Earnings Forecast to Rise to New Highs in 2022
The authors are analysts of Shinhan Investment Corp. They can be reached at hsh0628@shinhan.com and wonyong.sim@shinhan.com, respectively, -- Ed.
1Q22 preview: Earnings growth led by brisk demand for foldable smartphones and OLED TVs
Innox Advanced Materials is expected to have recorded sales of KRW131.2bn (+36.6% YoY) and operating profit of KRW29.9bn (+119.7% YoY) for 1Q22. Despite weak seasonality, the INNOLED TV business likely saw sales growth on strong demand from clients. The INNOLED mobile business and SMARTFLEX should have sustained solid growth, driven by brisk foldable smartphone shipments at clients and new product releases. Given that higher capacity utilization leads to greater operating leverage for specialty films, we believe the company’s operating margin remained at 20% levels as in 4Q21.
2022 outlook: Annual earnings to once again set new highs
We expect the white OLED (WOLED) TV market to continue expanding this year with the panel maker LG Display diversifying its clientele. Demand for encapsulation films used in OLED TV panels should increase as a result. Sales contribution of the INNOLED TV business is projected to rise to 37.8% in 2022, vs. 21.4% in 2019, 24.1% in 2020, and 36.4% in 2021. The product portfolio is also becoming more diversified, owing to the company’s entry into the Chinese market for small/mid-size OLED materials, addition of new clients for INNOSEM, and development of new materials used in foldable smartphones.
Retain BUY and raise target price to KRW77,000
We retain BUY on Innox Advanced Materials and raise our target price to KRW77,000. We applied a target PER of 15x to 2022F EPS of KRW5,118 on expectations for: 1) steep growth of encapsulation film sales with the expanding market for OLED TVs; and 2) addition of a new sales growth engine given increasing adoption of OLED panels in tech products. In order to meet rising demand, the company is currently building a new production line for ramp-up in 1Q23. The steady addition of new items over the past decade has led to a gradual increase in operating margin. The capacity expansion goes to show its confidence in the market boom. We believe upward revision of valuation multiples going forward will hinge on diversifying the product portfolio through the launch of new products and maintaining operating margin at high levels.
Earnings should once again rise to new highs in 2022, with sales expected to reach KRW549.5bn (+12.8% YoY) and operating profit KRW123.9bn (+28.1% YoY). Operating margin is forecast to improve to 22.5%, extending the upward trend of recent years (13.3% in 2019, 13.0% in 2020, 19.8% in 2021).