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2018 Outlook
Telecom equipment /Electronic components New opportunities for connected society
Wonjae Park Young-gun Kim +822-3774-1426 +822-3774-1583 [email protected] [email protected]
Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. Contents
[Summary] 3
I. 2017 review 5
II. 2018 preview 11
III. Mid-long term forecast 16
IV. Conclusion 18
V. Top picks 19 LG Electronics, LG Innotek, SEMCO, Hanwha Techwin (notable) Seoul Semiconductor [Summary] Growth story continues in 2018
(1/3/05 =100) MSCI Korea IT (L) US$/W (R) JPY/W (R) (W) 800 2,200
TV era (Sony) Feature phone era (Nokia) Smartphone era (Apple) New era SEC 1st SEC 2nd SEC 1st Fourth Industrial Revolution LGE 2st LGE 3rd LGE 4th
600 1,800
400 1,400
200 1,000
0 600 05 06 07 08 09 10 11 12 13 14 15 16 17F 18F 19F
Source: Mirae Asset Daewoo Research
3| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research [Summary] Growth story continues in 2018
Start of price-driven growth in 2017; premiumization and Fourth Industrial Revolution expected for 2018
Strategy: Focus on components and materials rather than devices
Components: iPhone 6 Differentiation and new Galaxy S7 Galaxy Note7 Galaxy Note5 Galaxy S8 technologies Galaxy S5
Galaxy Note8 Foldable? Galaxy S6/E iPhone 7/7+
2018: New markets iPhone X * IT applications -Auto F/X, Galaxy S7 -Healthcare * New devices -IoT F/X Galaxy Note7 -Flexible iPhone 8/8+
1Q14 1Q15 1Q16 1Q17 1Q18F
Source: Mirae Asset Daewoo Research
4| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research I. 2017 review
Market environment: • In 2017, smartphone shipments have risen 1.7% YoY, with the value of the market projected to grow 9.2% YoY Smartphone market’s • Companies that saw earnings dip in 2016 (e.g., SEC, Apple, Xiaomi) have actually turned around in 2017, backed turnaround by: 1) new product launches (e.g., Galaxy S8, Galaxy Note8, iPhone 8/8+/X); and 2) expansion into new markets (e.g., Xiaomi’s entry into India) Normalization • Oppo Electronics and Vivo have seen a slowdown in their top-line growth, amid slowing growth of the Chinese Slower growth of Chinese market players
Annual smartphone shipments YoY growth of quarterly smartphone shipments and value
(bn units) (%) (%) 2.0 90 120 2H16 2H17F Smartphone shipments (L) 110.0 Shipments YoY growth (R) 103.1 Value YoY growth (R)
1.5 60 80
48.6
1.0 30 40 29.4
9.2 12.0 6.5 4.3 6.2 6.4 0.8 0.4 2.4 2.8 0.5 0 5.0 0 1.7 -0.1 -6.9 -8.6 -14.6
0.0 -30 -40 2006 2009 2012 2015 2018F SEC Apple Huawei Oppo Vivo Xiaomi LG Total
Source: IDC, Mirae Asset Daewoo Research Source: IDC, Mirae Asset Daewoo Research
5| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research I. 2017 review
Market leaders: • SEC SEC: Steady growth - For 2017, SEC should see its smartphone shipments recover to 320mn units (+3.4% YoY) and market share to 20.3%, supported by its launch of the Galaxy S8/8+/Note8 following a recovery • Apple Apple: iPhone X price- - For 2017, Apple’s iPhone shipments are forecast to grow 3.7% YoY to 220mn units (M/S: 14.1), aided by: 1) the driven growth strategy release of the iPhone 8/8+/X; and 2) increased shipments of the iPhone 7/7+ amid the delayed launch of the iPhone X - The scheduled launch of the iPhone X at end-4Q should also provide a boost to its 2017 earnings SEC’s smartphone shipments and YoY growth Apple’s smartphone shipments and YoY growth
(mn units) (%) (mn units) (%) 100 Smartphone shipments (L) 50 100 iPhone shipments (L) 120 Shipments YoY growth (R) Shipments YoYgrowth (R) ASP YoY growth (R) Apple M/S (R)
75 75 80
25
50 10.9 50 40 6.6 6.0 2.5 0
25 25 0
0 -25 0 -40 1Q11 1Q13 1Q15 1Q17 1Q11 1Q13 1Q15 1Q17
Source: IDC, Mirae Asset Daewoo Research Source: IDC, Mirae Asset Daewoo Research
6| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research I. 2017 review
US market: Apple/SEC’s • For 2017, US smartphone shipments are projected to grow 5.5% YoY to 18.46mn units stable performances; • Apple should see both its US market share and ASP rise (ASP: +2.4%p YoY, 4.5% QoQ, in 4Q16F) new opportunities to LGE • LGE has remained in third place in the US smartphone market
Smartphone shipments and YoY growth in US Smartphone M/S in US
(mn units) (%) (%) 80 Shipments (L) 90 60 Apple Shipments YoY growth (R) Samsung Value YoY growth (R) LG Electronics ZTE 60 60 45
40 30 30
20 0 15
0 -30 0 1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q11 2Q12 3Q13 4Q14 1Q16 2Q17
Source: IDC, Mirae Asset Daewoo Research Source: IDC, Mirae Asset Daewoo Research
7| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research I. 2017 review
China: Smartphone market • In 2017, China’s smartphone shipments are projected to decline 1.6% YoY to 460mn units being reorganized, China’s smartphone market has weakened, due to slowing subscriber growth • Oppo and Vivo maintained the largest market share (a combined market share of 37%) in 3Q17 led by leading players • SEC’s market share remained on a downtrend
Smartphone shipments and YoY growth in China Monthly smartphone M/S in China
(mn units) Total shipments (L) (%) (%) 160 Huawei + Oppo + Vivo (L) 180 40 Huawei Total shipments YoY growth (R) Oppo + Vivo 3 co.'s YoY growth (R) Xiaomi 3 co.'s M/S (R) Apple Samsung 120 120 30
80 60 20
-0.4 40 0 10 -4.9
0 -60 0 1Q12 2Q13 3Q14 4Q15 1Q17 8/13 2/14 8/14 2/15 8/15 2/16 8/16 2/17 8/17
Source: IDC, Mirae Asset Daewoo Research Source: Counterpoint, Mirae Asset Daewoo Research
8| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research I. 2017 review
India: SEC maintained • Estimated smartphone shipments in 2017: 119.13mn units (+9.2% YoY) strong market share, Shipment growth has slowed, due to stagnating smartphone penetration (mid-40%); market volume is projected to expand sharply (+28% YoY) closely followed by Xiaomi; • As of August 2017, SEC topped the Indian smartphone market, with a market share of 22.9%, closely followed by Indian players suffered Xiaomi (19.4%) • Local brands continue to fare poorly
Smartphone shipments and YoY growth in India Monthly smartphone M/S in India
(mn units) (%) (%) 40 Shipments (L) 60 60 Samsung Shipments YoY growth (R) Xiaomi Value YoY growth (R) Smartphone penetration (R) China Big 3 (Xiaomi+Vivo+Oppo) India Big 4 (Micromax+Lava+Intex+Karbonn) 30 40 45
20 20 30
10 0 15
0 -20 0 1Q12 2Q13 3Q14 4Q15 1Q17 8/15 12/15 4/16 8/16 12/16 4/17 8/17
Source: IDC, Mirae Asset Daewoo Research Source: Counterpoint, Mirae Asset Daewoo Research
9| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research I. 2017 review
Components: • New technologies or scale effects have led to differentiation between companies Differentiation has New features include iris/face recognition, dustproofing/waterproofing, 3D sensor modules, and dual camera modules • Component producers weighed down by overcapacity have continued to struggle (e.g. low-pixel camera module gained traction spurred producers, etc.) by new technologies and • In some industry segments, including FPCB and some manual components, restructuring has come to a close the economies of scale • Slowing smartphone market growth has lowered investor expectations Positive • Investors have narrowed focus to those companies with new technologies or oligopolistic market positions
