Display

Sector Report / Display

August 16, 2011

Overweight (Maintain)
Company
Cheil Ind. (001300) Duksan Hi-Metal(077360) SFA Engineering (056190) ICD (040910) AP Systems (054620) Advanced Nano Products (121600)

Large AMOLED gets a cost edge over LCD
Large AMOLED to start pilot production in 2012 and enter mass production stage in 2013
Samsung Mobile Display (SMD) and LG Display (LGD) should dip their toes in the large AMOLED waters in 2012. Both SMD and LGD are working on 8G AMOLED pilot lines, which should be ready for test runs in 2012. We expect the large-size AMOLED camp to be split between SMD’s p-Si based TFT substrates and LGD’s a-Si based oxide TFT substrates. SMD should outperform LGD in terms of substrate functionality but LGD should deliver greater cost savings than its rival. Samsung Electronics (Samsung) is reportedly developing oxide TFT technologies but the type of technology, investment scale, or production timing remains uncertain. Given the early mover’s advantage in the TV market, we expect the mass production of large AMOLED panels to start from 2013 or 2014 at the latest.

Rating TP (KRW)
BUY BUY BUY BUY Not rated BUY 140,000 37,000 80,000 98,000 NA 25,000

Contents
1. Display capex fast shifts from LCD to AMOLED .....................................................1 2. Large AMOLED manufacturing costs by technology ..................................................3 3. Material and equipment makers have the most investment appeal ...........................6

LCD capex reduction but ongoing AMOLED capex
As the recovery of the LCD market has been delayed, LCD panel makers are rapidly scaling back capex. The global top four LCD players slashed their 2011F capex by 30%-50% compared to initial plans (35% YoY). Investments, however, remain intact in AMOLED and high-end LCD panels. SMD should go ahead with 5.5G capex and AMOLED pilot lines, while LGD is gearing up to pilot-run large AMOLED panel lines and Taiwanese panel makers are shifting to oxide TFT lines.

Cost-competitive oxide TFT to lead large AMOLED
As large panels are more cost-sensitive than small to mid segments, the large AMOLED panel market is likely to adopt a-Si based oxide TFT technology, not LTPS technology, to gain cost competitiveness. Oxide TFT technology allows panel makers to diversify product mix because it is widely applicable from AMOLED to glass-free 3D LCD panels and ultradefinition LCD panels. LTPS technology should improve and be commercially viable over the long term. But we believe oxide TFT will lead the development of large AMOLED because it reduces initial capex requirements.

Jay Yoo, CFA
82-2-3276-6178 jongwoo.yoo@truefriend.com

Moon Sung Kang
82-2-3276-6235 mskang@truefriend.com

Matthew Yang
82-2-3276-6174 matthew.yang@truefriend.com

Beneficiaries of large AMOLED
The TV display market is worth 10 times more than the mobile display market in terms of area surface. As such, if equipment or material vendors can extend their market reach beyond the small to midsize to large AMOLEDs, we believe they deserve high valuation. Our top-picks are Cheil Ind and Duksan Hi-Metal, steadfast materials suppliers, and SFA and ICD whose equipment can be used on large-size panel lines.

Heuiseok Jeong
82-2-3276-6277 heuiseok.j@truefriend.com

Sector report focus

What is the report about?
• Analyze large AMOLED capex and market developments • Examine Samsung Mobile Display’s and LG Display’s cost structure and technologies and forecast their business directions • Identify beneficiaries from the expansion of the large-size AMOLED market and recommend investment strategies

Sector highlights
1) Oxide TFT to lead the large AMOLED panel market • AMOLED market winners should be those who can roll out products at a faster pace and at a cheaper price than rivals. • It is important to secure cost competitive in the TFT process, which is a major cost factor to AMOLED production. • The Oxide-TFT AMOLED method is 34% more cost effective than p-Si AMOLED and 28% than LCD a-Si method. • LG Display and Samsung Electronics are likely to covert its LCD lines to oxide-TFT AMOLED method.
Cost analysis by AMOLED technology
(won/m2 per month)
600,000

Key assumptions and valuation
LCD capex by major panel makers
2008 2009 LG Display SEC’s LCD AUO CMI Total 2,667 3,896 3,081 3,203 12,846 3,209 1,683 2,004 1,423 8,319 2010 2011F 2012F 4,377 4,109 2,639 2,671 13,796 2,759 2,858 1,714 1,701 9,032 1,810 1,357 1,086 1,086 5,339 2010-2011F growth -37.0% -30.4% -35.0% -36.3% -34.5% (USD mn) 2011-2012F growth -34.4% -52.5% -36.7% -36.1% -40.9%

Capex per unit area Cash cost per unit area Total cost per unit area

Source: Company data, Korea Investment & Securities

500,000 400,000

AMOLED capex by major panel makers
2009 LG Display SEC’s LCD AUO CMI Total 257 2010 183 1,833 2,016 2011F 642 4,125 4,766 2012F 452 6,829 452 452 8,186 2010-2011F growth 250.0% 125.0% 136.4%

( USD mn)
300,000

257

2011-2012F growth -29.5% 65.6% 71.8%

200,000 100,000

0 TFT-LCD ELA+FMM ELA+LITI Ox ide+FMM

Source: Company data, Korea Investment & Securities

Source: Market data, Korea Investment & Securities

Sensitivity & scenario analysis
• Large AMOLED TV to debut in 2012 and enter the mass production stage in 2014 at the latest Area-based demand for mobile panels and TV panels
(Km2) 90,000 75,000 60,000 45,000 30,000 15,000 0 Panel demand f or handset in terms of area Panel demand f or LCD TV in terms of area

2) Materials and equipment vendors look attractive if they can serve large AMOLED • Order momentum may differ by AMOLED equipment maker as their clients may change process technologies to produce large AMOLED panels. • AMOLED material suppliers should be able to easily extend their market reach beyond small AMOLED to include large AMOLED. • Large AMOLED equipment vendors deserve a PER of 15x, which is the level that LCD equipment vendors traded at during the expansion of the large LCD panel market in 20042005. • Materials suppliers’ high valuation levels are justifiable because large AMOLED panels need material input.

11.8 fold increase

Source: Company data, Korea Investment & Securities

Peer comparison
• AMOLED materials and equipment vendors are overvalued to other players in the display value chain. • Peer group PER band.

Risks/opportunities
• AMOLED investments should accelerate when the LCD market recovers. • If the global economic slowdown drags on, the AMOLED market faces investment delays or retrenchment.

Display

1. Display capex fast shifts from LCD to AMOLED
Capex is rapidly shifting from LCD to large AMOLED; SMD leads the transition As the LCD panel market remains weak, major panel makers continue to scale back their LCD capex. During the 2Q11 earnings season, the top five panel producers, which represent 82% of global LCD panel production capacity, announced their decision to cut annual LCD capex by 30-50% compared to the initial plans set in early 2011. As such, LCD capex should decline 35% YoY in 2011 and the pace of capex cuts should accelerate in 2012. But, LCD capex retrenchment should allow market leaders to spend more on large AMOLED. Samsung Mobile Display (SMD), which is operating a 5.5G AMOLED line is expected to start 8G investments in 2012. LG Display (LGD) is also looking toward the mass production of 8G from 2013. Unlike Chinese counterparts, Korean and Taiwanese panel makers are passive LCD investors in China. Major foreign makers were in a hurry to obtain capex approval from the Chinese government in early 2010. But most of these capex projects are being delayed due to chronic market oversupply. LGD was the first to clear the regulatory hurdle but is still sitting on its capex plan. Pending the approval process, LGD has already secured LCD production capacity domestically, which makes it unnecessary to rush overseas capex. In contrast, Samsung Electronics (Samsung) needs additional LCD capacity because the company has not invested in domestic facilities. Nevertheless, Samsung is likely to chew over its Chinese capex. Taiwanese panel makers also said they do not plan capex in China in the near term.
(USD mn)

Korean and Taiwanese panel makers are passive investors in China

LCD capex by major panel makers
2008 LG Display Samsung LCD AUO CMI Total 2,667 3,896 3,081 3,203 12,846 2009 3,209 1,683 2,004 1,423 8,319 2010 4,377 4,109 2,639 2,671 13,796 2011F 2,759 2,858 1,714 1,701 9,032 2012F 1,810 1,357 1,086 1,086 5,339 2010-2011F growth -37.0% -30.4% -35.0% -36.3% -34.5%

2011-2012F growth -34.4% -52.5% -36.7% -36.1% -40.9%

Source: Company data, Korea Investment & Securities

Quarterly LCD capex
(USD mn)

5000

4000

3000

2000

Capex retrenchment stage

1000 1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11 4Q11F

Source: DisplaySearch, Korea Investment & Securities

1

LGD TFT-Backplane process Samsung Electronics SMD LG Display Oxide TFT poly-Si TFT Oxide TFT Deposition process SMS (same as SMD) SMS White OLED Encapsulation process glass/metal type (same as SMD) glass/metal type glass/metal type 2 . LGD plans to build 60K-capacity large AMOLED panel lines from 2013 with a goal to start mass production in 2014. As the 8G pilot line is fully equipped. LGD scaled back its investments in LCD and small AMOLED but remains committed to large AMOLED. Taiwanese panel makers have yet to unveil large AMOLED panel capex but are likely to take their cues from SMD and LGD. As such. However. which erodes its cost competitiveness and requires changes in production technologies. SMD is expected to invest in a mass production line in 1H12 when the pilot test is complete. LGD faces growing concerns over the large panel business due to its suspension of small AMOLED panel business. should be ready for trial runs. SMD. the large AMOLED panel market sees a looming capex race among Korean display makers. Given SMD’s weak cost competitiveness. there is a growing possibility for Samsung to enter the large AMOLED panel business. rather than technology. SMD still does not have production lines dedicated to large panels. LGD will enhance cost competitiveness through line conversion from LCD to AMOLED. which leads the capex race. SMD cannot switch its LCD line to AMOLED. Samsung can sharpen its competitive edge quickly when its oxide TFT meets SMD’s organic deposition technologies. Samsung. Large AMOLED technologies adopted by SMD.Display Korean display makers in an AMOLED capex race While LCD capex projects face delays and reductions. LGD plans pilot-production of 55” AMOLED TV panels in 2H12. Major panel makers’ AMOLED timeline Note: A2 P3 is expected to exclude TFT-process Source: Korea Investment & Securities Who can roll out AMOLED faster and at a cheaper price? The TV market plays by marketing and cost competitiveness. To compensate for its weaker financing capacity compared to Samsung. Samsung can convert its LCD lines to oxide TFT AMOLED panels just as LGD does. AMOLED market winners should be those who can roll out products at a faster pace and at a cheaper price than rivals. We believe SMD and Samsung will make a faster advance to the AMOLED market than their rivals.

