AMOLED (OVERWEIGHT) Sector way Update · AMOLED tablet PCs and TVs to debut in 2012: Having been powered this year by Samsung Electronics (SEC) phones, the AMOLED market should see

www.oled-display.net


December 8, 2011

Samsung Securities (Korea) www.samsungpop.com

WHAT�S THE STORY?

Event: AMOLED tablet PCs and TVs will hit the market next year, making

large and flexible AMOLED displays the new sector buzzwords.

Impact: Global supply of AMOLED panels is expected to expand 178% next

year and demand should jump 147%, mainly from Samsung Mobile Display,

top dog in the AMOLED device market.

Action: We add the AMOLED sector to our coverage, deeming several

players in the value chain worthy of attention, particularly materials maker

Duksan Hi-Metal, which should grow in tandem with AMOLED device

expansion next year, regardless of changes in panel makers� process and

application technologies.

AMOLED (OVERWEIGHT)

Larger and flexible displays on the way

THE QUICK VIEW

AMOLED supply-demand conditions to be tight in 2012: We expect an AMOLED oversupply ratio of 5.7% next year�ie, tight supply-demand tightness given set makers� normal inventory levels. On the supply side, global production of AMOLED panels should expand 147%, driven mainly by line startups at Samsung Mobile Display (SMD)�namely its A2 (phase three), A3, and V1 lines. In addition, LG Display (LGD) is considering ramping up its 8G pilot line. Taiwanese, Japanese and Chinese players are showing signs of making AMOLED capex investments, but we expect little impact on next year�s supply-demand dynamics.

AMOLED tablet PCs and TVs to debut in 2012: Having been powered this year by Samsung Electronics (SEC) phones, the AMOLED market should see renewed growth in 2012, as mobile-device makers increasingly move toward such displays, and following the launch of the world�s first AMOLED tablet PC. Mass production of AMOLED TVs may come as early as 2H12, given SEC and LGD�s commitment to launching such products. AMOLED demand will likely jump 178% in 2012.

Shift to bigger and flexible panels ahead: Alongside the increasing adoption of AMOLED panels in smartphones will come large AMOLED displays for TVs and flexible displays for mobile devices�SMD has made notable progress in preparing for the latter. Aggressive capacity expansion at the company�s 5.5G line and progress in developing large AMOLED displays should clearly benefit related suppliers of equipment and materials. We expect the unique characteristics of flexible displays (light, thin, and durable) to open up new opportunities for mobile device manufacturers, consequently benefiting their equipment and component suppliers.

OVERWEIGHT on AMOLED sector: We add the AMOLED sector to our coverage, as makers of such panels should next year begin seeing customer and application diversification. The market for AMOLED products should consequently more than double in size to KRW7.3t (from KRW3.5t in 2011). Many beneficiaries should emerge and a variety of new technologies will undergo testing�eg, in the TFT backplane, color deposition, and encapsulation processes.

Duksan Hi-Metal our top pick: Among equipment makers, the biggest beneficiaries of the AMOLED boom will be: 1) SFA Engineering, a strategic partner of SMD when it comes to local sourcing of AMOLED-process-related equipment; and 2) AP Systems, assuming that SMD opts for a laser-induced thermal imaging (LITI) process in its A3 line. That said, delayed investments in A3 lines would weaken order momentum as well as investor sentiment. Among materials makers, Duksan Hi-Metal stands out as it should grow in tandem with AMOLED device expansion next year, regardless of changes in panel makers' process and application technologies. Also poised to benefit are: 1) IGZO target manufacturer Advanced Nano Products as oxide TFT backplanes are increasingly used amid a trend toward larger panels; and 2) Samsung SDI amid rising demand for high-capacity batteries�major client SEC uses flexible AMOLED displays that allow room for bigger batteries. Our top pick for 2012 is Duksan Hi-Metal.

