. 72 iPhone 5 iPhone - 60 iPhone 4 iPhone Smartphone parts makers are increasingly outperforming device makers; 5S/5C We advise investors to pay attention to those with mid/long-term 4S 48 iPhone competitiveness 36 3GS iPhone 24 3G Check point 12 YoY -35.5% Slowing growth and intensifying competition; QoQ +1.1% Competitive components makers (IoT and automotive electronics) to 0 outperform device makers 3Q07 3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 Source: Company data, KDB Daewoo Securities Research
Monthly InsighT 15 Handsets/ components III. Sector view
Key charts
Smartphone shipments by region Smartphone ASP by market
(%) Western Europe US (%) (US$) Developed country average Middle East & Africa Latin America 25 120.0 600 Emerging country average Japan Central & Eastern Europe Canada Asia/Pacific (ex-Japan) 20 Emerging market growth (R) 90.0 450 15 60.0 300 10
30.0 150 5
0 0.0 0 2007 2009 2011 2013 2015F 2017F 2019F 2007 2009 2011 2013 2015F 2017F 2019F
Source: IDC, KDB Daewoo Securities Research Source: IDC, KDB Daewoo Securities Research
Smartphone shipments by price Smartphone shipment and market size growth
Premium (>US$700) High-end (US$300-$700) (%) (%) YoY growth (volume) Mid-end (US$150-299) Low-end ( 20 0.0 0 (20.0) 1Q07 4Q07 3Q08 2Q09 1Q10 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 2Q15 1Q07 1Q09 1Q11 1Q13 1Q15 Source: IDC, KDB Daewoo Securities Research Source: IDC, KDB Daewoo Securities Research Monthly InsighT 16 Monthly InsighT IV. Think big • Chinese players’ foray into the memory market • Black Friday and Singles’ Day IV. Think Big: 1) Entry of China into semiconductor industry Overview ■ Government expanding support for the semiconductor industry Oligopolistic memory market - # of DRAM producers: 11 (in 2000) 9 (in 2003) 4 (in 2011) 3(in Acquisition 2013) JV established - China’s semiconductor imports amount to US$230bn annually (self- Cutting/suspending production sufficiency rate of 9%) (vs. crude oil imports of US$220bn) - Semiconductor trade deficit: US$22.4bn (in 2003) US$115bn (in 2013) - The government aims to maintain a CAGR of over 20% through 2020, boosting combined global market share to 33% - Creation of IC industry support fund (US$27.5bn): US$21bn from the central government + US$6.5bn from provincial governments - Government encourages M&As, and provides financial aid and tax benefits Source: KDB Daewoo Securities Research China’s semiconductor revenue trend Government-supported fund to nurture China’s semiconductor industry (US$bn) 160 Revenue comprises of China IC companies' 143 140 sales ,including IC fabless, foundry, IDM & OSAT 120 Annual growth 100 (2014~2020) > 20% 80 58 60 Annual growth 40 (2001~2014): 26% 20 2 0 01 03 05 07 09 11 13 15F 17F 19F Source: KDB Daewoo Securities Research Source: SEMI Monthly InsighT 18 IV. Think Big: 1) Entry of China into semiconductor industry Major players ■ Tsinghua Group, CEC, and China Datang Corporation Tsinghua’s governance structure - Tsinghua University named best engineering school in the world by US News & World Report - Tsinghua Group: Tsinghua Unigroup has acquired Chinese chip makers Spreadtrum and RDA; Unisplendour conducts network, storage, and software businesses - CEC: State-owned IT firm; Two semiconductor foundries and four fabless firms under its umbrella - China Datang Corporation: State-owned IT firm; Subsidiaries included SMIC (No.1 foundry in China, and the fifth largest in the world) - Semiconductor industry is paramount to China’s shift to smart manufacturing (Manufacturing R&D spending: RMB457bn in 2008 RMB1.3tr in 2014) Source: KDB Daewoo Securities Research Global engineering college rankings (2015) China’s contribution to global exports Rank Country Institution (RMBbn) (%) 1 China Tsinghua University 1,400 R&D spend (L) 3 2 US MIT (Massachusetts Institute of Technology) % of GDP (R) 3 US University of California – Berkeley 1,200 4 China Zhejiang University 1,000 2 5 Singapore Nanyang Technological University 800 6 Singapore National University of Singapore 600 7 China Harbin Institute of Technology 1 8 US Stanford University 400 9 US Georgia Institute of Technology 200 41 Korea KAIST (Korea Advanced Institute of Science and Technology) 0 0 52 Korea Seoul National University 08 09 10 11 12 13 14 Source: US News & World Report Source: Chinese manufacturing 2025, KDB Daewoo Securities Research Monthly InsighT 19 IV. Think Big: 1) Entry of China into semiconductor industry Tsinghua, an aggressive M&A player ■ Tsinghua Group’s M&As Tsinghua’s activities in the semiconductor space - Tsinghua Unigroup made unsuccessful attempt to buy Micron for US$23bn Date Details Tsinghua Unigroup attempted (but failed) to acquire Micron for US$23bn (19% premium to - Unisplendour acquired 15% stake in Western Digital (world’s largest HDD Jul. 13, 2015 market cap). and 7th largest SSD manufacturer) for US$3.8bn Oct. 1, 2015 Unisplendour acquired 15% share of Western Digital for US$3.8bn - Tsinghua Unigroup named Charles Kau, former chairman of Inotera (leading memory producer in Taiwan), as VP Oct. 5, 2015 Charles Kau, CEO of Inotera, named vice-president of Tsinghua Unigroup - Korean players will need decide whether to actively cooperate with Chinese players, giving up their oligopolistic positions, or seek to hold onto their Oct.21,2015 Western Digital acquired SanDisk for US$19 billion position Tsinghua Unigroup acquired Taiwanese semiconductor packaging firm Powertech for Oct. 30, 2015 US$600mnn Tongfang Guoxin decided to raise US$12.6bn (US$9.5bn to construct memory fab, US$3.1bn for Nov. 6, 2015 M&As) Source: KDB Daewoo Securities Research Tsinghua has been aggressive in the semiconductor space Source: KDB Daewoo Securities Research Monthly InsighT 20 IV. Think Big: 2) Black Friday and Singles’ Day 2015 Black Friday ■ Turn to Black: Black Friday 2015 Black Friday preview poster - Black Friday: Friday following Thanksgiving Day in US; Beginning of holiday shopping season - Origin of word is unclear, but may indicate the point at which retailers begin to turn a profit (or turn to black) - Sales during this shopping season account for 20-40% of US annual retail sales (according to National Retail Federation) ■ Best Black Friday deals in 2015 - Kindle 6": US$80 → US$50 - Dell 24” LED monitor: US$230 US$100 - Apple Macbook Pro (4GB): US$1,099 US$899 Source: Zdnet.com, KDB Daewoo Securities Research - Samsung 60” 4K SUHD JS7000 Series Smart TV : US$2,600 US$1,300 2015 Black Friday discounts on iPads - Samsung Gear Fit: US$150 US$80 Check point Turn To Black! Black Friday Source: Zdnet.com, KDB Daewoo Securities Research Monthly InsighT 21 IV. Think Big: 2) Black Friday and Singles’ Day 2015 keyword: Down for offline; up for online ■ 2015 Black Friday offline revenue: -10% YoY Annual % of sales volume and traffic via mobile on Black Friday - 2015 offline sales on Black Friday decreased 10% YoY to US$10.4bn (%) 80 - Sales on Thanksgiving Day also declined 10% to US1.8bn Mobile % of sales Mobile % of traffic - Average spending per person is estimated at US$134.35 57.2 60 - Revenue deterioration due to: 1) increased online shopping sales, 2) discount 49.6 sales began at most retail outlets long before Thanksgiving 39.7 40 36.2 ■ By contrast, % of online spending is on the upswing 27.9 24 21.8 - Online sales on Black Friday rose 14.3% YoY 20 14.3 16.3 9.8 5.6 - Smartphone shopping expanded again this year. 5”-screen iPhone provided a 3.2 boost to mobile shopping 0 2010 2011 2012 2013 2014 2015 - In addition, with access to mobile websites getting faster, mobile shopping became more convenient Source: IBM, KDB Daewoo Securities Research - Email promotions estimated to boosted revenue by more than 25% YoY Sales and traffic growth via mobile (smartphone and Tablet PC) - Although Thanksgiving online sales rose 26% YoY, average order per person decreased by US$2 YoY to 123.45 (from US$125.35) due to weakened (%) Smartphone % of sales Tablet % of sales consumer sentiment 50 Smartphone % of traffic Tablet % of traffic 44.7 40 34.7 30 20.6 20 16 14.6 15.5 11.8 12.5 10 Check point 0 Online shopping, especially mobile shopping, is on the upswing 2014 2015 Source: IBM, KDB Daewoo Securities Research Monthly InsighT 22 IV. Think Big: 2) Black Friday and Singles’ Day Singles’ Day: China’s version of Black Friday ■ Singles’ Day spending boosted by Alibaba Market share of e-commerce sites during events - Singles’ Day, China’s version of Black Friday, is the day singles spend on Others Zingdong Tmall Taobao themselves 100% 5.1 - Alibaba launched Singles’ Day on Tmall on November 11, 2009 for the first 9.1 9.3 time among Chinese retailers 80% 18.9 39.9 22.1 39.5 - This year, Alibaba promoted consumer spending on Singles’ Day with a 60% 18.9 slogan “World’s Shopping Festival” 40% ■ Promotions by competitors 62.6 50.3 53.6 - JD.com launched its own “618” event to compete with Alibaba’s Tmall event. 20% 46.2 However, the impact of the 618 event was not as big as Tmall event. 0% - Suning.com and Yihaodian launched events in cooperation with Tmall event 2014.11.11 2013.11.11 2014.6.18 Average ■ Singles’ Day spending soaring every year Source: Digieco, KDB Daewoo Securities Research - In 2014, Alibaba generated sales of RMB57.1bn (or W10.3tr) on Singles’ Day, up 63% YoY from RMB35bn (or W630bn) in 2013 and up 100 times from Tmall trading sales volume on China’s Singles’ Day RMB52mn (or W9.3bn) (CNYbn) - We expect Singles’ Day-related sales will continue to grow, driven by O2O 60 57.1 expansion and growing demand for imported products. 40 35 19.1 20 5.2 0.052 1.9 0 2009 2010 2011 2012 2013 2014 Source: IBM, KDB Daewoo Securities Research Monthly InsighT 23 IV. Think Big: 2) Black Friday and Singles’ Day This year’s Singles’ Day records ■ Beyond China into global shopping festival Alibaba’s Singles’ Day sales record by time - In 2015, Singles’ Day sales reached RMB91.21bn (or W16.4tr; +59% YoY), Time Sales record Notes exceeding initial estimate of RMB84-86bn 1m 12s Broke CNY1bn - Mobile shopping reached RMB62.64bn (68% of Singles’ Day spending; 1m 45s Broke CNY5bn +17.4% YoY), confirming that China is the world’s largest mobile e-commerce Reached CNY10bn earlier than last year; market 12m 28s Broke CNY10bn Mobile M/S 74.83% - Tmall event involved 40,000 companies, 30,000 brands (including 5,000 overseas brands from 25 nations), and 600 items 1h 45m 42s Broke CNY41.7bn - During the event, it is estimated that the number of visitors to the website via 9h 52m 22s Broke CNY50bn Mobile M/S 72% mobile devices was 95mn 16h 40m Broke CNY70bn ■ Strong infrastructure 21h Broke CNY80bn Mobile M/S 68% - During Singles’ Day, Alibaba did not experience any disruptions from heavy end Broke CNY91.2bn traffic (1.43bn cases) Source: Press, KDB Daewoo Securities Research - This seems attributable to Alibaba’s in-house developed Taobao technology 2015 Singles’ Day hit products ■ Korean firms also benefited from Singles’ Day Smartphone Favorable import Smartphone Cosmetics Auto - Korean firms also enjoyed strong sales Brand products PECHOIN - Lotte.com achieved sales of W1.1bn during the morning session. Full-day 1 Huawei Huawei 5X Cadillac Hera BB (百雀羚) sales expanded 20x YoY - Eland Group generated sales of more than W30bn. Some Korean cosmetics 2 Apple iPhone 6S KanS(韩束) Buick BRAUN thermometer sold out 3 Xiaomi Red Mi Note 2 Lancome Audi LG Care Bodyfit Chando Bioderma 4 Meizu Meizu Metal Kia (自然堂) Toner 5 OPPO iPhone 6S Plus Loreal Volks Wagen Avene Toner Source: IBM, KDB Daewoo Securities Research Monthly InsighT 24 Monthly InsighT V. Global IT navigation VI. Key global peers • Applied Materials (AMAT US) • UDC (OLED US) • IBIDEN (4062 JP) V. Global IT navigation Global IT index continued to rise on solid OLED shares ■ Global industry performance Global IT index performance table (11/30) - Global IT index (+0.7%): Chinese and Japanese IT stocks outperformed, while Performance (%) Korean and Taiwanese IT stocks declined Index 1W 1M 3M 6M 12M - Domestic stock market weakened on MSCI rebalancing and inclusion of Chinese Dow Jones 17,798 0.4 0.8 7.7 -1.2 -0.2 ADRs in the MSCI index NASDAQ 5,128 0.4 0.5 6.0 -0.8 1.1 - Shares of OLED materials and equipment makers drove up the global IT index KOSPI 1,992 -0.6 -1.8 2.6 -5.8 0.6 ■ Sector performance KOSDAQ 688 0.0 0.7 0.2 -3.2 26.3 - OLED-related shares: UDC (+54%), Duksan Neolux (+29%), LGD (+18%) World 150 -0.1 0.7 9.3 0.7 4.3 - Display equipment makers: Jusung Engineering (+50%), Uivac (+44%), Screen US 170 0.2 0.6 9.8 1.6 4.6 (+28%) Korea 708 3.0 -0.5 18.1 -3.0 -3.6 MSCI IT ■ Company performance Japan 127 -1.1 4.5 4.1 -7.7 6.7 - Qualcomm (-18%): Korea FTC imposed sanctions on Qualcomm for abusing its Taiwan 147 -1.5 -0.3 2.6 -15.0 -11.4 dominant market