A Comprehensive Semiconductor Parts and Equipment Supplier
The authors are analysts of Shinhan Investment Corp. They can be reached at snowKH@shinhan.com and swoong92@shinhan.com, respectively. -- Ed.
Earnings to come in at solid levels for 2Q21
We expect TSE to post operating profit of KRW14.6bn (-16% YoY, +23% QoQ) on sales of KRW72.2bn (+2% YoY) for 2Q21. Stronger sales of probe cards at KRW23.4bn (+17% YoY) and test sockets at KRW9.4bn (+85% YoY) should drive overall growth in earnings. Sales of OLED inspection equipment were sluggish in 1Q21, but will likely surge 656% QoQ to KRW6.8bn in 2Q21 thanks to increased order intake.
We focus on improving margins in 2Q21. Company-wide operating margin is forecast to reach 20.2% (+0.9%p QoQ) in 2Q21, backed by: 1) leverage effect of sales growth on increasing demand for probe cards; and 2) expanding sales of high-margin Eltune test sockets.
2021outlook: Growth in socket/probe card sales+ subsidiary earnings
investment point for 2021 is the company’s new Eltune test sockets, which have secured steady growth in earnings since 4Q20. Total test socket sales are forecast at KRW52.5bn (+113% YoY) for 2021. We see ample growth momentum for 2H21, backed by the expansion of customer base and product application. Sales growth will likely lead TSE to consider capacity additions for test socket production. In all, we urge investors to focus on TSE's expansion into the non-memory market with its new high-margin product.
The probe card business is also showing remarkable growth. Demand for probe cards, used to connect chips with test equipment, increased from both domestic and overseas clients in 1Q21 and should continue to grow alongside expanding chip production at clients. Probe card sales are expected to reachKRW90.8bn (+45% YoY) for full-year 2021.
Meanwhile, we conservatively project subsidiary sales at KRW85.3bn (-18% YoY) and operating profit at KRW4.4bn (-35% YoY) for 2021. Forecasts may be revised up on2H21 expectations for: 1) growth in demand for semiconductor parts/equipment; and 2) improvement in production yields.
Retain BUY for a target price of KRW90,000
We retain our BUY rating on TSE for a target price of KRW90,000, based on 2021F EPS of KRW3,699 and a target PER of 24.3x (5% discount to the peer average). TSE will likely enjoy a re-rating of valuations in 2021, driven by the addition of new product sales and earnings improvement at subsidiaries. We recommend focusing on the company’s strong growth prospects for 2021 as a comprehensive semiconductor parts and equipment supplier.