Likely to Supply Fingerprint Recognition Modules to SEC
The author is an analyst of NH Investment & Securities. He can be reached at midas.sohn@nhqv.com. -- Ed.
Earnings at Dreamtech’s smartphone-related business have been improving since June. Based on its track record, it is highly likely that the company will supply fingerprint recognition modules for new foldable smartphone models. Expectations for FDA approval of the firm’s wireless ECG sensors also remain intact.
Smartphone-related business normalizing since June
Since 80% of Dreamtech’s sales are generated from supply towards Samsung Electronics (SEC)’s smartphones, its earnings tend to hinge upon Galaxy model shipments. Global demand and shipments of smartphones were slipping m-m until May due to both a semiconductor shortage and a resurgence in Covid-19. But, the semiconductor supply shortage has been easing since mid-June, and the pandemic has been brought under control in Bac Giang Province and Bac Ninh Province, where domestic smartphone parts makers are concentrated.
Against this backdrop, we estimate 2Q21 sales of W304.2bn (-13.0% q-q, +43.1 y-y) and OP of W18.8bn (-26.6% q-q, TTP y-y). The firm’s earnings are expected to rebound in 3Q21, with smartphone shipments now returning gradually to the normal level, and with new smartphone models slated to be launched soon.
To benefit in 2H21 from higher foldable smartphone shipments at client, medical device division positives
In the absence of new Galaxy Note model this year, SEC is expected to ship a combined total of 7mn~8mn units of foldable smartphone models Galaxy Z Fold 3 and Galaxy Z Flip 3 this year, reaching up to 14mn units next year.
Based on its supply track record, Dreamtech is highly likely to supply fingerprint recognition modules applied to the newly-launched products. Having stood at around W5.9bn in 2020, sales of foldable fingerprint recognition module are projected to ascend to W24.1bn (+308% y-y) in 2021 and W37.5bn (+55.6% y-y) in 2022.
As one of the wireless ECG sensor products at Dreamtech’s medical device division, the 1Ax (measures electrocardiogram, body temperature, and respiration rate) is currently in the process of US FDA approval. Although the approval is being delayed, upbeat expectations remain intact. FDA guidelines were recently made for an electronic nose solution that diagnoses Covid-19 infection in 30 seconds, and Dreamtech is preparing to apply for approval. Valuation re-rating should be in the cards once anticipated strong earnings growth at the company’s medical device division becomes visible.