JungHoon Chang [email protected] 822 2020 7752

AT A GLANCE

Samsung SDI (006400 KS, KRW139,500)

KRW170,000(+21.9%)

Target price

Duksan Hi-Metal (077360 KQ, KRW27,250)

KRW36,000(+32.1%)

Target price

SFA Engineering (056190 KQ, KRW62,800)

Not ratedn/aTarget price

Wonik IPS (030530 KQ, KRW9,640)


AP Systems (054620 KQ, KRW15,300)


LTS (138690 KQ, KRW20,550)


Advanced Nano Products (121600 KQ, KRW18,950)


SectorUpdate


December 8, 2011

AMOLED

2

1. AMOLED industry overview

Supply-demand dynamics AMOLED supply outlook

Several positive news flows have recently emerged from AMOLED equipment makers,

particularly SFA Engineering and AP Systems. The two firms have respectively signed

KRW69.1b and KRW26.1b contracts to supply Samsung Mobile Display (SMD) until end-

January. Although details of the contracts cannot be revealed according to a non-

disclosure agreement, the soon-to-be-delivered equipment will likely have a connection

with SMD�s phase-three A2 (A2P3) line, as the display maker has already purchased the

equipment needed for a phase-two A2 line that is ramping up now. According to analysis

by Display Search and Display Bank, the A2P3 line will each month produce 24,000

mother glasses for flexible displays, which should appear in mobile handsets and tablet

PCs from 2H12.

Table 1. SMD�s mass production plan

Line Phase Generation Max Capacity 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

R&D 1 2 1K

A1 1 Half4 27K

A1 2 Half4 14K

A1 3 Half4 48K

A2 1 Quarter5.5 96K

A2 2 Quarter5.5 192K

A2 3 Quarter5.5 96K

A3 Flex-1 5.5 24K

A3 Flex-2 5.5 48K

V1 1 6th G8 36K

V2 1 G8 30K

Source: Samsung Securities estimates

1) AMOLED supply to jump 147% in 2012

Controlling more than 90% of the current AMOLED market, SMD is taking the initiative

in terms of expansion. Its monthly capacity to produce 4.3-inch panels at 3.5G lines was

estimated at 4m units in 2010, but more than doubled to 15m units by end-3Q11 following

the startup of a phase-one A2 line (5.5G). We expect capacity to have more than tripled by

year-end to 18m, as a phase-two A2 line has been up and running since end-May.

CONTENTS

1. AMOLED industry overview p2

2. Issues in 2012 p15

I. Price competitiveness of AMOLED

p15

II. AMOLED panel evolution p16

III. Changes in AMOLED valuechain

p17

3. Stock recommendations p27


December 8, 2011

AMOLED

3

Looking ahead to next year, SMD�s annual capacity should jump 147% to 2,596,000m2

next year (from 969,100m2 in 2011), driven by: 1) the 1H12 ramp-up of an A2P3 line; 2)

the start of an A3 line; and 3) the introduction of a V1 pilot line. We expect monthly

capacity to produce 4.3-inch displays for Galaxy S2 phones to reach 33m in 4Q12,

equating to 10m 7.7-inch displays for the Galaxy Tab, based on three assumptions: 1) that

the 3.5G A1 line will produce 44,500 per month, for use in mobile handsets and tablet PCs;

2) that the A2 line will fully ramp up to 96,000 units per month; and 3) that the A3 line

will produce 24,000 units per month. Without an A3 line ramp-up, SMD�s monthly

capacity for 4.3-inch panels would drop to an estimated 28.9m next year.

Table 2. Projected monthly phone display capacity at SMD, by line

(Million units/month) Monthly capacity

A1 A2P1 A2P2 A2P3

Half 3.5G Quarter 5.5G Quarter 5.5G Quarter 5.5G

89K 96K 192K 96K

Galaxy S 4� 4.6 7.2 14.4 7.2

GalaxyS2 4.3� 4.0 6.2 12.4 6.2

GalaxyS2 LTE 4.5� 3.6 5.7 11.4 5.7

GalaxyS2 HD LTE 4.65� 3.5 5.5 11.0 5.5

Galaxy Note 5.3� 2.6 4.0 8.0 4.0

Note: Monthly capacity based on full ramp-up; assumes that cutting yield x yield = 70%


Table 3. Projected overall monthly phone display capacity at SMD (1Q12 vs 4Q12)

(Million units/month) Jan-Mar 2012 Oct-Dec 2012

(Lines A1+A2P1+A2P2) (Lines A1+A2P1+A2P2+A2P3)

Galaxy S 26.2 33.4

GalaxyS2 22.6 28.9

GalaxyS2 LTE 20.7 26.4

GalaxyS2 HD LTE 20.0 25.5

Galaxy Note 14.6 18.7

Note: Assumes full ramp-up of A2P2 in 1Q12, full ramp-up of A2P3 in 4Q12, and no ramp-up of A3 Source: Samsung Securities estimates