Major IT sectors and market index US$/W rate and handset/component market index
(1/2/16 = 100) (16.1.6=100) 220 KOSPI 150 IT H/W (excl. semiconductors and display) KOSDAQ US$/W Handsets and other IT H/Ws Semiconductor 180 125 Display
140 100
100 75
60 50 1/16 5/16 9/16 1/17 5/17 9/17 1/16 5/16 9/16 1/17 5/17 9/17 Source: Quantiwise, Mirae Asset Daewoo Research Source: Quantiwise, Mirae Asset Daewoo Research Note: The handset/component market index is composed of 201 stocks, including LG Innotek, SEMCO, and Interflex
10| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research II. 2018 preview
2018 smartphone • For 2018, smartphone sales volume is projected at 1.57bn units (+5% YoY), with the smartphone market expected shipments forecast at to grow to US$483.8bn (+6.5% YoY) • Smartphone shipments (units): 1.44bn in 2015 1.47bn in 2016 1.5bn in 2017F 1.57bn in 2018F 1.57bn units (+5%); • First-tier makers will likely focus on premium models, while second-tier makers should seek to increase sales market volume via low-end models
Global handset shipment and growth trends (Wbn) (%) 2.4 Feature Phone 45 Smartphone Smartphone value growth (R) 19.9 20.1 Smartphone shipments growth (R) 1.8 0.4 30 0.5
1.6 1.5 1.2 15
+6.5
+5.0 0.6 0
0.0 -15 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017F 2019F
Source: IDC, Mirae Asset Daewoo Research
11| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research II. 2018 preview
Slowing growth of • Smartphone market growth in China, as well as in the US and Western Europe, is slowing rapidly developed and Indian In particular, Chinese sales volume will likely contract in 2017 markets; global market • Going forward, the Indian and Asian markets will likely drive up global market growth India’s smartphone market is expected to grow 13.7% in 2018 and 15% in 2019 growth hinges on Indian market
Global smartphone sales volume growth
2016 2017F 2018F 2019F
US 4.7% 1.4% 1.2% 1.4%
Western -8.3% -1.7% -0.3% 0.4% Europe
Japan 2.3% 6.3% 3.0% 6.2%
China 8.7% -1.6% 4.7% 0.5%
India 5.2% 9.2% 13.7% 15.0% Other -0.1% 4.3% 6.8% 5.3% Asia South -0.5% 5.4% 2.4% 1.5% America
Total 2.5% 1.7% 5.0% 3.6%
Source: IDC, Mirae Asset Daewoo Research
12| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research II. 2018 preview
SEC to maintain • Mature smartphone market competitiveness in high- SEC needs to expand its low/mid-end lineup (growth markets: India, South America, Southeast Asia), while also maintaining competitiveness in the high-end segment end segment and benefit We think SEC has to continue its efforts to improve cost efficiency, while maintaining brand competitiveness of economies of scale in and economies of scale The company will likely reconfirm its smartphone competitiveness low-end segment The company’s earnings are likely to be driven by its semiconductor, component, and material businesses for now Economies of scale are important (operating margins of Revenue and OP margin of SEC’s IM division the global top 3 handset makers in the mid-2000s) (%) (Wbn) (%) 30 Samsung Electronics 40,000 Revenue (L) 20 LG Electronics Operating margin (R) Nokia
20 30,000 15
10 20,000 10
0 10,000 5
-10 0 0 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q05 1Q07 1Q09 1Q11 1Q13 1Q15 1Q17
Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research
13| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research II. 2018 preview
Apple needs to start • Apple, an icon of innovation, failed to show substantial innovation with the iPhone 7 innovating again; • Apple has opted for a price hike for the iPhone X (10th-anniverary iPhone) Chinese smartphone • Chinese smartphone makers are seeing declining sales volume The number of Chinese smartphone makers has ballooned, and investors should take note of those that makers fighting to prevail amid fierce competition survive
Apple iPhone 8 and X Chinese smartphone makers’ M/S
iPhone 8 iPhone 8 Plus iPhone X Vendor 2Q16(대) 2Q17(대) M/S(%) shipments YoY(%) Huawei 19,131,000 23,452,001 19.9 22.6 OPPO 18,012,126 20,054,352 17.0 11.3 vivo 14,679,069 16,041,361 13.6 9.3 Xiaomi 11,347,297 14,181,755 12.1 25.0 Gionee 6,812,063 5,273,115 4.5 - 22.6 Meizu 4,049,622 5,249,861 4.5 29.6 ZTE 3,550,000 2,798,307 2.4 - 21.2 Coolpad 3,396,741 1,447,174 1.2 -57.4 Smartisan 182,486 1,084,898 0.9 494.5 Qihoo 360 2,007,653 1,030,585 0.9 -48.7 Hisense 800,785 805,851 0.7 0.6 AP Apple A11 Bionic Koobee 660,885 799,122 0.7 20.9 OS iOS 11 Meitu 120,700 440,844 0.4 265.2 Haier 363,652 416,597 0.4 14.6 4.7” IPS LCD 5.5” IPS LCD 5.8” K-Touch 468,858 354,992 0.3 -24.3 Display TCL 700,011 353,980 0.3 -49.4 LED-backlit IPS LCD Super AMOLED China Mobile 221,944 342,283 0.3 54.2 Doov 225,580 276,565 0.2 22.6 Resolution 750 x 1334 pixels 1080 x 1920 pixels 1125 x 2436 pixels Lenovo 1,400,716 260,320 0.2 -81.4 RAM 2GB 3GB 3GB Konka 229,137 254,726 0.2 11.2 HTC 360,123 244,420 0.2 -32.1 Storage 64/256 GB Bird 222,494 213,483 0.2 -4.0 Primary :12MP OnePlus 99,785 186,875 0.2 87.3 Primary :12MP Primary :12MP dual Camera Secondary :7MP Changhong 158,641 150,025 0.1 -5.4 Secondary :7MP Secondary :7MP 3-D depth sensing LeEco 6,003,532 77,000 0.1 - 98.7 Battery 1,821mAh 2,691mAh 2,716mAh ASUS 162,218 55,051 0.0 -66.1 Source: IDC, Mirae Asset Daewoo Research Source: GSMArena, Mirae Asset Daewoo Research
14| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research II. 2018 preview
Focusing on prices, • The current earnings improvements have been driven by higher prices arising from a premium strategy for home rather than sales volume appliances, including TVs, rather than sales volume growth • Expansion of high-end smartphone models: SEC and Apple have been expanding their premium smartphone model line-ups The adoption of new technologies and parts, including OLED, dual cameras, 3D sensing, and VR/AR, is increasing Favorable for domestic smartphone parts makers
High-end smartphone shipments and portion of high- VR/AR shipments and value resolution smartphone cameras in China (mn units) (%) (mn units) (%) 10 300 40 High-end (above US$400) smartphone shipments (L) 100 VR/AR shipments (L) Portion of high-resolution (above 12MP) smartphone cameras (R) VR/AR shipments YoY (R) VR/AR value YoY (R) 8 240 30 75
6 180
20 50
4 120
10 25 2 60
0 0 0 0 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 1Q14 1Q15 1Q16 1Q17 1Q18F
Source: IDC, Mirae Asset Daewoo Research Source: IDC, Mirae Asset Daewoo Research
15| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research III. Mid-long term outlook
Smartphones becoming • Smartphones are becoming commodity products that can be manufactured by a growing number of firms commoditized: Solid • Commodity products: Swift response to consumer needs + cost efficiency + ability to apply new technology + brand value Increasing importance of supply chain SEC vs. LGE vs. Sony and Apple supply chain is important • SEC and LGE are likely to maintain or improve their competitiveness
IT products: Life cycle vs. profitability Major IT firms’ supply chains
(%) (%) 99 Penetration (L) 45 Set Samsung Electronics LG Electronics APPLE Foxconn Sony Earnings (R)
66 30
Samsung SEC, LGD, Display Samsung LG LG Part SEMCO SEMCO, LG Innotek, Murata, Display Innotek Display Murata, Ibiden, Nichia etc. Ibiden, TDK etc.
