The author is an analyst of NH Investment & Securities. He can be reached at firstname.lastname@example.org. -- Ed.
Hansol Chemical’s existing semicon materials should continue to display solid earnings, while contributions from new materials are set to expand on rising shipments. Further growth momentum is anticipated on the launch of new QD materials in 2H20. We also expect the recent drop in oil prices to lead to cost reductions.
OP to increase in 1Q20
Despite the Covid-19 outbreak, we expect Hansol Chemical’s 1Q20 results to jump significantly. In the case of H2O2 for semiconductors, sales volume continues to rise in 1H20, following on the trend seen in 2H19. While semicon consumption is predicted to fall, wafer-based input (production) is likely to remain intact, and semicon materials earnings, including for H2O2, should climb on the back of downstream inventory stockpiling in preparation for supply disruptions.
In 2020, we believe that new materials will make greater OP contributions. Rechargeable battery binders and functional UV resins are expected to lead to sound OPMs as they are increasingly substituting high-priced imports at clients. In the case of rechargeable battery binders, Hansol is adding new clients in China, in addition to its domestic clients. Sales and OP from rechargeable battery binders are set to expand as the industry grows. OCA film (produced by subsidiary Tapex) and a new precursor (3DMAS) are also reporting higher market shares and greater earnings contributions. We estimate that the two products will account for close to 20% of firm’s total OP in 2020.
To benefit from greater earnings contributions from new materials and oil price drop
In the case of quantum dot (QD) materials, shipments of QLED TVs are on the up, and clients are testing Hansol’s QD materials for use in color filters (CFs). We note that CF QD materials usage per TV is about five times higher than that for existing QLED materials. If TV platforms change, Hansol’s materials for use in CFs are likely to generate large-scale earnings. The company plans to expand its production line for QD materials, a move that should boost its earnings momentum from yearend or 2021, once new materials (for use in CFs) start mass production.
We forecast 2020 OP of W122.7bn (+8.8% y-y). In detail, OP for existing semicon materials should remain steady y-y, while contributions from new materials are set to expand. With oil prices falling, the cost of hydrogen, a raw material, is predicted to drop. We note that a US$10/bbl decline in oil prices should boost Hansol’s annual OP by W3~4bn.