Earnings Growth Outlook Bright for 2021
The authors are analysts of Shinhan Investment Corp. They can be reached at snowKH@shinhan.com and swoong92@shinhan.com, respectively. -- Ed.
1Q21 OP reported at KRW20bn (+162% YoY)
Wonik QnC posted operating profit of KRW20bn (+162% YoY) on sales of KRW142.6bn (+13% YoY) for 1Q21, exceeding our estimate of KRW14.7bn. The earnings surprise was driven by: 1) increase in quartz ware sales amid growing capex spend at chipmakers; and 2) rebound in earnings from consolidated subsidiary Momentive Performance Materials. By business, quartz ware turned in sales of KRW65.7bn (+12% YoY), ceramic ware KRW6.5bn (+31% YoY), and subsidiary Momentive KRW54.5bn (+17% YoY).
As for quartz ware, sales growth was mainly attributable to strong shipments to overseas semiconductor equipment makers. Company-wide operating margin rose 8%p YoY to 14% in 1Q21, backed by across-the-board earnings improvement and smaller losses at subsidiary Momentive. We expect Wonik QnC to report strong earnings growth for 2Q21 as well with domestic clients adding to the increasing demand for quartz ware.
2021 outlook: Rising quartz ware sales + upturn in subsidiary earnings
QnC has been expanding shipments to overseas equipment makers and domestic chipmakers in 2021 amid post-pandemic recovery in semiconductor demand. Sales of quartz ware, the company’s mainstay product, typically increases when clients expand capex spend or raise capacity utilization. Wonik QnC manufactures various types of quartz ware in small quantities at separate facilities set up for each client. Quartz ware sales are projected at KRW286.4bn (+23% YoY) for full-year 2021.
Momentive Performance Materials recorded sales of KRW54.5bn (+17% YoY) and operating loss of KRW0.2bn (vs. loss of KRW7.2bn in 1Q20) in 1Q21. The narrower loss of 1Q21 raises hopes for a rebound in earnings to normal levels for the full year. Ceramics, which account for 30% of the subsidiary’s sales, are mainly used in the aviation industry. Earnings recovery should thus pick up pace with the rollout of vaccines and resumption of flight services.
Retain BUY and target price of KRW42,000
We maintain our BUY rating on Wonik QnC for a target price of KRW42,000, based on 2021F EPS of KRW2,385and a target PER of 18.1x (30% discount to the PER average of domestic and overseas peers). Shares are seen undervalued at current 2021F PER of 12x. Among semiconductor small/mid-caps, Wonik QnC stands out for its bright earnings growth outlook for 2021 and cheap share valuations.