33 15
Shin-Etsu Chemical, SUMCO, Hitachi Samsung Material Others LG Chem Others Chemical, JSR, Sumitomo Chemical, S&T Nitto Denko, Sumitomo Bakelite 0 0 Beginning Middle Maturing
Source: Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research
16| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research III. Mid-long term outlook
IT components and • IT powerhouses saw their IT businesses advance in the following order: 1) IT products; 2) components; and 3) materials/equipment materials/equipment • It has been about 10 years since Korean IT products began to gain major ground in the global market markets to expand • The competitiveness of Korean IT products has been driven by component quality Accelerating overseas expansion: The component industry to become a major pillar of the Korean IT industry • In addition to the component makers, Korean materials/equipment makers are also likely to display growth
Countries that lead the components/materials markets M/S in semiconductor and LCD industries
Changes in market leadership LCD
Others DRAM 75% of total 1st place Entry 65% CSOT LCD 90% 2nd place 1st place Entry 60% BOE Sharp st Wafer 1 place Entry 15% AU Optronics Chimei Innolux Photoresist Oligopoly Entry 10% Samsung Display Liquid crystal Entry 0% LG Display 06 07 08 09 10 11 12 13 14 15 16 45% Polarizer Oligopoly Entry
Appliances 1st place DRAM
TV 1st place
Handsets 1st place Others
1st place Nanya Technology Camera modules 27.9 26.0 22.6 24.8 27.3 nd 21.0 27.3 Micron Technology MLCC 2 place 21.6
Power modules 1st place SK Hynix 42.1 41.2 45.5 47.1 32.5 38.0 36.1 40.5 LED 3rd place Samsung Electronics
09 10 11 12 13 14 15 16 70 80 90 00 10 20F 30F
Source: GSMArena, Mirae Asset Daewoo Research Source: IDC Mirae Asset Daewoo Research
17| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research [Conclusion]
Searching for new growth drivers 1H18 1H18 Price effect New growth - LGE (Appliances) -LGE (VC) -SEMCO - Hanwha Techwin - LG Innotek - Seoul Semiconductor - Mid-small cap
New markets F/X, Note 7 Application of IT -Auto -Healthcare
New devices -IoT -Flexible Foldable? iPhone 8/8+/X
Note 8 Galaxy S8
1Q16 2Q 3Q 4QF 1Q17 2Q 3Q 4QF 1Q18F 2QF 3QF 4QF
Source: Mirae Asset Daewoo Research
18| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research Top picks LG Electronics (066570 KS)
Growth resumed
Home appliance/TV units to generate annual OP of W3tr; focus on growth potential (Maintain) Buy • Despite high product quality and significant marketing expenses, sales of the V30 smartphone were sluggish • The home appliance and TV units have displayed robust performances, posting strong top-line growth Target Price (12M, W) 113,000 - We expect LGE’s annual sales to grow to W60tr, driven by the strength of the home appliance and TV businesses Share Price (11/6/17, W) 93,200 Maintain Buy and TP of W113,000 • Despite unfavorable seasonality, LGE is expected to record healthy earnings in 4Q17 on the back of the Expected Return 21% recovery of the TV businesses, in line with panel price declines and solid earnings at LG Innotek • The US International Trade Commission’s decision to apply safeguard restrictions on LGE’s washing machines OP (17F, Wbn) 2,624 should negatively affect investment sentiment, but have only a limited impact on earnings Consensus OP (17F, Wbn) 2,552 EPS Growth (17F, %) 2,427.2
Market EPS Growth (17F, %) 46.5
P/E (17F, x) 8.7
Market P/E (17F, x) 10.5 KOSPI 2,549.41
220 Market Cap (Wbn) 15,252 LG Electronics FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F
Shares Outstanding (mn) 181 200 KOSPI Revenue (Wbn) 59,041 56,509 55,367 60,462 65,266 69,435 Free Float (%) 65.5 OP (Wbn) 1,829 1,192 1,338 2,624 3,626 3,985 180 Foreign Ownership (%) 32.1 OP margin (%) 3.1 2.1 2.4 4.3 5.6 5.7 160 Beta (12M) 0.79 NP (Wbn) 399 124 77 1,943 2,240 2,436
52-Week Low 44,900 140 EPS (W) 2,208 688 425 10,744 12,390 13,472
52-Week High 97,200 120 ROE (%) 3.4 1.1 0.7 15.2 15.3 14.4 (%) 1M 6M 12M P/E (x) 26.8 78.2 121.4 8.7 7.5 6.9 100 Absolute 13.1 30.0 97.9 P/B (x) 0.9 0.8 0.8 1.2 1.1 0.9 80 Relative 6.2 14.3 53.816.10 17.2 17.6 17.10 Div.Yield (%) 0.7 0.7 0.8 0.4 0.4 0.4 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: LG Electronics, Mirae Asset Daewoo Research estimates
19| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research Top picks LG Electronics (066570 KS)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 55,367 60,462 65,266 69,435 Current Assets 16,991 19,502 21,260 23,583 P/E (x) 121.4 8.7 7.5 6.9
Cost of Sales 41,630 45,185 47,497 50,647 Cash and Cash Equivalents 3,015 4,343 5,666 7,082 P/CF (x) 1.6 3.4 3.5 3.2
Gross Profit 13,737 15,277 17,769 18,788 AR & Other Receivables 7,317 7,937 8,165 8,640 P/B (x) 0.8 1.2 1.1 0.9
SG&A Expenses 12,399 12,653 14,143 14,803 Inventories 5,171 5,609 5,770 6,105 EV/EBITDA (x) 5.1 5.0 3.7 3.2
Operating Profit (Adj) 1,338 2,624 3,626 3,985 Other Current Assets 1,488 1,613 1,659 1,756 EPS (W) 425 10,744 12,390 13,472
Operating Profit 1,338 2,624 3,626 3,985 Non-Current Assets 20,865 21,495 22,250 23,212 CFPS (W) 31,354 27,162 26,834 29,124
Non-Operating Profit -616 264 6 -36 Investments in Associates 5,105 5,537 5,696 6,027 BPS (W) 66,536 75,427 87,413 100,482
Net Financial Income -324 -260 -225 -179 Property, Plant and Equipment 11,222 11,408 11,897 12,406 DPS (W) 400 400 400 400
Net Gain from Inv in Associates 269 813 569 512 Intangible Assets 1,571 1,752 1,854 1,962 Payout ratio (%) 51.6 3.2 2.8 2.5
Pretax Profit 722 2,888 3,632 3,949 Total Assets 37,855 40,997 43,510 46,795 Dividend Yield (%) 0.8 0.4 0.4 0.4