capex increase is limited for oxide TFT AMOLED panel production and thus its total costs should be 20% less than LCD panels’. which is crucial for the large panels used in TVs. to remain competitive in terms of total costs. Large AMOLED manufacturing costs by technology Oxide TFT technology is optimal for large AMOLED panels We view oxide TFT technology as the most optimal for large AMOLED panel production. As such. The technology has not been applied for mass production and thus the production yield remains uncertain. In addition to AMOLED panels. which uses the existing LCD TFT line. As such. it could be the best choice in terms of cost competitiveness. Although the oxide TFT AMOLED panel is technologically inferior to LPTS AMOLED. of Temperature masks 7~10 4~6 4~5 4~5 Low High Low Low Cost High Low Low Low Technological complexity High Low Low Low Advanced 100cm2/Vs ELA SGC 10~40cm2/Vs Oxide TFT Oxide TFT 9cm2/Vs 9cm2/Vs Source: Company data. the LTPS AMOLED’s total manufacturing costs surpass LCD panels’ in the end. many panel makers are now preparing for mass production by applying oxide TFT technology to existing LCD lines and will soon start the pilot test. which sharply reduces the initial capex burden for AMOLED panel makers. the oxide TFT technology will allow panel makers to diversify product lineups. we believe the oxide TFT technology. Evolution of large AMOLED panel technology Evolution of small and midsized AMOLED panel technology Source: Industry data. Korea Investment & Securities Source: Industry data. In contrast. the capex burden needs to be contained. As it offsets cost reduction on the parts front. will be adopted for large AMOLED panel production in the initial phase.Display 2. The area capex for excimer laser annealing (ELA)-based LTPS AMOLED panels is four times greater than LCDs’. Korea Investment & Securities Oxide TFT AMOLED manufacturing costs 34% less than LTPS AMOLED or 28% less than LCD panel Manufacturing of AMOLED panels on the existing LCD TFT line using the oxide TFT technology will cost 34% less than LTPS AMOLED panels or 28% less than LCD panels. However. high-end glassless 3D and ultradefinition LCD panels can be built on the oxide TFT technology. 8G TFT technology by company Company SMD Samsung Electronics LG Display Technology Mobility Uniformity Stability Low Very high High High High High High High No. Korea Investment & Securities 3 . oxide TFT technology is compatible with the process and equipment of existing LCD-use TFT lines. AMOLED panels’ parts cost 40% less than those for LCD panels but. In contrast to LTPS.

152 35.500 10 120 39.833 204.379 Cost reduction or increase -62.606 340.545 300.061 204.071 AMOLED 8G (ELA+LITI) 2.758 40.758 340.379 Cost reduction or increase 26.909 416.374 Capex per area (KRW/m2 per month TFT backplane process Deposition (evaporation) & encapsulation Cash cost per area (KRW/m2 per month) Total cost per area (KRW/m2 per month) Capex per area (KRW/m2 per month) TFT backplane process Deposition (LITI) & encapsulation Cash cost per area (KRW/m2 per month) Total cost per area (KRW/m2 per month) Note: Key assumptions: 1) OLED line cash cost: 60% of LCD line.909 416.667 AMOLED 8G (Oxide+FMM) 95.600 282.600 75. 2) LITI deposition: 40% greater than FMM method.833 20. Korea Investment & Securities 2 2 Cost analysis: per area LCD 8G line Capex per area (KRW/m2 per month) TFT backplane process CF & cell/module process Cash cost per area (KRW/m2 per month) Total cost per area (KRW/m2 per month) 75.379 Note: Key assumptions: 1) LCD cash cost per area: 4.600 252.545 457. Korea Investment & Securities Cost analysis: per area AMOLED 8G (ELA+FMM) 252.3% Capex per area (KRW/m2 per month) TFT backplane process Deposition & encapsulation Cash cost per area (KRW/m2 per month) Total cost per area (KRW/m2 per month) Source: Industry data.374 LCD 8G line 2.758 204.828 204.667 Panel size (mm) Capex (W trn) Capacity (1.071 AMOLED 8G (Oxide+FMM) 95.768 106.833 20.545 487.6% 0. Korea Investment & Securities 8G AMOLED (oxide) costs vs.525 204.545 300.000m2) Capex per area (KRW/m per month) Unit cash cost (KRW/m2 per month) Total cost per area (KRW/m per month) Note: Assuming useful life of five years Source: Industry data.5 times capex per area.545 487. 8G LCD LCD 8G line Capex per area (KRW/m2 per month) Cash cost per area (KRW/m2 per month) Total cost per area (KRW/m2 per month) Source: Industry data.545 457.758 204.833 204.828 176.071 AMOLED 8G (ELA+LITI) 282.076 75.200x2.9% Oxide-based 8G AMOLED vs.758 204.379 AMOLED 8G (ELA+FMM) 2.500 4 120 39.200x2.667 Capex per area (KRW/m2 per month) TFT backplane process Deposition (evaporation) & encapsulation Cash cost per area (KRW/m2 per month) Total cost per area (KRW/m2 per month) AMOLED 8G (Oxide+FMM) 95.0% -27. 2) OLED line cash cost: 60% of LCD line.545 300. 3) Oxide OLED line can use the existing LCD line and thus its TFT backplane process costs 50% less than its LCD counterpart Source: Industry data. ELA-based 8G AMOLED AMOLED 8G (ELA+FMM) 252.0% 0.600 95.545 300.076 75.1% -88. Korea Investment & Securities 4 .909 416.500 3 120 39.758 204. Korea Investment & Securities 75. 2) LITI deposition method costs 40% more in the deposition process than the FMM method Source: Industry data.525 176.5% -40.0% -34.768 75.200x2.758 340.500 11 120 39.200x2.Display Unit costs by technology AMOLED 8G (Oxide+FMM) 2.525 176.768 75.545 457.000 sheets per month) Total capacity for 5yrs by area (1.

Korea Investment & Securities Panel makers should speed up large AMOLED panel production to shore up profitability LCD panel makers’ profitability has continued to fall hit by slowing LCD TV shipment growth.000 500.000 100.000 200. To shore up the operating margin. Panel makers’ operating margin reached 20% in 2H07. LCD (won/m2 per month) Capex per area Total cost per area Total cost per area 600. the first upcycle since they entered the full-scale production of LCD panels used in TVs. a sharp decline from the past.000 300.000 0 TFT-LCD ELA+FMM ELA+LITI Oxide+FMM Source: Industry data. Source: Company data. panel makers are considering starting production of large AMOLED panels earlier than scheduled as it is more cost competitive than LCD panel production. The upcycle revisited the industry in 1H10 but the panel producers’ operating margin averaged 10%. Korea Investment & Securities 5 .000 400. LG Display. AUO and CMI. Their profitability moves up and down as the industry cycle changes. We believe there will be intense competition to build presence in the market before the rivals square off because profitability tends to be higher while the market is still burgeoning. Global panel makers’ OP margin 40% 30% 20% 10% 0% 1Q03 -10% -20% -30% 4Q03 3Q04 2Q05 1Q06 4Q06 3Q07 2Q08 1Q09 4Q09 3Q10 2Q11 Note: Global panel makers refer to Samsung Electronics (LCD business).Display AMOLED (oxide) costs vs.

the TV panel market has much stronger growth potential. as new technologies are required for the production of large panels. demand for TV panels would still be 12times more than that for mobile panels 11. Material and equipment makers have the most investment appeal Material suppliers are the most appealing Material suppliers are the most appealing among AMOLED-related companies as they can continue to benefit from the production of both small and large AMOLED panels. the firms that can supply processing equipment that satisfies such demand will be afforded fresh opportunities.000 15. the mobile display market’s area-based demand would still be less than the 8% total demand for LCD TV panels that are expected to sell in 2011.Display 3. At present.000 75. major material suppliers should continue to supply products used in the production of small and large panels and their supply volume should grow rapidly as well when the production area expands. companies that can supply indium gallium zinc oxide (IGZO) required for oxideTFT processing should be able to benefit from the growth of the large AMOLED panel industry. 6 . DS Hi-Metal’s high valuation is fully justified. the companies that can supply equipment or materials used in the production of large AMOLED displays will have a wide window of opportunity to achieve growth.000 60. Although there are differences between the materials used in small and large AMOLED panels.000 30.000 45. Thus. Korea Investment & Securities Material suppliers’ ability to satisfy demand for both small and large panels may justify their high valuation As the TV panel market is enormous. DS Hi-Metal’s stock trades at a PER of 25x and 15x 2011F and 2012F EPS. In particular. Area-based demand for mobile panels and TV panels (Km2) 90. While mobile displays are more expensive than large displays in terms of costs per unit area and prices. which justifies their higher valuation compared to equipment makers. At present. But when we consider the large panel market’s area-based demand for materials can grow more than 10times bigger than that of the mobile market. respectively.8 fold increase Source: DisplaySearch. they are able to supply products for small and large panels without drastically altering their product mix. As for material suppliers. In addition. The TV panel market is appealing because its area-based demand is at least 12times bigger than that of the mobile display market. AMOLED panels have less than 5% share in the handset display market.000 0 Panel demand f or handset in terms of area Panel demand f or LCD TV in terms of area Even if all handsets were to adopt AMOLED panels. it does not mean material suppliers have to drastically alter their product mix. Even if all handsets were to adopt AMOLED panels (4-inch).

0 x 17.000 -1.0 10. KC Tech.000 12.000 35.000 50.0 x6.000 50.000 8.0 x 9.000 60.0 30.0 AP System’s PER band (KRW) 18. Korea Investment & Securities Source: Company data.0 20.000 2.000 500 0 -500 -1.0 80.0 x 9.0 120.000 80.000 60.0 x 17.000 x 13.0 x 9.0 140.000 5. Korea Investment & Securities Note: Display equipment makers are SFA.000 x 15.000 20.000 x 12.0 x 11.000 40.0 1.500 1.’s PER band (KRW) 160.000 16.500 2.0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10 Source: Company data.000 40.000 x 18.000 20.000 0 Oct-05 40. Jusung Engineering.000 x 14.0 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 May-04 Sep-05 Jan-07 May-08 Sep-09 Jan-11 Source: Company data.000 0 Jan-05 x 8.0 x12.000 10.000 2.0 10. Korea Investment & Securities SFA’s PER band (KRW) 90.0 May-04 Sep-05 Jan-07 May-08 Sep-09 Jan-11 May-04 Sep-05 Jan-07 May-08 Sep-09 Jan-11 Source: Company data.000 70.0 Cheil Ind.000 x 15.000 x 24.000 6.Display DS Hi-Metal’s PER band (KRW) 70.0 x15.0 Display equipment makers’ PER band (won bn) 3.000 0 Jan-03 x 4.000 0 Jan-03 x 6.000 10.000 20.000 14. Korea Investment & Securities 7 .000 30.000 15.0 30.500 3. Top Engineering Source: Company data.000 100.000 x 12. Korea Investment & Securities Source: Company data.000 4.000 25.000 x 48.000 x 6. DMS.000 0 Jan-03 x 5. Korea Investment & Securities SNU’s PER band (KRW) 40.000 x 36.0 60.500 Dec-01 x9.

