3Q21 Review: Solid Results Considering IT Supply Disruptions
The authors are analysts of Shinhan Investment Corp. They can be reached at hyungwou@shinhan.com and ym.ko@shinhan.com, respectively. -- Ed.
3Q21 review: Solid results considering IT supply disruptions
Koh Young Technology reported operating profit of KRW10.4bn (+195% YoY) on sales of KRW61.9bn (+51% YoY) for 3Q21, missing the KRW11.3bn market estimate. We believe earnings fell short as client companies delayed orders due to supply/production disruption issues, such as the power crunch in China and supply shortages in semiconductors. However, we remain upbeat with the earnings results of client companies and Koh Young Technology showing clear signs of a recovery in capex investments from the pandemic shock at the start of the year.
By region, Asian countries outside of Korea such as China and Japan accounted for 39% of sales in 3Q21, down from 47% in 2Q21 on possible impact from the pandemic. By application, the sales share of equipment for automotive electronics parts continued steadily upward to 33% in 3Q21, driven by strong EV demand. For the full year, we expect the sales share of equipment for auto parts to increase to 30% in 2021 from 18% in 2020.
4Q21 and 2022 outlook: Signals for growth
For 4Q21, we forecast sales at KRW58.9bn (+20% YoY) and operating profit at KRW9.9bn (+124% YoY). For the full year, operating profit is projected at KRW41.3bn for 2021 and KRW54.4bn for 2022.
Client companies are starting to resume capex investments, after postponing plans due to US-China trade disputes in 2019 and COVID-19 impact in 2020. This year, some client demand and investments were pushed back to 2022 due to IT supply/production disruptions, but continuing US-China disputes have prompted certain companies to relocate plants out of China and increase investment in their local markets. As a result, we expect to see growth in demand for new equipment going forward.
Retain BUY for a revised-down target price of KRW25,800
Our target price is based on 2022F EPS and a target PER of 36.9x (average PER of 2018-2019 recorded before client capex investments were hit by pandemic impact). We believe Koh Young Technology deserves to trade at higher valuation multiples in reflection of mid/long-term growth potential added from newly released products.
We recommend focusing on: 1) top-line growth driven by technological advancements from the shift to smart factories, 5G networks, and EVs; 2) product diversification and overseas market expansion of medical robotic systems after nearly a decade of preparation; and 3) notable growth expected in sales of multipurpose optical inspection (MOI) equipment to automotive electronics parts and mobile device makers.