Income Tax 595 851 1,265 1,375 Current Liabilities 15,744 16,423 16,862 17,777 Revenue Growth (%) -2.0 9.2 7.9 6.4
Profit from Continuing Operations 126 2,037 2,367 2,574 AP & Other Payables 9,235 10,017 10,305 10,904 EBITDA Growth (%) -1.4 41.9 25.0 8.1
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 1,672 1,159 1,160 1,161 Operating Profit Growth (%) 12.2 96.1 38.2 9.9
Net Profit 126 2,037 2,367 2,574 Other Current Liabilities 4,837 5,247 5,397 5,712 EPS Growth (%) -38.2 2,428.0 15.3 8.7
Controlling Interests 77 1,943 2,240 2,436 Non-Current Liabilities 8,754 9,551 9,332 9,201 Accounts Receivable Turnover (x) 7.8 8.2 8.4 8.6
Non-Controlling Interests 49 94 127 138 Long-Term Financial Liabilities 7,082 7,737 7,466 7,226 Inventory Turnover (x) 11.0 11.2 11.5 11.7
Total Comprehensive Profit 484 1,829 2,367 2,574 Other Non-Current Liabilities 1,672 1,814 1,866 1,975 Accounts Payable Turnover (x) 6.5 6.46.46.5
Controlling Interests 433 1,759 2,260 2,458 Total Liabilities 24,499 25,975 26,194 26,978 ROA (%) 0.3 5.2 5.6 5.7
Non-Controlling Interests 52 69 107 116 Controlling Interests 11,987 13,595 15,762 18,125 ROE (%) 0.7 15.2 15.3 14.4
EBITDA 3,081 4,371 5,463 5,907 Capital Stock 904 904 904 904 ROIC (%) 1.6 12.6 15.6 16.4
FCF (Free Cash Flow) 1,139 1,669 1,841 2,176 Capital Surplus 2,923 2,923 2,923 2,923 Liability to Equity Ratio (%) 183.4 172.9 151.3 136.1
EBITDA Margin (%) 5.6 7.2 8.4 8.5 Retained Earnings 9,233 11,036 13,203 15,567 Current Ratio (%) 107.9 118.7 126.1 132.7
Operating Profit Margin (%) 2.4 4.3 5.6 5.7 Non-Controlling Interests 1,370 1,427 1,554 1,692 Net Debt to Equity Ratio (%) 41.8 29.1 16.1 5.6
Net Profit Margin (%) 0.1 3.2 3.4 3.5 Stockholders' Equity 13,357 15,022 17,316 19,817 Interest Coverage Ratio (x) 3.2 7.2 10.1 11.4
Source: LG Electronics, Mirae Asset Daewoo Research estimates
20| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research Top picks Samsung Electro-Mechanics (009150 KS)
Strong MLCC business to remove seasonality
Earnings to continue growing in 4Q17; 1Q18 results to be strong on the back of Galaxy S9 effects (Maintain) Buy • We project 4Q17 operating profit at W106.1bn (TTB YoY), despite weak seasonality - MLCC ASP to remain on the rise; RF-PCB revenue to pick up, thanks to a new product launch by the largest Target Price (12M, W) 131,000 overseas customer • For 1Q18, we forecast revenue of W1.84tr (+17.1% YoY) and operating profit of W136.6bn (+435.1% YoY) - The anticipated launch of the Galaxy S9 will likely boost dual-camera module and SLP (substrate-like PCB) Share Price (11/6/17, W) 100,000 sales • Despite 4Q being a typically weak season, the company will likely move straight into a high season, thanks to Expected Return 31% the launches of new smartphone models
Maintain Buy and TP of W131,000 OP (17F, Wbn) 305 • Our target price is based on a P/B of 1.6x (20% premium to the five-year average) 12-month forward BPS of Consensus OP (17F, Wbn) 311 W58,074 EPS Growth (17F, %) 1,036.5 • In addition to earnings growth, we see increasing chances of success for the company’s new products Market EPS Growth (17F, %) 46.5 • The fan out-panel level package (Fo-PNP) business should help the company to further diversify its business P/E (17F, x) 46.4 portfolio
Market P/E (17F, x) 10.5
KOSPI 2,549.41
Market Cap (Wbn) 7,469 260 Samsung Electro- FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F Mechanics Shares Outstanding (mn) 78 240 KOSPI Revenue (Wbn) 6,100 6,176 6,033 6,847 7,825 8,637
Free Float (%) 73.4 220 OP (Wbn) 65 301 24 305 535 609
Foreign Ownership (%) 21.5 200 OP margin (%) 1.1 4.9 0.4 4.5 6.8 7.1 Beta (12M) 1.50 180 NP (Wbn) 503 11 15 167 303 355
52-Week Low 45,350 160 EPS (W) 6,478 144 190 2,154 3,902 4,580
52-Week High 112,000 140 ROE (%) 11.5 0.3 0.3 3.9 6.7 7.4 120 (%) 1M 6M 12M P/E (x) 8.4 436.3 268.0 46.4 25.6 21.8 100 Absolute -2.0 33.3 119.3 P/B (x) 0.9 1.1 0.9 1.7 1.6 1.5 80 Relative -7.9 17.2 70.516.10 17.2 17.6 17.10 Div.Yield (%) 1.4 0.8 1.0 0.6 0.7 0.8 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Samsung Electro-Mechanics, Mirae Asset Daewoo Research estimates
21| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research Top picks Samsung Electro-Mechanics (009150 KS)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 6,033 6,847 7,825 8,637 Current Assets 2,812 2,945 3,257 3,684 P/E (x) 268.0 46.4 25.6 21.8
Cost of Sales 5,006 5,416 6,003 6,607 Cash and Cash Equivalents 796 679 662 846 P/CF (x) 5.3 7.7 6.5 6.1
Gross Profit 1,027 1,431 1,822 2,030 AR & Other Receivables 782 1,003 1,156 1,227 P/B (x) 0.9 1.7 1.6 1.5
SG&A Expenses 1,002 1,125 1,287 1,422 Inventories 827 827 953 1,067 EV/EBITDA (x) 8.4 9.9 7.8 7.2
Operating Profit (Adj) 24 305 535 609 Other Current Assets 407 436 486 544 EPS (W) 190 2,154 3,902 4,580
Operating Profit 24 305 535 609 Non-Current Assets 4,850 5,259 5,409 5,477 CFPS (W) 9,671 12,922 15,439 16,526
Non-Operating Profit 8 -49 -75 -73 Investments in Associates 47 61 70 78 BPS (W) 56,531 58,688 62,101 65,998
Net Financial Income -31 -51 -54 -52 Property, Plant and Equipment 3,714 4,062 4,110 4,158 DPS (W) 500 600 700 800
Net Gain from Inv in Associates 9 -4 0 0 Intangible Assets 92 125 125 126 Payout ratio (%) 158.6 24.4 14.3 13.9
Pretax Profit 32 256 460 536 Total Assets 7,663 8,204 8,666 9,161 Dividend Yield (%) 1.0 0.6 0.7 0.8
Income Tax 9 77 104 118 Current Liabilities 2,043 2,911 3,054 3,183 Revenue Growth (%) -2.3 13.5 14.3 10.4
Profit from Continuing Operations 23 179 356 418 AP & Other Payables 620 672 774 867 EBITDA Growth (%) -20.4 51.5 26.8 6.9
