SEC and LGE Expected to Adopt Mini-LEDs in LCD TVs
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
Earnings surprise expected for 3Q20 with OP to reach KRW22bn
We expect Seoul Semiconductor to deliver an earnings surprise for 3Q20 with operating profit to reach KRW22bn (+61.1% QoQ, +83.4% YoY) on sales of KRW324bn (+20.9% QoQ, +14.3% YoY), exceeding the KRW19.5bn market consensus.
Key drivers should include: 1) 40% QoQ increase in LCD TV sales volume to 12.06mn units at Samsung Electronics; 2) 60% QoQ growth in LCD TV sales volume to 6.63mn units at LG Electronics; and 3) steadier price trends for display-use LED packaging. Seoul Semiconductor stands to see a boost in LED sales with LG Electronics aggressively pressing forward to regain ground in sales of LCD TVs after lagging behind TCL Technology's 5.76mn units at 4.15mn in 2Q20.
Mini-LED momentum to drive up OP to KRW84.1bn (+34.3% YoY) in 2021
Despite the China-triggered oversupply of lighting-use LED this year, the outlook for Seoul Semiconductor remains upbeat on rapid growth in demand for high value-added LED packaging for use in displays. We also note improvement in profitability with production at the Vietnam line recovering to normal levels. For full-year 2020, sales are forecast at KRW1.15tr (+1.9%YoY) and operating profit at KRW62.6bn (+26.4%YoY).
In 2021, Samsung Electronics and LG Electronics are expected to adopt mini-LEDs in large-size 8K LCD TVs. With mini-LED sales to rise in earnest as a result, Seoul Semiconductor should see operating profit grow to KRW84.1bn (+34.3%YoY) on sales of KRW1.27tr (+10.3%YoY) in 2021.
Retain BUY and target price of KRW23,000
We maintain our target price for Seoul Semiconductor at KRW23,000 (2021F target PER of 22.5x) on forecasts for: 1) 3Q20 earnings surprise at operating profit of KRW22bn; 2) full-year operating profit of KRW62.6bn (+26.4% YoY) in 2020; and 3) momentum from mini-LED in 2021. Shares are likely to rebound with demand for large-size LCD TVs on a steep growth path amid the COVID-19 pandemic. Seoul Semiconductor's market cap currently stands at just 55% vs. Epistar, yet we see no reason for the company to trade at a discount to the Taiwanese peer.