(117 KS) Coming out with flying colors Technology Results Comment (Maintain) Buy Target Price (12M, W) 14, Share Price (1/27/15, W) 17, Expected Return 31% OP (14F, Wbn) 314 Consensus OP (14F, Wbn) 319 EPS Growth (14F, %) 551.6 Market EPS Growth (14F, %) -1.6 P/E (14F, x) 22.4 Market P/E (14F, x) 13.3 KOSPI 1,952.4 Market Cap (Wbn) 2,532 Shares Outstanding (mn) 24 Free Float (%) 59.2 Foreign Ownership (%) 1.9 Beta (12M) -.29 52-Week Low 82,2 52-Week High 15, (%) 1M 6M 12M Absolute 2.9-21.3 24.4 Relative 2.7-18. 21.7 4Q14 review: Revenue hits record high, but margins slightly miss For 4Q14, posted revenue of W1.81tr (+17.6% YoY, +1.% QoQ), and operating profit of W58bn (+.8% YoY, -43.7% QoQ). Revenue hit a quarterly high, beating our estimate of W1.72tr, buoyed by camera module revenue, which jumped to W937.6bn (+33% YoY, +48.2% QoQ) thanks to new model releases by a US smartphone maker. Operating profit, however, fell slightly behind our estimate (W59.6bn) and the consensus (W62.8bn). Despite top-line growth and favorable F/X, we believe overall profits were weighed down by the LED business. After improving to the negative singledigit level in the two previous quarters, we believe LED margins worsened to the negative double digits in 4Q14 due to weaker revenue, and inventory adjustments. We originally anticipated an OP margin of -8.3%. The company recorded a net loss attributable to controlling interests of W5.7bn (vs. pretax profit of W27.7bn), hit by W33.4bn in tax expenses. (Management expects taxes to normalize in 215.) For 1Q15, we project revenue of W1.63tr (+11.6% YoY, -1.3% QoQ) and operating profit of W65.7bn (+4.1% YoY, +13.3% QoQ). In 215, key challenge will be top-line acceleration 214 was a banner year for, which posted record operating profit of W314bn (+13.6% YoY) and OP margin of 4.9%. We believe the strong performance was driven by 1) stabilized margins thanks to a balanced customer base (4% of revenue comes from group affiliates, 3% from a US smartphone maker, and 3% from other sources), and 2) favorable F/X movements. In 215, we expect operating profit to grow 11.1% to W348.8bn. Profits should also remain stable on a quarterly basis. We are particularly bullish on s new automotive electronics business. The company s efforts to balance its mix of customers/downstream industries bode well for future growth and profits. That said, we are less optimistic on top-line growth, which is likely to remain in the single digits (+8%) in 215 (+4.1% in 214). However, growth should start to regain momentum in 2H15, on the back of the full-fledged growth of the automotive business. Maintain Buy and TP of W14, 18 16 14 12 KOSPI We reiterate Buy on with a target price of W14,. We derived our target price by applying a P/B of 1.73x (unchanged; 1% premium to the five-year average) to our 12-month forward BPS of W8,489 (down from W81,29). We keep our target price intact, as our BPS revision was insignificant. 8 1.14 5.14 9.14 1.15 Daewoo Securities Co., Ltd. [Telecom equipment/electronic components] Wonjae Park +822-768-3372 william.park@dwsec.com FY (Dec.) 12/11 12/12 12/13 12/14P 12/15F 12/16F Revenue (Wbn) 4,553 5,316 6,212 6,466 6,982 7,598 OP (Wbn) -45 77 136 314 349 424 OP margin (%) -1. 1.4 2.2 4.9 5. 5.6 NP (Wbn) -145-25 16 113 198 26 EPS -7,213-1,237 77 5,2 8,373 11,2 ROE (%) -1.4-1.9 1.2 7.5 11.1 13. P/E (x) - - 18.6 22.4 12.8 9.7 P/B (x) 1. 1.3 1.3 1.6 1.3 1.2 Notes: 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 t U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
