A Producer of Automated Inspection Equipment
The authors are analysts of Shinhan Investment Corp. They can be reached at hyungwou@shinhan.com and ym.ko@shinhan.com, respectively. -- Ed.
2020 outlook: Earnings hit by COVID-19 crisis, but rebound expected in 2H20
We now expect Koh Young Technology to report sales of KRW205.3bn (-8%YoY) and operating profit of KRW24.1bn (-28% YoY) for 2020, believing the market consensus for sales of KRW232.8bn and operating profit of KRW34.4bn do not reflect the negative impact of the COVID-19 pandemic in full. By quarter, 2Q should mark the bottom for 2020 with a rebound expected in 3Q and full-fledged recovery likely from 4Q. Meanwhile, we find it encouraging that the company was able to commercially launch a medical robotic system for neurosurgery despite difficulties presented by the pandemic.
2021outlook: Sharp upturn driven by AOI, MOI and medical robotic systems
For 2021, sales are forecast at KRW294.5bn (+43% YoY) and operating profit at KRW62.2bn (+158% YoY), marking a sharp turnaround from the downtrend that continued over the past two years. Sales of automated optical inspection (AOI) equipment will likely jump to KRW128.5bn in 2021 vs. KRW115.5bn in 2018 and KRW95.7bn in 2020F. Koh Young Technology's market share in AOI is expected to reach 33% in 2021 vs. 30% in 2018. We expect further growth to be driven by increasing sales of multi-purpose optical inspection (MOI) equipment to automotive electronics and mobile device makers. Medical robotic systems should also emerge as a new growth driver with sales to jump from KRW6bn in 2020 to KRW20bn in 2021.
Retain BUY and raise target price by 4% to KRW125,000
We raise our target price for Koh Young Technology to KRW125,000, based on the 2021 EPS forecast of KRW3,876 and a target PER of 32.2x (past five-year average). Investment points are as follows. First, client capex investments, postponed due to US-China trade disputes in 2019 and the COVID-19 pandemic in 2020, should resume from 2021. As a result, Koh Young Technology is expected to see a boost in order intake from pent-up demand over the past two years. Second, the company stands to benefit from growing adoption of smart factories, with inspection rising in importance as an essential process in factory automation. Third, stronger momentum is expected from MOI equipment and medical robotic systems, with growth visibility improving for new businesses even as overall earnings stagnated due to external factors in 2019-2020.
Backed by the expansion of downstream markets and new growth drivers, we believe Koh Young Technology will record the strongest comeback among IT companies on the recovery from the COVID-19 crisis.