5G P3 lines in parallel with the conventional fine-metal mask (FMM) method.500X1.Display Among equipment makers. Like this. SMD’s technological changes at 5. in turn. Accordingly. The necessity of the new processes in addition to the TFT-LCD substrate manufacturing underlines the need for new equipment such as highdensity plasma etchers or heat treatment equipment. but not all. give a boost to equipment makers. we draw attention to producers of the oxide TFT process equipment as the process is likely to go mainstream in the large AMOLED panel market.300) A3 100K ELA (one-scan) 8G V1 8K Advanced ELA SGC A-SPC FMM (horizontal. cut a mother glass LITI (cut mother glass into 4 units. Among equipment vendors.5G fabs where capacity additions are taking place have shed a positive light on some. a supplier of laser deposition equipment that is key to the LITI process. green materials) FMM (vertical. As such. cut a mother glass into 6 units) Glass-type Metal-type Note: 1) capacity per month.300) A2 P3 32K ELA (two-scan) 5. 2) TFT backplane process. the equipment order momentum should vary from company to company. This offers fewer chances of orders for FMM-based equipment makers such as SFA and SNU Precision but more opportunities for AP Systems. 3) deposition process.5G (1. mother glass for blue and other materials) Metal-type Thin-film-type Oxide (IGZO) SMS (horizontal.5G (1. technological changes made by panel makers will continue to be a mixed bag of pros and cons for vendors. those with steady order flows are the most attractive The technology switch at panel makers presents both opportunities and risks to equipment suppliers.500X1. for red. cut a mother glass into 4 units for blue and other materials) Glass-type 4) Glass-type Thin-film-type Source: Industry data. Producers of oxide TFT process equipment merit attention given the high applicability to larger panels LCD equipment makers’ PER peaked at 15x in 2004 AMOLED technology by generation and process 5. we applied a PER of 15x to SFA and ICD that serve large panel makers. suppliers of such equipment are worthy of attention.5G (1. 4) encapsulation process 8 . If the technology norm shifts from LTPS to oxide TFT in the TFT backplane process with the heaviest capex burden across the entire AMOLED panel process. SFA has the potential to offset the negative effect as it also produces equipment necessary for the LITI process. into 4 units) for red. LCD equipment makers’ PER rose to 15x during 2004-2005 when capex to produce 40-inch or larger LCD TV panels was underway. green materials) FMM (horizontal. Korea Investment & Securities 3) LITI (mother glass. We believe the PER of vendors for large AMOLED panels has the potential to reach the same level as capex for large AMOLED TV panels should start from 2012 and this will.300) A2 P1-P2 1) 24K (P1)+40K (P2) 2) ELA (two-scan) 5.500X1. SMD plans to adopt the LITI (laser-induced thermal imaging) deposition method on its 5.

Display Oxide flow chart (backplane manufacturing) Source: Korea Investment & Securities LTPS flow chart (backplane manufacturing) Source: Korea Investment & Securities 9 .

Cheil Ind. Clover Hitech. Kodak (US) AP System SFA.C. Idemitsu Kosan (Japan). Toyo Ink (Japan). Electro-Materials NSC (Japan)*. Merck (Germany). LTS. Kodak (US) LDT. ULVAC (Japan) AP System AP System. Nepes Sangsin EDP - Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign 10 . SFA. DuPont (US) Doosan Corp. Idemitsu Kosan (Japan). Doosan Corp. Cheil Ind.. Dongwoo Fine-Chem*. Shenzen Sunnypol Optoelecronic (China). Jusung Engineering. Saes Getters (Italy) Nagase (Japan). Kyoritsu (Japan)* Nanonix* NSG (Japan)* Cheil Ind. Toyo Ink (Japan). Idemitsu Kosan (Japan). DuPont (US) Advanced Nano Products DNP (Japan). Top Engineering Tokki (Japan)*. Avaco. Idemitsu Kosan (Japan). DuPont (US) LG Chem NSC (Japan)*. Kodak (US). DuPont (US) Dow Chemical* NSC (Japan)*.Display AMOLED supply chain Product AMOLED material HTL Domestic Foreign HIL ETL EIL EML (red) EML (green) EML (blue) ITO Shadow mask Desiccant Sealants Encapsulant Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Donor film for laser evaporation Domestic Foreign AMOLED equipment makers ELA FMM deposition Laser deposition Encapsulation Etchers Sputtering equipment AMOLED material makers AMOLED polarizer AMOLED donor film AMOLED driver-IC AMOLED bezel Domestic Foreign Domestic Foreign Domestic Foreign Domestic Foreign Note: Non-listed companies are marked with * Source: Industry data. Cerac (US)*. Mitani (Japan)* Dynic (Japan)*. Lantechnical (Japan)* ICD Y. Merck (Germany). SNU.. Daejoo Electronic Materials Idemistus Kosan (Japan). NSC (Japan)*. Merck (Germany). Kodak (US). Avaco. SNU. Kodak (US) LG Chem. Merck (Germany). Eray (Taiwan)* SFC*. Vitex (US)*. Korea Investment & Securities Company type Company DS Hi-Metal. Optimax (Taiwan) Cheil Ind. Gore-tex (US)*. Hodogaya (Japan). (Japan)* Avaco ULVAC (Japan) Cheil Ind. Silicon Works. Idemitsu Kosan (Japan). Electro-Materials. Dong A Eltek. Hitachi (Japan)*. Hodogaya (Japan) LG Chem.A. Jusung Engineering Miwa MFG (Japan)*. DS Hi-Metal NSC(Japan)*. NSC (Japan)*.

....... (001300) ...................... 25 ........................................................................................................................................... 12 Duksan Hi-Metal (077360) ........................................................................ 21 AP Systems (054620) ....................................................................................................................................................................................................................Company Cheil Ind........................................................................................................................................................................................................................................................... 18 ICD (040910) .... 24 Advanced Nano Products (121600) .......................................................................................................................... 15 SFA Engineering (056190) .................................................................................................

395 6.3 9. (Cheil) should become a dominant supplier of large AMOLED materials to Samsung.3 20.6 8.2mn. its product portfolio of AMOLED materials is growing more diverse. Moreover.549 OP (W bn) 264 334 384 573 691 EBT (W bn) 155 314 369 558 686 NP (W bn) 127 259 316 463 EPS % chg. The stock trades at the 2011F PER of 15x and 2012F PER of 11x. TP: W140. which should complete the product mix of 7-8 AMOLED materials. OP should skyrocket 101% QoQ in 3Q11F.5G P2 and P3 lines and V1 (8G pilot) lines. Although new product development and market share growth have been slower than our expectations due to the lackluster LCD market.5 42. (001300) BUY (Maintain). We maintain BUY and our TP of W140.com Yr to Dec 2009A 2010A 2011F 2012F 2013F Sales (W bn) 4. We estimate polarizer film sales at W660bn in 2011F but the figure should jump to W1.com 569 11.2bn Jay Yoo.3 19. top-line growth should gain momentum in 2H11 or 2012.6 5.1 10.982 7. We believe the recent correction offers a long-awaited entry point. KRW4. not if.172 (YoY) (18. panel makers’ ongoing shift to large AMOLED panel production hints at more business opportunities going forward.5 1.2 22. as the supply dates fall within a similar timeframe as SMD’s ramp-up of the 5.6 15. The stock has 44% upside.4 2. we believe Cheil looks more attractive than other IT plays because of its high earnings stability.9 EBITDA (W bn) 395 468 540 767 915 P/E EV/EBITDA (x) 21.0 1.yoo@truefriend. A bright spot is that the company has started developing films suitable for the LITI (laser-induced thermal imaging) method in line with the adoption of the LITI technique.124 8. August 12.Display Cheil Ind. pixel defining layer (PDL) and hole transport layer (HTL) should come on stream.2trn in 2012F.654 5. Accordingly.448 9. In 2012. Despite lingering uncertainties over the global economy and the demand side. Cheil will also supply one or two new AMOLED materials.5 ROE (%) 7. we remain confident that the company will ultimately secure a dominant supply share at Samsung.520. shipments should fast increase after decisions are made to supply the products.4 Heuiseok Jeong 82-2-3276-6277 heuiseok. the lowest level since Oct 2009.9 10. products such as electron transport layer (ETL).000 (target PE 18x the 2011F-2012F average EPS). 2011 / W97.269 12 .7 (x) 8.1 10. CFA 82-2-3276-6178 jongwoo.520.261 5.0 12.6 PBR (x) 1. As Cheil’s forte lies in large panels rather than mobile panels. The bottom line is unlikely to turn profitable in 2011 but the operating margin should climb to 8% in 2012F.019 5.4 6. After Sep.5) 103. in that order. It is also positive that Cheil’s organization has stabilized with the completion of the post-merger integration process after taking over its subsidiary Ace Digitech. TV polarizer film business to normalize: We believe the TV polarizer film business will normalize because its production yield improved to the normal level at end-2Q11 and shipment volumes are expected to increase.7 1. Although development and production of materials for large AMOLED panels are behind schedule. AMOLED materials supply to kick off in Sep upon the completion of mass production lines: The last phase of Cheil’s AMOLED material development is testing the prototypes produced at the mass production lines set for completion in Sep.000: The stock lost 19% since early Aug due to disappointing earnings and the stock market crash. (won) 2.000 (Maintain) Hopeful 4Q11 Potential dominant supplier of large AMOLED materials to Samsung: Cheil Ind.9 14. The supply of new AMOLED materials has been delayed but the start is a matter of when.3 16. polarizer and donor films.j@truefriend. Maintain BUY and TP of W140.500 won / Mkt cap: USD4.

