Upbeat Expectations for New Electrolyte Additives Business
The author is an analyst of Shinhan Investment Corp. He can be reached at chank@shinhan.com. -- Ed.
4Q21 sales recorded at KRW25.5bn (+9.0% YoY)
Duksan Techopia posted operating profit of KRW3.9bn (+13.7% YoY) on sales of KRW25.5bn (+9.0% YoY) for 4Q21, missing consensus estimates. Sales dropped YoY from fine chemicals due to a decline in shipments of OLED intermediates, but jumped 55% YoY from semiconductor materials as solid top-line growth continued. Operating margin came in relatively lower than expected, due to one-off bonus payments and other non-operating losses.
2022 sales forecast at KRW132.1bn (+17.5% YoY)
For 2022, sales are forecast at KRW132.1bn (+17.5% YoY) and operating profit at KRW28.6bn (+30.3% YoY). We believe growth momentum will hinge on precursors supplied for use in chip production, and expect sales of semiconductor materials to reach KRW64.8bn (+40% YoY). Shipments of the semiconductor precursor hexachlorodisilane (HCDS) should steadily rise with the key client increasing the number of NAND layers and preparing to add new capacity in 2H22. We also expect Duksan Techopia to expand its market share in newly-developed materials supplied for use in DRAM production.
Our conservative forecast for sales of fine chemicals reflect the weak earnings momentum of main client Duk San Neolux. Upward adjustment of projections will hinge on the increase in adoption of OLED screens on smartphones and growth in sales of OLED laptops.
Meanwhile, upbeat expectations remain intact for the new electrolyte additives business. Sales of existing products are continuing on a steady uptrend and capex plans, announced early this year, for the addition of new facilities for production of vinylene carbonate (VC) and fluoroethylene carbonate (FEC) should lay the foundation for further growth. Although yet to be included in our earnings forecasts for 2023, sales of electrolyte additives are expected to drive visible top-line growth going forward.
Retain BUY for a target price of KRW33,000
We retain our BUY rating on Duksan Techopia for a target price of KRW33,000, based on 2022F EPS of KRW1,365 and a target PER of 24.1x. Potential dilution from convertible bonds issued at the end of 2021 is reflected in the EPS forecast. Duksan Techopia shares recently corrected as Duk San Neolux posted sluggish short-term earnings and investor sentiment for secondary battery stocks took a hit from concerns over raw material prices. However, we expect to see visible improvement in the near term on ample expectations for short-term and mid/long-term earnings growth.