Strong Performance from Quartz Ware Drive up Ggrowth
The authors are analysts of Shinhan Investment Corp. They can be reached at snowKH@shinhan.com and swoong92@shinhan.com, respectively. -- Ed.
1Q20 preview: Sales +79% YoY, OP +36% YoY
We now expect Wonik QnC to report sales of KRW127.1bn (+79% YoY) and operating profit of KRW9.8bn (+36%YoY) for 1Q20. Strong performance from quartz ware, which likely recorded sales of KRW57.1bn (+27% YoY), should drive up overall growth. Steady earnings improvement looks possible in light of: 1) rising capacity utilization at domestic clients; and 2) growing demand for quartz ware from overseas clients.
Operating margin is likely to be slightly worse than expected due to weak performance of consolidated subsidiary Momentive Performance Materials (included in consolidated statements from 1Q20). It appears to have been affected by one-off inventory adjustment at clients. We estimate an operating loss of KRW4bnon sales of KRW50bn for 1Q20. Consolidated operating margin should come in at 7.7% (-2.4%p YoY).
2020F quartz ware sales of KRW214.5bn (+19% YoY), expanding portfolio of cleaning products
The key growth factor in 2020 will be quartz ware. Demand is expected to grow backed by: 1) rising capacity utilization at major domestic clients; and 2) increased investments by overseas clients. The core competitiveness of Wonik QnC’s quartz ware lies in: 1) establishment of distribution channels at home and abroad; 2) addition of clients through small quantity batch production; and 3) steady sales growth as a consumable with a short replacement cycle of two to three months. We forecast quartz ware sales to reach KRW214.5bn (+19%YoY) for the full year.
The cleaning business also deserves attention. Wonik QnC is expanding its portfolio of cleaning products after acquiring Nanowin, a semiconductor and display surface cleaning product maker, in 2018. It is also working on developing coating technology. Sales of cleaning products are projected at KRW62.1bn (-4% YoY, one-off sales booked in 2019) for 2020.
2020 forecast: Sales +89% YoY, OP+ 107% YoY
For 2020, we forecast sales of KRW497.3bn (+89% YoY) and operating profit of KRW56.6bn (+107% YoY). Operating margin should improve1%p YoY to 11.4%. Wonik QnC shares are currently trading at 2020F PER of 9.4x. With earnings growth likely to take off in 2020, we expect to see a re-rating of shares going forward.