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 1,166 1,973 1,973 1,973 Operating Profit Growth (%) -92.0 1,170.875.413.8
Net Profit 23 179 356 418 Other Current Liabilities 257 266 307 343 EPS Growth (%) 31.9 1,033.7 81.2 17.4
Controlling Interests 15 167 303 355 Non-Current Liabilities 1,282 787 788 788 Accounts Receivable Turnover (x) 9.1 9.3 8.8 8.8
Non-Controlling Interests 8 11 53 63 Long-Term Financial Liabilities 1,278 781 781 781 Inventory Turnover (x) 8.0 8.3 8.8 8.5
Total Comprehensive Profit 64 253 356 418 Other Non-Current Liabilities 4 6 7 7 Accounts Payable Turnover (x) 15.0 13.9 14.5 14.1
Controlling Interests 56 241 337 396 Total Liabilities 3,325 3,698 3,841 3,971 ROA (%) 0.3 2.3 4.2 4.7
Non-Controlling Interests 8 12 19 22 Controlling Interests 4,241 4,407 4,673 4,975 ROE (%) 0.3 3.9 6.7 7.4
EBITDA 633 959 1,216 1,300 Capital Stock 388 388 388 388 ROIC (%) 0.4 4.2 7.7 8.5
FCF (Free Cash Flow) -372 -371 242 385 Capital Surplus 1,045 1,045 1,045 1,045 Liability to Equity Ratio (%) 76.7 82.1 79.6 76.5
EBITDA Margin (%) 10.5 14.0 15.5 15.1 Retained Earnings 2,534 2,625 2,890 3,192 Current Ratio (%) 137.7 101.2 106.6 115.8
Operating Profit Margin (%) 0.4 4.5 6.8 7.1 Non-Controlling Interests 97 99 152 215 Net Debt to Equity Ratio (%) 30.8 39.2 36.3 29.4
Net Profit Margin (%) 0.2 2.4 3.9 4.1 Stockholders' Equity 4,338 4,506 4,825 5,190 Interest Coverage Ratio (x) 0.5 4.8 8.1 9.2
Source: Samsung Electro-Mechanics, Mirae Asset Daewoo Research estimates
22| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research LG Innotek (011070 KS)
Smooth road ahead
Earnings to reach new records in 4Q17 and remain robust in 1Q18 (Maintain) Buy • Investors’ focus should now turn to the 4Q17-1Q18 earnings outlook - The weak sales of the iPhone 8 are largely due to pent-up demand for the iPhone X; in other words, demand Target Price (12M, W) 232,000 is not softening This is positive for LG Innotek - For 4Q17, we expect LG Innotek to deliver record-breaking earnings, with revenue of W2.57tr (+25.1% YoY, +43.8% QoQ) and operating profit of W154.9bn (+31.5%) Share Price (11/6/17, W) 171,000 • The outlook for new businesses is also positive - The company has begun supplying other components, like RFPCBs (annual revenue of W200bn) and wireless Expected Return 36% charging modules (revenue of W150bn) - LG Group’s potential acquisition of an automotive components supplier would also benefit LG Innotek by boosting sales of the company’s automotive LEDs OP (17F, Wbn) 310 Maintain Buy and TP of W232,000 Consensus OP (17F, Wbn) 315 • LG Innotek’s stock has corrected, due to worries over delays to the iPhone X; however, the worst is now over EPS Growth (17F, %) 3,837.5 • Our target price is based on 2.5x (vs. the historical peak of 2.7x in 2010) our 12-month forward BPS Market EPS Growth (17F, %) 46.5 P/E (17F, x) 20.8
Market P/E (17F, x) 10.5
KOSPI 2,549.41
240 Market Cap (Wbn) 4,047 LG Innotek FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F
Shares Outstanding (mn) 24 220 KOSPI Revenue (Wbn) 6,466 6,138 5,755 7,341 8,518 8,722
Free Float (%) 59.2 200 OP (Wbn) 314 224 105 310 461 449
Foreign Ownership (%) 27.5 180 OP margin (%) 4.9 3.6 1.8 4.2 5.4 5.1 Beta (12M) 0.86 NP (Wbn) 113 95 5 195 312 303 160 52-Week Low 74,900 EPS (W) 5,020 4,018 209 8,240 13,185 12,794 140 52-Week High 184,500 ROE (%) 7.5 5.5 0.3 10.5 14.8 12.6 120 (%) 1M 6M 12M P/E (x) 22.4 24.5 422.4 20.8 13.0 13.4 100 Absolute 11.0 32.0 121.2 P/B (x) 1.6 1.3 1.2 2.1 1.8 1.6 80 Relative 4.3 16.1 72.016.10 17.2 17.6 17.10 Div.Yield (%) 0.2 0.4 0.3 0.2 0.3 0.3 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: LG Innotek, Mirae Asset Daewoo Research estimates
23| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research LG Innotek (011070 KS)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 5,755 7,341 8,518 8,722 Current Assets 2,084 2,327 2,471 2,626 P/E (x) 422.4 20.8 13.0 13.4
Cost of Sales 5,102 6,401 7,323 7,521 Cash and Cash Equivalents 341 275 254 396 P/CF (x) 3.8 6.4 5.1 5.1
Gross Profit 653 940 1,195 1,201 AR & Other Receivables 1,292 1,487 1,635 1,651 P/B (x) 1.2 2.1 1.8 1.6
SG&A Expenses 548 630 734 752 Inventories 403 504 520 518 EV/EBITDA (x) 6.2 7.8 6.1 5.8
Operating Profit (Adj) 105 310 461 449 Other Current Assets 48 61 62 61 EPS (W) 209 8,240 13,185 12,794
Operating Profit 105 310 461 449 Non-Current Assets 2,239 2,653 2,825 2,901 CFPS (W) 23,210 26,533 33,476 33,394
Non-Operating Profit -94 -51 -50 -51 Investments in Associates 0 0 0 0 BPS (W) 75,159 82,351 95,287 107,631
Net Financial Income -30 -27 -29 -26 Property, Plant and Equipment 1,729 2,119 2,284 2,357 DPS (W) 250 350 450 550
Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 227 263 268 273 Payout ratio (%) 119.4 4.2 3.4 4.3
Pretax Profit 11 259 411 398 Total Assets 4,324 4,981 5,295 5,527 Dividend Yield (%) 0.3 0.2 0.3 0.3
Income Tax 6 64 99 96 Current Liabilities 1,734 1,841 1,845 1,785 Revenue Growth (%) -6.2 27.6 16.0 2.4
Profit from Continuing Operations 5 195 312 303 AP & Other Payables 1,199 1,500 1,548 1,540 EBITDA Growth (%) -35.4 38.8 28.6 0.1
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 395 167 117 67 Operating Profit Growth (%) -53.1 195.2 48.7 -2.6
Net Profit 5 195 312 303 Other Current Liabilities 140 174 180 178 EPS Growth (%) -94.8 3,842.6 60.0 -3.0
Controlling Interests 5 195 312 303 Non-Current Liabilities 811 1,191 1,196 1,195 Accounts Receivable Turnover (x) 4.9 5.4 5.5 5.4
Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 686 1,034 1,034 1,034 Inventory Turnover (x) 16.3 16.2 16.6 16.8
