Benefits Expected from Rising Demand for OLED Panels

The authors are analysts of Shinhan Investment Corp. They can be reached at johnsoh@shinhan.com and chank@shinhan.com, respectively. -- Ed.

 

2Q21 OP likely above consensus estimate at KRW63.6bn

We now expect Silicon Works to post operating profit of KRW63.6bn (+7.4% QoQ, +582.7% YoY) on sales of KRW421bn (+3.8% QoQ, +92.1% YoY) for 2Q21, exceeding the consensus estimate of KRW59.7bn. Strong earnings were likely driven by price hikes for display driver ICs (DDICs), with supply remaining tight due to production issues at foundries.

2021 OP forecast at KRW238.5bn (+153.1% YoY)

Silicon Works will likely report sharp growth in sales of POLED-use DDICs to strategic clients in 3Q21. Shipments of OLED DDICs should also increase in line with expansion of OLED TV panel production at LG Display. We thus expect earnings to continue on an uptrend in 3Q21, reaching sales of KRW461bn (+9.5% QoQ, +25.5% YoY) and operating profit of KRW70.5bn (+11.0% QoQ, +45.3% YoY).

For the full year, earnings should hit an all-time high at sales of KRW1.74tr (+49.7% YoY) and operating profit of KRW238.5bn (+153.1% YoY).

Benefits expected from rising demand for OLED panels

We believe growing deployment of 5G networks will help to drive metaverse (collective virtual shared space) expansion. With OLED displays playing an essential part in the process, OLED panel demand is set to increase sharply going forward. Application of OLED displays should also expand to monitors, following adoption in notebooks and tablet PCs.

In all, we expect Silicon Works to see sales of OLED DDICs jump 53.9% YoY to KRW756bn in 2021 and continue on a steep growth track.

Retain BUY and raise target price by 28.3% to KRW154,000

We raise our target price for Silicon Works by 28.3% to KRW154,000 on forecasts for: 1) operating profit of KRW238.5bn (+153.1% YoY) in 2021; 2) OLED DDIC sales of KRW756bn (+53.9% YoY) in 2021; and 3) benefits from metaverse expansion.

Taiwan-based Novatek Microelectronics, the market leader in LCD-use DDICs, has seen its shares correct by19.4% from this year’s peak, due to slowing demand for LCD TVs vs. growing re-opening demand in developed markets. In contrast, Silicon Works shares have climbed in reflection of the increasing sales share of OLED DDICs, and should continue to show a different pattern from Novatek going forward.

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