LX Semicon
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com -- Ed.
With customers in the final stages of inventory adjustments, display industry conditions are recovering. We favorably view LX Semicon’s increasing portion of the iPhone supply chain and securing of new clients. Moving ahead, entry into the SiC business is to provide a long-term momentum factor.
Display customers’ inventory adjustments have been completed
Maintaining a Buy rating, we raise our TP on LX Semicon from W110,000 to W130,000. Our TP increase is mainly attributable to a cut to our assumed beta from 2.0 to 1.4 to reflect the recent decrease in LX Semicon’s share price volatility compared to the market.
We forecast 2Q23 sales of W491.5bn (-6% q-q) and OP of W39.3bn (+1% q-q), expecting small-sized DDI sales to decline due to off-peak seasonality for major smartphone makers. However, orders from clients for large-sized DDIs are expected to increase on the back of a recent improvement in industry conditions and orders in preparation for the 2H23 peak season.
Recently, supply and demand for large panels has been positively affected by a peaking-out in inventories thanks to active inventory destocking by customers from 2Q22 and the shutdown of fabs by some panel makers. Large-size panel prices have recently rebounded from the low witnessed in Dec 2022.
Expect entry into new products and SiC business
In 2H23, LX Semicon’s share price is set to be driven by a rise in the share of DDIs for iPhones and the possibility of DDI supply for the OLED iPad scheduled for 2024. If the OLED iPad is developed and released, market demand should prove healthy, resulting in a significant contribution to the company's earnings.
A large-scale jump in shipments is also anticipated on supply to new large domestic customers. Entry into silicon carbide (SiC)-related business, which is expected in 2025, should serve as a long-term momentum factor.