Semiconductor/equipment
The author is an analyst for Shinhan Securities. He can be reached at snowKH@shinhan.com -- Ed.
The IT sector is expected to turn around at a faster pace than the manufacturing sector, driven by the accelerating shift to DDR5. Demand for server-use DDR5 chips is seen to have picked up in 2Q23, amid supply shortage concerns and capex spend in servers for AI applications. We estimate brisk sales of higher-priced DDR5 memory will limit the decline in chipmakers’ ASP to 10-12% QoQ in 2Q23, adding to the market’s confidence for DDR5 effect and resulting in upward revision of the earnings consensus for 2024. IT parts/electronics: Focus on stocks with earnings and valuation upside IT parts/electronics stocks, which were hit hard by sluggish demand for smartphones (-12% YoY) and PCs (-23% YoY) in 2022, have secured new growth drivers from: 1) improvement in profitability with cost-cutting efforts: 2) launch of new flagship smartphones at clients; and 3) mixed reality devices. We hold an upbeat outlook on companies that are: 1) capable of delivering earnings growth in 2H; and 2) poised for a re-rating of shares on technological competitiveness. Now is the time to focus on stocks with upside for both growth (EPS) and earnings (PER).
Display/IT materials: Three investment points
We note three investment points for display/IT materials stocks. First, mobile devices are headed for a strong demand season in 2H. Display panel shipments to a North American smartphone maker is forecast to reach 120mn units. The Samsung Display value chain should benefit from growing demand for the client’s Pro models. Second, the adoption of OLED panels on tech products is in full swing. We pay attention to companies that stand to benefit from the introduction of OLED panels with a two-stack tandem structure and hybrid OLED panels. Third, long-term growth potential is secured with micro OLED display. Display accounts for the lion’s share of the production cost of Apple’s Vision Pro headset. Display makers should continue to make investments to improve production yield and technology.
IT small caps (OSAT): Earnings differentiation in 2H
We expect to see a significant increase in capacity utilization rates at companies providing OSAT (outsourced semiconductor assembly and test) services in 2H23, with the launch of new mobile devices in July 2023 and February 2024. However, the pace of earnings growth will likely hinge on: 1) high portion of work in process at manufacturers; 2) shift to DDR5; and 3) portfolio diversification.