3 4.183 74.7 83 6.6 384 186 119 75 6.9 8.3 4.7 306 19.8 980 23.4 5.9 11.6 127 3.1 8.311 351 551 390 913 69.410 2.2 316 5.4 285 21.1 4.7 3Q11F 1.0 86 5.1 63 27 23 11 4.610 70.400 382 621 377 998 71.827 1.0 57 19 27 13 4.0 1174 19.8 92 6.5 2.1 45 3.349 18.0 118 7.3 258 20.5 2011F 5.3 (W bn.2 7.0 878 23.0 1Q10 1.547 4.2 2009 4.209 1.5 6.2 4.7 2Q10 1.4 79 6.139 2.142 3.7 7.8 4.234 370 568 273 880 71.4 65 5.4 1150 22.Display Quarterly earnings estimates 2008 Sales Electronic materials Chemicals Fashion CGS % of sales SG&A % of sales Operating profit Electronic materials Chemicals Fashion Operating margin (%) Electronic materials Chemicals Fashion EBT EBT margin (%) Net profit Net margin (%) 3.7 4.3 6.5 4Q11F 1.1 191 5.3 259 5.424 74.6 3.9 256 16.2 6.7 55 3.4 71 4.298 3.4 54 4.5 Note: K-GAAP stand-alone until 2010 and K-IFRS consolidated from 2011.982 1.9 80 6.8 6.6 341 26.4 10.7 9.4 4.2 1Q11 1.742 2.137 74.8 463 6.7 313 21.8 314 6.309 367 592 325 922 70.9 334 131 142 63 6.8 98 6.0 11. Korea Investment & Securities 13 .3 4Q10 1.481 402 650 397 1.4 2010 5.202 73.4 93 42 30 21 5.6 155 3.1 157 4.6 2Q11P 1.519 470 694 355 1.8 11.4 11.018 70.2 7.2 3.9 77 30 23 25 6.9 101 7.8 55 3.583 488 675 420 1.904 1.0 1.9 126 81 31 14 8.7 5.8 369 6.3 17.5 5.728 815 1.019 1.5 4.0 6.7 9. %) 2012F 7.571 5.3 103 36 35 29 7.534 70.9 66 5.9 97 42 43 12 7.6 4.124 2.641 1.4 267 22.5 240 95 91 47 6.261 1.3 299 21.231 1.0 558 7.7 103 41 49 13 7.774 1.6 110 7.5 7.0 264 95 124 52 6.649 2.105 74.9 573 290 189 94 8.6 4.3 3Q10 1. Source: Company data.5 4.3 9.164 321 519 311 820 70.5 5.8 3.

730 1.0 20.8 9.0 1.269 66.149 2.8 8.6 5.7 6.8 8.287 750 5.109 262 417 (51) 1.4 0.425 3.216 750 11.8 9.951 2.019 1.4 6.104 29 4.558 1.941 50 6.061 1.360 22 479 670 3.521 488 0 191 588 100 3 2.172 66.7 103.244 980 264 179 6 113 26 287 41 116 17 155 28 0 127 395 5.125 410 0 191 510 100 3 1.261 1. in investment Others C/F from financing Incr.3 15.6 19.222 104. (W bn) Sales Gross profit SG&A expense Operating profit Non-op.4 10.9 0.9 (19.7 103.4 5.4) (18.0 9.409 586 0 191 685 100 3 3.6 270 14.3 7.972 812 988 61 3.174 384 80 1 15 42 95 27 15 5 369 53 0 316 540 2012F 7.2 42.982 1.038 2012F 2013F 1.7 10.3 10. in fixed assets Net incr.970 1.093 262 417 (51) 2.146 80 444 488 1.9 22.0 20.150 334 176 2 74 42 196 27 75 20 314 56 0 259 468 2011F 5.395 55.573 1.0 6.124 1.216 (800) (1.1 12. coverage (x) D/E ratio (%) Valuation (x) PER PBR PSR EV/EBITDA 21.7 9.6 8.340 569 217 8 559 (13) Key Financial Data Fiscal year ending Dec.484 1.462 1.4 16.593 2. per share data (won) EPS BPS DPS SPS Growth (%) Sales growth OP growth NP growth EPS growth EBITDA growth (470) 1 (0) (293) (38) 31 0 (1) (39) 71 4 (470) 1 (0) (867) (47) 48 0 (1) (39) 89 5 Profitability (%) OP margin NP margin EBITDA margin ROA ROE Dividend yield Stability Net debt (W bn) Int.3 0.922 1.6 403 6.6 1.2 15.1 49.620 26 570 798 3.253 250 429 (51) 1.3 7.5 22.3 9.8 42.4 19.3 6.815 1.7 6.774 750 2009A 2010A 2011F 2012F 2013F 85.0 14.6 8.1 20.9 19. in equity Incr.3 18.3 1.312 1.1 1.5 0.9 0.6 2. in current assets Incr.570 1.3 2. (W bn) C/F from operating Net profits Depreciation Amortization Net incr.0 7.7 5.649 2.6 266 21.5 9.Display Balance Sheet Fiscal year ending Dec.0 19.013 169.850 3.448 58.7 1.654 39.616 691 83 1 59 42 88 20 60 6 686 117 0 569 915 Cash Flow Fiscal year ending Dec.119 607 292 50 62 542 292 90 1.1 274 12.165 141.2 46.149 250 431 (55) 926 1.7 8.5 15.549 2.4 0.7 0.3 9.6 8.499 Income Statement Fiscal year ending Dec.5 10.7 17.694 42 5.306 1.8 14. (W bn) Current assets Cash & cash equivalent Accounts receivable Inventory Fixed assets Investments Tangible assets Intangible assets Total assets Current liabilities Accounts payable Short-term borrowing Current portion of LT debt Long-term debt Debentures Long-term borrowings Total liabilities Paid-in capital Capital surplus Capital adjustments Retained earnings Shareholders' equity 2009A 2010A 1.1 6.5 10.257 750 9.761 2011F 1.349 573 80 1 59 42 95 27 60 6 558 95 0 463 767 2013F 8.656 122.2 3.5 260 34.944 31 684 958 4.3 10.3 4.473 1.200 18 461 562 2.015 809 344 0 191 444 100 3 1. in debts Dividends Others Increase in cash 2009A 457 127 112 19 72 127 (170) (124) 7 (8) (9) (36) (224) 0 (189) (36) 1 64 2010A 448 259 126 8 (11) 66 (274) (248) 1 16 (21) (22) (235) 0 (200) (36) 1 (61) 2011F 602 316 150 6 149 (18) (619) (470) 1 (0) (118) (32) 20 0 (0) (36) 57 3 2012F 773 463 187 7 131 (15) 2013F 1. profit Interest income FX gains Equity gains Non-op.5 0.672 1.2 9. expense Interest expense FX losses Equity losses Earnings before tax Income taxes Profit from discontinued Net profit EBITDA 2009A 2010A 4.379 3.4 25.5) 11.0 22.634 262 417 (51) 1.1 1.682 750 6.383) 14 .8 26. in W/C Others C/F from investing Capex Decr.417 35 4.

Duksan can offer a steady supply of OLED materials regardless of possible technology changes to the deposition process at 5. 2011 / W26.084 (YoY) NM 94. Larger AMOLED spurs materials market growth: As AMOLED formats get larger.056.5G and 8G lines. In particular. We have an upbeat outlook due to the following.7 67.4 29. Given this.766 2.j@truefriend.7bn Yr to Sales (W bn) 32 72 125 213 261 OP (W bn) 5 13 33 56 66 EBT (W bn) 6 13 34 57 67 NP (W bn) 5 10 31 52 61 EPS % chg.700 won / Mkt cap: USD727.0 9. (won) 251 489 1.7mn.4 34.412 (2012F earnings growth potential priced in). There is concern that it will face a threat from emerging rivals but we believe chances of its vendor share shrinking are remote. August 12.8 115.0 41.7 3.4 28.com Dec 2009A 2010A 2011F 2012F 2013F Heuiseok Jeong 82-2-3276-6277 heuiseok.4 18.5G substrate. As AMOLED panel makers make full-fledged investment in 8G lines from 2012. We estimate OLED materials sales to jump 119% YoY to W74.7 6. Duksan being equipped with the most stable mass-production lines should keep the upper hand over rivals. An 8G AMOLED substrate requires OLED materials 2.6 17. the materials market will fast expand. However. Large presence at SMD to remain intact: Duksan is an exclusive supplier of HTL to SMD. CFA 82-2-3276-6178 jongwoo. The company’s vendor share could shrink from the current level when large-size AMOLED panels are made at the phase 3 line as major rivals will pose competitive threats at that time.1 6. materials suppliers including Duksan face limited risk to sales. Unlike AMOLED equipment vendors whose orders momentum can slow with the technology shift.7 12.yoo@truefriend.com 15 . We applied the current PE 25x as the target multiple given the company’s good earnings visibility. up 116% YoY.1bn in 2011F and gain 114% YoY to W158. and expect a decent rise of 67% for 2012F.0 EBITDA (W bn) 8 22 43 67 78 P/E EV/EBITDA (x) 52.4 22.Display Duksan Hi-Metal (077360) BUY (Maintain). 2) Given rivals’ delayed entry to the HTL (hole transport layers) market. we expect the OLED materials market to grow rapidly as well.5G phase 2 line ready to be operational in 2H11 will use the same materials as phase 1 and thus chances are good that it will continue to use Duksan’s products. its supply volume would expand thanks to larger panels.1 12. Duksan should be able to hold on to its large share at Samsung Mobile Display (SMD) after 2011. SMD’s 5. which we view as tenable on the back of strong growth potential for its AMOLED materials business.1 PBR (x) 5.8 (x) 35. We peg the 2011F EPS at W1.7 11. It is difficult for a manufacturer to change a supplier of materials used at the current production line. 1) As AMOLED panels get larger.3 15.5 Jay Yoo.055 1.8-fold more than a 5.000 that equals a target PE 25x the 2011-2012F average EPS W1. the HTL market’s growth would get into high gear at the same time.000 (Maintain) OLED materials to keep thriving backed by larger AMOLED Ample upside despite demanding valuation: Duksan Hi-Metal (Duksan) currently trades at a high 2011F PE 25x.7 4. We maintain BUY and a TP of W37.3bn in 2012F. KRW727. TP: W37.5 25.5 ROE (%) 8.

0 33.5 25.7 25.9% 5. Source: Company data.1% 15.3 130.2 37.0 39.0 24.1% 8.7 13.1 32.3 27.1 24.3 76.0% 1Q11 23.7% 2010 72.5 33.4 27.0 18.6% 13.1 18.9 61.3 74.6% 33.2% 14.8 63.0% 31.3 26.9% 15.9 24.1 45.6 158.1 20.5 25.4 27.7 28.9 13. Korea Investment & Securities 16 .3% 4Q11F 37.5 27.5 27.1 18.9% 13.1 26.3 62.6% 8.7 14.9% 2Q12F 53.2% 11.9 38.8 60.3 22.4 61.3% 9.2 26.6 42.4 27.6 14.5 25.0% 3Q11F 34.3% 7.4 32.1 51.9 25.8 27.3 13.9% 12.Display OLED materials sales (won bn) 50 Ramp-up of A2 P2 Ramp-up of A2 P1 at 8G line Ramp-up of A2 P3 and A3 40 30 20 10 0 1Q10 3Q10 1Q11 3Q11F 1Q12F 3Q12F Source: Company data.2 61. 2) OLED sales figures until 2009 are based on Ludis prior to the merger with Duksan Hi-Metal.3 10.3% 10.2% 2011F 125.0% 14.3% 4.9 14.6 26.5% 56.7 61.7% 1Q12F 46.5% 5.8 24.6% 51.8% (W bn) 2012F 212.3 21.4% Note: 1) Accounting changes from K-GAAP to K-IFRS as of 2011.9 16.7 59.7% 9.3% 5.6 23.1 25.2 12.2% 10.3 26.1% 12.1 27.7% 4.7% 14.0 26.3 12.5 17.7% 3Q12F 53.4% 14.2 26.5 24.8% 10.9% 2Q11F 29.7 12. Korea Investment & Securities Quarterly earnings estimates 2009 Sales OLED Semiconductor materials COGS (% of sales) OP OP margin (%) EBT EBT margin (%) NP NP margin (%) 32.4% 4Q12F 60.4% 9.6 24.3 23.1 14.6 26.0 24.5% 14.3 26.0% 12.9 61.1 60.3% 33.0% 13.4 14.0 60.7 14.7 17.7 19.7 61.5% 56.6% 5.9% 8.3 54.5 39.

