PI AMC
The author is an analyst for NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com -- Ed.
Earnings at PI AMC are expected to be sluggish in 1H23 due to the slow recovery of smartphone demand. Reflecting this, we lower our earnings estimates and TP. However, we maintain a Buy rating, believing that earnings are likely to recover in 2H23 alongside the strengthening of new momentum sources (eg, XR).
1H23 earnings to be weaker than expected; recovery anticipated in 2H23
As global smartphone demand recovery has been slower than expected, PI AMC’s 1H23 earnings are likely to be weaker than predicted. Reflecting this, we trim our earnings forecasts and in turn lower our TP from W43,000 to W39,000. However, considering the outlook for an earnings recovery in 2H23 and an expansion in new applications such as EVs and XR, we maintain a Buy rating.
Chinese smartphone demand and iPhone 14 series sales are proving weaker than expected. In addition, a large-scale loss was recorded in 1Q23 due to full-fledged inventory adjustments. A profit turnaround is forecast for 2Q23 driven by inventory stockpiling at set makers to prepare for peak seasonality, and a full-fledged earnings rebound is likely to be seen in 2H23.
We chop our 2023 OP projection by 35.1% in light of sluggish demand and inventory adjustments in 1H23. However, we raise our target P/E from 23x to 30x, foreseeing an earnings recovery from 2H23, increased sales of insulation materials for EVs, and new supply of FPCB materials for XR devices to a North American client. Of note, the P/E of 30x is the average valuation level of 2019, when earnings entered a recovery cycle.
Expect recovery in earnings visibility and increased momentum from new businesses such as XR
In terms of a share price recovery, the most important points are a rebound in earnings visibility and an expansion of momentum from new applications such as XR and EV materials. We expect that earnings visibility will prove strong in 2H23, as sales of the iPhone 15 series (to be released in 2H23) should pick up solidly, and the Chinese market should also recover.
Positive momentum related to XR devices could also accelerate after a new device unveiling set for June.