Expanding Line-up of Self-developed Products
The authors are analysts of Shinhan Investment Corp. They can be reached at chank@shinhan.com and hyungwou@shinhan.com, respectively. -- Ed.
3Q21 sales exceed consensus at KRW58.6bn (+44.3% YoY)
Duk San Neolux posted sales of KRW58.6bn (+44.3% YoY) and operating profit of KRW16.3bn (+45.8% YoY) for 3Q21, topping the consensus estimates of KRW53.3bn in sales and KRW15.8bn in operating profit. Sales hit a record high and capacity utilization rate reached 97% thanks to strong demand for products used in the iPhone 13, Galaxy Z series, and laptops on favorable seasonality. Meanwhile, operating margin came in slightly lower than expected due to one-off costs. We project the margin to exceed 30% in 4Q21 with the removal of one-offs.
Investment points: 1) Strong OLED demand, 2) growing sales of self-developed products
For 2022, we forecast sales at KRW245.8bn (+25.9% YoY) and operating profit at KRW72.1bn (+33.8% YoY) in reflection of: 1) strong OLED demand; and 2) growing sales of self-developed products.
Demand for OLED panels should largely be driven by: 1) increased adoption in smartphones; and 2) OLED application expanding to other tech products. With Chinese display makers entering the OLED market in earnest, the penetration rate of OLED display in smartphones is forecast to climb 8%p YoY to 44% in 2022. Further demand growth is expected with the company’s key client ramping up production of OLED panels for laptops and TVs. The client plans to start mass production of QD OLED displays in 4Q21 and aggressively ramp up shipments of OLED panels for high-end laptops.
Duk San Neolux is expanding the line-up of self-developed products, starting with black pixel define layer (PDL), which will help improve sales and margins. We believe the company’s growth momentum will continue with years of R&D efforts starting to pay off.
Retain BUY and lower target price to KRW75,000
We retain our BUY rating on Duk San Neolux, while lowering the target price to KRW75,000 based on 2022F EPS of KRW2,665 and a target PER of 28x (20% premium to 2019-2020 PER average). The company’s fundamentals remain unchanged. Our earnings forecasts for 2021 and 2022 have been revised upward. Development of new products appears to be humming along. However, we downgrade our target price to partially reflect concerns over the display market downturn amid continuing declines in LCD panel prices. We believe share price momentum will be in full swing during periods of a turnaround in market conditions.