Trickle-down Benefits from Non-memory Chips
The authors are analysts of Shinhan Investment Corp. They can be reached at chank@shinhan.com and johnsoh@shinhan.com, respectively. -- Ed.
Non-memory test service provider
Tesna provides wafer probe test, package test, and backend services. Tests are mainly for SoC (system on chip), CIS (CMOS image sensor), smart card, and MCU (microcontroller unit). As of 2020, SoC accounted for 49% of total sales, CIS 29%, smart card 14%, and MCU 8%.
Trickle-down benefits from non-memory chips
Tesna is poised to benefit from Samsung Electronics’ aggressive capacity expansion for non-memory semiconductors. For 2021, we project sales of KRW223.7bn (+71.5% YoY) and operating profit of KRW53.6bn (+95.5% YoY).
The company spent KRW150bn to added capacity for CIS in 2020. Trickle-down benefits are expected from intensifying competition between Samsung and Sony. Sales from CIS test service should reach KRW78.7bn (+104.9% YoY) this year.
Tesna’s test service largely caters to high value-added products. The growing market for high-performance smartphones is positive. Sales from SoC/CIS test service should expand along with the penetration of 5G smartphones and higher specifications sought by Chinese smartphone makers (OPPO, Vivo, Xiaomi).
Shortage of non-memory testing capacity may raise hopes for additional price hikes. Some Taiwanese OSAT service providers are pushing to increase prices. Tesna stands to benefit from the continued shortage situation at foundries.
Initiate coverage with BUY and target price of KRW74,000
We initiate our coverage of Tesna with BUY for a target price of KRW74,000, based on 2021F EPS of KRW2,501 and a target PER of 29.5x (10% premium to 2021F PER average of domestic and overseas peers). We believe our target price is undemanding given: 1) lucrative backend test service; 2) high-end products accounting for 80% of sales; and 3) 2021F ROE of 21.4% higher than peers.