Competitive in Hard Mask Deposition Equipment for 3D NAND

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

 

We maintain a Buy rating on TES, but lower our TP to W27,000. While the firm’s 1Q20 results exceeded consensus, we note that memory players are conservatively adjusting their investment plans for 2H20, considering the impact of Covid-19.

1Q20 earnings exceed consensus

We maintain a Buy rating on TES, but lower our TP from W38,000 to W27,000 as we downgrade our earnings estimates. Our TP is based on a 2020E~2022F ROE of 16.7% and COE of 7.5% (risk free rate of 1.5%, beta of 1.0, and risk premium of 6.0%). Compared to its global competitors, TES is undervalued, trading at a 2020E P/E of 10.8x.

The firm announced 1Q20 sales of W58.9bn (+38% q-q), OP of W11bn (+165% q-q), and NP of W4.2bn (+83% q-q), with OP exceeding consensus and our estimates. The majority of sales stemmed from semicon equipment, and NAND-related sales exceeded DRAM-related sales.

Risk of falling memory investment in 2H20

There is a possibility that semicon demand growth will fall in 2H20 due to the global economic slowdown caused by Covid-19. In particular, there are concerns that data center demand (which has been solid in 1H20) will decrease. In light of this uncertainty, domestic memory makers are now conservatively planning their investment for 2H20. Our lowered earnings estimates take this factor into account.

In the 3D NAND market, as memory makers push above the 90-layer level, advanced hole etching and stacking technologies are becoming ever more important. This is positive for TES, as it boasts high technological competitiveness in hard mask deposition equipment for 3D NAND. The expanding non-memory (foundry) trend is also positive for the company, given its non-memory manufacturing gas phase etching (GPE) equipment.

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