IT SW Snapshot: Businesses range from smartphones to automotive cameras

Transcription

1 (5345 KQ) Automotive camera lens to be next growth driver IT SW Company Report January 28, 214 Not Rated Target Price (12M, W) - Share Price (1/27/14, W) 26, Expected Return - OP (13F, Wbn) 27 Consensus OP (13F, Wbn) 26 EPS Growth (13F, %) 37.5 Market EPS Growth (13F, %) 4.3 P/E (13F, x) 8.3 Market P/E (13F, x) 12.2 KOSDAQ Market Cap (Wbn) 194 Shares Outstanding (mn) 7 Free Float (%) 79.9 Foreign Ownership (%) 3.5 Beta (12M) Week Low 17,75 52-Week High 32,6 (%) 1M 6M 12M Absolute Relative KOSDAQ Snapshot: Businesses range from smartphones to automotive cameras Established in 1988, produces smartphone/automotive camera-use optical lens/modules and pico projectors. As of 213, revenue contribution of smartphone camera lens reached 62%, while that of automotive camera lens stood at 16%. In addition, revenues of pico projectors, LED lens, and microlens film accounted for 17%, 12%, and 3%, respectively. In 214, we expect non-smartphone business units to drive the company s growth. Catalysts: 1) Proliferation of automotive cameras, 2) revenue growth of smartphone lens, and 3) launch of new pico projectors Proliferation of automotive cameras: has been seeing notable sales growth at its automotive camera lens division. In 4Q13, sales of automotive camera lens appear to have exceeded the W1bn mark (vs. quarterly sales of around W6bn in 1H) thanks to 1) the increasing use of rearview cameras on new autombiles and 2) rising market shares within customers. Furthermore, we expect the use of automotive camera lens and modules to expand thanks to a rise in demand for smart car systems, including around view monitoring (AVM) and high beam assistance (HBA) features. Smartphone lens to continue to serve as a cash cow: In 1Q, s largest customer will likely launch a new flagship model, which should adopt a 16MP main camera. It is also positive that the largest customer will use the (front-side) 2MP subcamera lens for which the company has a high market share. We project smartphone lens to continue to serve as a cash cow for the company thanks to the sales growths of high-end 16MP lens, mid-end 8MP lens, and front-side 2MP lens. Launch of new pico projectors: The company s largest customer is likely to launch a new pico projector-equipped smartphone model, which was initially expected in 2H13, in China in 1Q14. We expect the new model to be better received than the previous model, as: 1) it has addressed the downsides of the previous model; and 2) Chinese demand is likely be robust. will be a major beneficiary of this launch as the exclusive supplier of pico projectors to this smartphone maker. Earnings and valuation: Steady growth likely thanks to business diversification In 4Q13, we forecast revenue of W51bn (+24% YoY, -9% QoQ) and operating profit of W5.9bn (+89% YoY, -27% QoQ) under consolidated IFRS. Decreased smartphone and LED lens sales appear to have been offset by the sales growth of pico projectors and microlens film. The QoQ decline in operating profit is attributable to 1) the decreased revenue contribution of high-margin products, and 2) one-off expenses, including bonus payments. In 214, we expect non-smartphone business units, including automotive camera lens, pico projectors, and microlens films, to drive s growth. The company s shares are currently trading at 214F P/E of only 6.1x. Even under a scenario where BWs are fully converted, the company s P/E would be as low as 6.9x. Daewoo Securities Co., Ltd. [Small Cap] William Lee will.lee@dwsec.com FY (12) 12/1 12/11 12/12 12/13F 12/14F 12/15F Revenue (Wbn) OP (Wbn) OP Margin (%) NP (Wbn) EPS (W) 1, ,79 2,86 4,241 5,13 ROE (%) P/E (x) P/B (x) Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.

2 January 28, 214 Earnings forecasts by business unit Automotive cameras: riding on smart cars has been seeing notable sales growth at its automotive camera lens division. In 4Q13, automotive camera lens sales appear to have exceeded the W1bn mark (vs. quarterly sales of around W6bn in 1H) thanks to 1) the increasing use of rear-view cameras in new automobiles and 2) rising market shares within customers. The company produces automotive camera lens/modules and supplies them to Korea s major automotive parts makers. We expect the increasing use of automotive cameras to drive up demand for the company s automotive camera lens/modules. Of note, smart cars have recently been attracting keen attention. Indeed, many automakers and auto parts makers displayed smart cars and related products in the 214 CES held in Las Vegas early this year. FIgure 1. Automotive camera sales volume trend (mn cars) 15. Korea Europe USA F Source:, Figure 2. s automotive camera lens sales trend and forecast (Wbn) (%) Automotive camera (L) %YoY (R) Source:, F 14F 15F Figure 3. Changes in the revenue contribution of s automotive camera lens Pico projector 7% Automotive camera 16% LED lens 12% Microlens film 3% 13F Revenue 2,13Wbn Smartphone lens 62% Pico projector 1% Microlens film 7% LED lens 12% Automotive camera 21% 15F Revenue 3,444Wbn Smartphone lens 5% Source:, 2