position, following Chinese authorities China 334 -2.0 5.1 17.4 -9.7 12.9 - Weak share performances of LED makers: Epistar (-24%), Everlight (-13%), Seoul Source: Bloomberg, KDB Daewoo Securities Research Semiconductor (-10%) Nov. sector performance (MoM) Nov. share performance (MoM) (%) (%) 20 75 50 10 25 0 0 -25 -10 -50 LED TLI ELK BYD UDC Battery Ulvac Memory Foundry S-mac Melfas Epistar Materials Mntech Sangbo Radiant Divice-PC Goertek Everlight Anapass EMS/ODM Automation Qualcomm LG Display Non-memory Display parts Display parts AP System Display-glass Display-panel Touch Screen Taiyo Yuden Electronic parts Electronic Device-handset OCI Materials Semi equipment Semi Home appliances Device distribution Device Screen Holdings Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 26 V. Global IT navigation Key charts MSCI World and MSCI World IT MSCI IT performance by country (1/2012=100) (1/2012=100) 180 MSCI World 240 MSCI US IT MSCI Korea IT MSCI World IT 220 MSCI Japan IT MSCI Taiwan IT 160 200 140 180 160 120 140 120 100 100 80 80 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 1/16 1/12 7/12 1/13 7/13 1/14 7/14 1/15 7/15 1/16 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research P/E comparison by country (2015F) IT sector P/B-ROE comparison (2015F) (x) P/B (x) 6 25 23.6 5 20 China 16.1 16.1 15.8 4 15 US 11.5 10.0 3 World 10 2 5 1 Japan Taiwan Korea ROE (%) 0 0 China Japan World US Taiwan Korea 0 5 10 15 20 25 30 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 27 VI. Key global peers: Applied Materials (AMAT US) Global number 1 ■ Corporate overview Share price (11/30/15,US$) 18.6 - Established in US in 1967; Operates four business units: Silicon Systems Group (SSG), Display, Energy and Environmental Solutions (EES), and Applied Global Services (AGS). - As of 2014, revenue contribution stood at 64% for SSG, 26%for AGS, 8% for Display, and 2% for EES FY14 1,520 - SSG unit: 51% for deposition, 23% for etching/cleaning/planarization, and 10% for ion implanter OP (US$mn) FY15F 1,693 - Major competitors include ASML, Tokyo Electron, and Lam Research; Ranks first in the share of wafer manufacturing equipment market FY16F 1,830 (18.6%) EPS growth (16F,%) 36 ■ FY4Q15 review P/E (16F, x) 15.3 - FY4Q15 results: Revenue of US$ 2.37bn (vs. consensus of US$2.39bn), OP of US$ 423mn (vs. consensus of US$453mn)OPM of 17.8%(vs. Market P/E (16F,x) 23.2 consensus of 18.9%) NASDAQ (US) 5,128 - FY2015F revenue: US$ 9.65bn (+6.4% YoY; vs. US$9.07bn in 2014) Market cap (US$mn) 22,356 - Earnings are improving thanks to solid performance of SSG unit attributable to shift from 2D to 3D NAND process Shares outstanding (mn) 1,201 The highest annual operating profit likely in four years 52-week low (US$) 14 ■ Implications 52-week high (US$) 26 - Continued tech migration, 3D NAND tech, and OLED investments are catalysts for earnings improvement Shareholders (%) - Chinese makers’ aggressive semiconductor capacity expansion to boost earnings Artisan Partners 6.0% - Company’s steady investments in 10nm process and 3D NAND technology to be positive for sharpening its competitiveness BlackRock 5.7% Vanguard Group 5.4% 140 FY (Dec.) 12/11 12/12 12/13 12/14 12/15F 12/16F Breakdown by NAND (2014) NASDAQ (US) AMAT Revenue (US$mn) 10,517 8,719 7,509 9,072 9,659 9,475 SSG 64% 120 OP (US$mn) 2,398 411 432 1,520 1,693 1,830 AGS 26% 100 OP margin (%) 22.8 4.7 5.8 16.8 17.5 19.3 Display 8% NP (US$mn) 1,926 109 256 1,072 1,377 1,275 EES 2% 80 EPS (US$) 1.5 0.1 0.2 0.9 1.1 1.5 (%) 1M 6M 12M 60 ROE (%) 23.6 1.4 3.6 14.3 17.8 18.5 Absolute 11.2 -7.5 -22.6 P/E (x) 8.7 14.1 28.4 21.2 14.0 15.3 40 Relative 10.7 -6.7 -23.4 14.11 15.02 15.05 15.08 15.11 P/B (x) 1.8 1.7 3.0 3.2 2.5 2.9 Note: Based on Bloomberg consensus Source: Company data, Bloomberg, KDB Daewoo Securities Research Monthly InsighT 28 VI. Key global peers: Applied Materials (AMAT US) 1993 First semiconductor equipment maker to exceed US$1bn in annual sales Ownership structure (4Q15) 1995 Opened office in Dresden, Germany Waddell & Reed First semiconductor equipment company to open large-scale technology centers 1996 5.30% in Korea and Taiwan Acquired Opal and Orbot Instruments, entering the market for process 1997 diagnostics and control equipment Vanguard Group Acquired Consilium, and entered the Manufacturing Execution System software 5.40% 1998 others business 77.60% Released FAB300, the first Manufacturing Execution System software designed BlackRock 1999 specifically for 300mm fabs 5.70% Entered mask making market and thin film transistor array test business by 2000 purchasing Etec Systems Artisan Partners 2001 Acquired Schlumberger's electron-beam wafer inspection business 6% Collaborated with National Chiao Tung University in Taiwan to expand 2002 technology programs 2003 Launched ComPlus-EV patterned wafer inspection system Source: Applied materials, KDB Daewoo Securities Research Acquired Metron Technology, the world’s largest independent service provider to 2004 the semiconductor industry, expanding the company’s portfolio of solutions for Revenue breakdown by business (2014) streamlining semiconductor fab solutions Acquired Applied Films Corporation, a leading supplier of thin film deposition EES 2006 equipment used in manufacturing flat panel displays, solar cells, flexible 2% electronics and energy-efficient glass Display 2009 Completed acquisition of Semitool 8% Introduced Applied SmartFactory MES software, advanced automation for solar, 2010 LED and chip packaging factories Unveiled breakthrough Centura Conforma plasma doping technology for building 2011 3D transistors AGS SSG 26% 64% Launched Varian VIISta Trident ion implant system for manufacturing advanced 2012 20nm transistor structures 2013 Unveiled new expitaxy technology for high-performance transistors Introduced industry-leading PVD, lon Implant, CVD and CMP solutions to help 2014 customers accelerate 3D chip designs Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 29 VI. Key global peers: Applied Materials (AMAT US) Key charts Revenue and OP margin Revenue breakdown by region (US$mn) (%) 3,500 60 Revenue (L) US 3,000 OP margin (R) 22% 40 2,500 2,000 20 Europe Asia 6% 1,500 0 72% 1,000 -20 500 0 -40 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research 4QFY15 review OP consensus revision trend FY4Q15 % (US$mn) (US$) (US$mn) FY4Q14 FY3Q15 3,500 2016 OP Consensus (L) Results Consen. Difference YoY QoQ 24 Share price (R) Revenue 2,264 2,490 2,368 2,397 -1.2 4.6 -4.9 22 OP 412 396 423 453 -6.6 2.7 6.8 3,000 20 Pretax profit 398 375 397 432 -8.1 -0.3 5.9 18 16 Net income 290 329 336 305 10.1 15.9 2.1 2,500 14 EPS 0.24 0.27 0.28 0.26 7.6 16.7 3.7 12 OP margin 18.2 15.9 17.9 18.9 -1.0 -0.3 2.0 2,000 10 NI margin 12.8 13.2 14.2 12.7 1.5 1.4 1.0 9/14 11/14 1/15 3/15 5/15 7/15 9/15 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 30 VI. Key global peers: Applied Materials (AMAT US) Earnings table FY2014 FY2015 2014 2015 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 SSG 1,484.0 1,584.0 1,476.0 1,434.0 1,446.0 1,560.0 1,635.0 1,494.0 5,978.0 6,135.0 AGS 507.0 534.0 567.0 592.0 583.0 646.0 665.0 637.0 2,200.0 2,531.0 Display Revenue 159.0 147.0 119.0 190.0 275.0 163.0 151.0 191.0 615.0 780.0 EES 40.0 88.0 103.0 48.0 55.0 73.0 39.0 46.0 279.0 213.0 Total 2190 2353 2265 2264 2359 2442 2490 2368 9072 9659 OP 330 387 391 412 458 416 396 423 1520 1693 OPM 15.1 16.4 17.3 18.2 19.4 17.0 15.9 17.9 16.7 17.5 Growth (QoQ/YoY) SSG 19.4 6.7 -6.8 -2.8 0.8 7.9 4.8 -8.6 25.2 2.6 AGS -5.8 5.3 6.2 4.4 -1.5 10.8 2.9 -4.2 8.7 15.0 Display -2.5 -7.5 -19.0 59.7 44.7 -40.7 -7.4 26.5 Revenue 14.3 26.8 EES -9.1 120.0 17.0 -53.4 14.6 32.7 -46.6 17.9 61.3 -23.7 Total 10.2 7.4 -3.7 -0.04 4.2 3.5 2.0 -4.9 20.8 6.4 OP 56.4 17.3 1.0 5.4 11.2 -9.2 -4.8 6.8 251 11.3 OPM 4.5 1.4 0.8 0.9 1.2 -2.4 -1.1 2.0 11 0.7 Source: KDB Daewoo Securities Research Monthly InsighT 31 VI. Key global peers: UDC (OLED US) Entering production upcycle ■ Corporate overview Share price (11/27/15, US$) 52.8 - Established in 1985; Holds OLED source technologies (with around 3,500 OLED-related patents) - Major products: EML (dopant, green/red phosphorescents) materials - Major competitors include Samsung SDI, Duksan Neolux, and Idemitsu Kosan 2014 59 - Revenue contribution in 2014: By business, 67% for OLED materials and 33% for licenses/royalties; By region, 86% for Korea, 11% for Japan, OP (US$mn) 2015F 62 and 3% for other 2016F 101 - Major customers include SDC, LGD, and AUO EPS growth (15F%) 23.3 ■ FY3Q15 review and 2015 earnings guidance P/E (15F, x) 7.5 - FY3Q15 earnings exceeded consensus estimates, with revenue of US$39.4mn (vs. consensus of US$ 38.3mn) and OP of US$8.4mn (vs. MKT P/E (15F, x) 23.2 consensus of US$ 4.7mn) Shenzhen Index 5,128 - Revenue by product: US$21.4mn (71%) for green phosphorescent, US$7.3mn (24%) for red phosphorescent, US$1.4mn for green host (5%) Market cap (US$mn) 2,467 - Earnings improved on 1) higher OLED utilization at customers arising from increased demand for small-/mid-sized OLED panels and 2) the operation of new OLED lines Shares outstanding (mn) 47 - 2015 earnings guidance: Revenue of US$200mn (± 3%), which includes license revenue from SEC (US$60mn) and royalties from LGD 52-week low (US$) 25 ■ Implications 52-week high (US$) 56 - Increasing OLED adoption in smartphones; Likelihood of OLED adoption in the iPhone; LGD and SEC to drive large-sized OLED marketgrowth Shareholders (%) - Risks include 1) patent litigations and 2) uncertainties arising from the adoption of the company’s materials in new smartphone models Discovery Capital 9.0% - Given high barriers to entry for the materials market, the company’s competitiveness stemming from source technology will likely attract keen attention in the medium- to long-term Japanese materials makers remain competitive thanks to their source technologies Waddel & Reed Financial 8.4% Vanguard Group 6.0% 250 FY (Dec.) 12/11 12/12 12/13 12/14 12/15F 12/16F Breakdown by business (2014) NASDAQ (US) UDC Revenue (US$mn) 61 83 147 191 201 251 Materials (Commercial) 62% 200 OP (US$mn) 6 14 38 59 62 101 Materials (Developmental) 5% Royalty and License 33% 150 OP margin(%) 9.3 16.4 26.1 30.7 30.7 40.3 Other 1% NP (US$mn) 3 10 74 42 36 72 100 EPS (US$) 0.1 0.2 1.6 0.9 1.1 1.5 (%) 1M 6M 12M 50 ROE (%) 1.6 2.8 19.1 9.6 7.5 14.0 Absolute 49.5 -1.7 90.4 P/E (x) 524.1 122.0 21.6 30.8 48.4 35.9 0 Relative 48.7 -0.8 88.4 14.11 15.2 15.5 15.8 15.11 P/B (x) 4.9 3.4 3.8 2.8 5.1 4.4 Note: Based on Bloomberg consensus Source: Company data, Bloomberg, KDB Daewoo Securities Research Monthly InsighT 32 VI. Key global peers: UDC (OLED US) Overview History Ownership structure 1985 Established Universal Display Corporation Discovery 2005 OLED technology licensing agreement with Samsung SDI Capital 2007 Joint development of 4” flexible AMOLED with LG Display 9% 2008 Established Universal Display Hong Kong Waddell & Reed 2008 OLED technology licensing agreement with LG Chem Other 8% 2010 Established Universal Display Korea 67% Vanguard 2011 OLED technology licensing agreement with SMD(Samsung Mobile Display) 6% 2011 OLED lighting technology licensing agreement with Pioneer Bank of NY 2011 Established Universal Display Japan Mellon Blackrock 5% 2011 Established Universal Display Taiwan 5% 2012 Established Universal Display Ireland Source: Bloomberg, KDB Daewoo Securities Research 2015 OLED technology licensing agreement with LG Display Revenue breakdown by region Revenue breakdown by business Materials (developmental) 6% Japan 11% Korea Material Other Royalty and (commercial) 86% license 2% 60% 34% US 1% Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 33 VI. Key global peers: UDC (OLED US) Key charts OLED panel structure Smartphones featuring OLED panels Galaxy S Note series Galaxy A / J / E series Source: UDC, KDB Daewoo Securities Research Source: USC, KDB Daewoo Securities Research OLED panel demand forecast OLED smartphone shipment forecast (mn m2) (mn units) (%) 12 Mobile 80 OLED smarphone shipments (L) 180 TV 10 YoY growth (R) Tablet/PC 60 120 8 6 40 60 4 20 0 2 0 0 -60 2014 2015F 2016F 2017F 2018F 2019F 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16F Source: IHS, KDB Daewoo Securities Research Source: IHS, KDB Daewoo Securities Research Monthly InsighT 34 VI. Key global peers: UDC (OLED US) Key charts UDC’s revenue and OP margin UDC’s revenue breakdown by business (US$mn) (%) (US$mn) 80 100 Revenue (L) 80 Material sales OP margin (R) Royalty and license 50 60 60 Other 0 40 40 -50 20 -100 20 0 -150 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16F 0 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 Source: Company data, Bloomberg, KDB Daewoo Securities Research Source: Company data, Bloomberg, KDB Daewoo Securities Research 