Table 4. Projected monthly tablet PC display capacity at SMD, by line

(Million units/month) Monthly capacity

A1 A2P1 A2P2 A2P3

Half 3.5G Quarter 5.5G Quarter 5.5G Quarter 5.5G

89K 96K 192K 96K

Galaxy Tab 7� 1.5 2.4 4.8 2.4

Galaxy Tab 7.7 7.7� 1.2 1.9 3.8 1.9

Galaxy Tab 8.9 8.9� 0.9 1.4 2.9 1.4

iPad 9.7� 0.7 1.1 2.2 1.1

Galaxy Tab 10.1 10.1� 0.7 1.1 2.2 1.1

Note: Monthly capacity based on full ramp-up; assumes that cutting yield x yield = 70%


Table 5. Projected overall monthly tablet PC display capacity at SMD (1Q12 vs 4Q12)

(Million units//month) Jan-Mar 2012 Oct-Dec 2012

(Lines A1+A2P1+A2P2) (Lines A1+A2P1+A2P2+A2P3)

Galaxy Tab 8.6 11.0

Galaxy Tab 7.7 6.9 8.8

Galaxy Tab 8.9 5.2 6.6

iPad 4.1 5.2

Galaxy Tab 10.1 4.0 5.1

Note: Assumes full ramp-up of A2P2 in 1Q12, full ramp-up of A2P3 in 4Q12, and no ramp-up of A3 Source: Samsung Securities estimates


December 8, 2011

AMOLED

4

2) SMD

SMD recently issued KRW700b-worth of convertible bonds and unveiled a 2012 facility

investment plan involving more than KRW5t. Such an amount could double capacity at

the firm�s A2 lines, given the similar amount invested last year. SMD is unlikely to make

further investments in the mass production of TV-use panels, as its V1 line (with a

planned monthly capacity of 6,000 in 1Q12) will be able to produce AMOLED TV-use

panels.

Table 6. Recent strategic moves by Korean players in AMOLED market

Date Source News

May 27 Electronics Times Set up joint venture with Japan s Ube Kosan for polyimide production

May 31 SMD Building completion ceremony for 5.5G A2 line

Jun 20 SFA Signed a KRW45.3b contract to provide SMD AMOLED equipment

Jul 20 Yomiuri Online* Licensed patents on IGZO TFT technology invented by Professor Hideo Hosono at Tokyo Institute of Technology

Aug 12 Financial News Samsung Venture Investment has increased stake in blue fluorescent material maker SFC

Aug 22 SMD Announced strategic alliance with UDC

Sep 1 SEC Unveiled 5.3 AMOLED mobile phone (Galaxy Note) and 7.7 AMOLED tablet (Galaxy Tab 7.7) at IFA 2011 in Berlin

Sep 6 Electronics Times SMD!s 4-inch AMOLED panel production exceeds 10m/month

Sep 18 Electronics Times SMD and LGD have developed a 55 AMOLED TV panel prototype

Sep 29

Electronics Times

Ube Kosan announced USD9m investment in SUM s Tanjung factory, a JV between SMD and Ube Kosan.

SUM will start providing Samsung with polyimide materials in 1H12

Oct 10 SFA Signed a KRW53b contract to supply AMOLED equipment to SMD

Oct 17 SEC Sales of Galaxy S and Galaxy S2 exceed 30 million

Nov 1 SFA Signed a KRW69.2b contract to supply AMOLED equipment to SMD

Nov 2 Electronics Times SMD will reportedly start building its A3 fab as early as 1Q12

Nov 3 AP Systems Signed a KRW26.2b contract to supply AMOLED equipment to SMD

Nov 8 Maeil Newspaper Capex to exceed KRW5t in 2012, SMD to issue KRW1.5t worth of corporate bonds, KRW1t worth of rights next year

Nov 17 SMD SMD issued KRW700b worth of unsecured bonds to fund AMOLED facility investments

Nov 20 Electronics Times SEC and LG Electronics are planning to disclose a 55" OLED TV at Jan 2012 CES

Nov 29 SMD SMD posted KRW1.68t in 3Q11 revenue and KRW302.8 in profit, its highest ever

Nov 30 AP Systems Signed a KRW20.5b contract to supply AMOLED equipment to SMD

Nov 30 Electronics Times SEC!s equipment subsidiary Semes provided OLED equipment to SMD for the first time

Note: * Yomiuri Online story quoted by Yonhap News

Source: Company news, media reports, Samsung Securities

3) LG Display

Having made investments in its 4.5G mother glass lines (17,000/month), LG Display will

likely focus on raising production yield at its 8G line (8,000/month). The result should

determine the firm�s investment decision regarding large-sized AMOLED panels.

