Low/mid-end Foldable Smartphones to Be Launched

The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed. 

 

We expect foldable smartphone shipments to exceed market forecasts in 2021, given the likely discontinuation of the Galaxy Note series and expected launch of low/mid-end foldable smartphones. Unit price hikes for brackets are also positive for KH Vatec. We see mid/long-term growth potential for the firm driven by foldable device lineup expansion and customer diversification.

Raise TP in reflection of upwardly revised foldable smartphone shipment forecasts

Adhering to a Buy rating, we raise our TP on KH Vatec from W24,000 to W26,000. The hike in our TP is mainly attributable to upwardly revised earnings forecasts in reflection of expected shipment expansion for foldable smartphones and unit price increase for brackets.

After a sluggish 2020, foldable smartphone shipments should exceed the market projection this year. Accordingly, we push up our 2021 estimate for hinge component shipments by 8.8% from the previous 8mn units to 8.7mn units.

Compared to the market forecast of foldable smartphone shipments of 4~5mn, our 2021 shipment projection is significantly higher, as we expect: 1) the likely discontinuation of the Galaxy Note series to result in a narrowing of consumer options; and 2) the upcoming launch of low/mid-end foldable smartphones to boost demand.

To enjoy full-scale earnings expansion from 2Q21

We expect KH Vatec’s 4Q20 earnings to arrive short of both our previous estimates and consensus due to lower-than-predicted foldable smartphone shipments. In 1Q21, similar trends will likely continue. However, from 2Q21, the supply of new foldable smartphone components is anticipated to kick off in earnest alongside the reflection of unit price hikes for brackets—factors which should be quickly followed by full-scale earnings expansion.

We now estimate KH Vatec’s 2021 OP at W33.4bn (+749.9% y-y; OPM of 10%), raising our forecast by 9.4% (vs our previous prediction) to reflect anticipated foldable smartphone shipment expansion and bracket ASP hikes.

Over the mid/long term, KH Vatec should enjoy ongoing earnings growth driven not only by rising foldable smartphone shipments at a major client, but also by greater application of foldable technologies in the IT industry and strengthening  customer diversification.

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