OLED Momentum to Strengthen in 2021
The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.
Set to benefit from China’s 10.5G LCD capacity expansion in 2021
Silicon Works stands to see strong momentum in sales of LCD TV-use non-memory semiconductors to Chinese display makers in 2021, with China Star Optoelectronics Technology set to ramp up its second 10.5G LCD line in 2Q21and BOE Technology Group forecast to expand its 10.5G LCD supply capacity.
OLED momentum to strengthen in 2021
OLED TV panel output of key client LG Display is likely to jump by 71.7% YoY to 7.87mn units in 2021 as the company's new OLED line in Guangzhou, China goes into full operation. With small/mid-size OLED lines set to run at full capacity, the display maker’s POLED panel output should also increase by71.5% YoY to 44.71mn units. Backed by strong demand from the key client, we expect Silicon Works to record 47.3% YoY growth in OLED-use non-memory semiconductor sales to KRW579bn in 2021.
2021 OP forecast at KRW147.9bn (+38.6% YoY)
Despite weak seasonality, sales of POLED-use non-memory semiconductors to strategic clients are likely to remain solid in 4Q20. Silicon Works is thus expected to deliver an earnings surprise for the quarter, with operating profit to exceed the market consensus of KRW34.4bn at KRW37.1bn (-23.6% QoQ, +47.3% YoY) on sales of KRW360.1bn (-1.9% QoQ,+47.8% YoY).
Earnings momentum should remain strong through 2021, driving up full-year sales to KRW1.39tr (+19.9% YoY) and operating profit to KRW147.9bn (+38.6% YoY).
Retain BUY and raise target price by 4.3% to KRW73,000
We raise our target price for Silicon Works by 4.3% to KRW73,000 on forecasts for: 1) earnings surprise in 4Q20; 2) full-year operating profit of KRW147.9bn (+38.6% YoY)in 2021, backed by 47.3% YoY growth in OLED-use non-memory semiconductor sales to KRW579bn; and 3) momentum from brisk sales of LCD TV-use non-memory semiconductors to Chinese clients.
Despite recent strength in earnings, Silicon Works shares have been trading in a boxed range on concerns that sales could turn sluggish during the weak season of 1H21and COGS could rise from shortages in 8-inch foundry supply. However, we expect to see limited growth in cost burden as the company outsources production to a wide variety of foundries. At a 2021F PER of 6.9x, we believe current share valuations offer a good entry point.