Korea’s Leading IT Materials Supplier
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
Hansol Chemical is enjoying visible growth with the use of hydrogen peroxide expanding from the paper industry to semiconductor and display sectors. Hydrogen peroxide is used in the etching process by display makers and in photoresist stripping and wafer cleaning by semiconductor companies. Hansol Chemical also supplies precursors, which are used in the scaling down of semiconductor devices and thin-film deposition for 3D structures.
In addition, the company produces quantum-dot (QD) sheets, used by its key domestic client in LCD TVs for improvement of color reproducibility. Growth should continue with the same technology expected to be adopted on OLED TVs. Hansol Chemical also stands to see an additional boost to growth from the supply of cathode binders to domestic secondary battery makers.
2020 operating profit forecast at KRW143.2bn (+28.5% YoY)
Hansol Chemical is expected to post operating profit of KRW36.2bn (+2.9% QoQ, +16.4% YoY) on sales of KRW150.2bn (+2.4% QoQ, +2.3% YoY) for 2Q20, beating the consensus estimate of KRW31.6bn. Despite the decline in sales of regular-grade hydrogen peroxide to display makers amid sluggish demand for LCD TVs in 2Q20, overall earnings should come in at decent levels on: 1) growth in sales of high purity hydrogen peroxide to chipmakers; and 2) increase in sales of precursors.
In 3Q20, we expect to see steep earnings improvement with sales to jump 14.7% QoQ to KRW172.3bn and operating profit to grow 10.4% QoQ. Key drivers should include: 1) over-30%p QoQ improvement in capacity utilization rates of small/mid-size OLED panel lines; 2) over-30% QoQ growth in QD LCD TV sales through 2020; 3) ramp-up of a new DRAM line at Samsung Electronics; and 4) increased production at SK Hynix’s NAND line. For the full year, we expect record-high earnings at sales of KRW638.4bn (+8.7% YoY) and operating profit of KRW143.2bn (+28.5% YoY).
Initiate coverage with BUY for a target price of KRW141,000
We initiate coverage 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 cathode binders used in 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.