3 23.0 25.639 0 8.0 5.6 115.8 (4.558 0 1. in investment Others C/F from financing Incr.5 17.8 22.7 5.1 14.4) NM NM 37.3 6.702 489 3.0 12.5 179.0 12.4 67.048 0 3.0 16.7 35.6 28.7 3.7 6.7 34.0 29.055 3.4 31.7 67.494 1. per share data (won) EPS BPS DPS SPS Growth (%) Sales growth OP growth NP growth EPS growth EBITDA growth Profitability (%) OP margin NP margin EBITDA margin ROA ROE Dividend yield Stability Net debt (W bn) Int.1 205.4 41.5 0.5 30.7 11. in fixed assets Net incr.7 28.1 15.7 0. in debts Dividends Others Increase in cash 2009A 10 5 1 2 4 (2) (10) (7) 0 (3) 1 (0) 0 0 (12) 0 12 0 2010A 10 10 2 6 (12) 4 (28) (28) 0 3 1 (4) 9 6 2 0 0 (9) 2011F 30 31 3 6 (10) (0) (22) (11) 0 (0) (2) (9) 6 0 6 0 0 14 2012F 47 52 4 7 (16) 0 (28) (12) 0 (0) (3) (13) 5 0 5 0 0 24 2013F 59 61 4 8 (14) (0) (26) (13) 0 (0) (1) (11) (0) 0 (0) 0 0 33 Key Financial Data Fiscal year ending Dec.0 18.3 73. (W bn) Current assets Cash & cash equivalent Accounts receivable Inventory Fixed assets Investments Tangible assets Intangible assets Total assets Current liabilities Accounts payable Short-term borrowing Current portion of LT debt Long-term debt Debentures Long-term borrowings Total liabilities Paid-in capital Capital surplus Capital adjustments Retained earnings Shareholders' equity 2009A 2010A 26 14 4 4 66 15 18 30 92 16 1 6 0 6 3 2 21 5 68 (20) 21 70 22 5 7 7 90 16 44 27 112 11 3 2 3 7 1 6 18 6 76 (18) 31 93 2011F 47 19 12 12 103 19 52 29 150 13 4 0 5 12 1 10 25 6 76 (18) 62 125 2012F 2013F 90 43 21 20 121 22 60 33 211 19 8 0 8 15 2 12 34 6 76 (18) 114 177 136 76 26 26 135 25 69 35 271 15 10 0 5 18 2 14 33 6 76 (18) 175 238 Income Statement Fiscal year ending Dec.1 7.1 8.0 25.1 125.7 25.1 8.8 (3) 114.8 6 19.5 18.8 164.0 94.7 (22) 153.4 0.6 11.2 114.264 1.6 68.0 22.0 154.084 7.3 17. coverage (x) D/E ratio (%) Valuation (x) PER PBR PSR EV/EBITDA 52.864 2009A 2010A 2011F 2012F 2013F 17 .993 0 4.4 0.628 0 7.4 29.5 24.0 9. profit Interest income FX gains Equity gains Non-op. (W bn) C/F from operating Net profits Depreciation Amortization Net incr.9 10.6 14.1 11.7 98.6 25.8 (56) 184.5 6.6 24. in current assets Incr.5 3.4 56.1 4.8 34.0 41.Display Balance Sheet Fiscal year ending Dec. in W/C Others C/F from investing Capex Decr.766 5.0 26.1 (7) 3.4 69.1 12.4 0. (W bn) Sales Gross profit SG&A expense Operating profit Non-op.4 251 2.0 18.5 6.0 26.5 14.4 23.233 2. in equity Incr.7 15. expense Interest expense FX losses Equity losses Earnings before tax Income taxes Profit from discontinued Net profit EBITDA 2009A 2010A 32 12 8 5 5 1 1 2 4 2 0 0 6 1 0 5 8 72 30 17 13 2 0 0 0 2 1 1 0 13 2 0 10 22 2011F 125 48 15 33 2 0 0 0 1 0 0 0 34 3 0 31 43 2012F 213 82 26 56 2 0 0 0 1 0 0 0 57 5 0 52 67 2013F 261 97 31 66 2 1 1 0 1 0 0 0 67 6 0 61 78 Cash Flow Fiscal year ending Dec.8 3.

which has been shifting its sales portion from LCD to AMOLED equipment and from logistics systems to front-end equipment.4) 7.8 2. which minimizes the effect caused by the supply delay of vertical deposition equipment. it would not greatly affect SFA’s equipment orders.192 4. SFA’s overall new orders for equipment are expected to reach W834. the company faces limited risk from failing to supply equipment due to its a wide product mix. of which LCD-related equipment should be a mere W200bn.7 8.9mn.5 9.9 16.038 2. In addition to the vertical deposition equipment for the FMM method currently in development. SFA is making plans to supply vertical deposition equipment for the FMM method used in A3 lines in 2012. the company boasts strong product competitiveness.4 8. 2011 / W55. Even if Samsung Electronics starts investing in the oxide-TFT method for 8G AMOLEDs. In addition to the existing orders for logistic systems. We derived the TP by applying the AMOLED equipment suppliers’ target PE of 15x the 2011F and 2012F average EPS.2 EBITDA (W bn) 58 20 42 108 141 P/E EV/EBITDA (x) 9.8 31. Although it is premature to say whether every piece of equipment will be successfully developed and supplied. Maintain BUY and TP of W80. Equipment for 8G oxide-TFT and deposition methods: SFA is also preparing equipment for the oxide-TFT method when it is adopted for 8G AMOLEDs.4 11. KRW923.5G lines but technological changes have delayed their application in A3 lines.5 Jay Yoo.7 (63.yoo@truefriend. Given that SFA’s AMOLED-related equipment orders already amount to W400bn. the company should supply new equipment required for the newly implemented laser-induced thermal imaging (LITI) method.j@truefriend. August 12.9bn Yr to Sales (W bn) 431 307 423 790 975 OP (W bn) 54 15 38 103 136 EBT (W bn) 69 25 50 106 139 NP (W bn) 50 18 39 85 111 EPS % chg.731 6. (won) 5.1 7.9 (x) 6.1 2.Display SFA Engineering (056190) BUY (Maintain). At present.com Dec 2008A 2009A 2010A 2011F 2012F Heuiseok Jeong 82-2-3276-6277 heuiseok.1 1. the company already has experience with supplying plasmaenhanced chemical vapor deposition (PECVD) equipment and it is currently developing equipment for the oxide deposition process. TP: W80.2bn. To supply deposition equipment to A3 line: In 2H11. SFA is developing equipment for the SMS method that could be applied to 8G AMOLEDs.0 16.206 (YoY) 20. SFA will likely receive new orders worth W200bn from SMD.000 on SFA.2 3.500 won / Mkt cap: USD923.5 5. SFA should see its overall new orders for equipment used in AMOLED panel production jump from the mid-40% level in 2011 to more than 70% in 2012 when new orders flow in from SMD’s A3 lines and 8G lines.com 18 . Instead.9 16.6 115. SFA is now supplying blank deposition equipment and donor handlers. In 2011. As for front-end equipment. which is expanding the deposition process for its A2 lines.000: We maintain BUY and our TP of W80. CFA 82-2-3276-6178 jongwoo.2 ROE (%) 23.000 (Maintain) Large AMOLED capex projects need SFA Changes in TFT backplane and deposition technology to have limited effect: SFA Engineering’s (SFA) wide product mix gives the equipment maker a sharper competitive edge over domestic rivals.1 28.4 22.570 2. SFA is capable of adapting to the technological changes that occur when panel makers shift their capex from LCD to AMOLED or when the production of small and midsize panels expands to include large panels.0 28. Moreover.5 PBR (x) 2. SFA was preparing to supply vertical deposition equipment for 5.

7 0.4 2Q12F 204.0 270.5 158.2 2Q10 91.0 37.2 7.5 3.9 9.3 3Q10 98. Korea Investment & Securities 19 .0 1Q10 48.9 32.0 379.9 0.2 5.8 3.3 743.6 12.5 12.7) 270.7 18.0 25.4 15.8 20.4 7.4 176.4 10.0 7.9 5.4 14.0 1.8 77.6 270.1 (28.8 8.5 6.3 12.Display Quarterly earnings estimates 2008 Sales Growth (% YoY) COGS Operating profit OP margin (%) Non-OP gains EBT Net profit Net margin (%) New orders Backlog 430.9 41.7 646.2 33.0 17.4 23.9 22.0 12.5 11.2 540.9 123.4 496.7 (W bn) 2011F 789.6 409.7 2009 307.5 3.1 13.4 27.1 18.3 28.9 9.5 49.1 7.1 4.1 5.1 53.1 106.0 3.3 29.4 2010 423.5 228.5 7.5 4Q10 183.7 3.0 197.2 84.8 45.9 25.1 174.6 5.5 7.1 14.2 170.0 240.4 496.5 240.5 103.4 10.3 27.2 0.8 25.4 355.8 37.2 12.0 5.8 Note: Figures up to FY2010 based on K-GAAP.8 40.0 39.3 50.1 3.4 1Q11 134.8 86.2 4.4 9.9 175.0 299.2 0.1 210.8 149.9 10.5 3Q11F 213.5 85.8 109.8 834.2 235.8 28.0 22.3 192.9 12.8 352.5 240.5 115.9 12.8 34.6 14.2 143.7 521.0 267.0 4Q11F 237.9 254.9 68.7 114. Figures from FY2011 and onward based on K-IFRS Source: Company data.6 10.7 0.5 49.8 11.

