Company Report (108320 KQ) Display NDR review: Bright earnings outlook for next year Visible short-term earnings upside KDB Daewoo Securities held a domestic NDR during September 10~12 and met 15 institutional investors. InvestorsÊ interest was predominantly on: 1) tablet PC sales trend, 2) Retina Display for laptops, and 3) the companyês growth outlook for next year. Despite an anticipated slowdown in AppleÊs sales next year, we expect the companyês revenues to be driven by: 1) growth of new tablet PCs (e.g., Amazon Kindle Fire, Microsoft Surface), 2) increasing adoption of high-resolution display panels in laptops, and 3) strong sales of TV-use driver ICs. In light of favorable earnings outlook for next year, we reiterate our Buy call on with a target price of W40,000. 2H12 Earnings guidance projects its 3Q12 revenues at W130bn with an OP margin of 11%, which is in line with our forecast of W134bn. In 4Q12, they anticipate revenues to slide QoQ to W110bn, which is still significantly higher than our estimate of W90bn. They see OP margin declining slightly QoQ to 10% in 4Q on incentive payments. For full-year 2012, expects revenues of W440bn and OP margin of 10% with Apple-related revenues accounting for 55% of its overall revenues. Also, the company maintains its projection for dividend payout at 25%. If EPS improves 30% this year, dividend yield should be 2.0%. Driver IC shipments for Apple s new ipad and ipad 2 There are concerns that ipad sales may slow going forward. Although ipad 2 sales are exceeding expectations thanks to its affordable price (US$399), sales of the new ipad are falling below expectations, raising concerns of profit deterioration at related parts makers. However, Ê shipments related to the new ipad and ipad 2 are expected to increase in 3Q, aided by a rise in the companyês ipadrelated market share. The companyês ipad-related shipments in 2Q were for 6mn units of the new ipad and 3mn units of ipad 2. In 3Q, we forecast shipments will be for 7.5mn units of the new ipad (up 25% QoQ) and 4mn units of ipad 2 (up 33% QoQ). Daewoo Securities Co., Ltd. Jonathan Hwang +822-768-4140 j.hwang@dwsec.com Brian Oh +822-768-4135 brian.oh@dwsec.com Buy (Maintain) Target Price (12M, W) 40,000 Share Price (09/12/12, W) 30,000 Expected Return (%) 33.3 EPS Growth (12F, %) 28.2 Market EPS Growth (12F, %) 12.2 P/E (12F, x) 11.4 Market P/E (12F, x) 10.5 KOSDAQ 517.52 Market Cap (Wbn) 488 Shares Outstanding (mn) 16 Avg Trading Volume (60D, '000) 157 Avg Trading Value (60D, Wbn) 5 Dividend Yield (12F, %) 2.0 Free Float (%) 72.8 52-Week Low (W) 15,800 52-Week High (W) 36,550 Beta (12M, Daily Rate of Return) 1.20 Price Return Volatility (12M Daily, %, SD) 3.9 Foreign Ownership (%) 29.9 Major Shareholder(s) Comet Network et al. (23.26%) LG Display (13%) TMK (8.22%) Price Performance (%) 1M 6M 12M Absolute -1.3-12.0 69.0 Relative -1.5-9.4 61.5 Key Business Manufacturing display-use driver-ics and T- Cons. Earnings & Valuation Metrics FY Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x) 12/10 257 38 14.7 41 2,688 39 20 27.5 12.5 2.7 9.7 12/11 301 25 8.4 33 2,047 27 22 15.6 15.2 2.3 12.3 12/12F 432 43 10.0 43 2,625 44 37 17.9 11.4 1.9 6.5 12/13F 469 50 10.7 52 3,224 52 41 18.9 9.3 1.7 5.1 12/14F 539 61 11.3 62 3,815 62 52 19.2 7.9 1.4 3.6 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, estimates 230 210 190 170 150 130 110 90 70 Share price KOSDAQ 9/11 1/12 5/12 9/12 Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.