3 January 28, 214 At the show, there was palpable interest in the AVM system which allows drivers to check every corner including blind spots, the HBA system that automatically switches between high or low beams according to oncoming traffic, and the head-up display (HUD) that presents data without requiring users to look away from their usual viewpoints. As vehicles increasingly go electronic, demand is expected to rise for the driver state monitoring (DSM) system which gives a warning signal when the driver dozes off, the lane departure warning (LDW) system which is designed to warn a driver when the vehicle begins to move out of its lane (unless a turn signal is on in that direction), and the parking guide system (PGS). All of these aforementioned high-tech systems require cameras (the AVM system needs four cameras to provide a 36-degree view). We project demand for car cameras and relevant modules and lenses to increase, as the US is likely to mandate installation of rear-view cameras by 215, and European car insurers charge lower premiums for cars with in-vehicle videos. We expect s car camera revenue to expand at a CAGR of more than 4%, from W32.8bn in 213 to W48.4bn in 214, and to W7.6bn in 215 (revenue contribution to increase from 16% in 213 to 21% in 215). For the time being, automotive camera systems should remain the company s major revenue generator following smartphone camera lenses. Figure 4. booth at CES 214 Figure 5. AVM Figure 6. HBA Source: Media, Source: 36 omni-view, KDB Daewoo Securities Research Source: Gentex, Figure 7. HUD Figure 8. DSM Figure 9. PGS Source: MobileCommerceNews, KDB Daewoo Securities Research Source: EmeraldInsight.com, KDB Daewoo Securities Research Source: Media, 3

4 January 28, 214 Smartphone camera lenses: 2MP lens to continue to drive revenue growth Although the high-end smartphone market has begun to slow, the overall smart device industry is anticipated to continue to expand this year, thanks to growing lower-end smartphone and tablet PC segments. In 1Q, s largest customer will likely launch a new flagship model, which should adopt a 16MP main camera. It is also positive that the largest customer will use the (front-side) 2MP subcamera lens for which the company has a high market share. We project smartphone lens to continue to serve as a cash cow for the company thanks to the sales growths of high-end 16MP lens, mid-end 8MP lens, and front-side 2MP lens. The company s smartphone lens unit has a balanced lineup of products by pixel. This year, the biggest revenue drivers of the unit are likely to be 16MP camera lenses (to be used in new highend models beginning in March), 8MP lenses (for mid-end models), and 2MP lenses (for subcameras in mid- to high-end models). Its smartphone-related revenue is forecast to rise from W132.1bn to W154.6bn in 214. Although the pace of growth will slow, the business will remain more profitable than others. Moreover, as its key customer is expected to diversify the tablet PC lineup this year, lenses for smart device are anticipated to remain the company s cash cow. Figure 1. SEC s annual smartphone shipment trend and forecast Figure 11. SEC s smartphone shipment trend by segment (mn) Smartphone shipments (L) % YoY (R) (%) (mn) Low-end (L) High-end (L) Low-end % (R) Mid-end (L) High-end % (R) (%) F 14F 15F F 14F 15F Source: SEC, Source: SEC, Figure 12. s lens sales by pixel (based on amount) Figure 13. s lens sales by pixel by pixel (based on quantity) 1% 8% 6% VGA 1M 2M 3M 5M 8M 13M 16M % 8% 6% VGA 1M 2M 3M 5M 8M 13M 16M % 2% % F 14F 4% 2% % F 14F Source:, KDB Daewoo Securities Source:, KDB Daewoo Securities 4

5 January 28, 214 Pico projector: To benefit from new model launch by its biggest customer The company s largest customer is likely to launch a new pico projector-equipped smartphone model, which was initially expected in 2H13, in China in 1Q14. In 212, the pico projector unit saw a sharp growth in revenues driven by the launch of the first model equipped with a pico projector by its biggest customer. Due to the high base of comparison and a delay in the followup model launch by the largest customer, the unit was the only one that recorded negative revenue growth among the company s business units in 213. We expect the new model to be better received than the previous model, as: 1) it has addressed the downsides of the previous model; and 2) Chinese demand is likely be robust. We expect s pico projector sales to double YoY to over W33bn this year. We believe this forecast is not overly optimistic, as 1) the estimated figure is just 25% higher than 212 results and 2) sales of the second model is likely to at least exceed those of the first model. Meanwhile, is developing projectors and screens for automotive head-up display (HUD) systems jointly with large domestic auto parts manufacturers under the government s initiative. We believe the project will provide a new growth momentum for the unit based on synergies from the company s pico projector engine and automotive camera technologies. Figure 14. World pico projector market size trend and forecast Figure 15. pico projector product line-up (Wbn) 3 25 External Embedded F 14F Source: Nikkei Electronics, Source:, Figure 16. Example of smartphone pico projector Figure 17. Example of HUD (Head Up Display) Source: Google, Source: BMW, 5

