The authors are analysts of Shinhan Investment Corp. They can be reached at snowKH@shinhan.com and email@example.com, respectively. -- Ed.
1Q20 preview: Sales of KRW52bn (+87% YoY), OP of KRW8.2bn (TB YoY)
We now expect Techwing to have posted operating profit of KRW8.2bn (positive swing YoY) on sales of KRW52bn (+87% YoY) for 1Q20, down from our previous estimate of KRW9.1bn. Strong earnings should be attributable to growth of: 1) module/SSD handler sales; and 2) product sales at the subsidiary ENC Technology. Operating profit margin is forecast to have turned positive YoY to15.8%.
The company will likely maintain its steady pace of growth in 2Q. We focus on sales of test handlers from 2Qwith expanding shipments to overseas clients. Demand should grow on memory and non-memory capex additions at clients. Sales of test handlers are expected to increase from KRW26.6bn (99% YoY) in 1Q to KRW31.2bn (+12% YoY, 17% QoQ) in 2Q. Earnings growth should be propelled by: 1) brisk sales of test handlers; and 2) increase in sales of high-margin consumables.
Key driver: Memory/non-memory handler sales growth on capex increase at clients
Sales should continue on an uptrend this year, driven by: 1) rising demand for memory and non-memory test handlers on increased capex spend; and 2) low YoY base created by strong sales of module/SSD handlers to overseas clients. For 2020, sales of memory test handlers are expected to reach KRW85.1bn (+10% YoY) and module/SSD handlers KRW23.5bn (+452% YoY, vs. KRW4.3bn in 2019). Overall sales of test handlers (memory + non-memory + module/SSD) are forecast to grow 39% YoY to KRW135bn.
Retain BUY for a revised-down target price of KRW16,000
We lower our target price for Techwing to KRW16,000, based on 2020F EPS of KRW1,475 and a target PER of 11x (25% discount to global peer average PER). Growth momentum remains intact despite the COVID-19 outbreak. We retain our BUY rating on expectations for sales growth of test handlers and consumables.