Earnings and forecasts Table 1. 4Q14 Q14P review (Wbn, %,%p) 4Q13 4Q14P Growth 3Q1 Q14 Preliminary KDB Daewoo Consensus YoY QoQ Revenue 1,544. 1,649.3 1,815. 1,721.5 1,734.9 17.6 1. Operating profit 28.9 12.9 58. 59.6 62.8.8-43.7 OP margin 1.9 6.2 3.2 3.5 3.6 1.3-3. Pretax profit -4. 73.7 27.7 37.5 38.3 TTB -62.4 Net profit -12.6 58.4-5.7 29.7 3. RR TTR Source: WISEfn, Company data, estimates Table 2.. Quarterly and annual earnings (Wbn, %,%p) 214P 215F 4Q14 Q14P 1Q 2Q 3Q 4QP FY 1QF 2QF 3QF 4QF FY YoY QoQ Previous Diff. Tuner 62.3 58.1 58.6 53.9 232.9 55.1 59.7 62.2 55.5 232.4-4.8-8. 6. -1.2 PM 69.6 54. 53.3 53.8 23.7 45.3 46.4 56.4 53.7 21.8-25.3.9 55.3-2.6 Camera module 586.3 589.6 632.5 937.6 2,746. 746.9 722.3 681.8 937.2 3,88.3 33. 48.2 829.2 13.1 LED 263.9 281.8 283.7 219.9 1,49.3 234.2 274.5 271.9 264.8 1,45.4-1. -22.5 243.4-9.6 Wireless telecom 48.9 59.8 61.9 71.9 242.5 71. 88. 91.5 18.3 358.8 61.6 16.2 55.8 28.8 Motor 13.9 12.7 24. 25. 75.6 13.7 12.6 24. 25.1 75.4 38.1 4.2 12.6 98.1 Automotive 7.7 67.9 64. 62.5 265.1 75.4 79. 86.9 78.8 32.2-7.8-2.3 69.1-9.5 Revenue Photomask 47.2 51. 45.5 41.8 185.5 49.2 48.7 43.5 39.9 181.3-1.4-8.1 4.5 3.2 Lead frame 12.7 13. 12. 1.6 48.3 11. 11.2 1.4 9.2 41.7-13.8-11.7 11.2-5.1 Tape substrate 41.2 44.4 44.9 5.7 181.2 52. 56.1 56.7 64. 228.9 38.9 12.9 32.7 54.9 PCB 78.1 75.9 12.4 95.6 352. 76.5 77.8 15.4 98.8 358.6 14.2-6.6 86. 11.2 Package 65.6 75.6 77.6 81. 299.8 77.8 86.6 86.7 88.8 339.9 24.2 4.4 82.2-1.4 Touch window 18.8 164.8 27. 139.1 619.7 135.4 159.9 173.8 113.1 582.3 5.5-32.8 151.4-8.1 Other -1.4-5.7-18.1-28.4-62.6-15.7-17. -19.8-2.2-72.6-987.5 56.9-7.8 266.5 Total 1,458.8 1,542.9 1,649.3 1,815. 6,466. 1,628. 1,75.8 1,731.4 1,917.1 6,982.3 17.6 1. 1,721.5 5.4 Operating profit 63.1 89.9 12.9 58. 314. 65.7 82.5 14.5 96.2 348.8.8-43.6 59.6-2.6 OP margin 4.3 5.8 6.2 3.2 4.9 4. 4.8 6. 5. 5. 1.3-3. 3.5 -.3 Pretax profit 34.7 55.4 73.7 27.7 191.5 41.4 59.4 82.5 74. 257.4-797.9-62.5 37.5-26.2 Net profit 16.4 43.6 58.4-5.7 112.7 31.9 45.8 63.5 57. 198.2-54.9-19.7 29.7 - Pretax margin 2.4 3.6 4.5 1.5 3. 2.5 3.5 4.8 3.9 3.7 1.8-2.9 2.2 -.7 Net margin 1.1 2.8 3.5 -.3 1.7 2. 2.7 3.7 3. 2.8.5-3.9 1.7-2. Source: Company data, estimates Table 3. Earnings forecast revisions 14P Previous 15F 16F 14P Revised 15F 16F 14P % chg. 15F 16F Notes Revenue 6,373 6,886 7,557 6,466 6,982 7,598 1.5 1.4.5 - Robust camera module business Operating profit 316 336 42 314 349 424 -.5 4. 1. - Margin stabilization Pretax profit 21 245 34 192 257 343-4.9 4.9.8 Net profit 148 194 265 113 198 26-23.9 2.2-1.8 - Higher taxes EPS 6,495 8,193 11,198 5,1 8,373 11,2-23. 2.2-1.8 OP margin 5. 4.9 5.6 4.9 5. 5.6 -.1.1. Pretax margin 3.2 3.6 4.5 3. 3.7 4.5 -.2.1. Net margin 2.3 2.8 3.5 1.7 2.8 3.4 -.6. -.1 Source: Company data, estimates (Wbn, W, %, %p) 2
Key charts Figure 1. Share performance Source: Figure 2. Quarterly revenue and OP margin (Wbn) (%) 2, Revenue (L) 4Q14revenue hits record high; 1 OP margin of 3.2% (-3.%p QoQ) OP margin (R) 1,4 5 7 1Q5 1Q6 1Q7 1Q8 1Q9 1Q1 1Q11 1Q12 1Q13 1Q14 1Q15F -5 Source: Company Data, Figure 3. Quarterly operating profit (Wbn) 15 89.9 12.9 82.5 14.5 96.2 55.7 63.1 58. 65.7 5 15.8 35.7 28.9 1Q13 3Q 1Q14 3Q 1Q15F 3QF Source: Company Date, 3