Total Comprehensive Profit 22 184 312 303 Other Non-Current Liabilities 125 157 162 161 Accounts Payable Turnover (x) 7.8 7.1 7.2 7.3
Controlling Interests 22 184 312 303 Total Liabilities 2,545 3,032 3,041 2,980 ROA (%) 0.1 4.2 6.1 5.6
Non-Controlling Interests 0 0 0 0 Controlling Interests 1,778 1,949 2,255 2,547 ROE (%) 0.3 10.5 14.8 12.6
EBITDA 456 633 814 815 Capital Stock 118 118 118 118 ROIC (%) 2.0 8.7 11.7 10.7
FCF (Free Cash Flow) 13 -97 89 257 Capital Surplus 1,134 1,134 1,134 1,134 Liability to Equity Ratio (%) 143.1 155.6 134.8 117.0
EBITDA Margin (%) 7.9 8.6 9.6 9.3 Retained Earnings 542 725 1,031 1,323 Current Ratio (%) 120.2 126.4 134.0 147.1
Operating Profit Margin (%) 1.8 4.2 5.4 5.1 Non-Controlling Interests 0 0 0 0 Net Debt to Equity Ratio (%) 41.6 47.5 39.8 27.7
Net Profit Margin (%) 0.1 2.7 3.7 3.5 Stockholders' Equity 1,778 1,949 2,255 2,547 Interest Coverage Ratio (x) 2.9 10.0 15.0 15.2
Source: LG Innotek, Mirae Asset Daewoo Research estimates
24| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research Hanwha Techwin (012450 KS)
Defense exports to gain momentum in 4Q
Earnings to pick up sharply in 4Q17 on self-propelled howitzer exports (Maintain) Buy • For 4Q17, we expect Hanwha Techwin’s revenue to reach a quarterly record of W1.55tr (+79.9% YoY,) and operating profit to improve to W55.9bn (+83.3% YoY), topping the W50bn level for the first time in 18 quarters Target Price (12M, W) 54,000 • Key earnings drivers - Hanwha Land Systems: We see exports of the K9 self-propelled howitzer growing sharply, boosted by Share Price (11/6/17, W) 40,150 W150bn-worth of shipments to Finland and India - Hanwha Systems: Deferred TICN revenue to be recognized in 4Q17 Expected Return 34%
Maintain Buy and target price of W54,000 OP (17F, Wbn) 92 • Earnings have bottomed and revenue is expected to hit a record high in 4Q17 Consensus OP (17F, Wbn) 104 • Meanwhile, we caution that the results of the ongoing tax investigation could be reflected in 4Q17 EPS Growth (17F, %) -86.1
Market EPS Growth (17F, %) 46.5 P/E (17F, x) 44.4
Market P/E (17F, x) 10.5
KOSPI 2,549.41
160 Market Cap (Wbn) 2,112 Hanwha Techwin FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F 150 Shares Outstanding (mn) 53 KOSPI Revenue (Wbn) 2,616 2,613 3,519 4,232 4,322 4,918 140 Free Float (%) 67.3 OP (Wbn) 8 -60 151 92 133 173 130 Foreign Ownership (%) 21.5 OP margin (%) 0.3 -2.3 4.3 2.2 3.1 3.5 120 Beta (12M) 1.31 NP (Wbn) -119 6 345 48 88 119 110
52-Week Low 32,750 100 EPS (W) -2,236 108 6,498 905 1,669 2,257
52-Week High 55,400 90 ROE (%) -7.1 0.3 15.1 2.1 3.7 4.9 (%) 1M 6M 12M80 P/E (x) - 329.2 6.7 44.4 24.1 17.8 Absolute 20.9 -21.1 -16.770 P/B (x) 0.8 0.8 1.0 0.9 0.9 0.8 60 Relative 13.6 -30.7 -35.216.10 17.2 17.6 17.10 Div.Yield (%) 0.0 0.8 0.0 0.2 0.2 0.2 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Hanwha Techwin, Mirae Asset Daewoo Research estimates
25| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research Hanwha Techwin (012450 KS)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 3,519 4,232 4,322 4,918 Current Assets 2,780 3,446 3,147 3,444 P/E (x) 6.7 44.4 24.1 17.8
Cost of Sales 2,802 3,426 3,486 3,945 Cash and Cash Equivalents 257 428 202 240 P/CF (x) 11.2 9.3 8.7 7.4
Gross Profit 717 806 836 973 AR & Other Receivables 924 1,169 1,286 1,344 P/B (x) 1.0 0.9 0.9 0.8
SG&A Expenses 566 713 703 800 Inventories 769 1,035 1,002 1,124 EV/EBITDA (x) 12.2 12.8 11.7 9.8
Operating Profit (Adj) 151 92 133 173 Other Current Assets 830 814 657 736 EPS (W) 6,498 905 1,669 2,257
Operating Profit 151 92 133 173 Non-Current Assets 2,872 2,864 2,839 2,940 CFPS (W) 3,865 4,335 4,640 5,451
Non-Operating Profit 268 -29 -23 -25 Investments in Associates 36 41 43 45 BPS (W) 44,025 43,768 45,437 47,594
Net Financial Income -13 -27 -27 -27 Property, Plant and Equipment 1,360 1,359 1,342 1,326 DPS (W) 0 100 100 100
Net Gain from Inv in Associates 7 2 0 0 Intangible Assets 927 954 1,022 1,097 Payout ratio (%) 0.0 10.9 6.0 4.4
Pretax Profit 419 63 110 148 Total Assets 5,652 6,309 5,986 6,385 Dividend Yield (%) 0.0 0.2 0.2 0.2
Income Tax 73 15 22 30 Current Liabilities 1,969 2,344 2,065 2,284 Revenue Growth (%) 34.7 20.3 2.1 13.8
Profit from Continuing Operations 346 48 88 119 AP & Other Payables 449 536 554 621 EBITDA Growth (%) 1,147.4 -9.3 19.5 17.1
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 360 268 268 268 Operating Profit Growth (%) - -39.1 44.6 30.1
Net Profit 346 48 88 119 Other Current Liabilities 1,160 1,540 1,243 1,395 EPS Growth (%) 5,916.7 -86.1 84.4 35.2
Controlling Interests 345 48 88 119 Non-Current Liabilities 1,343 1,661 1,529 1,596 Accounts Receivable Turnover (x) 5.3 4.2 3.6 3.8
Non-Controlling Interests 1 0 0 0 Long-Term Financial Liabilities 826 975 975 975 Inventory Turnover (x) 5.3 4.7 4.2 4.6
Total Comprehensive Profit 112 4 88 119 Other Non-Current Liabilities 517 686 554 621 Accounts Payable Turnover (x) 10.5 8.7 8.0 8.2
Controlling Interests 112 4 87 118 Total Liabilities 3,312 4,006 3,594 3,880 ROA (%) 7.1 0.8 1.4 1.9
Non-Controlling Interests 1 1 1 1 Controlling Interests 2,339 2,302 2,390 2,503 ROE (%) 15.1 2.1 3.7 4.9
EBITDA 237 215 257 301 Capital Stock 266 266 266 266 ROIC (%) 5.4 2.3 2.5 4.3
FCF (Free Cash Flow) 107 87 -237 214 Capital Surplus 188 188 188 188 Liability to Equity Ratio (%) 141.5 173.9 150.3 154.9
EBITDA Margin (%) 6.7 5.1 5.9 6.1 Retained Earnings 1,350 1,360 1,448 1,562 Current Ratio (%) 141.2 147.0 152.3 150.8
Operating Profit Margin (%) 4.3 2.2 3.1 3.5 Non-Controlling Interests 2 2 2 2 Net Debt to Equity Ratio (%) 24.8 27.8 37.6 33.7
