IT parts/electronics
The author is an analyst for Shinhan Securities. He can be reached at jeminwa@shinhan.com -- Ed.
Business expansion based on solid mainstay operations
HyVision System manufactures inspection equipment for smartphone camera modules, and has supplied products to a North American client for more than ten years. Smartphone makers tend to diversify their camera module vendors to save costs and disperse risks, but find it difficult to change their inspection equipment partners due to quality and production yield issues. HyVision System, based on its core technology, has expanded operations from back-end (inspection equipment) to front-end (assembly equipment) camera module processes, and from 2D to 3D camera sensor inspection. It has also entered into the inspection equipment market for secondary battery packaging and cells.
Folded zoom camera inspection equipment to drive sales growth
The adoption of folded zoom camera modules by smartphone makers will likely drive top-line growth. For 2023, we forecast sales at KRW328.8bn, of which KRW90.2bn are projected to come from inspection equipment for back-facing camera modules. Orders for the more expensive folded zoom camera module inspection machines should enable the company to generate greater sales than in the past. Inspection equipment sales are likely to keep growing amid the competition for camera specification upgrades. The delisting of a competitor and production base diversification at a client may result in further gains in sales.
The North American client has unveiled a mixed reality (MX) headset featuring 15 camera modules (including sensor cameras) vs. previous 4-5 modules. We expect to see a rise in the number of camera modules per device for augmented reality (AR) and virtual reality (VR). Inspection equipment sales for camera modules and 3D sensors should increase along with the growth of AR/VR device sales and change in headset form factor. We conservatively estimate sensor inspection equipment sales at KRW10bn per 10mn devices. Secondary battery inspection equipment should start to generate sales in earnest. HyVision System expects significant sales from the KRW9.5bn order received in 1H23 to make battery packaging inspection equipment. Sales are forecast to grow on market share gains at existing clients and addition of new ones. The company has also started to ship inspection machines used in the battery cell manufacturing process.
Initiate coverage with BUY for a target price of KRW30,000
We initiate our coverage of HyVision System for a target price of KRW30,000, based on 2023F EPS of KRW3,245 and a target PER of 9.2x (historical PER average of 2017-2018 when high-priced inspection equipment was added for multi-camera modules). Folded zoom camera modules should create demand for inspection equipment, as multi-camera modules did in 2017-2018, driving visible improvement in sales for the next two years at least. We find shares undervalued at current PER of 6.5x considering high sales visibility in the short term and potential for business expansion for long-term growth.