192 15. expense Interest expense FX losses Equity losses Earnings before tax Income taxes Profit from discontinued Net profit EBITDA 2008A 2009A 2010A 431 76 22 54 22 8 6 2 7 0 1 1 69 19 0 50 58 307 37 22 15 15 5 1 3 5 0 3 2 25 7 0 18 20 423 70 32 38 17 7 1 3 5 0 3 2 50 11 0 39 42 2011F 790 143 42 103 4 9 1 3 1 0 3 2 106 21 0 85 108 2012F 975 180 44 136 4 9 1 3 1 0 3 2 139 28 0 111 141 Cash Flow Fiscal year ending Dec.7 3.4 32.0 (28.5 (110) NM 0. per share data (won) EPS BPS DPS SPS Growth (%) Sales growth OP growth NP growth EPS growth EBITDA growth Profitability (%) OP margin NP margin EBITDA margin ROA ROE Dividend yield Stability Net debt (W bn) Int.7 173. in fixed assets Net incr.0 13.7 2.400 47.6 13.7 14.5 12.038 26.559 4.4 16.9 6.302 1.0 23.0 9.0 12.8 154.3 7.8 115.583 500 54.0 (91) NM 0.Display Balance Sheet Fiscal year ending Dec.304 2008A 2009A 2010A 2011F 2012F 20 .9 14.0 115.4 18.9 5.1 16.9 9. in investment Others C/F from financing Incr.7 5.2 30. (W bn) C/F from operating Net profits Depreciation Amortization Net incr.4 20.615 500 23. (W bn) Current assets Cash & cash equivalent Accounts receivable Inventory Fixed assets Investments Tangible assets Intangible assets Total assets Current liabilities Accounts payable Short-term borrowing Current portion of LT debt Long-term debt Debentures Long-term borrowings Total liabilities Paid-in capital Capital surplus Capital adjustments Retained earnings Shareholders' equity 2008A 2009A 2010A 274 36 46 109 143 43 90 0 417 178 41 0 0 16 0 0 194 5 25 (17) 210 223 167 26 38 27 143 44 91 0 310 69 30 0 0 12 0 0 81 5 25 (17) 216 228 494 66 86 216 136 33 94 1 630 357 104 0 0 9 0 0 366 9 20 (17) 252 264 2011F 2012F 361 63 99 69 161 42 104 0 521 150 78 0 0 31 0 0 181 9 20 (17) 328 340 445 78 122 85 184 52 113 0 629 148 96 0 0 38 0 0 187 9 20 (17) 430 442 Income Statement Fiscal year ending Dec.1 10.3 7.2 8.5 8.1 0.9 22. in current assets Incr.9 2.0 1.4 11.1 11.4 4.3 0. in W/C Others C/F from investing Capex Decr.0 1.0 (169) NM 0.0 (208) NM 0.8) (63.7 21.6) (63.5 0.7 148.4 5. profit Interest income FX gains Equity gains Non-op.0 8.6 115.916 400 33.5 19.0 86.2 1.0 16.0 31. (W bn) Sales Gross profit SG&A expense Operating profit Non-op.731 19.8 13.4 1.2 31.0 5.4 21.0 11.0 (179) NM 0. in equity Incr.9 1.877 500 43.0 8.707 2.291 2.8 1.9 40.570 26. coverage (x) D/E ratio (%) Valuation (x) PER PBR PSR EV/EBITDA 5. in debts Dividends Others Increase in cash 2008A 31 50 4 0 (25) 1 27 (12) 0 46 (5) (2) (30) 0 0 (13) (17) 28 2009A (3) 18 5 0 (26) 0 6 (5) 0 12 (1) (0) (12) 0 0 (12) 0 (10) 2010A 85 39 5 0 33 8 (46) (8) 0 (30) (4) (3) 1 0 0 (4) 4 40 2011F 29 85 5 0 (87) 26 (22) (15) 0 8 (8) (6) (10) 0 (1) (9) 0 (3) 2012F 76 111 5 0 (50) 10 (52) (15) 0 (25) (9) (3) (10) 0 (1) (9) 0 15 Key Financial Data Fiscal year ending Dec.991 6.2 4.2 1.4 28.8 28.206 25.4 3.3 10.6 118.9) 37.4 14.4) (65.1 2.7) (71.5 23.

7bn in 2011F.5 6.9 43.8 ROE (%) (11.7) 29.1 (x) 12.1 7. Additional orders momentum when 8G oxide-TFT technique is adopted: We expect the oxide-TFT method to become the trendsetter in the 8G technology evolution as it costs 28% and 34% less than the current TFT-LCD and AMOLED excimer-laser annealing (ELA) and fine-metal mask (FMM) methods.938 (YoY) 0.com 21 .000 (Maintain) 8G oxide-TFT needs HDP etchers Supplying HDP etchers to SMD’s 5. Supply to A3 line to boost 2012F sales and OP 83% and 84%.0 19.3 EBITDA (W bn) 1 6 40 70 74 P/E EV/EBITDA (x) 0.yang@truefriend.5G line.000 won / Mkt cap: USD539.1 10. and 3) further orders backlog growth with the adoption of the oxide-TFT method for 8G AMOLED. (won) (178) 504 3. TP: W98. Despite the technology shift.5G production line. We estimate ICD’s HDP etcher sales to jump 26% YoY to W314. we believe ICD can continue to supply HDP etchers as oxides have more than 68% greater bond energy than hydrogenate amorphous silicone (a-Si:H) and thus.5 13.8bn and the operating margin jump to 23.4bn in 2010 to a whopping W120.5G A3 lines in early 2012.0 627.668 6.com Dec 2009A 2010A 2011F 2012F 2013F Jay Yoo. 2011 / W69.6 54. We believe related sales will likely exceed our estimate when capex projects for 8G mass-production lines get underway from 2H12F in full force.0 0. oxides require a more elaborate etching process. respectively. August 12.0 0.5G: The 2011F sales should hit W156.9 3.526 6. We estimate ICD’s HDP etcher sales to jump from W7. CFA 82-2-3276-6178 jongwoo.7 PBR (x) 0.9bn in 2013F. a sector-high). We considered: 1) potential benefits from greater AMOLED capex given its sales structure being skewed toward the panels (89% of total in 2011F.0 5.8 2.6% with the sharp increase in high-density plasma (HDP) etcher sales.7 Matthew Yang 82-2-3276-6174 matthew.7 10.yoo@truefriend. Japan’s TEL and YAC met most of SMD’s equipment demand until 4. 56% greater than 64Kcps at the current A2 lines and this will fuel ICD’s equipment supply growth. Our decent YoY growth outlook is attributed to the start of SMD’s order placements for its 5.8 77.Display ICD (040910) BUY (Maintain).8bn Yr to Sales (W bn) 8 35 157 286 344 OP (W bn) (0) 4 37 68 72 EBT (W bn) (1) 3 36 66 71 NP (W bn) (1) 3 28 50 54 EPS % chg. Our price target implies 40% upside.000: We maintain BUY and a 12M TP of W98.000 using 15x 2012F EPS. The A3 lines have a monthly capacity of 100Kcps. We applied the peak multiple LCD equipment makers received in 2004-2005 when LCD capex was aggressive. respectively: We estimate 2012F sales at W286.8mn.5G but ICD supplies more than 90% of the equipment for the 5. 2) strong sales growth in 2011F (+342% YoY) and 2012F (+83% YoY) on its HDP etcher sales to SMD’s 5.0 0. KRW539. We expect ICD to retain its dominant supply share at SMD as it will be difficult for rivals to match ICD’s large-area plasma source technology in the short-term.0 31.0 1. Maintain BUY and TP of W98.9 6.4bn and OP at W68bn.

8% 24.5 4.5 18.8 0.9 4.5 8% 80.5 12.2% 28.6 17. Korea Investment & Securities 22 .0 1.5 325% 10.0% 17.9 8.0% 18.1% 0.1 12.0% 14.7% 10.3% 10.0 24.3 2.5% 25.1 47. YoY (%) AMOLED HDP etcher Plasma asher TFT-LCD OP QoQ.8 0.9 23.0% 6.8% 12.7 4% 12.2% FY11F 156.6% 24.0 22.4 23.5G (100Kcps/month) Source: Company data .3 67.0% 12. Korea Investment & Securities Bond energy by technology (kJ/mol) 600 500 400 300 200 100 0 Poly cry stalline silicon (P-Si) Hy drogenate amorphous silicon (a-Si:H) Oxide-TFT (IGZO) Bond energy Source: Company data .0 19.Display SMD equipment orders and ICD’s HDP etcher sales (W bn) 90 80 70 60 50 40 30 20 10 0 1Q11 2Q11 3Q11F 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F A2 5.8 23.1 17.5 14.0% 36.1% 1Q12F 76.4% 3Q11F 52.7 17.7 2.9 6.7 19% 68.9% 12.0 23.3 22.9 249.0 23.7 18.0 84% 67.3 47.6 23.5% 10.8 342% 139.0 68.4 3.0% 66.5 37. Korea Investment & Securities Quarterly earnings estimates FY10 Sales QoQ.0 764% 34.6 20.3 120.5G phase 1.4 0.3% 5.4% 24.4 0.7 37% 74.7 3.9% 13. YoY (%) AMOLED TFT-LCD OP margin (%) AMOLED TFT-LCD EBT EBT margin (%) NP NP margin (%) 35.7 0.0% 4.3 NM 0.1 131% 28.0 12.4 17.5 -29% 54.7 0.5 23.5 12.5 87% 52.0% 14.1 22.0% 1.2% 3Q12F 74.5% (W bn) FY12F 286.6% 12.7 0.0 23.7% 10.2.2 18.2% 4Q11F 64.4 17.0 14.8 1% 1.5% 12.1% 1.5 5.2% 50.1 17.4 263% 6.7 37.8 8.2 0.3 43% 18.0 18.3 18.1% 14.0 8.4% 2Q12F 54.6 22.4 7.0% 17.1% 2Q11 28.0 14.6% 2.8 23.6% 23.2 10.8% 22.7% 11.1 24.2% 10.6% 9.9 27.1% 4Q12F 80.9% 27.6% Source: Company data .0 26.7 23.0 0.1 0.3 (96Kcps/month) A3 5.0 4% 19.9% 26.0% 1Q11 12.0 6.8 8.0 7.2 71% 12.1 0.0% 12.7 -29% 12.4 0.0 26.2% 2.3 0.0 18.0% 13.2 0.3 22.1 120% 14.2 22% 46.4 83% 276.0 23% 17.2 74.6% 10.5 7.4 17.4% 23.0 1.9 8.1 23.3 60.6% 14.5 1.

