PI AMC
The author is an analyst for NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com -- Ed.
The pace of PI AMC’s margin improvement is likely to prove slower than expected on sluggish downstream demand and low utilization. Given such, we trim down our earnings estimates and TP. But, anticipating both a gradual improvement in sector conditions and a climb in sales of rechargeable battery materials, we adhere to a Buy rating.
Lower TP on lackluster downstream demand and heftier fixed costs
We expect PI AMC’s 2H23 earnings to be drained by both an ongoing slowdown in global smartphone demand and reduced utilization. Reflecting such, we downwardly adjust our earnings estimates and lower our TP from W47,000 to W42,000. But, anticipating a gradual recovery in industry conditions, we maintain a Buy rating, noting both product diversification (insulation film for rechargeable batteries; PI varnish) and synergies with Arkema.
Global smartphone sales remain tepid, and sales slowdowns at domestic clients look to have deepened. Considering reduced utilization and higher fixed costs, the pace of margin improvement is likely to prove slower than expected. Cutting our 2023 OP estimate from W31.3bn to W2.1bn, we also trim down our 2024 OP projection.
Nevertheless, our key investment points remain intact. Despite currently slow earnings, we expect industry conditions to improve over the mid/long-term, with shipments of rechargeable battery materials set to expand alongside benefits from the US’s IRA measures. Moreover, the slated completion within 2023 of the acquisition of Arkema should usher in positive business synergies.
OPM sapped by low utilization rate
PI AMC announced 2Q23 OP of W2.5bn (-80.9% y-y; OPM of 4.1%), slightly missing our estimate. Although the company succeeded in turning to the black q-q, it continued to face unfavorable global smartphone market conditions. With its utilization rate remaining low (44.4%), OPM inevitably suffered.
That said, earnings should pick up moderately in 3Q23, backed by a likely return in utilization rate to the 70% level amid high seasonality, although considering still slow downstream industry demand, earnings are unlikely to satisfy previous expectations. A full-fledged is earnings recovery should be underway from 1H24.