3QFY15 review OP consensus revision trend 3QFY15 % (US$mn) (US$) (US$mn, %) 3QFY14 2QFY15 110 2015F OP consensus (L) 65 Results Consen. % diff. YoY QoQ Share price (R) Revenue 32.9 58.1 39.4 38.3 2.9 19.8 -32.1 55 OP 6.1 -4.5 8.4 4.7 79.3 37.5 TTB 90 45 Pretax profit 6.3 -4.3 8.6 5.0 73.2 37.4 TTB 35 NP 4.3 -11.8 7.0 2.9 139.5 64.5 TTB 70 25 EPS (US$) 0.1 -0.3 0.2 0.1 123.9 66.7 TTB 15 OP margin 18.5 -7.7 21.2 12.2 9.0 2.7 28.9 50 5 Net margin 13.0 -20.3 17.9 7.7 10.2 4.9 38.1 11/14 2/15 5/15 8/15 11/15 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 35 VI. Key global peers: UDC (OLED US) Earnings table (US$mn, US$, %) FY2014 FY2015F 2014 2015F 2016F 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15F Materials sales 35.3 35.9 27.5 28.1 26.8 24.3 34.1 126.9 Commercial - - 24.8 26.6 25.6 21.8 30.2 - Developmental - - 2.7 1.5 1.2 2.5 3.9 - Revenue Royalty and license 1.8 28.1 5.4 28.0 4.4 33.7 5.2 63.2 Technology development 0.7 0.1 0.0 0.0 0.0 0.0 0.1 1.0 Total 37.8 64.1 32.9 56.2 31.2 58.1 39.4 191.0 200.8 251.1 Operating profit 6.6 28.8 6.1 17.1 1.8 -4.5 8.4 58.6 61.7 101.2 Pre-tax profit 6.8 29.0 6.3 17.2 1.9 -4.3 8.6 59.3 61.3 102.9 Net profit 4.0 20.4 4.3 13.1 1.3 -11.8 7.0 41.9 35.7 72.3 OP margin 17.5 45.0 18.5 30.4 5.7 -7.7 21.2 30.7 30.7 40.3 Pre-tax profit margin 18.0 45.2 19.0 30.7 6.2 -7.4 21.8 31.1 30.5 41.0 NP margin 10.6 31.8 13.0 23.4 4.2 -20.3 17.9 21.9 17.8 28.8 Breakdown by region (%) Korea 60.7 76.8 68.4 84.0 71.2 92.7 87.6 74.3 Japan 37.2 17.0 26.1 20.2 24.9 4.9 8.2 23.5 Other 0.9 5.9 5.1 -7.5 1.4 1.5 3.5 0.8 USA 0.4 0.3 0.4 0.5 0.7 0.9 0.7 0.4 Taiwan 0.8 - - 2.8 1.9 - - 1.0 Growth (QoQ/YoY) Materials sales 38.3 1.7 -23.5 2.3 -4.7 -9.3 40.3 32.6 Commercial - - - 7.4 -3.8 -15.0 38.7 - Developmental - - - -44.3 -21.1 113.5 54.1 - Revenue Royalty and license -92.3 1,477.5 -80.9 422.5 -84.4 671.0 -84.5 34.4 Technology development -17.6 -81.3 -70.1 2.4 -28.6 16.7 91.4 -75.7 Total -23.5 69.5 -48.7 70.8 -44.4 86.1 -32.1 30.3 5.1 25.1 Operating profit -65.9 335.1 -78.9 180.8 -89.6 TTR TTB 53.3 5.2 64.1 Pre-tax profit -65.2 324.8 -78.5 175.8 -88.8 TTR TTB 52.1 3.2 68.0 Net profit -93.1 407.8 -79.0 206.4 -90.0 TTR TTB -43.5 -14.7 102.7 Source: KDB Daewoo Securities Research Monthly InsighT 36 VI. Key global peers: IBIDEN (4062 JP) Leading PCB player ■ Corporate overview - Established as Ibigawa Electric Power in 1912 Share price (11/30/15, JPY) 1,983 - Engages in power plant operation (since1921), graphite production (since 1969), printed wiring boards (PWB; since 1972), ceramic fiber(since 1972), and IC package substrate businesses (since 1988); Renamed as Ibiden in 1982 FY2014 26 - Revenue contribution: 50% for SP/PKG/PWB and 30% for ceramic fiber OP (JPYbn) FY2015F 28 - Ranked first in global PCB market share in 2014 FY2016F 27 - Major customers are global IT device makers, including SEC and Apple EPS growth (15F%) -1.1 P/E (15F,x) 5.5 ■ FY2Q15 earnings results and FY2015-16 guidance - Revenue of JPY83.9bn (+6.5% YoY, +13.0% QoQ), OP of JPY8.6bn(+45.3% YoY, +127.5% QoQ), OPM of 10.2% MKT P/E (15F,x) 19.2 - FY2015 earnings guidance: Revenue of JPY330.0bn (+3.8% YoY), OP of JPY27.0bn(+3.8% YoY), OPM of 8.2% NIKKEI 225 (Japan) 19,884 - FY2016 earnings guidance: Revenue of JPY340.0bn(+3.0% YoY), OP of JPY24.0bn(-11.1% YoY), OPM of 7.1% Market cap (JPYbn) 279 Electronics parts: Conventional packaging earnings to drop 35.5% YoY due to commercialization of new packaging technology FO-WLP Ceramics: Revenue and OP to grow on rising demand for diesel emission reduction devices following the Volkswagen emission scandal Shares outstanding (mn) 141 52-week low (JPY) 1,489 ■ Implications 52-week high (JPY) 2,370 - Stagnant smartphone and PC sales and new packaging technology to negatively affect earnings; However, this impact to be partially Shareholders (%) offset by its diversified revenue sources (electronics parts, ceramics, etc.) Silchester Int’l Investors 10.3% Ibiden 9.1% FY (Dec.) 12/11 12/12 12/13 12/14 12/15F 12/16F NIKKEI 225 (Japan) Toyota Group 5.2% 140 Ibiden Revenue (JPYbn) 301 286 310 318 329 326 Breakdown by business (2014) OP (JPYbn) 16 5 23 26 28 27 Electronics Substrate 50.2% 120 OP margin(%) 5.2 1.9 7.6 8.2 8.5 8.2 Ceramics 31.2% NP (JPYbn) 11 2 17 19 19 17 Others 18.6% 100 EPS (JPY) 74.4 16.0 126.6 138.4 136.8 126.2 (%) 1M 6M 12M ROE (%) 4.0 0.8 5.8 5.7 5.5 4.7 Absolute 17.0 -14.7 12.5 80 P/E (x) 28.5 91.8 16.1 14.6 14.5 15.7 Relative 14.3 -10.5 -0.5 14.12 15.03 15.06 15.09 15.12 P/B (x) 1.1 0.7 0.9 0.8 0.7 0.7 Note: Based on Bloomberg consensus Source: Company data, Bloomberg, KDB Daewoo Securities Research Monthly InsighT 37 VI. Key global peers: IBIDEN (4062 JP) Overview History Ownership structure 1912 Established Ibigawa Electric Power Silchester Int'l Investors 10.29 Ibiden 9.07 1917 Began manufacture and sale of carbide Toyota Group 5.2 1974 Began manufacture of “IBI WOOL” ceramic fiber Master Trust Bank of Japan 4.52 GLG Partners 4.23 1982 70th anniversary; Changed name to IBIDEN Sumitomo Mitsui Trust Holdings 4.02 (%) 1985 Began business of β-type silicon carbide "Beta random" Other 66.69 0 20406080100 1987 Began business of plastic IC package substrates Source: Bloomberg, KDB Daewoo Securities Research 1992 Began manufacture of PWBs for mobile devices Revenue breakdown by business 1996 Began manufacture of IC package substrates for PCs at Gama Plant Other 19% 2001 Began mass production of DPFs at Ogaki-Kita Plant Began mass production of PWBs with free via full stacked-up structure 2004 Electronics (FVSS) substrate 50% 2006 DPF cumulative world shipments reach 500 million units Ceramics 2008 DPF cumulative world shipments reach 1,000 million units 31% 2012 100th anniversary Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 38 VI. Key global peers: IBIDEN (4062 JP) Key charts Electronics (printed wiring board, IC package) Ceramics (DPF/automotive exhaust system components, graphite products) Source: Ibiden, KDB Daewoo Securities Research Source: Ibiden, KDB Daewoo Securities Research Quarterly earnings OP consensus (JPYbn) Revenue (L) OPM (R) (%) (JPYbn) (JPY) 90 15 32 2015F consensus (R) 2,800 Share price (L) 80 10 28 2,200 70 5 24 1,600 60 0 50 -5 20 1,000 FY3Q09 FY3Q10 FY3Q11 FY3Q12 FY3Q13 FY3Q14 FY3Q15F 1/13 7/13 1/14 7/14 1/15 7/15 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 39 VI. Key global peers: IBIDEN (4062 JP) Key charts OLED panel structure Smartphone adopt OLED panel (JPYbn) Housing materials Construction (%) (mn units) PC sales volume (L) (%) 20,000 Other-Synthetic resins Ceramics 150 350 YoY Growth (R) 8 Electronics substrates OP QoQ (R) 15,000 100 300 0 10,000 50 250 -8 5,000 0 0 -50 200 -16 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 2013 2014 2015 2016F 2017F 2018F Source: IDC, KDB Daewoo Securities Research Source: IDC, KDB Daewoo Securities Research OLED panel demand forecast OLED smartphone shipment forecast (bn units) (%) Smartphone sales volume (L) YoY Growth (R) (mn units) EU diesel passenger cars 2.4 8 20.0 Global diesel heavy duty cars 1.6 0 15.0 10.0 8.7 8.9 7.9 8.3 0.8 -8 5.0 4.8 5.0 5.2 5.4 0.0 -16 0.0 2013 2014 2015 2016F 2017F 2018F 2013 2014 2015 2016F Source: IDC, KDB Daewoo Securities Research Source: Ibiden, KDB Daewoo Securities Research Monthly InsighT 40 VI. Key global peers: IBIDEN (4062 JP) Earnings table FY2014 FY2015F (JPYmn, %) FY2014 FY2015F 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15F 4Q15F Electronics substrate 34,421 40,507 46,509 38,412 33,620 43,240 - - 159,849 - Ceramics 25,484 24,149 24,029 25,528 27,268 25,557 - - 99,190 - Other-synthetic resins 5,011 5,251 5,449 6,576 13,387 15,127 - - 22,287 - Revenue Construction 1,796 3,287 2,464 6,679 ----14,226 - Housing materials 5,063 5,590 5,641 6,224 ----22,518 - Total 71,775 78,784 84,092 83,419 74,275 83,924 87,254 86,680 318,070 332,133 Electronics substrate 6 3,224 8,142 2,796 1,222 5,745 - - 14,168 - Ceramics 2,707 1,318 884 1,438 1,344 1,523 - - 6,347 - Other-synthetic resins 134 199 193 552 1,136 1,243 - - 1,078 - Operating profit Construction 151 314 218 634 ----1,317 - Housing materials -124 65 56 175 ----2 - Total 2,874 5,120 9,493 5,595 3,702 8,511 9,776 6,032 22,912 28,021 Electronics substrate 0.0 8.0 17.5 7.3 3.6 13.3 - - 8.9 - Ceramics 10.6 5.5 3.7 5.6 4.9 6.0 - - 6.4 - Other-synthetic resins 2.7 3.8 3.5 8.4 8.5 8.2 - - 4.8 - OP margin Construction 8.4 9.6 8.8 9.5 ----9.3 - Housing materials -2.4 1.2 1.0 2.8 ----0.0 - Total 4.0 6.5 11.3 6.7 5.0 10.1 11.2 7.0 7.2 8.4 Growth (QoQ/YoY) Electronics substrate 4.3 17.7 14.8 -17.4 -12.5 28.6 - - 6.2 - Ceramics -1.8 -5.2 -0.5 6.2 6.8 -6.3 - - 0.5 - Other-synthetic resins -26.2 4.8 3.8 20.7 103.6 13.0 - - -11.5 - Revenue Construction -73.8 83.0 -25.0 171.1 --- - -35.2 - Housing materials -27.0 10.4 0.9 10.3 ----62.4 - Total -9.7 9.8 6.7 -0.8 -11.0 13.0 4.0 -0.7 2.5 4.4 Electronics substrate -100.7 53,633.3 152.5 -65.7 -56.3 370.1 - - 32.8 - Ceramics -0.8 -51.3 -32.9 62.7 -6.5 13.3 - - -24.6 - Other-synthetic resins -62.5 48.5 -3.0 186.0 105.8 9.4 - - 23.5 - Operating profit Construction -71.9 107.9 -30.6 190.8 --- - 512.6 - Housing materials -183.2 -152.4 -13.8 212.5 -----98.6 - Total -1.4 78.1 85.4 -41.1 -33.8 129.9 14.9 -38.3 -16.1 22.3 Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 41 Monthly InsighT Spotlight stocks & other notable stocks • Large caps: SEC, Samsung SDI, SEMCO, LG Innotek • Small/mid-caps: Wonik IPS Spotlight stocks Samsung Electronics (005930 KS) The era of components ■ What’s new: 2016F revenue of W212tr (+6% YoY)and OP of W28tr (+2% YoY) (Maintain) Buy - Semiconductor: Although DRAM profitability will likely fall, earnings should improve on increasing 3D NAND production and the launch of a high-performance AP Target Price (12M, W) 1,700,000 - Display: OLED panel makers are considering investments in large-sized OLED TVs and foldable OLED panels; Commercialization likely in 2017 Share Price (11/30/15, W) 1,284,000 - IM: Smartphone shipments to decrease by 4% YoY to 310mn units; Components business to generate higher value than device manufacturing Expected Return 32% - CE: TV sales volume are expected to expand on sporting events in 2016 ■ Catalyst: 1) Company split to boost enterprise value, 2) Sustainable capital return policy OP (15F, Wbn) 27,188 - We believe SEC could be split into a holding company and an operating company, which would potentially help Samsung Group solidify its Consensus OP (15F, Wbn) 0 control over the electronics firm. EPS Growth (15F, %) -10.0 - It should be noted that, in similar cases, post-spin-off market cap (the combined market cap of the holding and subsidiary companies) has exceeded pre-spin-off value Market EPS Growth (15F, %) 22.7 - Over the next three years, the company plans to return 30-50% of its annual free cash flow (FCF) to shareholders in the form of dividends P/E (15F, x) 10.5 and buybacks (and cancel all of the shares it repurchases) Market P/E (15F, x) 11.6 - Our analysis puts SEC’s FCF at W15.9tr for 2015 and W18.3tr for 2016. Based on these figures, we estimate around W4.8-8tr could be returned to shareholders in 2015 and about W5.5-9.2tr in 2016 KOSPI 1,991.97 Market Cap (Wbn) 189,132 ■ Valuation: Maintain Buy with TP of W1.7mn Shares Outstanding (mn) 170 - Currently trades at 12-month forward P/B of 1.1x and P/E of 10x; SEC remains our top pick - Management is also weighing the introduction of a quarterly dividend policy next year: Stock to be re-rated higher Free Float (%) 69.5 Foreign Ownership (%) 50.2 130 FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Beta (12M) 0.81 Samsung Electronics KOSPI Revenue (Wbn) 201,104 228,693 206,206 200,937 211,987 219,420 52-Week Low 1,067,000 120 OP (Wbn) 29,049 36,785 25,025 27,188 27,785 29,206 52-Week High 1,503,000 110 OP margin (%) 14.4 16.1 12.1 13.5 13.1 13.3 (%) 1M 6M 12M 100 NP (Wbn) 23,185 29,821 23,082 20,764 21,872 23,543 Absolute -6.4 -1.8 -0.2 90 EPS (W) 136,278 175,282 135,673 122,044 128,558 138,378 Relative -4.7 4.3 -0.8 80 ROE (%) 21.6 22.8 15.1 12.2 11.7 11.4 70 P/E (x) 11.2 7.8 9.8 10.5 10.0 9.3 Jonathan Hwang 11.14 3.15 7.15 11.15 +822-768-4140 P/B (x) 2.1 1.5 1.3 1.2 1.1 1.0 [email protected] Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: KDB Daewoo Securities Research Monthly InsighT 43 Spotlight stocks Samsung Electronics (005930 KS) Earnings table (Wbn, %) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15P 4Q15F 1Q16F 2Q16F 3Q16F 4Q16F 2013 2014 2015F 2016F Revenue 53,675 52,353 47,447 52,730 47,118 48,538 51,680 53,602 49,374 54,475 52,288 55,850 228,693 206,206 200,937 211,987 QoQ growth -9.4 -2.5 -9.4 11.1 -10.6 3.0 6.5 3.7 -7.9 10.3 -4.0 6.8 YoY growth 1.5 -8.9 -19.7 -11.0 -12.2 -7.3 8.9 1.7 4.8 12.2 1.2 4.2 13.7 -9.8 -2.6 5.5 IM 32,440 28,450 24,580 26,290 25,884 26,064 26,610 