2022 Sales Forecast at KRW2.16tr (+14.0% YoY)
The authors are analysts of Shinhan Investment Corp. They can be reached at chank@shinhan.com and hyungwou@shinhan.com, respectively. -- Ed.
4Q21 sales exceed consensus at KRW538.6bn (+48.4% YoY)
LX Semicon posted sales of KRW538.6bn (+48.4% YoY), topping market expectations of KRW525.1bn on the back of favorable seasonality for POLED and strong demand for IT products. Operating profit reached KRW85.5bn (+247.1% YoY) but was still short of the KRW105.5bn consensus estimate, with operating margin lower than expectations due to one-off labor costs, additional R&D spend, and 12-inch foundry cost hikes.
2022 sales forecast at KRW2.16tr (+14.0% YoY)
For 2022, we forecast sales at KRW2.16tr (+14.0% YoY) and operating profit at KRW356.6bn (-3.5% YoY). Sales growth is expected from: 1) increase in shipment quantity of TV-use products driven by market share gains; 2) hike in ASP of IT-use products; and 3) rise in quantity of POLED-use products.
We expect further growth in quantity of TV-use products, given the uptrend in shipment volume to Chinese clients and addition of new customers in China. Even in sluggish TV market conditions, LX Semicon stands to see further growth on market share expansion. For IT-use products, growth is expected on ASP hikes from the supply of display driver IC (DDI) chips packaged with timing controllers (T-con) worth roughly USD1 per unit. For mobile-use products, additional growth in quantity is expected, with major clients in Korea and China to see a rise in shipments to North America.
However, operating margin will likely decline, given rising outsourcing costs for legacy nodes at 12-inch foundries as well as 8-inch foundries. With LX Semicon finding it difficult to pass on cost increases to client companies, operating margin is forecast to fall by 3%p YoY to 16.5% in 2022.
Retain BUY for a target price of KRW160,000
We retain our BUY rating on LX Semicon for a target price of KRW160,000, based on 2022F EPS of KRW18,626 and a target PER of 8.5x (2022F global peer average). Operating profit will likely fall YoY from the high base of 2021, but new client additions and market share gains should drive a re-rating of shares. Mid/long-term expectations should rise on plans to launch new businesses and expand the supply of products for use in automotive electronics parts. Concerns over LCD market conditions are weighing heavily on share performance at the moment, but we see ample upside with shares now trading at a 2022F PER of 7.1x vs. the past eight-year average of 12.2x.