6 January 28, 214 Microlens film: To grow in line with the OLED TV market Microlens films reduce color shifts of displays. developed OLED-use microlens films and began to roll out the products in November last year. Currently, the company appears to be the only producer of microlens films for OLED in Korea. The OLED TV market being in a nascent stage is expected to grow steadily going forward. Given that the unit reported W6bn in revenue last year, despite the launch of mass production in 4Q, its revenue is expected to increase at least twice this year with margins turning positive. LED lens: Stable growth expected thanks to customer diversification s LED lens unit produces LED TV lens, LED flashes, and automotive-use LED. Due to its cost advantage, LED TV lens is mostly used in low-priced direct LED TVs. The unit s revenue is anticipated to remain on the upward trajectory through this year driven by new large domestic customers. On a positive note, the unit s revenue mix is improving with greater revenue contribution from smartphone-use LED flashes and automotive-use lens. Such a trend should also help the unit maintain stable growth this year. Figure 18. World OLED TV market size trend and forecast (US$bn) (%) OLED TV (L) YoY Growth (R) Expects avg. annual growth of 16% F 14F 15F 16F 17F 18F 1 Source: Display Search, 6

7 January 28, 214 Earnings trend and outlook Non-smartphone related units to drive up earnings in 214 In 4Q13, we forecast revenue of W51bn (+24% YoY, -9% QoQ) and operating profit of W5.9bn (+89% YoY, -27% QoQ) under consolidated K-IFRS. Decreased smartphone and LED lens sales appear to have been offset by the sales growth of pico projectors and microlens films. The QoQ decline in operating profit is attributable to 1) the decreased revenue contribution of high-margin products, and 2) one-off expenses, including bonus payments. For full year 214, we project the company s revenue at W284.bn (+33.5% YoY) and operating profit at W37bn (+36.6% YoY) under consolidated K-IFRS. In 214, we expect non-smartphone business units, including automotive camera lens, pico projectors, and microlens films, to drive s growth. In 215, revenue contribution from the smartphone lens unit is projected to fall below 5%, while contribution from the automotive camera unit is anticipated to rise above 2%. Over the long term, automotive cameras are expected to become the next growth driver for. This will replace the smartphone camera business, which is anticipated to suffer from margin deterioration amid a slowdown in downstream markets. We believe will sustain stable growth and display differentiated performances from its peers based on its efforts to diversify its product portfolio and customer base. Table 1. Quarterly and yearly earning trends and forecasts of (Wbn,%) F 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4QF F 214F Revenue Smartphone lens Automotive camera Pico projector LED lens Microlens film Operating profit OP margin Net profit NP margin Growth (YoY) Revenue Smartphone lens Automotive camera Pico projector LED lens Microlens film Operating profit -6.8 흑전 Net profit -25. 흑전 흑전 Revenue % Smartphone lens Automotive camera Pico projector LED lens Microlens film Source:, KDB Daewoo Securities 7

8 January 28, 214 Figure 19. Quarterly revenue to jump to W8bn driven by balanced growth of all divisions (Wbn) 1 8 Microlens film LED lens Pico projector Automotive camera (L) Smartphone lens Q12 3Q12 1Q13 3Q13 1Q14F 3Q14F Source: Figure 2. To maintain both top- and bottom-line growth (Wbn) (%) 4 Revenue (L) 2 OP margin (R) F 14F 15F Source: Figure 21. s big picture Source: 8