25,514 24,385 27,174 24,390 24,375 138,819 111,760 104,072 100,324 CE 11,317 13,002 11,586 14,270 10,310 11,202 11,592 13,891 10,497 12,855 12,097 14,167 50,346 50,175 46,996 49,616 Semiconductor 9,391 9,780 9,891 10,664 10,278 11,292 12,818 13,202 13,008 13,493 13,818 14,379 37,530 39,725 47,590 54,697 Display 6,100 6,336 6,254 7,028 6,845 6,623 7,490 8,200 7,512 7,345 7,657 8,627 29,830 25,718 29,157 31,142 COGS 32,050 31,672 30,711 33,846 28,955 28,956 31,610 32,963 30,252 33,366 32,102 34,962 137,696 128,279 122,484 130,682 Gross profit 21,626 20,681 16,813 19,058 18,163 19,582 20,070 20,639 19,122 21,109 20,186 20,888 90,996 77,927 78,454 81,306 Gross margin 40.3 39.5 35.4 36.1 38.5 40.3 38.8 38.5 38.7 38.8 38.6 37.4 39.8 37.8 39.0 38.4 SG&A 13,137 13,494 12,675 13,596 12,183 12,684 12,680 13,718 12,876 13,455 13,381 13,809 54,211 52,902 51,266 53,521 OP 8,489 7,187 4,138 5,463 5,979 6,898 7,390 6,921 6,246 7,654 6,805 7,080 36,785 25,025 27,188 27,785 QoQ growth 2.1 -15.3 -42.4 32.0 9.5 15.4 7.1 -6.3 -9.7 22.5 -11.1 4.0 YoY growth -3.3 -24.6 -59.3 -34.3 -29.6 -4.0 78.6 26.7 4.5 11.0 -7.9 2.3 26.6 -32.0 8.6 2.2 IM 6,431 4,418 1,750 1,956 2,739 2,764 2,402 2,166 2,132 2,866 2,215 2,452 24,962 14,555 10,071 9,665 CE 186 771 60 184 -142 211 360 419 94 455 193 255 1,664 1,201 848 997 Semiconductor 1,946 1,862 2,289 2,735 2,942 3,402 3,660 3,618 3,704 3,824 3,750 3,526 6,903 8,832 13,622 14,804 Display -80 195 16 504 462 530 931 718 316 509 647 847 2,979 634 2,640 2,319 OP margin 15.8 13.7 8.7 10.4 12.7 14.2 14.3 12.9 12.7 14.1 13.0 12.7 16.1 12.1 13.5 13.1 IM 19.8 15.5 7.1 7.4 10.6 10.6 9.0 8.5 8.7 10.5 9.1 10.1 18.0 13.0 9.7 9.6 CE 1.6 5.9 0.5 1.3 -1.4 1.9 3.1 3.0 0.9 3.5 1.6 1.8 3.3 2.4 1.8 2.0 Semiconductor 20.7 19.0 23.1 25.6 28.6 30.1 28.6 27.4 28.5 28.3 27.1 24.5 18.4 22.2 28.6 27.1 Display -1.3 3.1 0.3 7.2 6.7 8.0 12.4 8.8 4.2 6.9 8.5 9.8 10.0 2.5 9.1 7.4 Pretax profit 9,649 7,785 4,902 5,684 6,219 7,628 7,390 7,316 6,684 8,131 7,198 7,708 38,364 28,020 28,553 29,722 QoQ growth 4.3 -19.3 -37.0 16.0 9.4 22.7 -3.1 -1.0 -8.6 21.6 -11.5 7.1 YoY growth 6.7 -20.8 -52.1 -38.6 -35.6 -2.0 50.8 28.7 7.5 6.6 -2.6 5.4 28.2 -27.0 1.9 4.1 Pretax margin 18.0 14.9 10.3 10.8 13.2 15.7 14.3 13.6 13.5 14.9 13.8 13.8 16.8 13.6 14.2 14.0 Net profit 7,485 6,177 4,135 5,286 4,519 5,627 5,263 5,355 4,930 5,987 5,288 5,666 29,821 23,083 20,764 21,872 QoQ growth 3.7 -17.5 -33.0 27.8 -14.5 24.5 -6.5 1.7 -7.9 21.4 -11.7 7.2 YoY growth 7.3 -18.5 -48.6 -26.8 -39.6 -8.9 27.3 1.3 9.1 6.4 0.5 5.8 28.6 -22.6 -10.0 5.3 Net margin 13.9 11.8 8.7 10.0 9.6 11.6 10.2 10.0 10.0 11.0 10.1 10.1 13.0 11.2 10.3 10.3 Source: KDB Daewoo Securities Research Monthly InsighT 44 Spotlight stocks Samsung SDI (006400 KS) New agreement on climate change and opportunities ■ What’s new: Recovery in small-sized battery is important (Maintain) Buy - 2016F revenue of W8.5tr (+10.7% YoY) and OP of W122.2bn (+11.6% YoY) Target Price (12M, W) 148,000 - If sale of chemical business is reflected, OP will fall to around W20bn - As such, earnings at the small-sized battery unit are important Share Price (11/30/15, W) 120,000 ■ Catalyst: Growth of large-sized batteries Expected Return 23% - China’s rapidly-expanding EV market; steady growth is anticipated with new factory commencing operations earlier than scheduled OP (15F, Wbn) 21 - Recent Volkswagen scandal has heightened interest in EVs Consensus OP (15F, Wbn) -3 - Firm has recently sold its chemicals business to focus on rechargeable batteries EPS Growth (15F, %) - - Recent agreement on climate change to increase interest in EV development Market EPS Growth (15F, %) 22.7 ■ Valuation: Maintain Buy with TP of W148,000 P/E (15F, x) 26.3 - Operating value of W6.8tr + asset value of W3.5tr Market P/E (15F, x) 11.6 - Sell-off of chemicals unit may dent profitability in the short term KOSPI 1,991.97 - If large-sized battery revenue climbs rapidly, the firm’s mid/long-term growth outlook will brighten Market Cap (Wbn) 8,252 Shares Outstanding (mn) 70 Free Float (%) 79.4 Foreign Ownership (%) 27.7 120 FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Beta (12M) 1.43 Samsung SDI KOSPI 110 Revenue (Wbn) 5,771 3,428 5,474 7,707 8,529 8,956 52-Week Low 76,800 100 OP (Wbn) 187 -11 71 21 122 128 52-Week High 145,000 90 OP margin (%) 3.2 -0.3 1.3 0.3 1.4 1.4 (%) 1M 6M 12M 80 NP (Wbn) 1,472 131 -84 321 1,556 290 Absolute 12.7 -2.0 -10.4 70 EPS (W) 31,192 2,768 -1,426 4,556 22,115 4,120 Relative 14.8 4.0 -11.0 60 ROE (%) 21.8 1.8 -0.9 2.7 12.3 2.2 50 P/E (x) 4.8 58.5 - 26.3 5.4 29.1 Young Ryu 11.14 3.15 7.15 11.15 +822-768-4138 P/B (x) 0.9 1.0 0.7 0.7 0.6 0.6 [email protected] Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: KDB Daewoo Securities Research Monthly InsighT 45 Spotlight stocks Samsung SDI (006400 KS) Earnings table (Wbn, %) 1Q15 2Q15 3Q15 4Q15F 1Q16F 2Q16F 3Q16F 4Q16F 2014 2015F 2016F Revenue 1,866 1,844 1,998 1,999 2,009 2,106 2,276 2,138 8,032 7,707 8,529 LIB 795 780 887 927 957 1,011 1,128 992 3,324 3,389 4,088 Small-sized (IT) 707 651 709 694 729 780 888 734 2,987 2,761 3,131 Mid/large-sized (EV, ESS) 88 129 177 233 227 231 240 258 337 627 957 Materials 1,071 1,064 1,111 1,072 1,053 1,095 1,148 1,146 4,708 4,319 4,442 Chemicals 668 667 677 650 648 677 697 697 2,661 2,661 2,719 Electronic materials 396 396 433 423 404 418 451 449 1,530 1,648 1,722 Other 0 0 0 0 0 0 0 0 517 0 0 Operating profit 7.4 -3.6 17.8 0.5 3.9 16.7 50.2 50.9 86.2 22.1 121.7 LIB -77.6 -110.2 -102.3 -83.7 -75.8 -62.5 -33.1 -28.4 5.6 -373.9 -199.9 Small-sized (IT) 12.4 -25.1 -22.0 -18.3 -16.5 -12.1 4.0 0.5 206.6 -53.0 -24.2 Mid-large sized (EV, ESS) -90.0 -85.1 -80.3 -65.4 -59.4 -50.4 -37.1 -28.9 -201.0 -320.8 -175.7 Materials 85.1 106.6 120.1 84.2 79.8 79.2 83.4 79.3 80.6 396.0 321.6 Chemicals 34.8 55.6 63.9 31.1 27.7 25.5 26.3 23.4 28.9 185.5 102.9 Electronic materials 50.3 51.0 56.2 53.1 52.1 53.7 57.1 55.9 103.7 210.5 218.8 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -52.0 0.0 0.0 OP margin 0.4 -0.2 0.9 0.0 0.2 0.8 2.2 2.4 1.1 0.3 1.4 LIB -9.8 -14.1 -11.5 -9.0 -7.9 -6.2 -2.9 -2.9 0.2 -11.0 -4.9 Materials 7.9 10.0 10.8 7.9 7.6 7.2 7.3 6.9 1.7 9.2 7.2 Source: KDB Daewoo Securities Research Monthly InsighT 46 Spotlight stocks Samsung Electro-Mechanics (009150 KS) Growth to resume in 2016 ■ Favorable business environment (Maintain) Buy - 2016F revenue of W6.4tr (+1.2% YoY), OP of W418.4bn (+25.1% YoY) - Top-line growth is likely to be modest due to this year’s business restructuring (sale of the hard disk drive unit in 2Q15 and Target Price (12M, W) 93,000 the spin-offs of the power, tuner, and electronic shelf label units in 3Q15), but margins to continue to improve Share Price (11/30/15, W) 69,200 - Drivers for margins 1) SEC’s smartphone sales to stabilize in 2016 Expected Return 34% 2) Favorable outlook for Samsung Pay To open up new component markets 3) Multi-layer ceramic capacitor (MLCC) business to remain in growth thanks to robust sales of high-end products OP (15F, Wbn) 334 4) To expand presence in China Chinese smartphone makers’ shift to more premium and high-tech products to boost SEMCO’s exports Consensus OP (15F, Wbn) 345 EPS Growth (15F, %) -84.2 ■ New growth to begin in 2016 Market EPS Growth (15F, %) 22.7 - Earnings quickly deteriorated to an operating loss of W69.1bn in 3Q14 from a record profit of W222.4bn in 2Q13 P/E (15F, x) 67.4 - SEMCO underwent extensive restructuring in 2015 Market P/E (15F, x) 11.6 - Company plans to use cash from its sale of Samsung SDS shares on new growth engines, such as automotive electronics, KOSPI 1,991.97 IoT, and wearable devices. Market Cap (Wbn) 5,169 ■ Valuation: Maintain Buy and TP of W93,000 Shares Outstanding (mn) 78 - We derived target price of W93,000 based on a P/B of 1.52x (20% discount to five-year average) Free Float (%) 73.5 - Future share performance to hinge on how quickly the company can find new growth engines Foreign Ownership (%) 22.7 Samsung Electro-Mechanics 140 FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Beta (12M) 0.66 KOSPI 130 Revenue (Wbn) 7,913 8,257 7,144 6,556 6,640 7,230 52-Week Low 49,650 120 OP (Wbn) 580 464 2 334 418 540 52-Week High 81,800 110 OP margin (%) 7.3 5.6 0.0 5.1 6.3 7.5 (%) 1M 6M 12M 100 NP (Wbn) 441 330 503 80 271 360 Absolute 6.1 25.4 13.8 90 EPS (W) 5,680 4,256 6,478 1,027 3,492 4,635 Relative 8.1 33.1 13.2 80 ROE (%) 11.9 8.2 11.5 1.8 6.0 7.5 70 P/E (x) 17.5 17.2 8.4 67.4 19.8 14.9 Wonjae Park 11.14 3.15 7.15 11.15 +822-768-3372 P/B (x) 2.0 1.4 0.9 1.2 1.1 1.0 [email protected] Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: KDB Daewoo Securities Research estimates Monthly InsighT 47 Spotlight stocks Samsung Electro-Mechanics (009150 KS) Earnings table 2015F 2016F (Wbn, %, %p) 1Q 2Q 3Q 4QF Annual 1QF 2QF 3QF 4QF Annual Revenue DM 851.9 831.0 668.1 624.8 2,975.8 661.5 713.5 712.7 667.6 2,755.4 LCR 534.0 507.1 542.8 507.7 2,091.6 532.2 570.8 617.0 567.0 2,287.1 ACI 388.0 374.4 394.6 388.2 1,545.2 353.8 388.8 420.4 418.7 1,581.7 Other 2.6 -14.4 4.0 4.0 -3.7 4.0 4.0 4.0 4.0 16.2 Total 1,776.5 1,698.1 1,609.5 1,524.7 6,608.9 1,551.6 1,677.1 1,754.2 1,657.4 6,640.3 Operating profit DM 13.5 7.6 27.3 22.7 71.0 23.9 28.9 37.6 27.3 117.6 LCR 45.4 71.0 69.5 50.8 236.6 50.6 71.9 85.2 62.4 270.0 ACI 1.9 1.9 4.7 5.8 14.4 5.3 5.8 9.2 10.5 30.9 Total 60.8 80.4 101.5 79.2 322.0 79.7 106.6 132.0 100.1 418.4 OP margin DM 1.6 0.9 4.1 3.6 2.4 3.6 4.0 5.3 4.1 4.3 LCR 8.5 14.0 12.8 10.0 11.3 9.5 12.6 13.8 11.0 11.8 ACI 0.5 0.5 1.2 1.5 0.9 1.5 1.5 2.2 2.5 2.0 Total 3.4 4.7 6.3 5.2 4.9 5.1 6.4 7.5 6.0 6.3 Pretax profit 56.1 191.0 -9.0 72.7 310.8 73.1 98.4 123.4 94.8 389.6 Net profit 36.8 0.2 -9.1 51.8 79.7 50.8 68.4 85.8 65.9 271.0 Pretax margin 3.2 11.2 -0.6 4.8 4.7 4.7 5.9 7.0 5.7 5.9 Net margin 2.1 0.0 -0.6 3.4 1.2 3.3 4.1 4.9 4.0 4.1 Source: Company data, KDB Daewoo Securities Research Monthly InsighT 48 Spotlight stocks LG Innotek (011070 KS) Decent performance in 2015 considering tough environment ■ 2015 review: Camera modules perform well, but LED continues to struggle (Maintain) Buy - For 2015, revenue and operating profit are estimated at W6.26tr (-3.1% YoY) and W241.5bn (-23.1% YoY), respectively - Target Price (12M, W) 123,000 After a strong performance in 2014, LG Innotek has shown stagnation in 2015 - Optics solutions (camera module) division has continued to show earnings improvement, driven by increasing shipments Share Price (11/30/15, W) 99,600 to its US smartphone customer - Substrate/materials and automotive components/electronics divisions have performed in line with expectations Expected Return 23% - LED revenue plunged sharply due to a sharp fall in LED backlight unit ASP amid depressed TV market conditions OP (15F, Wbn) 241 LED division’s full-year operating loss to widen to W136.8bn Consensus OP (15F, Wbn) 254 EPS Growth (15F, %) -0.4 ■ 2016: Smaller LED losses and growth of automotive components Market EPS Growth (15F, %) 22.7 - 2016F revenue of W6.4tr (+2.2% YoY) and OP of W321.9bn (+33.3%) - P/E (15F, x) 19.9 Shipments of automotive communication modules to the US are expanding, and motors and LEDs are being adopted in Market P/E (15F, x) 11.6 an increasing number of new vehicle models. As of end-3Q15, order backlog stood at W5.2tr - LED earnings are not expected to improve sharply, given the flagging TV industry and intense competition in lighting KOSPI 1,991.97 However, we expect operating loss to narrow in 2016 on the back of reduced depreciation expenses and cost efficiency Market Cap (Wbn) 2,357 Shares Outstanding (mn) 24 ■ Valuation: Maintain Buy and TP of W123,000 Free Float (%) 59.2 - Target price corresponds to 1.5x (five-year average) our 12-month forward BPS Foreign Ownership (%) 11.4 FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F 120 Beta (12M) 0.65 LG Innotek KOSPI 115 Revenue (Wbn) 5,316 6,212 6,466 6,263 6,400 6,692 52-Week Low 79,000 110 OP (Wbn) 77 136 314 241 322 379 105 52-Week High 117,000 100 OP margin (%) 1.4 2.2 4.9 3.8 5.0 5.7 (%) 1M 6M 12M 95 NP (Wbn) -25 16 113 118 194 243 90 Absolute 7.4 4.7 -0.3 85 EPS (W) -1,237 770 5,020 5,001 8,185 10,276 Relative 9.5 11.2 -0.9 80 ROE (%) -1.9 1.2 7.5 6.7 10.2 11.5 75 P/E (x) - 108.6 22.4 19.9 12.2 9.7 Wonjae Park 70 11.14 3.15 7.15 11.15 +822-768-3372 P/B (x) 1.3 1.3 1.6 1.3 1.2 1.1 [email protected] Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: KDB Daewoo Securities Research Monthly InsighT 49 Spotlight stocks LG Innotek (011070 KS) Earnings table 2015F 2016F (Wbn, W, %, %p) 1Q 2Q 3QP 4QF Annual 1QF 2QF 3QF 4QF Annual Revenue Optical solutions 711.9 706.1 774.7 937.6 3,130.2 732.5 761.1 835.1 918.8 3,247.6 Substrates 383.1 356.8 370.3 324.8 1,434.9 331.0 356.2 368.0 332.4 1,387.6 & materials LED 221.0 197.3 188.7 189.6 796.6 180.6 186.3 181.6 182.5 731.0 Automotive 262.1 234.6 273.2 