6 18. (W bn) Sales Gross profit SG&A expense Operating profit Non-op.668 11.5 28.0 0.7 342.6 18.7 900.5 10. (W bn) C/F from operating Net profit Depreciation Amortization Net incr.388 0 2009A 2010A 2011F 2012F 2013F Others C/F from financing Incr.8 1.0 16.7 12 159.0 23.9 3.8 17.Display Balance Sheet Fiscal year ending Dec.0 (178) 1.0 472.1 2.4) 324. in intangible 2009A (0) (1) 0 1 (1) 1 (1) (0) 0 (0) (1) 0 1 0 1 0 0 0 (0) 2010A 10 3 0 1 1 5 (7) (7) 0 0 (0) 0 (0) 0 (0) 0 0 0 3 2011F (11) 28 3 0 (47) 5 (15) (7) 0 0 0 (8) 46 52 (6) 0 0 0 21 2012F 11 50 2 0 (42) 1 (12) (10) 0 0 0 (2) 0 0 0 0 0 0 (2) 2013F 40 54 2 0 (16) 0 (7) (5) 0 0 0 (2) 0 0 0 0 0 0 33 Key Financial Data Fiscal year ending Dec.9 43.0 (49.5 19.6 0.0 12.6 24.0 12.1 5.0 15.1 8.6 21.1) (12.1 25.5 627. in W/C Others C/F from investing CAPEX Decr.4 20.6 82.9 0. in debts Dividends Others C/F from others Increase in cash 23 .0 0.0 9 113.6 31.7 0.9 (14) 5.6 6.526 18.0 1.3 6.8 29.0 54. expense Interest expense FX losses Equity losses Earnings before tax Income taxes Profit from discontinued Net profit EBITDA 2009A 2010A 8 2 2 0 (0) 0 0 1 1 (0) 0 (1) (0) (1) 0 (1) 1 35 10 6 0 4 0 0 1 1 (0) 0 3 0 3 0 3 6 2011F 157 53 16 0 37 0 0 1 1 (0) 0 36 8 28 0 16 40 2012F 286 78 10 0 68 2 0 2 0 (2) 0 66 16 50 0 73 70 2013F 344 82 10 0 72 8 0 2 0 (2) 0 71 17 54 0 313 74 Cash Flow Fiscal year ending Dec.0 21.7) (11.0 763.7 83.8 1.0 0.970 0 3.8 (47) 4.9 77.4 13.6) 0.7 3.9 75.0 23. profit Interest income FX gains Equity gains Non-op.7 0.0 0.0 0.8 584.0) 12.440 0 504 1.0 6. in fixed assets Incr.2 (3.0 (69. (W bn) Current assets Cash & cash equivalent Accounts receivable Inventory Fixed assets Investments Tangible assets Intangible assets Total assets Current liabilities Accounts payable Short-term borrowing Current portion of LT debt Long-term debt Debentures Long-term borrowings Total liabilities Paid-in capital Capital surplus Capital adjustments Retained earnings Shareholders' equity 2009A 2010A 12 0 8 2 13 0 5 8 25 14 3 9 3 2 1 0 17 3 2 0 4 8 28 3 13 10 19 0 11 7 47 28 11 6 0 8 3 3 36 3 2 0 6 11 2011F 129 24 59 45 26 0 18 7 155 62 44 6 0 2 0 2 63 4 54 0 35 92 2012F 2013F 214 22 108 83 36 0 28 7 250 106 88 6 0 2 0 2 108 4 54 0 85 142 285 55 129 99 41 0 33 7 326 128 111 6 0 2 0 2 130 4 54 0 139 196 Income Statement Fiscal year ending Dec.5 24.2 (16) 8.924 0 6.9 7.0 0.2 6. per share data (KRW) EPS BPS DPS Growth (%) Sales growth OP growth NP growth EPS growth EBITDA growth Profitability (%) OP margin NP margin EBITDA margin ROA ROE Dividend yield Stability Net debt (W bn) Debt/equity ratio (%) Valuation (X) PER PBR PSR EV/EBITDA 0.3 6.5 7.0 0.9 77.2 (2.0 0.0 0.7) 0.938 25.450 0 6.0 0.1 10. in equity Incr. in investment Net assets incr.

Its orders momentum remains intact for 5.8 (x) 1. As such.0 8. AP Systems exclusively supplies ELA equipment to SMD’s AMOLED line. the 8G process is likely to introduce non-laser SMS (small-mask system) deposition.5 3. The stock’s 2011F PE stands at 17x compared to the average 14x among AMOLED equipment vendors.2 NA 17.5G.j@truefriend. The company is less likely to win new orders for 8G as large AMOLED panels go mainstream. AP Systems’ front-end equipment orders momentum will likely fizzle out after 5.0bn Yr to Dec Sales (W bn) 20 92 145 251 406 OP (W bn) 1 4 4 20 39 EBT (W bn) 3 0 1 20 37 NP (W bn) 4 2 (4) 18 34 EPS % chg.4) NA 93. We believe AP Systems will exclusively supply ELA equipment to SMD’s 5. departing from LTPS that 5.2 EBITDA (W bn) 3 10 16 33 49 P/E EV/EBITDA (x) 10. Moreover.9 16. Besides.5G.9 Jay Yoo. SMD is likely to introduce oxide method to the backplane process starting with 8G. AP Systems should be SMD’s exclusive supplier of laser deposition equipment as it is the only Korean company with the technology.5G but we call for a prudent approach to AP System.0 4.2) 26. AMOLED panels must feature a high level of brightness and uniformity and thus go through the LTPS (low temperature polysilicon) process that converts a-Si backplane to poly-Si.5G line.8 42.589 (YoY) NA (73. the company sells SMD encapsulation equipment that applies a glass cap to prevent oxidation and moisture deformation in OLED materials.0 2.yoo@truefriend.7 0.5G partly uses laser deposition technology. for its large AMOLED segment.0 2. we believe the stock is overvalued.4 33.5 9. AP Systems is likely to win laser deposition equipment orders for the 5. But we expect orders momentum to slow as SMD is shifting toward large-size AMOLED panels. ELA equipment formulates poly-Si during the TFT LTPS process.com 24 . (won) 466 124 823 1.Display AP Systems (054620) Not rated Momentum to boom for SMD’s 5.5G line (up to A3) as SMD has no other ELA equipment vendors.0mn. Given high earnings volatility or sensitivity to orders momentum inherent to equipment makers.300 won / Mkt cap: USD308.2 (6.5G and earlier generations used.5G capex: SMD is ready to apply LTPS technology for the AMOLED 5. Orders momentum likely to weaken for 8G AMOLED: The stock gained 114% from the trough in Dec 2010 on mounting orders momentum where AP Systems would sell ELA and laser deposition equipment for SMD’s 5. August 12.0 6. CFA 82-2-3276-6178 jongwoo.5G A2 P3 line.4 ROE (%) 9.0) Heuiseok Jeong 82-2-3276-6277 heuiseok. not capitalintensive LTPS and LITI.2 PBR (x) 1.5G capex but burst for 8G SMD AMOLED equipment supplier: AP Systems supplies Samsung Mobile Display (SMD) with AMOLED equipment such as ELA (excimer laser annealing) and glass-type encapsulation.5G A3 line to increase brightness and uniformity of substrates.5 1. 2011 / W14. KRW308. Largest beneficiary of SMD’s 5. SMD plans to partly introduce LITI (laser-induced thermal imaging) technology for the organic materials deposition process at the 5.com 2008A 2009A 2010A 2011F 2012F NA (260. While 5. Chances are SMD will introduce more cost-competitive technologies.

8 2. More and more manufacturers of displays and touch panels are adopting sputters loaded with AKT’s rotary-type target. consumption of the IGZO target will be multiple times greater than for ITO target. the leading supplier of polishing slurries and CMP pads in the world. which should benefit ANP.950 won / Mkt cap: USD127.3 10. CMP (chemical mechanical planarization) slurries and silver pastes.3 Moonsung Kang 82-2-3276-6235 mskang@truefriend.7 29. flat panel displays such as LCD and touch panels. (won) 900 1. ANP’s sales break down to 56% TCO target for solar cells. TCO target is now used mainly to make transparent electrodes for solar cells.1bn Yr to Dec 2009A 2010A 2011F 2012F 2013F Sales (W bn) 20 28 40 57 77 OP (W bn) 5 9 12 17 22 EBT (W bn) 5 8 11 17 22 NP (W bn) 5 7 9 14 17 EPS % chg. and its application will expand when oxide TFT technology enters the industry.5 5. respectively. 20% TCO target for displays and 9% CMP slurries. not if. the display TCO target should emerge as a main sales driver. Chances are the sluggishness will continue given the unfavorable solar PV industry conditions.1mn.9 (x) NM NM 11. August 12.8 EBITDA (W bn) 7 10 13 19 25 P/E EV/EBITDA (x) NM NM 14. KRW127. As such.7 29. 2011 / W18.1 ROE (%) 31. Nonetheless.311 1. we believe the full-year guidance is easily achievable backed by seasonally strong demand in 2H and likely substantial growth of TCO target sales for displays. The figures met 39% and 36% of the company’s full-year guidance (W39bn sales and W11bn operating profit) due to poorer-than-expected sales of its flagship TCO target for solar cells.327 1.1 7. TCO target is sluggish for solar cells but promising for displays: ANP’s 1H11 sales and operating profit came in at W15bn and W4bn.com 25 . a vendor to AKT. The adoption of oxide semiconductor in the backplane would lead to a significant increase in demand for TCO target using indium gallium zinc oxide (IGZO) as a material.1 31.2 30. Oxide semiconductor is known to be crucial for flexible display fabrication.000 (Maintain) Biggest gainer from probable adoption of oxide semiconductor in display technology Transparent conductive oxide (TCO) target maker: Having a source technology for nano-sized powder.8 2.5 P/B (x) NM NM 3.1 28.5 7. ANP sells intermediate materials to Cabot Microelectronics. CMP slurries are used to polish semiconductor wafers.872 2. When adopted. Silver pastes are used in the formation of electrodes for crystalline silicon solar cells and product testing is ongoing at Chinese and Taiwanese companies. We expect the positive changes to become visible in 2H11 and in 2012.Display Advanced Nano Products (121600) BUY (Maintain). we believe the use of oxide semiconductor in the display process is a matter of when. To benefit from probable adoption of oxide semiconductor in display backplane technology: Oxide semiconductor is gradually being adopted in display backplane technology as LCD goes high-definition and AMOLED grows larger.9 45.2 41. TP: W25.410 (YoY) 72. Advanced Nano Products (ANP) makes electronic materials targeting TCO (transparent-conductive oxides).7 1.

000: We maintain BUY with a price target of W25. The premium is justified by expectations for sustainable growth fueled by: 1) display targets growth. 2) probable adoption of oxide semiconductor in the display backplane process.Display Maintain BUY with TP W25. and 3) diverse growth drivers such as silver pastes. We peg the company’s earnings CAGR at 37% over the next three years and give a target PE of 17x. The stock trades at 2011F PE of 14x that is a premium to the market average.000(TP equals target PE 17x 12 fwd EPS). 26 .