Driver IC shipments for Apple s new ipad and ipad 2 There are concerns that ipad sales may slow going forward. Although ipad 2 sales are exceeding expectations thanks to its affordable price (US$399), sales of the new ipad are below expectations, raising concerns of profit deterioration at related parts makers. However, Ê driver IC shipments related to the new ipad and ipad 2 are expected to increase in 3Q, aided by a rise in the companyês ipad-related market share. The companyês ipad-related shipments in 2Q were for 6mn units of the new ipad and 3mn units of ipad 2. In 3Q, we forecast shipments will be for 7.5 mn units of the new ipad (up 25% QoQ) and 4mn units of ipad 2 (up 33% QoQ). Supply of parts for non-ipad tablets will not supply for the initial production of the ipad Mini. The company plans to focus on the production of high-margin parts for the new ipad and ipad 2, as it is difficult to secure additional capacity at its outsourced foundries. Since the company has already developed parts for the ipad Mini, it will be ready to supply them when it secures capacity at the foundries. Meanwhile, the company is set to supply for the recently announced Amazon Kindle Fire and Microsoft Surface. In addition, the company is expected to supply for GoogleÊs Nexus tablet PC. Apple not the only source of growth In 1H12, Apple sold a total of 29mn ipads, up 107% YoY. Full-year sales volume is expected to increase 61% to 65mn units in 2012, but decelerate in 2013, growing just 16% to 75mn units. In contrast, non-ipad tablets are forecast to see stronger growth in 2013, increasing 100% YoY from 35mn units in 2012 to 70mn units in 2013. Overall, tablet PCs are expected to continue robust growth, with sales volume increasing 45% in 2013. We expect more notebooks adopting high resolution display panels. Apple incorporated a 15- inch Retina display for its Macbook Pro and is projected to release a 13-inch version as well. Also, the hybrid notebooks showcased at the IFA 2012 (Sony VAIO Duo 11, SamsungÊs ATIV Smart PC, etc.) should also support notebook demand following the release of Microsoft Windows 8. We also project stronger top-line growth for Ê TV component business in 2013. The divisionês contribution to total revenues should rise sharply to 10% in 2013 from just 2% in 2012. And in light of LG DisplayÊs recent equity investment in, we believe the two companies will further strengthen their partnership for TV component development. Table 1. Earnings trend and forecast (under non-consolidated K-IFRS) (Wbn, %) 1Q12 2Q12 3Q12F 4Q12F 1Q13F 2Q13F 3Q13F 4Q13F 2011 2012F 2013F Revenues 86 122 134 90 90 120 144 116 301 432 469 COF D-IC 23 20 21 18 16 18 21 18 60 82 74 COG D-IC 37 71 82 46 45 69 85 65 126 237 264 T-Con 14 16 17 14 14 17 20 16 70 61 67 PMIC 7 8 9 7 9 10 12 10 26 31 41 Others 5 6 5 5 5 6 6 6 19 21 24 Proportion of sales 100 100 100 100 100 100 100 100 100 100 100 COF D-IC 27 17 16 20 17 15 15 16 20 19 16 COG D-IC 43 58 61 52 50 57 59 57 42 55 56 T-Con 17 13 12 15 16 14 14 14 23 14 14 PMIC 8 7 7 8 10 8 8 8 9 7 9 Others 6 5 4 5 6 5 4 5 6 5 5 Operating profit 7.8 13.5 14.7 7.1 7.2 13.1 18.0 11.9 25.3 43.2 50.3 OP margin 9.1 11.1 11.0 8.0 8.0 10.9 12.6 10.3 8.4 10.0 10.7 Net profit 9.2 10.7 14.7 8.0 8.3 13.6 18.0 12.5 33.2 42.7 52.4 Net margin 10.8 8.8 11.0 9.0 9.2 11.3 12.6 10.8 11.0 9.9 11.2 Source: Company data, 2