304.3 1,074.2 299.8 266.6 292.2 350.4 1,209.0 components Other -36.7 -47.7 -48.1 -40.2 -172.7 -43.2 -44.8 -44.1 -43.1 -175.1 Total 1,541.3 1,447.1 1,558.8 1,716.0 6,263.2 1,500.7 1,525.4 1,632.9 1,741.1 6,400.1 Operating profit Optical solutions 45.1 46.3 52.7 56.3 200.3 45.2 45.9 53.9 52.8 197.8 Substrates 46.9 34.8 35.6 29.1 146.5 32.3 38.0 38.5 32.0 140.7 & materials LED -33.0 -37.6 -35.9 -30.3 -136.8 -23.5 -18.6 -9.1 -10.0 -61.2 Automotive 10.0 5.4 8.2 7.8 31.5 11.4 10.0 12.6 10.6 44.6 components Other 69.0 48.9 60.7 62.9 241.5 65.3 75.3 95.8 85.4 321.9 OP margin Optical solutions 6.3 6.6 6.8 6.0 6.4 6.2 6.0 6.5 5.8 6.1 Substrates 12.3 9.8 9.6 9.0 10.2 9.8 10.7 10.5 9.6 10.1 & materials LED -14.9 -19.1 -19.0 -16.0 -17.2 -13.0 -10.0 -5.0 -5.5 -8.4 Automotive 3.8 2.3 3.0 2.6 2.9 3.8 3.8 4.3 3.0 3.7 components Other 4.5 3.4 3.9 3.7 3.9 4.4 4.9 5.9 4.9 5.0 Pretax profit 47.6 27.7 31.8 46.7 153.9 49.1 59.2 80.0 70.4 258.6 Net profit 28.1 31.4 23.8 35.0 118.4 36.8 44.4 59.9 52.7 193.7 Pretax margin 3.1 1.9 2.0 2.7 2.5 3.3 3.9 4.9 4.0 4.0 Net margin 1.8 2.2 1.5 2.0 1.9 2.4 2.9 3.7 3.0 3.0 Source: Company data, KDB Daewoo Securities Research Monthly InsighT 50 Spotlight stocks Wonik IPS (030530 KS) Look to buy before split-off ■ What’s new: 2016F revenue of W649.3bn (-3% YoY), OP of W97.5bn (-13% YoY) (Maintain) Buy - In 2016, DRAM capex to contract 15%, but NAND capex to expand 33% Target Price (12M, W) 16,000 - Next year, semiconductor equipment revenue to decline 25%, but display equipment revenue to jump 57% on the back of greater OLED investments Share Price (11/30/15, W) 8,570 - DRAM capex to be concentrated on process migration; NAND capex to be focused on 3D NAND, benefiting CVD equipment makers Expected Return 87% OP (15F, Wbn) 111 ■ Catalysts: 1) Chinese companies’ memory market entry, 2) split-off Consensus OP (15F, Wbn) 0 - To ward off Chinese players, existing memory makers should increase investments in cutting edge technologies EPS Growth (15F, %) 74.2 - SEC to increase investments in DRAM (Line 17), 3D NAND (48-layer) and system LSI Market EPS Growth (15F, %) 22.7 - To widen gap with competitors, SEC to accelerate the construction of its new production base in Pyeongtaek P/E (15F, x) 8.5 - Wonik to switch to a holding company structure after split-off EV to rise after split-off Market P/E (15F, x) 11.6 KOSPI 688.38 ■ Valuation: Maintain Buy and TP of W16,000 - The stock is trading at a 12-month forward P/E of 8.9x and P/B of 1.3x Market Cap (Wbn) 690 - Equipment stocks typically lead clients' order placements by six months Now is the time to buy in light of Shares Outstanding (mn) 81 customers’ capex plans for 2H16 Free Float (%) 66.5 Foreign Ownership (%) 17.6 150 FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F Beta (12M) 1.08 Wonik IPS KOSDAQ 140 Revenue (Wbn) 349 423 557 666 649 790 52-Week Low 8,340 130 OP (Wbn) 26 55 92 111 97 137 120 52-Week High 16,150 110 OP margin (%) 7.4 13.0 16.5 16.7 14.9 17.3 (%) 1M 6M 12M 100 NP (Wbn) 8 27 47 82 77 106 90 Absolute -9.2 -41.1 -39.0 80 EPS (W) 108 373 581 1,012 956 1,313 Relative -9.8 -39.1 -51.7 70 ROE (%) 3.0 9.3 13.8 20.5 16.1 18.6 60 50 P/E (x) 43.3 23.0 24.0 8.5 9.0 6.5 Jonathan Hwang 11.14 3.15 7.15 11.15 +822-768-4140 P/B (x) 1.2 2.0 3.0 1.5 1.3 1.1 [email protected] Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: KDB Daewoo Securities Research Monthly InsighT 51 Spotlight stocks Wonik IPS (030530 KS) Earnings table (Wbn, %) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15F 1Q16F 2Q16F 3Q16F 4Q16F 13 14 15F 16F Revenue 142.0 90.7 122.3 202.2 155.4 109.5 225.6 175.5 160.1 141.7 169.3 178.3 423.0 557.2 666.0 649.3 Semiconductor 79.0 44.7 41.7 101.8 94.9 48.7 112.2 61.7 55.5 50.0 62.5 68.7 150.9 267.1 317.5 236.7 Display 18.7 1.6 14.2 20.0 0.5 2.5 26.8 38.9 35.0 17.5 26.3 28.9 66.6 54.4 68.7 107.7 Solar 1.3 0.0 0.0 1.1 0.1 0.0 2.3 1.6 1.5 1.7 1.6 1.7 6.3 2.4 4.0 6.5 TGS 11.5 7.4 31.1 39.3 21.6 15.2 32.6 22.8 20.5 21.6 23.7 21.4 69.4 89.3 92.2 87.2 Wonik materials 31.5 37.0 35.4 40.0 38.3 43.1 51.7 50.4 47.5 50.9 55.3 57.6 129.7 143.9 183.5 211.3 Revenue contribution 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Semiconductor 56 49 34 50 61 44 50 35 35 35 37 39 36 48 48 36 Display 13 2 12 10 0 2 12 22 22 12 16 16 16 10 10 17 Solar 1 0 0 1 0 0 1 1 1 1 1 1 1 0 1 1 TGS 8 8 25 19 14 14 14 13 13 15 14 12 16 16 14 13 Wonik materials 22 41 29 20 25 39 23 29 30 36 33 32 31 26 28 33 Operating Profit 28.6 9.6 17.6 36.1 29.1 12.7 43.5 26.1 22.0 18.6 30.8 26.1 55.1 91.9 111.5 97.5 OP Margin 20.1 10.6 14.4 17.9 18.7 11.6 19.3 14.9 13.7 13.2 18.2 14.6 13.0 16.5 16.7 15.0 Net Income 20.3 2.6 11.9 12.0 19.9 9.8 31.4 20.3 17.3 15.6 23.6 20.3 27.4 46.8 81.5 76.9 Net Margin 14.3 2.9 9.7 5.9 12.8 9.0 13.9 11.6 10.8 11.0 14.0 11.4 6.5 8.4 12.2 11.8 Growth(QoQ/YoY, %) Revenue -19.7 -36.2 34.9 65.3 -23.2 -29.6 106.1 -22.2 -8.8 -11.5 19.5 5.3 77.1 31.7 19.5 -2.5 Semiconductor -22.0 -43.4 -6.9 144.4 -6.8 -48.7 130.4 -45.0 -10.0 -10.0 25.0 10.0 7.6 77.0 18.9 -25.4 Display 95.1 -91.7 808.2 41.2 -97.5 386.2 990.9 45.0 -10.0 -50.0 50.0 10.0 115.0 -18.3 26.3 56.7 Solar 474.1 -100.0 - - -94.0 -31.8 5017.8 -30.0 -10.0 20.0 -10.0 10.0 49.5 -62.0 67.5 61.0 TGS -59.6 -35.5 318.7 26.5 -45.1 -29.8 115.1 -30.0 -10.0 5.0 10.0 -10.0 9.7 28.6 3.2 -5.4 Wonik materials -15.8 17.2 -4.2 13.0 -4.3 12.5 20.0 -2.5 -5.8 7.1 8.6 4.2 - 11.0 27.5 15.1 Operating Profit -31.3 -66.4 82.8 105.7 -19.4 -56.3 241.3 -39.9 -15.9 -15.2 65.1 -15.2 661.5 66.7 21.3 -12.5 Net Income -30.3 -87.1 355.0 1.2 65.8 -50.6 219.6 -35.4 -14.5 -10.0 51.4 -14.0 509.8 70.6 74.2 -5.6 Source: KDB Daewoo Securities Research Monthly InsighT 52 Other notable stocks SK Hynix (000660 KS) Current down cycle is different from the past (Maintain) Buy ■ What’s new: 2016F revenue of W18tr (-3% YoY) and OP of W4.3tr (-22% YoY) - DRAM: Revenue W13tr (-6% yoY), operating profit W3.8tr (-27% YoY), bit growth 24% Target Price (12M, W) 45,000 - NAND: Revenue W5tr (+5% YoY), operating profit W0.4tr (+105 % YoY), bit growth 43% Share Price (11/30/15, W) 31,600 - Margins to improve on the back of a higher mix of mobile DRAM, as well as expansion of 2Ynm production - Earnings to improve thanks to a higher mix of 16nm TLC, and higher SSD content in smartphones Expected Return 42% - Margins to be robust in light of increased adoption of high-capacity eMCP in Chinese smartphones OP (15F, Wbn) 5,498 ■ Catalyst: Expansion into 3D NAND to accelerate; More players to enter the Chinese memory market Consensus OP (15F, Wbn) 5,474 - Intel plans to convert its processor chip plant in Dalian, China to produce memory chips, intensifying market competition EPS Growth (15F, %) 1.9 - Western Digital announced its acquisition of SanDisk to enter the Chinese memory market, posing a medium- to long-term threat Market EPS Growth (15F, %) 22.7 - Need to forge partnership to acquire technologies related to NAND controller and system engineering P/E (15F, x) 5.3 Market P/E (15F, x) 11.6 ■ Valuation: Maintain Buy and TP of W45,000 KOSPI 1,991.97 - Stock is currently trading at a 12-month forward P/E of 6.8x and a P/B of 0.9x Market Cap (Wbn) 23,005 - Valuation is at historic-low levels; but the stock lacks share momentum Shares Outstanding (mn) 728 Free Float (%) 76.2 Foreign Ownership (%) 46.8 12/12 12/13 12/14 12/15F 12/16F 12/17F 120 FY (Dec.) Beta (12M) 1.27 SK Hynix KOSPI 10,162 14,165 17,126 18,943 18,323 19,904 110 Revenue (Wbn) 52-Week Low 30,200 OP (Wbn) -227 3,380 5,109 5,498 4,295 4,756 100 52-Week High 51,200 OP margin (%) -2.2 23.9 29.8 29.0 23.4 23.9 90 (%) 1M 6M 12M NP (Wbn) -159 2,872 4,195 4,335 3,344 3,722 80 Absolute 2.9 -38.2 -34.2 EPS (W) -233 4,099 5,842 5,955 4,594 5,113 70 Relative 4.9 -34.3 -34.6 ROE (%) -1.8 25.2 27.0 21.5 14.1 13.8 60 P/E (x) - 9.0 8.2 5.3 6.9 6.2 Jonathan Hwang 50 11.14 3.15 7.15 11.15 +822-768-4140 P/B (x) 1.8 2.0 1.9 1.0 0.9 0.8 [email protected] Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: KDB Daewoo Securities Research Monthly InsighT 53 Other notable stocks SK Hynix (000660 KS) Earnings table (Wbn, %) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15P 4Q15F 1Q16F 2Q16F 3Q16F 4Q16F 13 14 15F 16F Revenue 3,743 3,923 4,312 5,148 4,818 4,639 4,925 4,561 4,189 4,410 4,760 4,963 14,165 17,126 18,943 18,323 DRAM 2,992 3,065 3,277 3,936 3,653 3,478 3,676 3,395 3,044 3,195 3,459 3,673 10,246 13,269 14,203 13,371 NAND 618 738 907 1,083 1,069 1,074 1,134 1,062 1,047 1,119 1,208 1,201 3,392 3,346 4,338 4,575 Revenue contribution 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% DRAM 80% 78% 76% 76% 76% 75% 75% 74% 73% 72% 73% 74% 72% 77% 75% 73% NAND 17% 19% 21% 21% 22% 23% 23% 23% 25% 25% 25% 24% 24% 20% 23% 25% Operating profit 1,057 1,084 1,301 1,667 1,589 1,375 1,383 1,151 955 1,010 1,162 1,167 3,380 5,109 5,498 4,295 DRAM 1,066 1,165 1,298 1,627 1,581 1,341 1,277 1,051 891 901 998 1,038 2,819 5,156 5,250 3,827 NAND -20 -90 -6 27 2 26 95 89 60 100 155 120 523 -89 212 436 OP margin 28.2% 27.6% 30.2% 32.4% 33.0% 29.7% 28.1% 25.2% 22.8% 22.9% 24.4% 23.5% 23.9% 29.8% 29.0% 23.4% DRAM 35.6% 38.0% 39.6% 41.3% 43.3% 38.5% 34.7% 31.0% 29.3% 28.2% 28.8% 28.3% 27.5% 38.9% 37.0% 28.6% NAND -3.2% -12.2% -0.7% 2.5% 0.2% 2.4% 8.3% 8.4% 5.7% 8.9% 12.8% 10.0% 15.4% -2.7% 4.9% 9.5% Net profit 802 674 1,095 1,624 1,295 1,108 1,048 883 744 796 895 909 2,873 4,195 4,335 3,344 Net margin 21.4% 17.2% 25.4% 31.5% 26.9% 23.9% 21.3% 19.4% 17.8% 18.1% 18.8% 18.3% 20.3% 24.5% 22.9% 18.3% EBITDA 1,882 1,917 2,175 2,579 2,531 2,326 2,386 2,159 1,969 2,044 2,216 2,243 6,458 8,553 9,401 8,472 EBITDA margin 50.3% 48.9% 50.4% 50.1% 52.5% 50.1% 48.4% 47.3% 47.0% 46.3% 46.6% 45.2% 45.6% 49.9% 49.6% 46.2% QoQ/YoY growth Revenue 11% 5% 10% 19% -6% -4% 6% -7% -8% 5% 8% 4% DRAM 22% 2% 7% 20% -7% -5% 6% -8% -10% 5% 8% 6% NAND -20% 20% 23% 19% -1% 0% 6% -6% -1% 7% 8% -1% Operating profit 35% 3% 20% 28% -5% -13% 1% -17% -17% 6% 15% 0% DRAM 51% 9% 11% 25% -3% -15% -5% -18% -15% 1% 11% 4% NAND TTR RR RR TTB -92% 1,148% 261% -6% -33% 67% 55% -22% Net profit 2% -16% 63% 48% -20% -14% -5% -16% -16% 7% 12% 1% EBITDA 20% 2% 13% 19% -2% -8% 3% -10% -9% 4% 8% 1% YoY growth Revenue 35% 0% 6% 53% 29% 18% 14% -11% -13% -5% -3% 9% 39% 21% 11% -3% DRAM 51% 7% 11% 60% 22% 14% 12% -14% -17% -8% -6% 8% 44% 30% 7% -6% NAND -11% -22% -7% 40% 73% 45% 25% -2% -2% 4% 7% 13% 33% -1% 30% 5% Operating profit 233% -3% 12% 112% 50% 27% 6% -31% -40% -27% -16% 1% TTB 51% 8% -22% DRAM 336% 28% 36% 130% 48% 15% -2% -35% -44% -33% -22% -1% TTB 83% 2% -27% NAND TTR TTR TTR -61% TTB TTB TTB 225% 2,763% 282% 64% 35% 6,539% TTR TTB 105% Net income 349% -29% 14% 106% 61% 65% -4% -46% -43% -28% -15% 3% TTB 46% 3% -23% EBITDA 73% 2% 13% 64% 34% 21% 10% -16% -22% -12% -7% 4% 117% 32% 10% -10% Source: KDB Daewoo Securities Research Monthly InsighT 54 Other notable stocks LG Display (034220 KS) Pay attention to next-generation OLED (Maintain) Buy ■ What’s new: Panel prices to bottom in 1H - Profits have improved (compared to rivals’) on better product mix Target Price (12M, W) 31,000 - Panel prices are unlikely to rebound anytime soon, given sluggish TV demand Share Price (11/30/15, W) 25,400 - Panel market likely to bottom in 1Q16 Expected Return 22% ■ Catalyst: OLED market to turn around in 2016 - LG Group plans to create synergies from OLED business units by concentrating related patents to LGD OP (15F, Wbn) 1,777 - Expected to remain dominant in the market with preemptive investments in large OLED panels Consensus OP (15F, Wbn) 1,758 - OLED market is forecast to grow full swing starting in 2017 EPS Growth (15F, %) 22.0 Market EPS Growth (15F, %) 22.7 ■ Valuation: Maintain Buy with TP of W31,000 P/E (15F, x) 8.2 - A strong technical edge (M+ and OLED technologies) Market P/E (15F, x) 11.6 - Lack of short-term catalysts (weak demand and falling panel prices) KOSPI 1,991.97 - Possible production of large-sized OLEDs at a rival producer is positive (expand market) Market Cap (Wbn) 9,089 Shares Outstanding (mn) 358 Free Float (%) 62.1 Foreign Ownership (%) 33.0 FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F 120 Beta (12M) 0.53 LG Display KOSPI Revenue (Wbn) 29,430 27,033 26,456 28,245 28,761 30,487 110 52-Week Low 20,600 OP (Wbn) 912 1,163 1,357 1,777 1,050 1,944 100 52-Week High 36,900 OP margin (%) 3.1 4.3 5.1 6.3 3.7 6.4 90 (%) 1M 6M 12M NP (Wbn) 233 426 904 1,103 619 1,304 80 Absolute 17.6 -13.2 -25.2 EPS (W) 652 1,191 2,527 3,082 1,729 3,644 70 ROE (%) 2.3 4.1 8.2 9.2 4.9 9.7 Relative 19.8 -7.8 -25.6 60 P/E (x) 47.6 21.3 13.3 8.2 14.7 7.0 Young Ryu 50 11.14 3.15 7.15 11.15 +822-768-4138 P/B (x) 1.1 0.9 1.1 0.7 0.7 0.6 [email protected] Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: KDB Daewoo Securities Research Monthly InsighT 55 Other notable stocks LG Display (034220 KS) Earnings table (Wbn, %) 