1 18.4 25.4 33.Display Balance Sheet Fiscal year ending Dec. expense Interest expense FX losses Equity losses Earnings before tax Income taxes Profit from discontinued Net profit EBITDA 2009A 2010A 20 9 4 5 2 0 1 0 2 1 1 0 5 0 0 5 7 28 14 5 9 1 0 1 0 2 1 1 0 8 1 0 7 10 2011F 40 19 8 12 0 0 0 0 1 1 0 0 11 2 0 9 13 2012F 57 27 10 17 1 0 0 0 1 1 0 0 17 3 0 14 19 2013F 77 35 13 22 1 0 0 0 1 1 0 0 22 5 0 17 25 Cash Flow Fiscal year ending Dec.3 0.0 33.8 31.676 0 5.3 11.3 3.2 0.2 16.410 9.1 2.8 5.5 29.231 0 38.9 40.311 4.295 1.5 16 8.1 48.9 98.0 39.1 72. profit Interest income FX gains Equity gains Non-op.6 33.6 32.7 30. in debts Dividends Others Increase in cash 2009A (2) 5 1 0 (8) 0 (6) (6) 0 0 (0) (1) 8 0 8 0 0 0 2010A 7 7 1 0 (2) 1 (8) (7) 0 0 0 (1) 3 2 1 0 (0) 2 2011F 8 9 1 0 (3) 0 (8) (8) 0 (0) (0) 0 1 1 0 0 0 1 2012F 8 14 2 0 (8) 0 (3) (2) 0 (0) (0) (1) (2) 0 (2) 0 0 3 2013F 10 17 3 0 (11) 0 (4) (3) 0 (0) (0) (1) (3) 0 (3) 0 0 3 Key Financial Data Fiscal year ending Dec.3 47.5 10.686 2009A 2010A 2011F 2012F 2013F 27 .4 46.5 7.8 3. in investment Others C/F from financing Incr.1 NM 31.2 45.7 NM 29.7 30.8 30.8 23.9 47.3 32.0 28.9 2.1 1.8 2.7 54.9 46.2 23.976 0 5. in fixed assets Net incr.3 31.872 6.138 0 10. (W bn) C/F from operating Net profits Depreciation Amortization Net incr.1 45.2 16 12.7 2 39.1 24.1 900 3. per share data (won) EPS BPS DPS SPS Growth (%) Sales growth OP growth NP growth EPS growth EBITDA growth Profitability (%) OP margin NP margin EBITDA margin ROA ROE Dividend yield Stability Net debt (W bn) Int.937 2. in current assets Incr.9 19.4 14 15.327 4.0 28. (W bn) Sales Gross profit SG&A expense Operating profit Non-op.2 30.3 15.3 171.0 42.0 29.677 1. in equity Incr. coverage (x) D/E ratio (%) Valuation (x) PER PBR PSR EV/EBITDA NM NM NM NM NM NM NM NM 14.7 0.7 48.8 36.1 1.674 1.1 29. (W bn) Current assets Cash & cash equivalent Accounts receivable Inventory Fixed assets Investments Tangible assets Intangible assets Total assets Current liabilities Accounts payable Short-term borrowing Current portion of LT debt Long-term debt Debentures Long-term borrowings Total liabilities Paid-in capital Capital surplus Capital adjustments Retained earnings Shareholders' equity 2009A 2010A 23 2 4 16 15 0 14 1 38 11 0 8 1 10 1 7 20 3 5 0 10 17 28 3 8 16 21 0 19 1 49 11 0 5 2 13 2 9 23 3 7 0 17 26 2011F 35 4 10 19 28 0 26 1 62 12 1 5 1 13 2 9 25 4 8 0 26 37 2012F 2013F 47 7 13 25 28 0 26 2 75 11 1 3 1 13 2 9 24 4 8 0 39 51 61 10 17 32 29 0 26 2 90 10 2 3 0 12 2 7 22 4 8 0 57 68 Income Statement Fiscal year ending Dec.0 63.8 21.2 9 25. in W/C Others C/F from investing Capex Decr.5 41.8 28.6 29.4 7.3 67.3 72.5 22.796 0 7.9 23.4 34.8 15.3 34.

000 W101.Display Changes to recommendation and price target Company (Code) Cheil Ind. 000 60. 000 25.000 W115.000 W130. 000 160. 000 120. 000 30. 000 0 A u g -09 D ec-09 A p r-10 A u g -10 D ec-10 A p r-11 A u g -09 D ec-09 A p r-10 A u g -10 D ec-10 A p r-11 Advanced Nano Products(121600) 30. 000 60. 000 60. 000 100. 000 25. 000 15.000 W31. 000 40. 000 70.000 W75.000 W45. 000 0 0 A u g -09 D ec-09 A p r-10 A u g -10 D ec-10 A p r-11 40.000 W98. 000 20. 000 30. 000 100. 000 A u g -09 D ec-09 A p r-10 A u g -10 D ec-10 A p r-11 A u g -11 SFA Engineering(056190) 90. 000 5.000 W140. 000 20. 000 20.000 W80. 000 80. 000 5. 000 Duk San Hi Metal(077360) 40. 000 ICD(040910) 120. 000 40.000 W89. 000 10.000 W58.000 W75.000 Cheil Ind.000 Duk San Hi Metal (077360) Company (Code) SFA Engineering (056190) Date 08-31-09 11-08-09 10-14-10 01-16-11 02-14-11 03-20-11 07-20-11 Recommendation BUY BUY BUY BUY BUY BUY BUY Price target W52. 000 0 15.500 W37. (001300) Date 10-09-09 01-14-10 04-11-10 05-05-10 07-18-10 01-26-11 05-29-11 08-04-11 ICD (040910) 08-11-11 Recommendation BUY BUY BUY BUY BUY BUY BUY BUY BUY Price target W63. 000 20. 000 140. 000 80. 000 0 A u g -09 D ec-09 A p r-10 A u g -10 D ec-10 A p r-11 28 . 000 10. 000 80.(001300) 180. 000 20. 000 10. 000 35. 000 50.000 W165.000 Advanced Nano Products (121600) 05-04-11 BUY W25.

.. Ltd..ICD. Prepared by: Jay Yoo. The company accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Ltd. Neither the analysts covering these companies nor their associates own any shares of as of August 12. Ltd. sector ratings for the next 12 months Overweight: Recommend increasing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. Ltd. or its affiliates has not received compensation for investment banking services from the companies mentioned in this report in the past 12 months. or will be directly or indirectly related to the specific recommendations or views contained in this research report. Ltd.. There is no actual..SFA Engineering. or its affiliates does not expect to receive or intends to seek compensation for investment banking services from the companies mentioned in this report in the next 3 months. and this report cannot be used as evidence in any legal dispute related to investment decisions. Korea Investment & Securities Co. or its affiliates was not making a market in securities of the companies mentioned in this report at the time that the research report was published.. Ltd. is. 2011. 29 .. Under no circumstances is it to be used or considered as an offer to sell. or its affiliates known at the time of publication of the research report or at the time of the public appearance. This report has been prepared by Korea Investment & Securities Co.. Ltd. Korea Investment & Securities Co. Analyst Certification I/We..Duk San Hi Metal... We make no representation as to its accuracy or completeness and it should not be relied upon as such. Ltd. This material is copyrighted and may not be copied. Ltd. forwarded or altered in any way without the consent of Korea Investment & Securities Co. Korea Investment & Securities Co. Korea Investment & Securities Co. stock ratings based on absolute 12-month forward share price performance BUY: Expected to give a return of +15% or more Hold: Expected to give a return between -15% and +15% Underweight: Expected to give a return of -15% or less Guide to Korea Investment & Securities Co.Display ■ Guide to Korea Investment & Securities Co. Korea Investment & Securities Co. or a solicitation of any offer to buy. ■ ■ ■ Important Disclosures As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent month if the publication date is less than 10 calendar days after the end of the most recent month). do hereby certify that the views expressed in this research report accurately reflect my/our personal views about the subject securities and issuers discussed in this report.. Heuiseok Jeong This report was written by Korea Investment & Securities Co. has issued ELW with underlying stocks of Cheil Ind. The final investment decision is based on the client’s judgment. Korea Investment & Securities Co. Ltd. CFA. material conflict of interest of the research analyst or Korea Investment & Securities Co. Neutral: Recommend maintaining the sector’s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization. I/We do hereby also certify that no part of my/our compensation was.. Korea Investment & Securities Co. and is the liquidity provider. has not provided this report to various third parties. or its affiliates does not own 1% or more of any class of common equity securities of the companies mentioned in this report. to help its clients invest in securities. Underweight: Recommend reducing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market capitalization. or its affiliates has not managed or co-managed a public offering of securities for the companies mentioned in this report in the past 12 months. Ltd. as the research analyst/analysts who prepared this report. Ltd.Advanced Nano Products shares as of August 12. Ltd... Ltd... has lead-managed an initial public offering of the companies mentioned in this report in the past 12 months. does not own over 1% of Cheil Ind... Korea Investment & Securities Co. and is provided for information purposes only... 2011. Korea Investment & Securities Co. Ltd. redistributed..

Managing Director. Central.. No part of this report may be reproduced or distributed in any manner without permission of Korea Investment & Securities Co. or a solicitation of any offer to buy. Ltd.com. Sales (jukim@kisamerica.com +852 2530 8910) DAN SONG.com +1 212 314 0681) ELAINE LIM. Managing Director (alex. NY 10019 Fax: 1 201 592 1409 HONG KONG STEVE KIM. Suite 1110 New York. +44 207 065 2760) Korea Investment & Securities Europe. #43-04.HEAD OFFICE WON-JAE RHEE.kim@kisasia. Jardine House 1 Connaught Place. Head of HK Sales (daniel. Inc. and is provided for information purposes only. Sales (dan. Sales (jun. Executive Managing Director (wonjae@truefriend. Managing Director (dkim@kisamerica.com +65 6501 5601) ALEX JUN.kim@kisasia.com +85202530 8950) SANGME LEE. +852-2530-8900) JUN HWAN KIM. Merchandising Director (sangme.kim@kisasia. Managing Director. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication. OUB Center 048616 Singapore Fax: 65 6501 5617 LONDON JJ MOON. This report is provided solely for the information of professional investors who are expected to make their own investment decisions without undue reliance on this report and the company accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. Ltd. Under no circumstances is it to be used or considered as an offer to sell.Ltd. Sales (mingookang@kiseurope. Korea Toll free: US 1 866 258 2552 HK 800 964 464 SG 800 8211 320 Fax: 822 3276 5681~3 Telex: K2296 NEW YORK DONG KIM. Hong Kong Fax: 852-2530-1516 SINGAPORE SUNG NAMGOONG.com. Head of Sales (Elaine@kisamerica. 2011.com +65 6501 5602) Korea Investment & Securities Singapore Pte Ltd 1 Raffles Place. Suite 2201-2. Youngdeungpo-ku. Seoul 150-745. This report is not intended for the use of private investors.com +44 207 065 2765) MINGOO KANG..com +822 3276 5660) PAUL CHUNG. Ltd. we make no representation as to its accuracy or completeness and it should not be relied upon as such. Sales Trading (pchung@truefriend.com.com +822 3276 5843) 27-1 Yoido-dong. Head of Singapore Sales (snamgoong@truefriend. +852-2530-8912) Korea Investment & Securities Asia. 1350 Avenue of the Americas. 2nd Floor.jun@truefriend.com +1 212 314 0683) Korea Investment & Securities America.song@kisasia. All rights reserved. Managing Director (steve.lee@kisasia.com +852 2530 8900) DANIEL KIM. Managing Director (jamesmoon@kiseurope.com +1 212 314 0686) JU KIM. . 35 Moorgate London EC2R 6AR Fax: 44-207-236-4811 Telex: 8812237 This report has been prepared by Korea Investment & Securities Co.

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