Dip-buying Strategy Recommended

The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.

 

Segyung Hitech’s share price has adjusted as of late on concerns towards both weak earnings and IT demand slowdown resulting from the outbreak of Covid-19. However, considering the growth potential of the foldable smartphone market, Segyung Hitech’s exclusive technological competitiveness, and the prospects for full-fledged earnings expansion from 2H20, we recommend a dip-buying strategy.

Recommend dip-buying, considering technological competitiveness and growth potential of foldable smartphone market

In reflection of Segyung Hitech’s recent 1:1 bonus issuance, we adjust our TP from W90,000 to W45,000, while sticking to a Buy rating. Of note, our TP remains intact despite a reduction in earnings estimates (2020E EPS -27.2%), as we have hiked our target P/E ratio from 10x to 13.6x to reflect expectations towards an increasing portion of foldable smartphone-related sales (original estimate 10.2% vs new 26.3%), which appear to hold strong growth potential.

Despite concerns over slowing IT demand stemming from the outbreak of Covid-19, we advise employing a dip-buying strategy regarding Segyung Hitech’s share price adjustments. Given both its robust technological competitiveness as an exclusive supplier of CPI and UTG protective films and strong expectations for foldable smartphone market expansion, we believe that Segyung Hitech possesses ample mid/long-term growth potential.

Lackluster 2H19 earnings represent establishment of springboard for 2020 leap forward

Segyung Hitech posted a 4Q19 operating loss of W6.1bn (TTL y-y, TTL q-q; OPM of -9.9%), significantly missing our estimate. We attribute the lackluster result to both weaker-than-expected sales (due to year-end inventory adjustment for deco films at Chinese and Korean clients) and greater-than-projected cost increase related to new product development and plant expansion.

In light of both ASP reductions for deco films sold to major clients and a rise in fixed costs driven by Vietnam plant expansion, we lower our 2020 OP estimate by 26.9%. Weighed upon by such factors, the firm’s 1Q20 earnings will likely miss expectations. However, from 3Q20, we expect to witness full-scale earnings acceleration backed by: 1) full-fledged foldable smartphone shipment growth; and 2) ‘glasstic’ case supply expansion.

Considering both the growth potential of the foldable smartphone market and Segyung Hitech’s global technological competitiveness, we view the firm’s current share price as being attractive.

 

 

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