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15F 1Q16F 2Q16F 3Q16F 4Q16F 2014 2015F 2016F Shipment area ('000 m2) 8,325 9,360 9,654 10,060 9,801 9,782 9,835 9,904 9,034 9,660 10,235 10,646 37,400 39,323 39,575 Notebook 940 987 899 876 883 865 872 837 812 828 844 836 3,703 3,456 3,320 Monitor 1,266 1,418 1,290 1,261 1,469 1,438 1,450 1,392 1,350 1,363 1,404 1,376 5,236 5,748 5,493 TV 5,171 6,031 6,393 6,841 6,859 6,859 6,894 6,962 6,266 6,893 7,375 7,670 24,436 27,575 28,205 Small/mid-sized 947 923 1,072 1,083 590 621 621 714 607 576 611 764 4,025 2,545 2,557 panels ASP (US$/m2) 628 615 658 773 652 620 622 635 589 569 601 639 668 632 599 Revenue 5,588 5,979 6,547 8,342 7,022 6,708 7,158 7,357 6,329 6,628 7,475 8,329 26,456 28,245 28,761 Notebook 671 717 655 667 691 623 608 554 542 571 599 592 2,710 2,477 2,303 Monitor 1,118 1,256 1,113 1,168 1,194 1,110 1,129 1,030 1,006 1,050 1,112 1,088 4,654 4,464 4,257 TV 2,290 2,511 2,750 3,002 2,882 2,713 2,754 2,615 2,322 2,690 3,077 3,161 10,553 10,964 11,251 Small/mid-sized 1,509 1,495 2,030 3,505 2,253 2,262 2,666 3,158 2,458 2,317 2,687 3,488 8,539 10,339 10,951 panels COGS 4,924 5,270 5,463 7,010 5,661 5,568 6,075 6,290 5,427 5,632 6,335 7,019 22,667 23,594 24,413 Raw material 3,357 3,815 4,003 5,449 4,164 4,058 4,556 4,768 3,880 4,076 4,758 5,439 16,625 17,545 18,152 costs Depreciation 921 845 821 906 851 858 845 845 875 875 875 875 3,492 3,400 3,500 SG&A 570 545 610 707 617 652 750 855 812 820 829 837 2,431 2,874 3,298 Operating profit 94 163 474 626 743 489 333 212 89 175 311 474 1,358 1,777 1,050 OP margin 1.7 2.7 7.2 7.5 10.6 7.3 4.7 2.9 1.4 2.6 4.2 5.7 5.1 6.3 3.6 EBITDA 1,015 1,008 1,295 1,532 1,595 1,347 1,269 1,137 1,004 1,081 1,209 1,364 4,850 5,348 4,658 EBITDA margin 18.2 16.9 19.8 18.4 22.7 20.1 17.7 15.5 15.9 16.3 16.2 16.4 18.3 18.9 16.2 Source: KDB Daewoo Securities Research Monthly InsighT 56 Other notable stocks LG Electronics (066570 KS) Growing expectations for 2016 (Maintain) Buy ■ 2015 earnings to contact YoY due to sluggish TV and smartphone sales - We expect 2015 revenue and operating profit to contract 3.6% and 38.3% YoY to W56.9tr and W1.13tr, respectively, Target Price (12M, W) 70,000 due to sluggish performances of major revenue contributors, Home Entertainment (HE) and Mobile Communications (MC) divisions Share Price (11/30/15, W) 54,200 - HE division: OP margin is anticipated to plunge from 2.6% in 2014 to 0.2% in 2015 due to weaker TV sales Expected Return 29% - MC division: Market competition has intensified, impacting the division’s market share OP (15F, Wbn) 1,129 ■ Expectations grow for the vehicle components business Consensus OP (15F, Wbn) 1,110 - Expectations on the vehicle components (VC) business will gain further momentum in 2016 EPS Growth (15F, %) -7.0 - LGE will supply electric motors and infotainment systems for the 2017 Chevrolet Bolt in 2017 Market EPS Growth (15F, %) 22.7 P/E (15F, x) 26.4 - Sales to GM will begin in 4Q16; We think chances are high the company will be tapped by other automakers Market P/E (15F, x) 11.6 - With new businesses gaining traction, doubts about future growth should clear up KOSPI 1,991.97 ■ Valuation: Maintain Buy and 12-month TP of W70,000 Market Cap (Wbn) 8,870 - Shares Outstanding (mn) 181 We applied a P/B of 1x to a 12-month BPS to calculate the target price Free Float (%) 64.8 - Growing expectations for new businesses are positive. Foreign Ownership (%) 20.1 FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F 120 Beta (12M) 0.61 LG Electronics KOSPI Revenue (Wbn) 55,123 56,772 59,041 56,900 57,817 62,778 110 52-Week Low 39,800 OP (Wbn) 1,217 1,249 1,829 1,129 1,850 2,194 100 52-Week High 64,300 OP margin (%) 2.2 2.2 3.1 2.0 3.2 3.5 90 (%) 1M 6M 12M NP (Wbn) 92 177 399 371 941 1,142 80 Absolute 10.4 -2.0 -14.8 EPS (W) 511 978 2,208 2,054 5,205 6,318 70 ROE (%) 0.7 1.5 3.4 3.1 7.6 8.5 Relative 12.5 4.1 -15.3 60 P/E (x) 144.1 69.7 26.8 26.4 10.4 8.6 Wonjae Park 50 11.14 3.15 7.15 11.15 +822-768-3372 P/B (x) 1.1 1.0 0.9 0.8 0.8 0.7 [email protected] Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: KDB Daewoo Securities Research Monthly InsighT 57 Other notable stocks LG Electronics (066570 KS) Earnings table 2015F 2016F (Wbn, ‘000 units, %, %p) 1Q 2Q 3Q 4QF Annual 1QF 2QF 3QF 4QF Annual MC Revenue 3,596.5 3,648.4 3,377.4 3,478.7 14,101.0 3,261.8 3,511.4 3,795.4 3,620.4 14,189.1 (Mobile OP 72.9 0.2 -77.6 -17.4 -21.9 48.9 66.7 94.9 47.1 257.6 Comunications) OP margin 2.0 0.0 -2.3 -0.5 -0.2 1.5 1.9 2.5 1.3 1.8 HE Revenue 4,436.7 3,934.8 4,286.4 5,261.5 17,919.4 4,267.7 3,856.5 4,168.4 5,483.5 17,776.1 (Home OP -6.2 -82.7 37.0 78.9 27.0 34.1 73.3 95.9 82.3 285.5 Entertainment) OP margin -0.1 -2.1 0.9 1.5 0.2 0.8 1.9 2.3 1.5 1.6 H&A Revenue 4,063.1 4,485.3 4,153.4 3,938.4 16,640.2 4,103.7 4,543.6 4,223.6 4,025.0 16,895.9 (Home Appliance & OP 229.5 291.8 245.6 137.8 904.7 235.9 300.1 254.0 144.9 934.9 Air Solution) OP margin 5.6 6.5 5.9 3.5 5.4 5.7 6.6 6.0 3.6 5.5 VC Revenue 382.6 450.8 478.6 478.6 1,790.6 502.5 527.7 554.0 554.0 2,138.3 (Vehicle OP -2.4 -1.5 -0.8 -0.8 -5.5 -0.8 -0.9 -0.9 -0.9 -3.6 Components) OP margin -0.6 -0.3 -0.2 -0.2 -0.3 -0.2 -0.2 -0.2 -0.2 -0.2 Internal Revenue 654.0 659.5 833.8 808.6 2,955.9 783.7 801.6 904.0 828.3 3,317.7 & other OP -55.0 -8.1 30.7 19.9 -12.5 15.5 15.5 16.5 11.3 58.8 OP margin -8.4 -1.2 3.7 2.5 -0.4 2.0 1.9 1.8 1.4 1.8 LG Innotek Revenue 1,541.3 1,447.1 1,558.8 1,716.0 6,263.2 1,500.7 1,525.4 1,632.9 1,741.1 6,400.1 OP 69.0 49.0 60.7 62.9 241.6 65.3 75.3 95.8 85.4 321.9 Total Revenue 13,994.4 13,925.7 14,028.8 14,951.1 56,900.0 13,732.2 14,029.3 14,528.7 15,526.6 57,816.8 OP 305.2 244.1 294.0 285.9 1,129.2 394.3 525.0 554.9 375.3 1,849.6 OP margin 2.2 1.8 2.1 1.9 2.0 2.9 3.7 3.8 2.4 3.2 Total Revenue 12,453.1 12,478.6 12,470.0 13,235.1 50,636.8 12,231.5 12,503.9 12,895.8 13,785.5 51,416.7 (excluding OP 236.2 195.1 233.3 223.0 887.6 329.0 449.7 459.1 290.0 1,527.7 LG Innotek) OP margin 1.9 1.6 1.9 1.7 1.8 2.7 3.6 3.6 2.1 3.0 Pretax profit 49.5 309.5 110.9 164.0 633.9 302.7 474.9 509.2 282.1 1,568.9 Pretax margin 0.4 2.2 0.8 1.1 1.1 2.2 3.4 3.5 1.8 2.7 Net profit 2.2 187.1 83.7 98.4 371.5 181.6 285.0 305.5 169.3 941.3 Net margin 0.0 1.3 0.6 0.7 0.7 1.3 2.0 2.1 1.1 1.6 Handset sales volume 19,900 17,000 17,200 17,879 71,979 16,934 18,230 20,106 19,571 74,842 - Smartphones 15,400 14,100 14,900 15,648 60,048 14,770 16,131 18,070 17,596 66,567 TV sales volume 7,373 6,287 7,105 9,172 29,936 7,669 7,001 7,567 9,759 31,996 - LCD TV sales volume 7,300 6,200 7,000 9,046 29,546 7,519 6,820 7,350 9,499 31,188 Source: Company data, KDB Daewoo Securities Research Monthly InsighT 58 Other notable stocks Hanwha Techwin (012450 KS) A new beginning in 2016 ■ Earnings deterioration an inevitable outcome of ownership transition (Maintain) Buy - For 2015, we forecast Hanwha Techwin to record revenue of W2.64tr (-1.1% YoY) and operating loss of W23.3bn (turning to loss YoY) Target Price (12M, W) 49,000 - Earnings are believed to have been sluggish across all divisions, including machinery solutions (MS; chip mounters), Share Price (11/30/15, W) 36,050 security solutions (SS; CCTVs, storage devices, etc.), power systems (PS; aircraft engines, energy equipment, etc.), and defense solutions (DS; artillery systems) Expected Return 36% - The worst appears to be behind (but may incur one-off expense due to annual inventory clearing in 4Q) OP (15F, Wbn) -18 ■ Earnings to pick up in 2016 Consensus OP (15F, Wbn) -30 - In 2016, we expect revenue of W2.9tr (+9.8% YoY) and operating profit of W104.1bn (turning to profit YoY) EPS Growth (15F, %) - - We expect top line growth across SS, PS and DS businesses; MS earnings are unlikely to deteriorate further Market EPS Growth (15F, %) 22.7 - Reduced labor costs resulting from workforce restructuring should help lift margins P/E (15F, x) 50.5 - Confusion caused by the ownership change will likely ease gradually Market P/E (15F, x) 11.6 - Company’s commitment to foster new businesses (driverless and electric car systems) under the new leadership is KOSPI 1,991.97 also positive Market Cap (Wbn) 1,915 ■ Valuation: Reiterate Buy and TP of W49,000 Shares Outstanding (mn) 53 - We applied a P/B of 1.27x (5-year average low) to a 12-month forward BPS Free Float (%) 67.6 - The stock is undervalued, given the firm’s market cap (W1.92tr) and investment securities Foreign Ownership (%) 8.2 FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F 150 Beta (12M) 1.03 Hanwha Techwin KOSPI 140 Revenue (Wbn) 2,935 2,630 2,616 2,643 2,902 3,184 52-Week Low 21,300 130 OP (Wbn) 156 96 8 -18 104 124 120 52-Week High 40,150 OP margin (%) 5.3 3.7 0.3 -0.7 3.6 3.9 110 (%) 1M 6M 12M 100 NP (Wbn) 131 132 -119 38 122 137 Absolute -3.4 34.3 28.1 90 EPS (W) 2,466 2,494 -2,236 714 2,290 2,577 80 Relative -1.5 42.5 27.3 ROE (%) 8.3 8.1 -7.1 2.1 6.0 6.4 70 P/E (x) 24.2 21.8 - 50.5 15.7 14.0 Wonjae Park 60 11.14 3.15 7.15 11.15 +822-768-3372 P/B (x) 2.0 1.7 0.8 1.0 0.9 0.9 [email protected] Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: KDB Daewoo Securities Research Monthly InsighT 59 Other notable stocks Hanwha Techwin (012450 KS) Earnings table 2015F 2016F (Wbn, %, %p) 1Q 2Q 3Q 4QF Annual 1QF 2QF 3QF 4QF Annual Revenue Security Solution 175.8 148.9 165.7 198.8 689.2 188.9 198.3 223.0 223.0 833.2 Machinery Solution 67.2 55.9 45.0 45.0 213.1 42.8 47.0 54.1 51.4 195.2 Power System 230.7 242.0 271.1 350.5 1,094.3 242.2 254.7 286.0 370.7 1,153.7 Defense Solution 128.5 160.4 166.2 191.1 646.3 172.0 177.2 182.5 188.0 719.7 Total 602.2 607.2 648.0 785.4 2,642.9 645.9 677.3 745.6 833.0 2,901.8 Operating profit Security Solution 5.1 -22.2 6.8 6.0 -4.3 6.4 8.9 11.8 7.8 35.0 Machinery Solution 0.6 -16.5 -4.6 -4.5 -25.0 -6.4 -4.7 -4.3 -4.1 -19.6 Power System 4.5 -25.9 13.3 15.8 7.7 10.2 11.5 14.8 17.5 53.9 Defense Solution 0.1 -14.6 8.5 9.4 3.4 7.7 8.5 9.3 9.2 34.8 Total 10.3 -79.2 24.0 26.6 -18.3 17.9 24.2 31.6 30.4 104.1 OP margin Security Solution 2.9 -14.9 4.1 3.0 -0.6 3.4 4.5 5.3 3.5 4.2 Machinery Solution 0.9 -29.5 -10.2 -10.0 -11.7 -15.0 -10.0 -8.0 -8.0 -10.0 Power System 1.9 -10.7 4.9 4.5 0.7 4.2 4.5 5.2 4.7 4.7 Defense Solution 0.1 -9.1 5.1 4.9 0.5 4.5 4.8 5.1 4.9 4.8 Total 1.7 -13.0 3.7 3.4 -0.7 2.8 3.6 4.2 3.7 3.6 Pretax profit 21.7 -70.3 53.7 52.3 57.4 27.2 34.0 52.8 47.7 161.7 Net profit 18.2 -47.5 34.0 33.2 37.9 20.5 25.6 39.7 35.9 121.7 Pretax margin 3.6 -11.6 8.3 6.7 2.2 4.2 5.0 7.1 5.7 5.6 Net margin 3.0 -7.8 5.3 4.2 1.4 3.2 3.8 5.3 4.3 4.2 Source: Company data, KDB Daewoo Securities Research Monthly InsighT 60 Other notable stocks Seoul Semiconductor (046890 KS) Worst seems to be over now; Recovery to begin in 2016 ■ Revenue and OP to respectively increase to W1.16tr and W86.9bn in 2016 (Maintain) Buy - For 2015, we estimate Seoul Semiconductor’s (SSC) revenue and operating profit to grow 7.9% and 1,930.4% YoY to W1.01tr and W51.9bn, respectively Target Price (12M, W) 24,000 - Following a weak 1H, revenue and margins have been turning around in 2H Share Price (11/30/15, W) 17,050 - Biggest driver has been handset LEDs. In 3Q15, revenue from handset LEDs jumped 84.9% QoQ, thanks to full- fledged sales to a US smartphone maker, increasing profitability Expected Return 41% ■ Earnings likely to continue to improve OP (15F, Wbn) 52 - In 2016, we expect revenue and OP to increase 14.5% and 67.5% YoY to W1.16tr and W86.9bn, respectively, driven Consensus OP (15F, Wbn) 47 by continued handset earnings growth and stronger revenues from automotive and general lighting EPS Growth (15F, %) - - In the long term, we believe industry consolidation will benefit SSC. Stiffening competition has highlighted the Market EPS Growth (15F, %) 22.7 importance of technology patents P/E (15F, x) 46.8 - A key risk is the potential adoption of OLED by the company’s US smartphone customer, which would eliminate the Market P/E (15F, x) 11.6 need for LED backlight units. That said, it will likely take time for this to happen, as display suppliers have only just begun to prepare for production KOSDAQ 688.38 Market Cap (Wbn) 994 ■ Maintain Buy and TP of W24,000 Shares Outstanding (mn) 58 - We applied a P/B of 2.3x (low end of the five-year band) to a 12-month forward BPS of W10,588 Free Float (%) 64.8 - Company’s subsidiary Seoul Viosys is likely to be listed in December Foreign Ownership (%) 9.8 FY (Dec.) 12/12 12/13 12/14 12/15F 12/16F 12/17F 150 Seoul Semiconductor Beta (12M) 1.10 140 KOSDAQ Revenue (Wbn) 859 1,032 939 1,014 1,161 1,251 52-Week Low 12,700 130 OP (Wbn) 33 96 3 52 87 105 120 52-Week High 22,200 OP margin (%) 3.8 9.3 0.3 5.1 7.5 8.4 110 (%) 1M 6M 12M 100 NP (Wbn) 636-7215170 Absolute -10.3 -4.7 -4.2 90 EPS (W) 95 619 -118 364 872 1,196 Relative -10.9 -1.6 -24.2 80 ROE (%) 0.9 6.3 -1.2 3.8 8.6 10.8 70 P/E (x) 254.2 65.2 - 52.1 