Demand from China Projected to Increase
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
1. Demand for smartphone-use OLED panels to increase 36.5% YoY in 2021
Korea and China launched 5G networks in 2019 and all 5G smartphone models released to date were equipped with OLED screens. Apple plans to adopt OLED displays on iPhone 12 smartphones, including Max, Pro, and Pro Max models, scheduled for release in 4Q20. This should boost Apple’s OLED panel demand for iPhone models by 67% YoY to 100mn units for full-year 2020. We expect total demand for smartphone-use OLED panels to jump 36.5% YoY to 700mn units in 2021.
2. Small/mid-size OLED panel materials market to grow 29% YoY in 2021
Demand for OLED materials from China is projected to increase upon the ramp-up of small/mid-size OLED panel lines at Chinese display makers such as BOE, Tianma Microelectronics and CSOT from 4Q20. With Apple expected to adopt OLED screens on its entire iPhone 12 lineup in 4Q20, the global market for small/mid-size OLED panel materials is forecast to grow 34.8% YoY to reach USD1.24bn in 2020. Small/mid-size OLED materials sales will likely climb 29% YoY to USD1.6bn in 2021 on the continued boost from Apple’s OLED adoption and ramp-up of OLED production lines in China.
3. Recommend OVERWEIGHT on the OLED materials sector
Demand for smartphone-use OLED panels is forecast to soar by more than 40% HoH in 2H20, thanks to low base effect caused by the COVID-19 pandemic as well as the release of Apple's iPhone 12 series and Samsung Galaxy Note 20. In response to stronger demand, Samsung Display will likely raise the capacity utilization rates of its small/mid-size OLED panel lines by more than 30%p, leading to sharp growth in demand for OLED materials. We thus recommend an OVERWEIGHT rating on the OLED materials sector.
4. Retain BUY rating on Duk San Neolux for a target price of KRW41,000
We keep our target price for Duk San Neolux unchanged at KRW41,000 in view of: 1) forecasts for operating profit of KRW32.6bn (+56.8% YoY) in 2020; 2) Samsung Display’s decision to stop LCD production to focus on OLED panels; and 3) rising demand for OLED materials from Chinese display manufacturers. Samsung Display’s full-fledged production of QD OLED TV panels in 2021 will likely lead to further growth in Duk San Neolux’s earnings going forward.
5. Initiate coverage of SFA Engineering with BUY for a target price of KRW47,000
We initiate coverage of SFA Engineering with BUY for a target price of KRW47,000, on forecasts for: 1) sales of KRW1.78tr (+12.9% YoY) and operating profit of KRW238.6bn (+11.4% YoY) in 2020; and 2) new order placement by Samsung Display in 2021. Our target price is based on 2020F EPS of KRW4,353 and a target PER of 10.9x (10% premium to the past four-year average PER of 9.9x).
6. Initiate coverage of Hansol Chemical with BUY for a target price of KRW141,000
We initiate coverage of Hansol Chemical with BUY for a target price KRW141,000, based on 2020F EPS of KRW10,088 and a target PER of 14x. Investment points are: 1) growing demand for high purity hydrogen peroxide and precursors alongside semiconductor process migration; 2) steep growth in demand for QD sheets from adoption on all of the key client's new LCD TVs; and 3) penetration into the market for the cathode binders for rechargeable batteries. Hansol Chemical shares are still trading at cheap valuations at a 2020F PER of 11x. Given the upbeat outlook on growth, we expect a re-rating of shares going forward.