Net Profit Margin (%) 9.8 1.1 2.0 2.4 Stockholders' Equity 2,341 2,304 2,392 2,505 Interest Coverage Ratio (x) 7.1 2.9 4.1 5.3
Source: Hanwha Techwin, Mirae Asset Daewoo Research estimates
26| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research Other notable stocks Seoul Semiconductor (046890 KQ)
Automotive and Vietnam to drive growth
Earnings to be stable in 4Q; patents, top-line growth, and potential industry restructuring are positives (Maintain) Buy • For 4Q17, we expect revenue of W286.9bn (+18.8% YoY) and operating profit of W25.3bn (+23.5% YoY) Increased exposure to automotive lighting and tight SG&A cost control should keep operating margin steady Target Price (12M, W) 34,300 • • LED market conditions are gradually improving, and the worst is over, in terms of competition; ongoing restructuring in the TV BLU industry has led to a slowdown in the decline in LED chip prices (and even some Share Price (11/6/17, W) 28,050 price hikes) • The company’s new Vietnam plant is due to be completed in March 2018, and should start to have a Expected Return 22% meaningful impact on revenue in 2H18; growth of the OLED market is a risk, but at the same time could accelerate LED industry restructuring
OP (17F, Wbn) 103
Consensus OP (17F, Wbn) 105 Maintain Buy and TP of W34,300 EPS Growth (17F, %) 69.8 • Our target price equals a P/B of 2.78x (versus 2.5x previously) our 12-month forward BPS Market EPS Growth (17F, %) 46.5 P/E (17F, x) 26.6
Market P/E (17F, x) 10.5
KOSDAQ 703.79
200 Market Cap (Wbn) 1,635 Seoul Semiconductor FY (Dec.) 12/14 12/15 12/16 12/17F 12/18F 12/19F
Shares Outstanding (mn) 58 KOSDAQ Revenue (Wbn) 939 1,011 954 1,115 1,264 1,445 180 Free Float (%) 64.2 OP (Wbn) 3 46 58 103 123 142
Foreign Ownership (%) 16.6 160 OP margin (%) 0.3 4.5 6.1 9.2 9.7 9.8 Beta (12M) 0.47 NP (Wbn) -7 17 36 61 82 95 140 52-Week Low 13,200 EPS (W) -118 291 621 1,054 1,407 1,635
52-Week High 28,200 120 ROE (%) -1.2 3.0 6.1 9.8 12.0 12.5
(%) 1M 6M 12M100 P/E (x) - 54.0 25.1 26.6 19.9 17.2 Absolute 11.8 41.7 102.5 P/B (x) 2.1 1.6 1.5 2.5 2.2 2.0 80 Relative 3.7 27.8 75.816.10 17.2 17.6 17.10 Div.Yield (%) 0.0 0.5 0.5 0.7 0.9 1.1 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Seoul Semiconductor, Mirae Asset Daewoo Research estimates
27| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research Seoul Semiconductor (046890 KQ)
Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Forecasts/Valuations (Summarized)
(Wbn) 12/16 12/17F 12/18F 12/19F (Wbn) 12/16 12/17F 12/18F 12/19F 12/16 12/17F 12/18F 12/19F
Revenue 954 1,115 1,264 1,445 Current Assets 504 571 692 811 P/E (x) 25.1 26.6 19.9 17.2
Cost of Sales 720 822 927 1,060 Cash and Cash Equivalents 32 12 59 112 P/CF (x) 5.1 8.4 6.9 6.4
Gross Profit 234 293 337 385 AR & Other Receivables 322 383 433 478 P/B (x) 1.5 2.5 2.2 2.0
SG&A Expenses 176 189 214 244 Inventories 108 129 146 161 EV/EBITDA (x) 6.4 8.6 7.7 6.9
Operating Profit (Adj) 58 103 123 142 Other Current Assets 42 47 54 60 EPS (W) 621 1,054 1,407 1,635
Operating Profit 58 103 123 142 Non-Current Assets 587 626 632 642 CFPS (W) 3,041 3,359 4,053 4,413
Non-Operating Profit -8 -9 -3 -3 Investments in Associates 2 3 3 3 BPS (W) 10,515 11,266 12,593 13,981
Net Financial Income -4 -3 -3 -2 Property, Plant and Equipment 480 503 492 482 DPS (W) 81 200 250 300
Net Gain from Inv in Associates -1 0 0 0 Intangible Assets 49 63 77 93 Payout ratio (%) 12.5 16.6 15.7 16.3
Pretax Profit 50 94 120 139 Total Assets 1,091 1,197 1,325 1,453 Dividend Yield (%) 0.5 0.7 0.9 1.1
Income Tax 12 25 29 33 Current Liabilities 396 453 494 531 Revenue Growth (%) -5.6 16.9 13.4 14.3
Profit from Continuing Operations 38 69 91 106 AP & Other Payables 201 239 270 299 EBITDA Growth (%) 6.2 25.7 9.8 8.9
Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 162 175 180 183 Operating Profit Growth (%) 26.1 77.6 19.4 15.4
Net Profit 38 69 91 106 Other Current Liabilities 33 39 44 49 EPS Growth (%) 113.4 69.7 33.5 16.2
Controlling Interests 36 61 82 95 Non-Current Liabilities 42 38 38 39 Accounts Receivable Turnover (x) 3.8 3.8 3.8 3.8
Non-Controlling Interests 1 8 9 11 Long-Term Financial Liabilities 41 36 36 36 Inventory Turnover (x) 8.9 9.4 9.2 9.4
Total Comprehensive Profit 35 65 91 106 Other Non-Current Liabilities 1 2 2 3 Accounts Payable Turnover (x) 4.3 4.5 4.4 4.5
Controlling Interests 35 60 84 97 Total Liabilities 439 491 532 569 ROA (%) 3.4 6.1 7.2 7.6
Non-Controlling Interests 0 5 8 9 Controlling Interests 603 647 724 805 ROE (%) 6.1 9.8 12.0 12.5
EBITDA 171 215 236 257 Capital Stock 29 29 29 29 ROIC (%) 5.8 9.6 11.0 12.1
FCF (Free Cash Flow) 49 9 90 111 Capital Surplus 346 343 343 343 Liability to Equity Ratio (%) 67.3 69.6 67.2 64.4
EBITDA Margin (%) 17.9 19.3 18.7 17.8 Retained Earnings 263 315 393 473 Current Ratio (%) 127.1 126.1 140.1 152.8
Operating Profit Margin (%) 6.1 9.2 9.7 9.8 Non-Controlling Interests 49 59 68 79 Net Debt to Equity Ratio (%) 21.8 23.5 14.9 7.4
Net Profit Margin (%) 3.8 5.5 6.5 6.6 Stockholders' Equity 652 706 792 884 Interest Coverage Ratio (x) 11.8 26.2 29.6 33.3
Source: Seoul Semiconductor, Mirae Asset Daewoo Research estimates
28| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research Coverage overview
Target price Current price Company Ticker Rating (12M, W) (11/6/17, W)
Amotech 052710 KQ Buy 56,700 40,200
Patron 091700 KQ Buy 10,700 8,620
LG Innotek 011070 KS Buy 232,000 171,000
LS 006260 KS Buy 100,000 78,300
Hanwha Techwin 012450 KS Buy 54,000 40,150
Humax 115160 KQ Buy 13,600 9,130
Seoul Semiconductor 046890 KQ Buy 34,300 28,050
