Sustained Growth Anticipated
The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.
Considering the recent brisk sales of the Galaxy Z series, KH Vatec is expected to benefit over the mid/long term from rapid expansion of the foldable smartphone market. Moving ahead, sustained growth is anticipated thanks to sales volume increase at domestic customers, client diversification to global firms, and the technological advancement of hinge-related parts.
Raise TP to reflect foldable smartphone shipment forecast revisions
Adhering to a Buy rating, we raise our TP on KH Vatec from W26,000 to W33,000. The upward TP revision is attributable to: 1) a change in valuation base year from 2021E to 2022F to reflect full-fledged growth of the related market; and 2) a 3.1% hike in 2022F EPS based on a 10.5% increase to a main client’s 2022 foldable smartphone shipment projection.
We push up our estimate for a main customer’s 2022 foldable smartphone shipments by 10.5% from 14.2mn units to 15.7mn units, in turn raising our 2022 OP forecast for KH Vatec by 5% and EPS by 3.1%. The relatively small increase to forecasted earnings relative to projected shipments stems from a reduction in our hinge market share assumption from 100% to 90%.
Despite recent share price expansion, momentum still exists
In terms of earnings, we cut our 2021 OP forecast by 26.1% to W23.3bn to reflect weaker-than-expected 1H21 earnings and margins due to a larger-than-predicted sales portion for low/mid-end foldable smartphone models.
However, for 2022, we hike our forecast for a main customer’s foldable smartphone shipments by 10.6%, in turn pushing up our OP forecast for KH Vatec by 5% to W51.3bn (+119.8% y-y; OPM of 10.3%).
Despite KH Vatec’s recent sharp share price growth, we see strong chances for further share price improvement driven by: 1) the company’s strategy of focusing on foldable smartphones; 2) expected customer diversification resulting from the likely entrance of global players into the foldable handset market; and 3) the possibility of further ASP increase over the mid/long term from the introduction of new form factors such as rollable smartphones, etc.