21.8 15.9 Wonjae Park 60 11.14 3.15 7.15 11.15 +822-768-3372 P/B (x) 2.5 4.1 2.1 1.9 1.8 1.6 [email protected] Notes: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: KDB Daewoo Securities Research estimates Monthly InsighT 61 Other notable stocks Seoul Semiconductor (046890 KS) Earnings table 2015F 2016F (Wbn, W, %, %p) 1Q 2Q 3Q 4QF Annual 1QF 2QF 3QF 4QF Annual Revenue 234.6 244.8 276.3 258.2 1,013.9 262.3 290.1 309.0 299.2 1,160.7 Operating profit 4.7 5.7 23.4 18.1 51.9 14.5 20.1 28.5 23.7 86.9 Pretax profit 2.4 4.7 24.1 17.8 49.0 13.9 19.5 28.0 23.3 84.7 Net profit -1.2 -1.4 14.1 9.7 21.2 8.3 11.7 16.8 14.0 50.8 EPS -21 -23 241 167 364 143 201 288 240 872 OP margin 2.0 2.3 8.5 7.0 5.1 5.5 6.9 9.2 7.9 7.5 Pretax margin 1.0 1.9 8.7 6.9 4.8 5.3 6.7 9.1 7.8 7.3 Net margin -0.5 -0.6 5.1 3.8 2.1 3.2 4.0 5.4 4.7 4.4 Source: Company data, KDB Daewoo Securities Research Monthly InsighT 62 Appendix Fund flows SEC: Share performance and fund flow SK Hynix: Share performance and fund flow LGE: Share performance and fund flow (Wbn) Share price (R) Domestic (L) (W) (Wbn)Share price (R) Domestic (L) (W) (Wbn) Share price (R) Domestic (L) (W) 6,000 Foreign (L) 1,900,000 9,000 Foreign (L) 66,000 1,500 Foreign (L) 100,000 6,000 1,000 3,000 1,600,000 52,000 80,000 500 0 1,300,000 3,000 60,000 38,000 0 -3,000 1,000,000 0 40,000 -500 24,000 -3,000 20,000 -6,000 700,000 -1,000 -9,000 400,000 -6,000 10,000 -1,500 0 11/13 5/14 11/14 5/15 11/15 11/13 5/14 11/14 5/15 11/15 11/13 5/14 11/14 5/15 11/15 Source: WISEfn, KDB Daewoo Securities Research Source: WISEfn, KDB Daewoo Securities Research Source: WISEfn, KDB Daewoo Securities Research LGD: Share performance and fund flow LG Innotek: Share performance and fund flow Samsung SDI: Share performance and fund flow (Wbn)Share price (R) Domestic (L) (W) (Wbn)Share price (R) Domestic (L) (W) (Wbn)Share price (R) Domestic (L) (W) 1,200 Foreign (L) 40,000 400 Foreign (L) 180,000 1,200 Foreign (L) 220,000 800 800 180,000 30,000 140,000 400 200 400 0 140,000 20,000 100,000 0 -400 100,000 0 -800 10,000 60,000 -400 60,000 -1,200 -800 0 -200 20,000 -1,600 20,000 11/13 5/14 11/14 5/15 11/15 11/13 5/14 11/14 5/15 11/15 11/13 5/14 11/14 5/15 11/15 Source: WISEfn, KDB Daewoo Securities Research Source: WISEfn, KDB Daewoo Securities Research Source: WISEfn, KDB Daewoo Securities Research Monthly InsighT 63 Appendix Fund flows SEMCO: Share performance and fund flow Hanwha Techwin: Share performance and fund flow SSC: Share performance and fund flow (Wbn) Share price (R) Domestic (L) (W) (Wbn) Share price (R) Domestic (L) (W) (Wbn) Share price (R) Domestic (L) (W) 200 Foreign (L) 100,000 300 Foreign (L) 80,000 600 Foreign (L) 60,000 50,000 200 400 0 80,000 60,000 40,000 100 200 -200 60,000 40,000 30,000 0 0 20,000 -400 40,000 20,000 -100 -200 10,000 -600 20,000 -200 0 -400 0 11/13 5/14 11/14 5/15 11/15 11/13 5/14 11/14 5/15 11/15 11/13 5/14 11/14 5/15 11/15 Source: WISEfn, KDB Daewoo Securities Research Source: WISEfn, KDB Daewoo Securities Research Source: WISEfn, KDB Daewoo Securities Research Wonik IPS: Share performance and fund flow OCI Materials : Share performance and fund flow Soulbrain: Share performance and fund flow (Wbn) Share price (R) Domestic (L) (W) (Wbn)Share price (R) Domestic (L) (W) (Wbn) Share price (R) Domestic (L) (W) 320 Foreign (L) 24,000 120 Foreign (L) 180,000 150 Foreign (L) 60,000 280 100 150,000 50,000 240 100 80 200 120,000 40,000 50 160 60 12,000 90,000 30,000 120 40 0 80 60,000 20,000 20 40 -50 30,000 10,000 0 0 -40 0 -20 0 -100 0 11/13 5/14 11/14 5/15 11/15 11/13 5/14 11/14 5/15 11/15 11/13 5/14 11/14 5/15 11/15 Source: WISEfn, KDB Daewoo Securities Research Source: WISEfn, KDB Daewoo Securities Research Source: WISEfn, KDB Daewoo Securities Research Monthly InsighT 64 Appendix Earnings consensus movements SEC: Share performance and OP consensus SK Hynix: Share performance and OP consensus LGE: Share performance and OP consensus (Wbn) 2015 OP consensus (L) (W) (Wbn) 2015 OP consensus (L) (W) (Wbn) 2015 OP consensus (L) (W) 32,000 Share price (R) 1,600,000 Share price (R) 2,400 Share price (R) 80,000 6,500 55,000 1,500,000 6,000 50,000 2,000 28,000 1,400,000 45,000 60,000 5,500 1,300,000 40,000 1,600 5,000 24,000 1,200,000 35,000 40,000 1,200 4,500 1,100,000 30,000 20,000 1,000,000 4,000 25,000 800 20,000 11/14 2/15 5/15 8/15 11/15 11/14 2/15 5/15 8/15 11/15 11/14 2/15 5/15 8/15 11/15 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Samsung SDI: Share performance and OP LGD: Share performance and OP consensus LG Innotek: Share performance and OP consensus consensus (Wbn) 2015 OP consensus (L) (W) (Wbn) 2015 OP consensus (L) (W) (Wbn) 2015 OP consensus (L) (W) 2,700 Share price (R) 40,000 500 Share price (R) 120,000 500 Share price (R) 160,000 2,300 400 140,000 35,000 400 100,000 1,900 300 120,000 30,000 1,500 200 100,000 300 80,000 25,000 1,100 100 80,000 700 20,000 200 60,000 0 60,000 11/14 2/15 5/15 8/15 11/15 11/14 2/15 5/15 8/15 11/15 11/14 2/15 5/15 8/15 11/15 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 65 Appendix Earnings consensus movements Hanwha Techwin: Share performance and OP SEMCO: Share performance and OP consensus SSC: Share performance and OP consensus consensus (Wbn) 2015 OP consensus (L) (W) (Wbn) 2015 OP consensus (L) (W) (Wbn) 2015 OP consensus (L) (W) 400 Share price (R) 100,000 150 Share price (R) 50,000 80 Share price (R) 24,000 80,000 100 300 60 20,000 40,000 60,000 50 200 40 16,000 40,000 0 30,000 100 20 12,000 20,000 -50 0 0 -100 20,000 0 8,000 11/14 2/15 5/15 8/15 11/15 11/14 2/15 5/15 8/15 11/15 11/14 2/15 5/15 8/15 11/15 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research OCI Materials: Share performance and OP Wonik IPS: Share performance and OP consensus Soulbrain: Share performance and OP consensus consensus (Wbn) 2015 OP consensus (L) (W) (Wbn) 2015 OP consensus (L) (W) (Wbn) 2015 OP consensus (L) (W) 130 Share price (R) 18,000 120 Share price (R) 160,000 100 Share price (R) 60,000 15,000 100 90 120,000 50,000 120 12,000 80 80 9,000 60 80,000 40,000 70 110 6,000 40 40,000 30,000 3,000 20 60 100 0 0 0 50 20,000 11/14 2/15 5/15 8/15 11/15 11/14 2/15 5/15 8/15 11/15 11/14 2/15 5/15 8/15 11/15 Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research Monthly InsighT 66 Appendix IT macro US CLI and MSCI World IT China CLI and MSCI World IT Europe CLI and MSCI World IT (p) (p) (p) (p) (p) (p) 135 US CLI (L) 160 110 China CLI (L) 160 105 Europe CLI (L) 160 MSCI World IT (R) MSCI World IT (R) MSCI World IT (R) 125 106 103 120 120 120 115 102 101 105 98 99 80 80 80 95 94 97 85 40 90 40 95 40 1/05 1/07 1/09 1/11 1/13 1/15 1/05 1/07 1/09 1/11 1/13 1/15 1/05 1/07 1/09 1/11 1/13 1/15 Source: Conference Board, Bloomberg Source: OECD, Bloomberg Source: OECD, Bloomberg US consumer confidence index China consumer confidence index Oil price trends (p) (p) (US$) 140 US CCI 115 China CCI 140 Brent Current WTI 120 Expectations 110 100 100 105 80 100 60 60 95 40 90 20 1/13 7/13 1/14 7/14 1/15 7/15 1/13 7/13 1/14 7/14 1/15 7/15 1/14 7/14 1/15 7/15 Source: Conference Board Source: National Bureau of Statistics of China Source: Thomson Reuters Monthly InsighT 67 Appendix IT macro Retail sales of telecom devices and home appliances US IT retail sales China retail sales in China (US$bn) (%) (RMBbn)China retail sales (L) (%) (RMBbn) Telecom devices (L) (%) 20 Tech retail sales (L) 15 6,000 YoY growth (R) 20 1,500 Household appliances (L) 90 Telecom device growth (R) YoY growth (R) 5,000 Household appliance growth (R) 10 15 60 4,000 16 1,000 5 10 3,000 30 0 2,000 12 500 5 0 -5 1,000 0 -10 0 8 0 -30 1/13 7/13 1/14 7/14 1/15 7/15 1/13 7/13 1/14 7/14 1/15 7/15 1/13 7/13 1/14 7/14 1/15 7/15 Source: Conference Board Note: February figure is sum of January and February data Note: February figure is sum of January and February data Source: National Bureau of Statistics of China Source: National Bureau of Statistics of China Semiconductor export growth of Korean makers Display export growth of Korean makers Mobile device export growth of Korean makers (%) (%) (%) 25 40 80 20 30 60 15 20 40 10 10 20 5 0 0 0 -10 -5 -20 -20 -10 -30 -40 1/13 7/13 1/14 7/14 1/15 7/15 1/13 7/13 1/14 7/14 1/15 7/15 1/13 7/13 1/14 7/14 1/15 7/15 Source: Korea Customs Service Source: Korea Customs Service Source: Korea Customs Service Monthly InsighT 68 Appendix Share performances and valuations Price Mkt. cap Share performance (%), <11/30/15> 2015F 2016F Sector Company (local) (US$mn) 5D 1M 3M 6M 12M P/E (x) P/B (x) ROE (%) P/E (x) P/B (x) ROE (%) KOSPI 1,992 -0.6 -1.8 2.6 -5.8 0.6 12.6 1.0 11.3 10.9 0.9 8.8 KOSDAQ 688 0.0 0.7 0.2 -3.2 26.3 ------S&P 500 (US) 2,090 0.4 0.5 6.0 -0.8 1.1 17.7 2.7 14.7 16.2 2.6 15.0 Dow Jones (US) 17,798 0.4 0.8 7.7 -1.2 -0.2 16.2 3.1 18.4 15.2 2.9 19.0 NASDAQ (US) 5,128 1.1 1.5 7.3 1.1 7.0 23.2 3.7 20.9 19.9 3.4 20.9 Index Euro Stoxx (Euro) 3,509 1.8 2.7 7.3 -1.7 7.9 15.2 1.6 8.4 14.5 1.5 8.7 TOPIX (Japan) 1,580 -1.4 1.4 2.8 -5.6 12.0 15.3 1.3 8.4 14.1 1.2 8.5 NIKKEI 225 (Japan) 19,747 -0.7 3.5 4.5 -4.0 13.1 19.1 1.7 9.8 17.3 1.6 9.8 HK Hang Seng (China) 21,996 -3.0 -2.8 1.5 -19.8 -8.3 11.1 1.2 14.6 10.5 1.1 13.5 Shanghai (China) 3,445 -4.6 1.9 7.5 -25.3 28.4 14.7 1.7 14.1 13.3 1.6 12.9 TAIEX (Taiwan) 8,321 -1.9 -2.7 1.8 -14.2 -9.4 12.7 1.5 14.9 12.2 1.4 13.7 IT Index PHLX Semiconductor 671 1.0 1.2 9.7 -10.0 -2.2 17.3 3.2 22.6 14.6 2.9 18.7 Korea 708 3.0 -0.5 18.1 -3.0 -3.6 10.3 1.2 15.0 10.0 1.1 12.2 World 150 -0.1 0.7 9.3 0.7 4.3 18.0 3.6 22.9 16.1 3.3 23.0 MSCI US 170 0.2 0.6 9.8 1.6 4.6 17.7 4.1 24.6 15.8 3.7 24.5 IT Index Japan 127 -1.1 4.5 4.1 -7.7 6.7 17.8 1.6 10.2 16.1 1.5 10.3 Taiwan 147 -1.5 -0.3 2.6 -15.0 -11.4 12.1 1.8 19.7 11.5 1.6 17.6 China 334 -2.0 5.1 17.4 -9.7 12.9 31.8 6.5 16.2 23.6 5.3 18.0 USD/KRW 1,158 0.1 -1.8 2.2 -4.1 -3.8 EUR/KRW 1,226 0.3 2.3 8.5 -0.8 13.1 JPY/KRW 9 0.3 0.1 3.7 -5.4 -0.0 F/X CNY/KRW 181 0.2 -0.9 2.5 -1.0 0.1 USD/JPY 123 -0.2 -1.9 -1.5 1.4 -3.8 USD/CNY 6 -0.1 -1.0 -0.3 -3.1 -3.9 HP 13 22,761 -8.6 3.0 -1.0 -16.8 -28.9 7.8 - - 7.5 - - Lenovo 8 11,754 -3.2 13.3 28.9 -33.3 -24.6 20.3 2.9 -3.1 9.1 2.4 23.0 Asustek 270 6,144 -1.8 -7.2 -8.8 -10.6 -19.9 11.1 1.2 10.8 9.9 1.1 11.7 PC Acer 12 1,144 -0.4 -12.3 0.8 -34.1 -37.6 42.2 0.6 1.8 26.7 0.6 2.3 Seagate 35 10,352 1.0 -9.0 -32.6 -37.8 -47.6 11.4 9.1 43.1 8.1 8.8 100.6 IBM 138 134,321 1.3 -1.2 -6.4 -18.4 -14.6 9.2 8.5 102.6 9.1 7.2 82.1 EMC 25 49,269 1.4 -3.1 2.1 -3.6 -16.3 13.9 2.3 15.7 13.0 2.1 15.9 Apple 118 656,830 -0.8 -1.4 4.5 -9.6 -0.9 12.0 4.7 39.4 11.0 4.2 36.8 HTC 81 2,057 -4.0 3.3 76.1 -21.3 -40.8 - 1.0 -21.6 - 1.2 -14.5 Handset Blackberry 8 4,108 1.2 7.3 3.0 -20.2 -24.7 - 1.3 -7.3 - 1.4 -10.2 ZTE 17 10,905 -2.1 -7.0 11.5 -22.4 12.6 15.7 1.9 13.0 14.1 1.7 13.6 Monthly InsighT 69 Appendix Share performances and valuations Price Mkt. cap Share performance (%), <11/30/15> 2015F 2016F Sector Company (local) (US$mn) 5D 1M 3M 6M 12M P/E (x) P/B (x) ROE (%) P/E (x) P/B (x) ROE (%) Whirlpool 166 13,003 4.1 3.8 -1.1 -9.7 -10.7 13.7 2.5 17.9 11.5 - - Philips 26 26,023 2.3 5.1 12.8 4.2 6.6 19.7 2.1 9.1 16.3 2.0 12.6 Electrolux 253 8,932 1.0 0.3 5.7 -2.8 14.0 23.5 4.2 17.9 16.7 3.5 22.5 Sony 3,177 32,578 -3.3 -8.7 0.5 -17.7 22.2 21.7 1.4 7.5 16.6 1.3 8.8 Hitachi 727 28,532 -0.4 3.4 6.6 -14.3 -20.7 10.9 1.1 10.5 9.8 1.0 10.7 Consumer NEC 412 8,718 -0.7 9.9 7.6 1.0 10.5 14.9 1.2 8.3 12.5 1.1 9.2 electronics Haier 14 5,010 -2.5 -7.6 0.0 -40.9 -35.8 11.5 2.2 20.9 10.6 1.9 19.1 Skyworth 5 1,922 0.2 -11.3 14.3 -31.0 18.0 7.9 0.9 12.5 7.1 0.9 12.5 TCL 4 785 6.6 26.5 26.1 -36.4 48.3 - 1.3 -4.0 17.9 1.3 5.7 Hisense 16 3,324 -6.0 3.4 9.4 -49.3 42.8 14.3 1.8 12.5 12.9 1.6 12.6 Nintendo 18,905 21,758 -2.4 -3.0 -24.4 -10.5 37.4 60.4 1.9 3.3 40.2 1.9 4.5 GoPro 20 2,789 1.8 -18.9 -56.5 -63.4 -74.0 16.3 3.3 22.3 14.8 2.7 17.7 FitBit 28 5,893 -4.0 -31.3 -19.3 - - 28.8 6.2 34.9 24.7 5.9 25.9 Best Buy 31 10,847 2.6 -10.1 -14.3 -9.3 -19.1 12.0 2.2 18.9 11.1 2.1 20.1 Ingram Micro 31 4,619 -2.0 3.6 14.0 15.1 12.5 11.6 1.1 8.3 9.6 1.0 7.6 Distribution Tech Data 70 2,485 -8.7 -3.3 7.8 11.5 12.9 13.0 1.3 9.0 12.4 1.1 7.8 Alibaba 81 201,489 4.5 -2.9 23.1 -8.9 -27.1 31.0 5.8 31.3 23.8 4.8 19.1 Micron 16 16,894 -2.0 -6.0 -5.2 -44.3 -56.7 11.4 1.3 10.1 6.7 1.1 15.8 Nanya 43 3,181 17.4 6.7 6.5 -36.2 -41.6 5.7 1.9 33.7 8.2 1.6 18.4 Memory Inotera 22 4,442 -2.2 -12.0 12.8 -39.0 -52.8 7.3 1.1 15.7 9.4 1.0 10.9 Toshiba 301 10,359 3.6 -12.3 -21.6 -30.9 -43.0 11.8 1.1 8.3 11.0 1.0 10.0 SanDisk 75 14,968 -0.6 -3.1 36.7 9.1 -27.9 23.0 2.7 8.6 19.6 2.5 10.3 Intel 34 162,617 0.5 1.8 20.7 0.0 -7.5 15.2 2.8 19.5 14.6 2.6 18.4 Texas Instruments 58 58,379 -0.7 1.5 20.3 2.9 5.8 20.4 6.1 28.9 18.7 5.8 30.6 AMD 2 1,841 8.9 9.9 28.7 2.2 -16.5 - - 395.0 - - 83.3 STMicro 7 6,568 1.4 4.6 0.1 -15.2 -3.6 23.6 1.8 3.2 14.7 1.8 1.8 Qualcomm 49 72,960 0.3 -18.3 -14.2 -30.3 -33.4 11.7 2.4 19.0 10.0 2.4 20.9 Logic chips ARM 1,117 23,553 3.0 9.0 19.7 -3.3 22.1 36.7 8.9 23.0 32.1 7.6 22.6 MediaTek 261 12,542 -5.3 2.4 3.8 -37.2 -44.0 14.9 1.7 11.4 14.8 1.7 11.9 Nvidia 31 16,888 0.9 10.6 39.6 41.8 49.7 20.1 4.0 16.6 18.9 3.7 18.0 Broadcom 55 33,264 3.4 6.3 5.7 -3.9 26.6 19.3 3.2 17.8 18.1 2.8 16.0 Synaptics 90 3,258 2.5 5.7 28.3 -9.8 42.7 12.8 3.6 31.7 11.6 2.8 28.5 TSMC 139 110,420 -1.4 1.8 7.8 -4.8 -1.8 12.0 3.0 26.4 11.8 2.6 23.3 Foundry UMC 12 4,632 -4.4 -0.4 10.2 -14.7 -13.8 12.9 0.7 5.3 13.8 0.7 4.9 SMIC 1 4,397 -5.8 12.5 19.1 -9.0 1.2 13.1 1.2 8.3 14.9 1.1 7.0 Monthly InsighT 70 Appendix Share performances and valuations Price Mkt. cap Share performance (%), <11/30/15> 2015F 2016F Sector Company (local) (US$mn) 5D 1M 3M 6M 12M P/E (x) P/B (x) ROE (%) P/E (x) P/B (x) ROE (%) Japan Display 375 1,832 -7.6 -1.8 -1.8 -28.3 -4.3 12.8 0.5 4.4 8.9 0.5 6.0 AU Optronics 9 2,577 -4.5 -8.7 -16.8 -48.1 -40.1 6.3 0.4 6.9 14.1 0.4 3.2 Display Innolux 10 3,046 -2.1 -8.8 -13.1 -47.4 -32.5 5.4 0.4 7.8 12.1 0.4 3.3 panel Sharp 126 1,741 -4.5 -5.3 -28.8 -27.6 -55.5 - 1.5 -40.9 - 1.6 -5.9 BOE 3 15,910 -5.2 -1.7 -4.6 -41.9 7.7 37.6 1.3 3.4 31.5 1.3 4.1 Corning 19 22,193 -1.2 0.9 9.0 -10.3 -10.8 13.5 1.3 9.6 12.8 1.2 9.9 Display Asahi Glass 724 6,980 -1.9 3.9 0.4 -10.8 26.4 19.0 0.7 4.0 20.6 0.7 3.7 glass NEG 683 2,761 -2.7 14.4 27.4 3.2 25.8 25.0 0.7 2.7 23.6 0.6 2.6 Novatek 119 2,209 -0.4 6.8 8.7 -29.3 -32.3 11.4 2.5 22.1 11.1 2.4 22.4 Display Chipbond 47 925 -9.5 0.2 -1.9 -33.3 -17.6 13.5 1.3 9.6 10.6 1.2 11.8 component Radiant 85 1,217 -6.6 -15.4 -9.9 -24.1 -15.9 13.2 1.6 11.9 9.0 1.5 16.5 TPK 93 1,001 -5.7 14.7 14.0 -54.5 -53.3 - 1.1 -54.0 8.2 0.9 12.6 Nissha Printing 2,579 943 -3.2 -2.5 23.9 14.4 45.7 14.5 1.5 10.7 14.6 1.4 9.4 Touchscreen Alps Electric 3,870 6,115 -4.2 2.1 1.7 21.3 63.0 14.2 3.2 24.1 13.4 2.6 20.5 O-film 26 4,142 -10.4 15.3 26.1 -43.9 14.3 34.4 4.2 12.3 24.1 3.7 14.7 Applied Materials 19 22,356 2.3 11.0 15.8 -7.5 -22.6 15.4 2.9 18.5 12.3 2.6 24.5 ASML 88 40,324 3.1 4.0 7.8 -13.5 3.7 27.8 4.7 17.5 24.2 4.2 17.6 KLA Tencor 67 10,377 -0.5 -0.9 32.8 11.5 -4.2 18.9 35.6 158.9 16.5 21.1 236.6 SPE/FPD Lam Research 78 12,296 -0.4 1.4 6.7 -5.6 -6.1 12.8 2.3 18.0 11.8 2.2 18.4 equipment Tokyo Electron 8,198 12,029 4.4 12.2 28.5 3.2 1.4 19.0 2.3 11.8 17.8 2.1 12.1 Ulvac 3,115 1,249 3.8 43.8 61.1 45.6 89.8 13.9 1.8 13.9 11.0 1.6 16.4 DNS 924 1,907 5.2 28.3 58.8 -3.4 20.3 14.7 1.8 13.0 13.5 1.6 12.5 Yaskawa Electric 1,625 3,521 -0.9 12.3 16.9 -7.1 5.6 16.9 2.2 14.0 16.0 2.0 13.5 Fanuc Corp 21,920 36,674 -1.3 1.7 11.2 -20.4 9.5 26.7 3.0 11.6 25.8 2.9 11.2 Automation Denso 5,873 42,182 0.3 3.7 8.2 -9.8 6.0 16.7 1.4 8.3 14.8 1.3 8.9 equipment Daifuku 2,001 1,848 1.3 11.0 13.1 6.0 59.3 17.2 1.9 11.6 15.1 1.7 11.9 KuKa 82 3,136 4.4 6.4 14.9 12.6 34.0 30.3 4.8 18.1 24.3 4.1 18.7 Monthly InsighT 71 Appendix Share performances and valuations Price Mkt. cap Share performance (%), <11/30/15> 2015F 2016F Sector Company (local) (US$mn) 5D 1M 3M 6M 12M P/E (x) P/B (x) ROE (%) P/E (x) P/B (x) ROE (%) Hon Hai 84 40,932 -1.8 -3.0 -4.6 -11.0 -9.1 9.1 1.3 14.6 9.1 1.2 13.8 Quanta 51 6,035 -4.9 -8.1 -14.7 -34.5 -33.8 11.0 1.5 13.3 10.3 1.4 14.1 EMS/ODM Pegatron 86 6,867 0.1 7.9 2.3 -6.0 19.9 8.8 1.5 17.1 8.2 1.4 17.6 Compal 18 2,480 -2.2 -10.8 -4.7 -26.9 -6.2 9.0 0.8 8.7 8.5 0.8 9.1 Wistron 17 1,335 4.3 4.0 5.9 -30.3 -37.9 16.8 0.6 3.8 10.9 0.6 5.7 Largan 2,515 10,335 -7.4 -0.8 -16.7 -26.5 5.5 13.8 5.4 43.9 12.6 4.2 37.2 Lite-On Tech 34 2,396 -4.7 -0.9 12.4 -14.5 -10.2 11.4 1.0 8.8 10.4 1.0 9.6 Delta 157 12,454 -1.3 -5.4 -3.7 -10.6 -16.1 20.6 3.5 16.8 17.9 3.3 18.5 Chicony 75 1,624 1.5 -3.0 -6.8 -11.8 -10.1 13.5 2.4 15.2 11.4 2.3 15.6 Sunny Optical 18 2,497 -7.0 -2.9 36.5 3.6 28.8 21.2 4.0 20.7 16.4 3.4 22.7 AAC 54 8,612 -3.1 10.0 24.5 25.4 19.1 17.9 4.9 29.4 15.1 4.0 28.3 Goertek 32 7,559 -8.1 23.8 34.6 -22.2 18.5 33.6 5.0 16.1 23.1 4.2 18.4 Ibiden 1,930 2,209 -5.9 15.0 12.5 -17.0 9.5 14.1 0.7 5.5 15.3 0.7 4.7 Kinsus Technology 57 777 -7.5 -14.9 -1.9 -38.9 -49.9 9.4 0.9 9.9 9.4 0.8 9.6 Components Shinko 847 930 3.3 14.5 9.1 -16.2 9.3 17.4 0.8 4.8 15.9 0.8 5.0 Catcher 316 7,458 -1.3 -1.3 -4.8 -12.2 20.6 9.7 2.1 24.2 8.8 1.8 24.7 Murata 19,100 34,954 -2.4 10.1 8.8 -5.6 48.9 19.1 3.2 17.8 17.5 2.8 17.2 TDK 8,850 9,317 0.2 13.9 17.2 -11.1 23.8 16.5 1.4 8.9 14.6 1.3 9.3 Taiyo Yuden 2,009 1,966 1.7 17.1 35.6 7.8 49.7 16.5 1.5 9.8 14.6 1.3 10.0 Kyocera 5,707 17,508 -3.4 3.7 -4.2 -15.8 -1.8 23.3 0.9 3.8 19.8 0.9 4.5 Avago 130 35,891 3.9 5.6 3.2 -12.2 39.2 14.7 7.8 54.9 13.7 4.7 42.3 Skyworks 82 15,655 5.0 6.0 -6.2 -25.1 21.4 13.0 4.1 32.2 11.4 3.3 27.0 Fingerprint Cards AB(FPC) 594 4,301 14.5 41.4 164.6 464.4 1,545.4 49.1 33.5 108.8 27.1 14.1 75.6 Cirrus Logic 30 1,933 5.5 -1.6 0.6 -19.6 65.9 10.9 - 22.8 9.9 - 13.7 Nitto Denko 8,296 11,711 -0.6 6.0 1.5 -14.1 32.5 15.2 2.1 14.2 14.4 1.9 13.3 JSR 1,938 3,559 1.5 0.9 1.6 -14.5 -8.7 14.8 1.2 8.2 13.4 1.1 8.7 Shin-Etsu Chem 6,963 24,444 -2.9 -3.7 4.3 -8.4 -12.9 20.3 1.4 7.3 18.8 1.4 7.6 Materials Sumitomo Chem 706 9,495 2.6 1.0 17.3 -2.3 57.7 13.2 1.4 10.7 11.6 1.3 11.4 Hitachi Chemical 2,050 3,470 1.3 6.1 9.9 -16.8 -6.7 12.1 1.1 9.6 11.0 1.0 9.9 UDC 53 2,467 9.6 53.9 43.4 -1.7 90.4 48.4 5.1 7.5 35.9 4.4 14.0 Panasonic 1,398 27,851 -2.1 -2.6 4.5 -23.7 -8.8 16.5 1.6 10.1 13.6 1.5 11.4 Hitachi Maxell 2,031 880 -0.8 -2.5 8.2 2.9 12.4 18.0 0.9 5.0 15.2 0.8 5.7 GS Yuasa 466 1,566 2.0 0.9 2.9 -14.8 -18.0 14.5 1.2 8.5 12.3 1.1 9.5 LIB BYD 42 20,242 -8.3 -13.4 32.4 -23.1 -10.9 40.9 2.8 8.2 35.6 2.5 6.9 Dynapack 50 231 -5.5 -6.9 4.7 -32.4 -32.0 15.5 1.0 6.6 15.9 1.0 5.9 Simplo 112 1,058 -4.7 -3.0 3.7 -20.8 -29.6 11.0 1.6 14.6 10.9 1.5 14.3 Monthly InsighT 72 Appendix Share performances and valuations Price Mkt. cap Share performance (%), <11/30/15> 2015F 2016F Sector Company (local) (US$mn) 5D 1M 3M 6M 12M P/E (x) P/B (x) ROE (%) P/E (x) P/B (x) ROE (%) Cree 27 2,791 8.7 7.5 -0.5 -10.5 -25.5 27.4 1.2 0.8 20.8 1.1 1.3 Epistar 22 752 -9.0 -24.1 -15.2 -54.9 -61.7 - 0.4 -0.9 - 0.4 -0.6 Everlight 43 568 -3.2 -13.0 10.0 -38.8 -33.8 10.9 1.1 9.4 9.9 1.0 10.4 Veeco 20 833 3.4 12.9 -11.8 -32.8 -45.6 41.4 1.1 -0.9 29.6 1.2 0.7 LED Aixtron 8 885 -0.8 23.2 23.4 2.7 -33.2 - 2.1 -7.1 - 2.1 -1.7 GT Advanced Tech.0 28 -3.8 -1.4 35.4 -17.5 -53.4 ------Sanan 25 9,434 -0.1 8.1 16.1 -16.2 78.6 30.2 4.7 16.2 22.9 4.0 18.3 Rubicon 1 25 1.8 -12.1 -30.9 -64.0 -81.2 - 0.2 -63.0 - 0.2 -36.0 CISCO 27 138,678 -0.2 -5.3 5.6 -6.8 -1.2 12.0 2.2 17.8 11.4 2.0 16.8 Alcatel Lucent 4 11,144 -1.7 0.3 23.9 1.8 29.6 28.3 4.3 13.9 15.0 3.4 30.7 Network ARRIS 30 4,467 2.5 7.8 15.3 -7.7 2.3 15.6 - - 12.8 - - PACE 393 1,887 0.5 5.4 15.1 -4.7 9.2 9.7 - - 9.2 - - UTSTARCOM 2 93 -1.2 11.0 20.9 15.2 -10.0 ------Stratasys 24 1,275 5.4 -4.4 -20.5 -31.4 -76.1 259.4 0.9 -9.9 64.3 1.0 -0.7 3D printing 3D Systems 9 1,010 3.9 -10.4 -34.4 -58.8 -74.5 79.0 0.8 1.3 29.0 0.8 -0.9 EV Tesla Motors 232 30,330 4.4 11.9 -7.0 -7.7 -5.3 - 26.7 -20.5 131.5 22.7 11.5 Google 772 522,850 1.6 4.7 19.2 41.6 40.6 26.6 4.2 16.5 22.5 3.6 16.6 Microsoft 54 430,788 -0.0 2.5 23.9 15.1 12.8 19.5 5.3 20.4 17.3 4.8 23.0 Software Amazon 673 315,599 1.8 7.6 31.3 56.9 98.8 119.3 25.3 13.2 68.4 19.4 22.9 Twitter 26 17,586 -2.2 -9.5 -7.3 -29.8 -38.3 73.4 4.1 -0.6 46.6 4.0 0.9 Facebook 105 298,212 -0.8 3.4 17.9 33.2 35.7 48.7 7.0 12.0 36.8 5.9 14.3 Boeing 147 98,454 -1.5 -0.8 12.5 4.6 9.4 17.9 12.2 70.9 15.6 8.2 113.3 Lockheed 226 69,421 0.9 2.8 12.3 20.0 17.9 20.0 25.7 111.4 18.6 21.7 184.1 Defense General Dynamics 146 46,016 0.2 -2.0 2.5 3.9 0.1 16.1 4.4 26.2 15.3 4.3 27.7 BAE 31 24,711 5.3 15.5 13.3 -1.2 3.9 13.8 7.5 49.5 13.1 6.6 50.2 Raytheon 127 38,176 0.6 8.0 23.6 22.8 18.8 19.1 4.2 20.7 18.0 3.8 20.6 Automotive Continental 229 48,332 3.1 4.5 20.7 8.8 35.1 15.8 3.5 23.8 14.6 3.0 22.0 electronics Magna 60 18,195 0.3 -12.8 -7.4 -15.9 -1.7 10.2 1.6 21.6 8.6 1.7 23.8 NEXANS 36 1,632 3.9 0.2 4.1 0.6 37.7 22.0 1.2 -3.5 14.9 1.1 6.5 Cable ABB 19 43,364 1.8 3.5 3.5 -5.2 -7.7 17.9 2.7 14.2 16.0 2.7 15.6 PRYSMIAN 21 4,735 1.5 5.2 8.4 0.6 43.0 17.7 3.5 19.4 14.9 3.1 21.0 Monthly InsighT 73 Important Disclosures & Disclaimers 2-Year Rating and Target Price History Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price Samsung Electronics(005930) 07/30/2015 Buy 1,700,000 10/01/2014 Buy 190,000 06/26/2015 Buy 1,800,000 01/26/2014 Buy 200,000 03/27/2015 Buy 1,850,000 11/29/2013 Buy 240,000 01/22/2015 Buy 1,800,000 Samsung Electro-Mechanics(009150) 10/30/2015 Buy 93,000 No Coverage 09/08/2015 Buy 82,000 09/28/2014 Buy 1,400,000 07/28/2015 Buy 79,000 08/27/2014 Buy 1,500,000 06/01/2015 Buy 82,000 07/08/2014 Buy 1,600,000 03/12/2015 Buy 97,000 05/14/2014 Buy 1,700,000 11/30/2014 Buy 85,000 No Coverage 09/01/2014 Buy 77,000 01/26/2014 Buy 1,650,000 07/21/2014 Buy 80,000 01/02/2014 Buy 1,750,000 04/27/2014 Buy 98,000 11/25/2013 Buy 1,900,000 01/29/2014 Buy 93,000 Samsung SDI(006400) 11/29/2015 Buy 148,000 01/23/2014 Buy 95,000 10/01/2015 Buy 133,000 12/11/2013 Buy 113,000 07/30/2015 Buy 123,000 LG Innotek(011070) 07/26/2015 Buy 123,000 07/01/2015 Buy 168,000 04/29/2015 Buy 136,000 05/26/2015 Buy 175,000 10/29/2014 Buy 140,000 04/28/2015 Buy 156,000 10/01/2014 Buy 164,000 02/02/2015 Buy 163,000 07/21/2014 Buy 170,000 01/23/2015 Buy 150,000 04/29/2014 Buy 138,000 No Coverage 03/27/2014 Buy 130,000 10/31/2014 Buy 180,000 12/11/2013 Buy 114,000 (W) (W) LG Innotek Samsung Electronics (W) Samsung SDI (W) Samsung Electro-Mechanics 2,000,000 200,000 300,000 140,000 1,500,000 250,000 120,000 150,000 200,000 100,000 1,000,000 100,000 150,000 80,000 100,000 60,000 500,000 40,000 50,000 50,000 20,000 0 0 0 0 Dec 13 Dec 14 Dec 15 Dec 13 Dec 14 Dec 15 Dec 13 Dec 14 Dec 1513 Dec 14 Dec 15 Monthly InsighT 74 2-Year Rating and Target Price History Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price SK Hynix(000660) 10/22/2015 Buy 45,000 07/01/2015 Buy 67,000 09/01/2015 Buy 50,000 06/01/2015 Buy 84,000 06/29/2015 Buy 60,000 01/01/2015 Buy 87,000 01/22/2015 Buy 64,000 10/29/2014 Buy 95,000 No Coverage 10/01/2014 Buy 97,000 06/15/2014 Buy 57,000 07/25/2014 Buy 98,000 05/14/2014 Buy 52,000 05/27/2014 Buy 92,000 No Coverage 04/30/2014 Buy 91,000 01/29/2014 Buy 46,000 04/20/2014 Buy 95,000 11/25/2013 Buy 43,000 01/28/2014 Buy 90,000 LG Display(034220) 11/29/2015 Buy 31,000 12/11/2013 Buy 100,000 10/01/2015 Buy 29,000 Hanwha Techwin(012450) 10/28/2015 Buy 49,000 07/23/2015 Buy 35,000 07/30/2015 Buy 44,000 07/01/2015 Buy 36,000 07/01/2015 Buy 39,000 01/23/2015 Buy 43,000 04/29/2015 Buy 33,000 No Coverage 01/28/2015 Buy 31,000 10/23/2014 Buy 40,000 11/26/2014 Buy 37,000 10/01/2014 Trading Buy 40,000 10/31/2014 Buy 44,000 07/24/2014 Trading Buy 36,000 10/01/2014 Buy 50,000 01/24/2014 Trading Buy 32,000 09/01/2014 Buy 58,000 11/28/2013 Hold - 07/21/2014 Buy 69,000 LG Electronics(066570) 11/27/2015 Buy 70,000 04/21/2014 Buy 79,000 10/30/2015 Buy 65,000 12/11/2013 Buy 77,000 (W) LG Electronics (W) Hanwha Techwin (W) (W) LG Display SK Hynix 120,000 100,000 70,000 50,000 100,000 60,000 40,000 80,000 50,000 80,000 30,000 60,000 40,000 60,000 30,000 20,000 40,000 20,000 40,000 10,000 20,000 10,000 20,000 0 0 0 0 Dec 13 Dec 14 Dec 15 Dec 13 Dec 14 Dec 15 Dec 13 Dec 14 Dec 15 Dec 13 Dec 14 Dec 15 Monthly InsighT 75 2-Year Rating and Target Price History Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price Seoul Semiconductor(046890) 10/27/2015 Buy 24,000 05/01/2014 Buy 55,000 07/27/2015 Buy 22,600 02/13/2014 Buy 57,000 05/03/2015 Buy 23,500 12/11/2013 Buy 52,000 02/11/2015 Trading Buy 20,000 Wonik IPS(030530) 08/10/2015 Buy 16,000 11/02/2014 Buy 25,000 08/03/2015 Buy 17,000 10/01/2014 Buy 33,000 01/22/2015 Buy 18,000 09/01/2014 Buy 38,000 No Coverage 07/30/2014 Buy 48,000 11/25/2013 Buy 13,000 (W) Wonik IPS (W) Seoul Semiconductor 20,000 60,000 50,000 15,000 40,000 10,000 30,000 20,000 5,000 10,000 0 0 Dec 13 Dec 14 Dec 15 Dec 13 Dec 14 Dec 15 Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. Equity Ratings Distribution Buy Trading Buy Hold Sell 72.77% 13.86% 13.37% 0.00% * Based on recommendations in the last 12-months (as of September 30, 2015) Disclosures As of the publication date, Daewoo Securities Co., Ltd. has been acting as a financial advisor to Seoul Semiconductor for its treasury stock trust, and other than this, Daewoo Securities has no other special interests in the companies covered in this report.. Monthly InsighT 76 Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein. Disclaimers This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. 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Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction. Monthly InsighT 77 KDB Daewoo Securities International Network Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. 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