Figure 4. Share price and operating profit consensus trends Figure 5. LED revenue and OP margin (Wbn) 9 4Q14 OP Consensus (L) Share price (R) 16, (Wbn) LED revenue (L) LED OP margin (R) (%) 4 1 8 14, 12, 3 Slugish 4Q14 performance 2-1 7, 8, -2 6 1/14 3/14 5/14 7/14 9/14 11/14 6, 1Q9 1Q1 1Q11 1Q12 1Q13 1Q14 1Q15F -3 Source: Bloomberg, Source: Company data, Figure 6. US$/W trend Figure 7. Annual revenue growth and operating profit (4/1/13=) 4Qaverage US$/W: 11 US$/W 1,83 1,62 as of 1/1/14; 1,79 as of 12/31/14 (Wbn) Operating profit (L) Revenue growth (R) (%) 4 6 348.8 314. 19.2 2 156.5 3 129.9 136.2 77.2 8. 37. 37.4 4.1 9-45.1 8 4/13 7/13 1/13 1/14 4/14 7/14 1/14 Source: Thomson Reuters, -2 26 29 212 215F Source: Thomson Reuters, -3 Figure 8. 12-month forward P/B band Figure 9. 12-month forward P/E band 25, 2, 15,, 2.4x 2.x 1.7x 1.3x 1.x 25, 2, 15,, 24.x 21.x 18.x 15.x 12.x 5, 5, 9 1 11 12 13 14 15 9 1 11 12 13 14 15 Source: Source: 4
APPENDIX 1 Important Disclosures & Disclaimers 2-Year Rating and Target Price History Company (Code) Date Rating Target Price (117) 1/29/214 Buy 14, 1/1/214 Buy 164, 7/21/214 Buy 17, 4/29/214 Buy 138, 3/27/214 Buy 13, 7/24/213 Buy 114, 4/25/213 Buy 17, 3/31/213 Buy 97,7 2/1/213 Buy 93, 11/23/212 Buy 13, 2, 15,, 5, Jan 13 Jan 14 Jan 15 Stock Ratings Industry Ratings Buy : Relative performance of 2% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 1% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -1% and 1% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -1% Ratings and Target Price History (Share price ( ), Target price ( ), Not covered ( ), Buy ( ), Trading Buy ( ), Hold ( ), Sell ( )) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions. 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. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein. Disclaimers This report is published by Daewoo Securities Co., Ltd. ( Daewoo ), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within 5
Article 19(5) of the Financial Services and Markets Act 2 (Financial Promotion) Order 25 (the Order ), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as Relevant Persons ). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction. 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 15-716 Korea Two International Finance Centre Suites 25-212 8 Finance Street, Central Hong Kong, China 32 Park Avenue 31st Floor New York, NY 22 United States Tel: 82-2-768-326 Tel: 85-2-2845-6332 Tel: 1-212-47- Daewoo Securities (Europe) Ltd. Daewoo Securities (Singapore) Pte. Ltd. Tokyo Branch 41st Floor, Tower 42 25 Old Broad St. London EC2N 1HQ United Kingdom Six Battery Road #11-1 Singapore, 4999 7th Floor, Yusen Building 2-3-2 Marunouchi, Chiyoda-ku Tokyo -5 Japan Tel: 44-2-7982-8 Tel: 65-6671-9845 Tel: 81-3- 3211-5511 Beijing Representative Office Shanghai Representative Office Ho Chi Minh Representative Office 241A, 24th Floor, East Tower, Twin Towers B-12 Jianguomenwai Avenue Chaoyang District, Beijing 22 China Room 38T31, 38F SWFC Century Avenue Pudong New Area, Shanghai 212 China Suite 213, Saigon Trade Center 37 Ton Duc Thang St, Dist. 1, Ho Chi Minh City, Vietnam Tel: 86-1-6567-9299 Tel: 86-21-513-6392 Tel: 84-8-391-6 Daewoo Investment Advisory (Beijing) Co., Ltd. 241B, 24th Floor, East Tower, Twin Towers B-12 Jianguomenwai Avenue, Chaoyang District, Beijing 22 China Daewoo Securities (Mongolia) LLC #46, Blue Sky Tower, Peace Avenue 17 1 Khoroo, Sukhbaatar District Ulaanbaatar 1424 Mongolia PT. Daewoo Securities Indonesia Tel: 86-1-6567-9699 Tel: 976-711-87 Tel: 62-21-515-114 Equity Tower Building Lt.5 Sudirman Central Business District Jl. Jendral Sudirman Kav. 52-53, Jakarta Selatan Indonesia 1219 6