9 January 28, 214 Table 1. Earnings comparison of mobile phone camera parts suppliers Company Market cap. Revenue OP OP margin NP (Wbn,%) 12 13F 14F 12 13F 14F 12 13F 14F 12 13F 14F Digital Optic Optrontec Jahwa Elec Partron ,123 1, Mcnex Haesung Optics Largan 5,567 1,11 1,25 1, Sunny Opt. 1, ,51 1, Shenzhen 3, ,52 2, Average Note: Closing price is based on Source: Bloomberg, Table 2. Valuation comparison of mobile phone camera parts suppliers Company Market cap. ROE P/E P/B EV/EBITDA (Wbn,%) 12 13F 14F 12 13F 14F 12 13F 14F 12 13F 14F Digital Optic Optrontec Jahwa Elec Partron Mcnex Haesung Optics Largan 5, Sunny Opt. 1, Shenzhen 3, Average Note: Closing price is based on Source: Bloomberg, Figure 22. Relative share performance of domestic mobile phone camera parts makers Figure 23. Relative share performance of domestic mobile phone lens makers (-1y=1) 2 15 Partron Cammsys Nanos Optron Tech Jahwa Electronics (-1y=1) 2 15 Digital Optic Kolen Chabio & Diostech /13 4/13 7/13 1/13 1/14 Source: Wisefn, 5 1/13 4/13 7/13 1/13 1/14 Source: Wisefn, 9

10 January 28, 214 (5345 KQ/Not Rated) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/12 12/13F 12/14F 12/15F (Wbn) 12/12 12/13F 12/14F 12/15F Revenue Current Assets Cost of Sales Cash and Cash Equivalents Gross Profit AR & Other Receivables SG&A Expenses Inventories Operating Profit (Adj) Other Current Assets Operating Profit Non-Current Assets Non-Operating Profit Investments in Associates Net Financial Income Property, Plant and Equipment Net Gain from Inv in Associates Intangible Assets Pretax Profit Total Assets Income Tax Current Liabilities Profit from Continuing Operations AP & Other Payables Profit from Discontinued Operations Short-Term Financial Liabilities Net Profit Other Current Liabilities Controlling Interests Non-Current Liabilities Non-Controlling Interests Long-Term Financial Liabilities Total Comprehensive Profit Other Non-Current Liabilities Controlling Interests Total Liabilities Non-Controlling Interests Controlling Interests EBITDA Capital Stock FCF (Free Cash Flow) Capital Surplus EBITDA Margin (%) Retained Earnings Operating Profit Margin (%) Non-Controlling Interests Net Profit Margin (%) Stockholders' Equity Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F Cash Flows from Op Activities P/E (x) Net Profit P/CF (x) Non-Cash Income and Expense P/B (x) Depreciation EV/EBITDA (x) Amortization EPS (W) 2,79 2,86 4,241 5,13 Others CFPS (W) 3,59 4,88 6,487 7,662 Chg in Working Capital BPS (W) 12,6 14,13 17,998 22,754 Chg in AR & Other Receivables DPS (W) Chg in Inventories Payout ratio (%) Chg in AP & Other Payables Dividend Yield (%) Income Tax Paid Revenue Growth (%) Cash Flows from Inv Activities EBITDA Growth (%) Chg in PP&E Operating Profit Growth (%) Chg in Intangible Assets EPS Growth (%) Chg in Financial Assets 5 Accounts Receivable Turnover (x) Others 1 Inventory Turnover (x) Cash Flows from Fin Activities Accounts Payable Turnover (x) Chg in Financial Liabilities ROA (%) Chg in Equity 8 ROE (%) Dividends Paid ROIC (%) Others Liability to Equity Ratio (%) Increase (Decrease) in Cash Current Ratio (%) Beginning Balance Net Debt to Equity Ratio (%) Ending Balance Interest Coverage Ratio (x) Source: Company data, estimates 1

11 January 28, 214 APPENDIX 1 Important Disclosures & Disclaimers 2-Year Rating and Target Price History Disclosures As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of the subject company's shares outstanding. Analyst Certification The research analysts who prepared this report (the Analysts ) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. 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12 January 28, 214 KDB Daewoo Securities International Network Daewoo Securities Co. Ltd. (Seoul) Daewoo Securities (Hong Kong) Ltd. Daewoo Securities (America) Inc. Head Office 34-3 Yeouido-dong, Yeongdeungpo-gu Seoul Korea Two International Finance Centre Suites Finance Street, Central Hong Kong 32 Park Avenue, 31st Fl. New York, NY 122 United States Tel: Tel: Tel: Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Representative Office Tower 42, Level Old Broad Street London EC2N 1HQ United Kingdom 6 Battery Road, #11-1 Singapore, th Floor, Yusen Building Marunouchi, Chiyoda-ku Tokyo 1-5 Japan Tel: Tel: Tel: Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office Suite 262, Twin Towers (East) B-12 Jianguomenwai Avenue Chaoyang District, Beijing 122 China Unit 13, 28 th Floor, Hang Seng Bank Tower 1 Lujiazui Ring Road Pudong New Area, Shanghai 212 China Centec Tower Nguyen Thi Minh Khai Street Ward 6, District 3, Ho Chi Minh City Vietnam Tel: Tel: Tel: