Upbeat Outlook on 2021
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
3Q20 earnings surprise with OP of KRW51.3bn
Hansol Chemical delivered an earnings surprise for 3Q20. Operating profit reached KRW51.3bn (+32.4% QoQ, +47.3% YoY) on sales of KRW164.7bn (+10.8% QoQ, +6.7% YoY), topping the consensus estimate of KRW45.8bn. Operating margin improved by 5.1%p QoQ to 31.2% vs. 26.1% in 2Q20.
Strong earnings were driven by: 1) hike in sales of TV-use quantum-dot (QD) sheets to Samsung Electronics; 2) increase in sales of industrial/functional tapes for use in secondary batteries and OLED panels; and 3) growth in sales of semiconductor-use hydrogen peroxide and precursors.
In 4Q20, we expect weak seasonality and regular maintenance costs to pull down earnings on a QoQ basis to sales of KRW160.2bn (-2.7% QoQ, +11.9% YoY) and operating profit of KRW35.2bn (-31.3% QoQ, +104.2% YoY).
2021 OP forecast at KRW184.3bn (+14.8% YoY)
We hold an upbeat outlook on 2021 for the following reasons. First, global demand for 5G smartphones is expected to jump 144.4% YoY to 670mn units in 2021. Market conditions are expected to improve for both memory and non-memory semiconductors in 2021 compared to2020. Second, Samsung Electronics will likely focus on expanding sales of QD-LCD TV models (including mini-LED TVs) in the competition against OLED TVs. Third, Samsung SDI is projected to see EV battery sales surge 41.1% YoY to KRW5.34tr next year.
Backed by strong demand in downstream industries, Hansol Chemical stands to see improvement in earnings from high value-added products including hydrogen peroxide, precursors, QD sheets, and cathode binders for secondary batteries. As a result, we expect sales to grow to KRW700.5bn (+12.9% YoY) and operating profit to KRW184.3bn (+14.8% YoY) in 2021.
Retain BUY and raise target price to KRW200,000
We raise our target price for Hansol Chemical by 11.1% from KRW180,000 to KRW200,000 on forecasts for: 1)visible growth of the cathode binder business and launch of new secondary battery materials in 2021; 2) earnings improvement from existing businesses; and 3) full-year operating profit of KRW184.3bn (+14.8%YoY) in 2021.
Following a sharp rally sparked by expectations for earnings improvement and new secondary battery material launches, Hansol Chemical shares corrected by 15%. With earnings continuing on a clear uptrend thanks to product portfolio diversification, we believe buying shares at current cheap valuations (2021F PER of 11.7x, ROE of 23.3%) will bring lucrative returns in 2021.