Table 2. Specifications of Amazon Kindle Fire series Amazon Product Kindle Fire HD 8.9 Kindle Fire HD 8.9 Kindle Fire HD 7 Kindle Fire Processor 1.5GHz dual-core TI OMAP 4470 1.5GHz dual-core TI OMAP 4470 1.2GHz dual-core TI OMAP 4460 1.2GHz dual-core TI OMAP 4430 OS Skinned Android 4.0 Skinned Android 4.0 Skinned Android 4.0 Skinned Android 4.0 Display 8.9" IPS LCD 8.9" IPS LCD 7" IPS LCD 7" IPS LCD Resolution 1920x1200 (RGB) 1920x1200 (RGB) 1280x800 (RGB) 1024x600 (169ppi, RGB) RAM 1GB 1GB 1GB 1GB Storage 32GB/64GB 16GB/32GB 16GB/32GB 8GB Wireless 4G LTE, Bluetooth, HDMI Wi-Fi, Bluetooth, HDMI Wi-Fi, Bluetooth, HDMI Wi-Fi Camera Front: - Rear:? Front: - Rear:? Front: - Rear:? Battery - - 11 hours 8.5 hours Size (HxWxD) 9.45x6.5x0.35" 9.45x6.5x0.35" 7.6x5.4x0.4" 7.44x4.72x0.45" Weight 570g 570g 394g 400g Price $499 $299 $199 $159 Release date Nov 2011 Nov 2011 Nov 2011 Nov 2011 Source: Company data, Phone Arena, - Table 3. Specifications of Google Nexus 7 and Microsoft Surface Google Microsoft Product Nexus7 Surface for Windows RT Surface for Windows 8 Pro Processor 1.3MHz NVIDIA quad-core Tegra 3 NVIDIA Tegra-based ARM chip Intel Core i5 (Ivy Bridge) OS Android 4.1 (Jelly Bean) Windows RT Windows 8 Pro Display 7" HD IPS LCD capacitive 10.6" ClearType HD capacitive touch panel 10.6" ClearType Full HD capacitive touch panel Resolution 1280x800 (216ppi, RGB) 1280x720 (139ppi, RGB) 1920x1080 (208ppi, RGB) RAM 1GB?? Storage 8/16GB 32GB/64GB 64GB/128GB Wireless Wi-Fi, Bluetooth?? Camera Front: 1.2MP Rear: -?? Battery 4235mAh 31.5Wh 42Wh Size (HxWxD) 198.5x120x10.45mm 9.3mm thickness 13.5mm thickness Weight 340g 676g 903g Price $199/$245?? Release date Jul 2012 4Q12 4Q12 Source: Company data, Phone Arena, 3
Table 4. Specifications of Samsung Electronics ATIV Smart PC and Sony Vaio Duo 11 Samsung Electronics Sony Product ATIV Smart PC ATIV Smart PC Pro Vaio Duo 11 Processor Intel Atom (Clover Trail) Intel Core i5 (Ivy Bridge) Intel Core i3/i5/i7 Graphic Processor Intel HD Graphic Intel HD Graphic Intel HD 4000 OS Windows 8 Windows 8 Windows 8/Windows 8 Pro Display 11.6" Super PLS 11.6 Super PLS 11.6" IPS LCD Resolution 1366x768 (135ppi, RGB) 1920x1080 (190ppi, RGB) 1920x1080 (RGB) RAM 2GB 4GB 4GB HDD 128GB 256GB 128GB/256GB Wireless Wi-Fi, Bluetooth 4.0 Wi-Fi, Bluetooth 4.0 Wi-Fi, Bluetooth 4.0 Camera Front: 2MP Rear: 8MP Front: 2MP Rear: 5MP Battery 31Wh 47Wh? Front: 2MP Rear: 2MP USB USB 2.0 USB 3.0 USB 3.0 Size (HxWxD) 304x189.4x19.9mm 304x189.4x21.89mm 320x17.85x199mm Weight 1480g 1600g 1298g Price $749~ $1,199~? Release date 4Q12 4Q12 Oct 2012 Source: Company data, The Verge, Engadget, 4
(108320 KQ/Buy/TP: W40,000) Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F Revenues 301 432 469 539 Current Assets 236 272 322 374 Cost of Sales 234 355 379 434 Cash and Cash Equivalents 115 120 149 187 Gross Profit 68 77 90 105 AR & Other Receivables 29 34 44 50 SG&A Expenses 43 34 40 44 Inventories 28 33 43 49 Operating Profit (Adj) 25 43 50 61 Other Current Assets 5 6 7 8 Operating Profit 25 43 50 61 Non-Current Assets 33 40 50 59 Non-Operating Profit 8 7 8 8 Investments in Associates 0 0 0 0 Net Financial Income -6-7 -8-9 Property, Plant and Equipment 14 13 12 11 Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 3 3 3 3 Pretax Profit 33 50 58 69 Total Assets 269 312 371 432 Income Tax 0 7 6 7 Current Liabilities 47 54 70 80 Profit from Continuing Operations 33 43 52 62 AP & Other Payables 41 48 62 71 Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 0 0 0 0 Net Profit 33 43 52 62 Other Current Liabilities 5 6 8 9 Controlling Interests 33 43 52 62 Non-Current Liabilities 1 1 2 4 Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 0 0 0 Total Comprehensive Profit 33 42 52 62 Other Non-Current Liabilities 1 1 1 3 Controlling Interests 33 42 52 62 Total Liabilities 48 56 72 84 Non-Controlling Interests 0 0 0 0 Controlling Interests 221 257 299 348 EBITDA 27 44 52 62 Capital Stock 8 8 8 8 FCF (Free Cash Flow) 22 37 41 52 Capital Surplus 67 67 67 67 EBITDA Margin (%) 9.0 10.3 11.0 11.5 Retained Earnings 146 182 225 275 Operating Profit Margin (%) 8.4 10.0 10.7 11.3 Non-Controlling Interests 0 0 0 0 Net Profit Margin (%) 11.1 9.9 11.2 11.5 Stockholders' Equity 221 257 299 348 Cash Flows (Summarized) Forecasts/Valuations (Summarized) (Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F Cash Flows from Op Activities 31 31 41 52 P/E (x) 15.2 11.4 9.3 7.9 Net Profit 33 43 52 62 P/CF (x) 14.4 11.0 9.1 7.7 Non-Cash Income and Expense 3-8 -1 0 P/B (x) 2.3 1.9 1.7 1.4 Depreciation 1 1 1 1 EV/EBITDA (x) 12.3 6.5 5.1 3.6 Amortization 1 1 1 1 EPS (W) 2,047 2,625 3,224 3,815 Others -7 10 0-1 CFPS (W) 2,170 2,716 3,302 3,890 Chg in Working Capital -5 4-5 -3 BPS (W) 13,414 15,581 18,201 21,222 Chg in AR & Other Receivables 1-3 -10-7 DPS (W) 400 600 800 1,000 Chg in Inventories -12 4-10 -6 Payout ratio (%) 18.8 22.0 23.8 25.2 Chg in AP & Other Payables 4 7 14 9 Dividend Yield (%) 1.3 2.0 2.7 3.3 Income Tax Paid -1-8 -6-7 Revenue Growth (%) 17.2 43.3 8.7 14.8 Cash Flows from Inv Activities 1-26 -3-2 EBITDA Growth (%) -29.6 62.7 16.2 20.6 Chg in PP&E -3 0 0 0 Operating Profit Growth (%) -32.5 69.8 16.5 21.3 Chg in Intangible Assets -1-1 -1-1 EPS Growth (%) -23.9 28.2 22.8 18.4 Chg in Financial Assets 6-22 0 0 Accounts Receivable Turnover (x) 10.4 14.0 12.3 11.7 Others -2-3 -2-1 Inventory Turnover (x) 13.4 14.0 12.4 11.8 Cash Flows from Fin Activities -21-1 -9-13 Accounts Payable Turnover (x) 8.7 10.9 9.7 9.2 Chg in Financial Liabilities 0 0 0 0 ROA (%) 13.0 14.7 15.3 15.4 Chg in Equity -11-1 0 0 ROE (%) 15.6 17.9 18.9 19.2 Dividends Paid -10-6 -9-13 ROIC (%) 75.6 108.1 126.9 139.9 Others 0 0 0 0 Liability to Equity Ratio (%) 21.5 21.7 24.1 24.1 Increase (Decrease) in Cash 11 5 29 38 Current Ratio (%) 504.8 501.5 461.0 465.8 Beginning Balance 105 115 120 149 Net Debt to Equity Ratio (%) -78.2-77.7-76.3-76.4 Ending Balance 115 120 149 187 Interest Coverage Ratio (x) 45,313.4 Source: Company data, estimates 5
Important Disclosures & Disclaimers 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. Stock Ratings Industry Ratings Buy Relative performance of 20% or greater Trading Buy Relative performance of 10% or greater, but with volatility Hold Relative performance of -10% and 10% Sell Relative performance of -10% Overweight Fundamentals are favorable or improving Neutral Fundamentals are steady without any material changes Underweight Fundamentals are unfavorable or worsening (W) 100,000 80,000 60,000 40,000 20,000 0 9/10 3/11 9/11 3/12 9/12 * 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 analystês 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. 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 AnalystÊs 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. 6
Distribution United Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (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 150-716 Korea Two International Finance Centre Suites 2005-2012 8 Finance Street, Central Hong Kong 600 Lexington Avenue Suite 301 New York, NY 10022 United States Tel: 82-2-768-3026 Tel: 85-2-2514-1304 Tel: 1-212-407-1022 Daewoo Securities (Europe) Ltd. Tokyo Representative Office Beijing Representative Office Tower 42, Level 41 25 Old Broad Street London EC2N 1HQ United Kingdom 7th Floor, Yusen Building 2-3-2 Marunouchi, Chiyoda-ku Tokyo 100-0005 Japan Suite 2602, Twin Towers (East) B-12 Jianguomenwai Avenue Chaoyang District, Beijing 100022 China Tel: 44-20-7982-8016 Tel: 81-3- 3211-5511 Tel: 86-10-6567-9699 Shanghai Representative Office Ho Chi Minh Representative Office Unit 13, 28 th Floor, Hang Seng Bank Tower Centec Tower 1000 Lujiazui Ring Road 72-74 Nguyen Thi Minh Khai Street Pudong New Area, Shanghai 200120 Ward 6, District 3, Ho Chi Minh City China Vietnam Tel: 86-21-5013-6392 Tel: 84-8-3910-6000 7