Solid Performance Regardless of Semiconductor Market Cycle
The authors are analysts of Shinhan Investment Corp. They can be reached at snowKH@shinhan.com and wonyong.sim@shinhan.com, respectively. -- Ed.
Solid performance regardless of the semiconductor market cycle
Wonik QnC, the bellwether for IT materials, parts, and equipment stocks, is on a structural growth path. Demand for greater capacity expansion at chipmakers is rising along with faster transition to advanced processes. Quartz ware used in the semiconductor etching process has seen an increase in demand based on client diversification and growing product portfolio. As such, the company has been able to enjoy solid growth regardless of the semiconductor market conditions. For 2022, we forecast sales at KRW746.2bn(+20% YoY) and operating profit at KRW130.9bn (+51% YoY). Operating margin should reach 17.5% (+3.6%p YoY) driven by: 1) growth of quartz ware sales; and 2) earnings improvement at the subsidiary.
Growth drivers: 1) Subsidiary’s earnings gains, 2) demand confirmed by capex
Momentive Performance Materials made a visible contribution to consolidated earnings in 1Q22. Prices of main products were raised in 4Q21. Sales volume also increased thanks to brisk demand for aircraft and semiconductor parts, amid the reopening from COVID-19 restrictions.
The subsidiary’s earnings should continue upward in 2H22, with ASP raised under new supply agreements and additional price hikes likely from inflation. We anticipate full-year operating profit of KRW47.1bn (+278% YoY). Our projection may be revised up further if supply shortages persist and demand keeps rising.
Wonik QnC announced in April that it will invest KRW59.5bn in building a new quartz ware plant. The effect of the capacity addition should be felt from 2Q23. Overseas capex (including non-memory) currently in progress is slated to be completed in 2H22. This goes to show that there is growing demand for quartz ware regardless of the semiconductor market cycle.
Retain BUY for a target price of KRW46,000
We retain our BUY rating on Wonik QnC for a target price of KRW46,000, based on 2022F EPS of KRW3,393 and a target PER of 14x. Adding to expectations for strong parent earnings this year, the company stands to benefit from increases in raw material prices. Its expanding client base and product diversification ensure growth momentum for the long term. We should also keep in mind that Wonik QnC has attractive share valuations compared to other domestic consumable parts suppliers.