4Q21 OP Reported at KRW138.2bn (+16.1% QoQ)
The authors are analysts of Shinhan Investment Corp. They can be reached at doyeon@shinhan.com and hyon@shinhan.com, respectively. – Ed.
4Q21 OP reported at KRW138.2bn (+16.1% QoQ)
DB HiTek delivered another record-high in quarterly earnings. Operating profit far exceeded the consensus estimate of KRW120.1bn at KRW138.2bn (+16.1% QoQ) on sales of KRW367.9bn (+12% QoQ) in 4Q21, despite one-off expenses including bonus payments (500% of monthly base pay). Earnings growth was driven mainly by a sharper-than-expected increase in ASP levels, which jumped by 12% QoQ on: 1) supply shortages in the 8-inch foundry market; and 2) improvement in product mix.
Faster growth expected on visible improvement in product mix
Our operating profit forecast for 2022 is revised further upward by 12.5%, with ASP levels expected to exceed previous projections on 8-inch foundry price hikes and product mix improvement. Unlike its foundry peers, DB HiTek is enjoying an added boost from improvement in product mix. Monthly capacity should rise to 145K-150K by end-2022, but we believe DB HiTek has already secured enough orders to keep busy through the year.
After remaining at a competitive disadvantage against global peers such as GlobalFoundries, United Microelectronics (UMC) and Vanguard International Semiconductor in the past, DB HiTek is being re-evaluated on product competitiveness amid the continuing shortage of 8-inch foundries. We note a shift in focus from low-end to mid-range products, with the share of high-margin PMIC on an uptrend and lower-margin DDI on a decline.
For full-year 2022, we forecast sales at KRW1.57tr (+29.1% YoY) and operating profit at KRW667.9bn (+67.3% YoY), assuming a 20% YoY hike in prices of raw materials (wafers) and the average USD/KRW rate at KRW1,163.
Retain BUY for a target price of KRW110,000
Our target price for DB HiTek remains unchanged at KRW110,000 with the 2022F target PER lowered to 9x given the recent decline in stock market valuations in general. Shares are now trading at a 2022F PER of just 5.6x and a PBR of 1.9x, despite the company’s visibly stronger fundamentals with gross profit margin expected to reach 51.5% and ROE to improve to 39.9% in 2022. Current share valuations still seem unreasonably low for a company reporting faster growth than peers amid a continuing uptrend in earnings. We see no reason for the stock to remain undervalued vs. global 8-inch foundry peers, which are trading at a 2022F PER of 15.2x on average.