PI AMC
The author is an analyst for NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com -- Ed.
Boosting our earnings estimates for 2024 and beyond to reflect improved earnings visibility amid a gradual sector recovery, we raise our TP for PI AMC. We also note attractive strategic synergies with global high-tech material player Arkema.
Profit visibility to improve amid gradual industry recovery
Despite currently sluggish demand, we upwardly adjust our earnings forecasts for 2024 and beyond, in turn raising our TP for PI AMC from W39,000 to W47,000. Our new TP takes into consideration the completion of inventory adjustments, heathier margins following drops in raw material prices, and likely diversification of both products and customers via its merger into a global high-tech materials company.
With global smartphone demand remaining tepid (excluding Apple), we have cut our 2023 OP estimate by 16.3%, believing that the pace of sector recovery will be slow in 2H23. But, with PI AMC’s profitability likely strengthening in line with raw material price drops (since 2Q23), we expect the firm’s margins to normalize after 2H23 alongside improved industry conditions. Given such, we push up our 2024 OP forecast by 28.8%.
Although still applying our existing target P/E of 30x, we have changed the valuation base year for calculating our TP to 2024, the year when industry conditions should normalize. It is estimated that the price that Arkema, a French comprehensive chemical and advanced materials player, paid for the acquisition of PI AMC was around W44,000/share, excluding the usual management premium (30%).
Anticipate synergies with global materials firm Arkema
With Arkema being a global company that runs various high-tech materials businesses in Europe and the US, we expect significant business synergies between the two firms going forward. In particular, we anticipate client base diversification for PI AMC’s EV varnish for use in EV motors, pointing out that Arkema is already supplying a variety of materials for EVs to global EV players.
In addition, with Arkema also boasting acumen in display material technologies such as QD film, OLED protective film, OCA, and OCR, PI AMC’s advanced PI materials business stands well situated to benefit. Given both these likely synergies and an expected gradual improvement in industry conditions, we view PI AMC’s shares as being appealing at their current price point.