Samsung Electricity 009150 KS Buy 131,000 100,000
Spigen Korea 192440 KQ Buy 63,200 50,400
LG Electronics 066570 KS Buy 113,000 93,200
Source: Mirae Asset Daewoo Research
29| 2018 Outlook [Telecom equipment/Electronic components] Mirae Asset Daewoo Research APPENDIX 1
Important Disclosures & Disclaimers 2-Year Rating and Target Price History
Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price LG Electronics(066570) 10/26/2017 Buy 113,000 01/01/2017 Buy 119,000 08/30/2017 Buy 100,000 11/29/2016 Buy 115,000 07/10/2017 Buy 95,000 10/03/2016 Buy 105,000 04/09/2017 Buy 96,000 07/27/2016 Buy 117,000 03/13/2017 Buy 87,700 06/01/2016 Buy 107,000 03/01/2017 Buy 79,000 04/27/2016 Buy 96,000 01/26/2017 Buy 65,600 04/01/2016 Buy 102,000 10/28/2016 Buy 64,000 01/25/2016 Buy 115,000 10/03/2016 Buy 67,000 07/26/2015 Buy 123,000 07/28/2016 Buy 75,000 Hanwha Techwin(012450) 11/05/2017 Buy 54,000 03/01/2016 Buy 78,000 10/10/2017 Buy 47,000 01/26/2016 Buy 67,000 07/18/2017 Buy 57,000 11/27/2015 Buy 70,000 05/01/2017 Buy 69,000 10/30/2015 Buy 65,000 04/23/2017 Buy 61,000 Samsung Electro-Mechanics(009150) 07/23/2017 Buy 131,000 01/31/2017 Buy 62,000 07/03/2017 Buy 123,000 11/02/2016 Buy 71,000 05/31/2017 Buy 100,000 10/03/2016 Buy 80,000 05/01/2017 Buy 93,000 07/31/2016 Buy 77,000 04/02/2017 Buy 85,000 06/08/2016 Buy 61,000 02/20/2017 Buy 76,000 05/01/2016 Buy 59,000 01/26/2017 Buy 68,000 10/28/2015 Buy 49,000 10/03/2016 Buy 65,300 Seoul Semiconductor(046890) 10/25/2017 Buy 34,300 08/31/2016 Buy 72,200 10/10/2017 Buy 31,000 04/26/2016 Buy 73,700 09/01/2017 Buy 28,000 01/31/2016 Buy 74,600 07/03/2017 Buy 26,900 10/30/2015 Buy 93,000 04/02/2017 Buy 23,400 LG Innotek(011070) 10/25/2017 Buy 232,000 02/02/2017 Buy 20,300 09/01/2017 Buy 230,000 10/03/2016 Buy 19,900 07/03/2017 Buy 199,000 07/31/2016 Buy 21,500 04/02/2017 Buy 171,000 02/01/2016 Buy 19,500 03/01/2017 Buy 156,000 10/27/2015 Buy 24,000 01/25/2017 Buy 130,000
30| 2018 Outlook [Sector] Mirae Asset Daewoo Research APPENDIX 1
(W) LG Electronics (W) Samsung Electro-Mechanics(W) LG Innotek (W) Hanwha Techwin (W) Seoul Semiconductor
120,000 150,000 250,000 100,000 40,000
100,000 200,000 80,000 30,000 80,000 100,000 150,000 60,000 60,000 20,000 100,000 40,000 40,000 50,000 10,000 20,000 50,000 20,000
0 0 0 0 0 Nov 15 Nov 16Nov Nov 15 17 Nov 16Nov Nov 15 17 Nov 16Nov Nov 15 17 Nov 16Nov Nov 15 17 Nov 16 Nov 17
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 Mirae Asset Daewoo Co., Ltd., 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 & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 74.52% 12.50% 12.98% 0.00% Investment Banking Services 70.73% 19.51% 9.76% 0.00% * Based on recommendations in the last 12-months (as of September 30, 2017)
Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding.
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 or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) 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. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined 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 Mirae Asset Daewoo except as otherwise stated herein.
31| 2018 Outlook [Sector] Mirae Asset Daewoo Research APPENDIX 1
Disclaimers This report was prepared by Mirae Asset 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 in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset 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. In case of 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. 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 or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset 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. Mirae Asset 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. 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 Mirae Asset Daewoo.
Distribution United Kingdom: This report is being distributed by Mirae Asset Securities (UK) 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. United States: Mirae Asset Daewoo is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is distributed in the U.S. by Mirae Asset Securities (USA) Inc., a member of FINRA/SIPC, to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934, as amended. All U.S. persons that receive this document by their acceptance hereof represent and warrant that they are a major U.S. institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Mirae Asset Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Mirae Asset Securities (USA) Inc. Mirae Asset Securities (USA) Inc. accepts responsibility for the contents of this report in the U.S., subject to the terms hereof, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Mirae Asset Daewoo. 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 Mirae Asset Securities (HK) 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 Mirae Asset 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 Mirae Asset Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.
32| 2018 Outlook [Sector] Mirae Asset Daewoo Research Mirae Asset Daewoo International Network
Mirae Asset Daewoo Co., Ltd. (Seoul) Mirae Asset Securities (HK) Ltd. Mirae Asset Securities (UK) Ltd. Global Equity Sales Team Suites 1109-1114, 11th Floor 41st Floor, Tower 42 Mirae Asset Center 1 Building Two International Finance Centre 25 Old Broad Street, 26 Eulji-ro 5-gil, Jung-gu, Seoul 04539 8 Finance Street, Central London EC2N 1HQ Korea Hong Kong United Kingdom China Tel: 82-2-3774-2124 Tel: 852-2845-6332 Tel: 44-20-7982-8000
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33| 2018 Outlook [Sector] Mirae Asset Daewoo Research