4) Overseas players

Toshiba Mobile Display (TMD) scrapped its AMOLED mass-production plan in Oct 2010.

However, the CEO of Japan Display�a new company to be established in Apr 2012

following the integration of small- and medium-sized display businesses at Hitachi, Sony,

and Toshiba�said recently that the company would invest KRW1.5t in 6G lines (substrate

size 1500x1800), originally acquired from Panasonic to make LTPS-based small TFT-LCD

panels�it said it could possibly shift to AMOLED production in the future.


December 8, 2011

AMOLED

5

Chart 1. Japan Display�s shareholding structure

Note: Reuters reported on Nov 15 that Canon will sell its entire stake in Hitachi Display to Hitachi

Source: Company data, Samsung Securities

Taiwanese player AU Optronics last year acquired a 100% stake in AFPD (subsidiary of

TMD in Singapore), which has a monthly LTPS capacity of 15,000 units. Chinese firm

BOE is reportedly planning to invest USD3.5b in building 5.5G AMOLED lines.

We consider the moves by Taiwanese, Japanese, and Chinese players positive for the

AMOLED market, which has so far been dominated by SMD, for two reasons. First, the

market will be able to expand further and should not follow on the heels of the PDP

market, which was controlled by a few firms and quickly replaced by LCD. Second, the

proportion of AMOLED TVs should rise if economies of scale are achieved through the

production of larger-sized panels.

Table 7. AMOLED capacity trends and forecasts, by manufacturer

(000m2) 2007 2008 2009 2010E 2011E 2012E 2013E 2014E

Korea SMD 18.2 101.8 143.1 261.0 969.1 2596.0 4693.5 6525.9

LGD 1.6 8.3 16.4 26.5 72.8 306.8 391.2 393.2

Taiwan AUO 0.5 0.5 0.5 1.5 8.0 45.8 81.8 81.8

Chimei Innolux 0.5 0.5 0.5 0.5 0.5 18.6 49.7 62.7

CMEL 1.2 3.6 12.8 14.9 14.9 14.9 14.9 14.9

Japan Panasonic 0.0 0.0 2.1 2.1 2.1 5.1 20.2 22.2

Sony 3.9 3.9 14.3 13.0 3.9 3.9 3.9 3.9

TMDisplay 0.5 0.5 0.1 0.0 1.0 25.2 32.2 32.2

China BOE 0.0 0.0 0.0 0.0 0.0 0.0 45.3 60.4

Total 26.3 119.1 189.8 319.4 1,072.3 3,016.2 5,332.8 7,197.3

Note: Based on input capacity


By the end of this year, the world�s annual AMOLED production capacity is expected to

have risen 340% to 650,100m2, most of which can be attributed to SMD�s fully

operational A2 lines. Based on input capacity, SMD�s share of the supply market in 2011 is

estimated at 90% (vs 81% in 2010). Global capacity next year should depend on the

timing of A2P3 and A3 lines going live�we expect operations to start in 1H12 and 2H12,

respectively, and foresee annual capacity expansion of 250%.

Hitachi DisplayToshiba Mobile

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Sony Mobile

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Japan Display

Innovation Network Corporation of Japan (INCJ)

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(Planning to sell to

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Toshiba Hitachi Canon Sony


December 8, 2011

AMOLED

6

AMOLED demand outlook

Demand expected to jump 178% in 2012

AMOLED panels are used in many applications, such as mobile handsets, MP3 players

and digital cameras. The proportion in handsets, based on area, is estimated to have been

87% in 2011, but should drop next year to around 70% as larger-sized panels emerge.

AMOLED demand beyond 2012 will depend on how many popular AMOLED tablet PCs

and TVs hit the market down the road.

Chart 2. AMOLED demand trends and forecasts, by application


1) AMOLED handsets

Shipments of AMOLED handsets should reach 82m this year (up from 38m in 2010), and

it would not be an exaggeration to say that most of such growth has come from SEC�s

Galaxy handsets. We see AMOLED handset shipments doubling next year to 168m, given

SEC�s solid marketing of AMOLED phones and moves by other mobile handset makers to

start using AMOLED displays in a big way.

SEC said on Oct 17 that flagship smartphones Galaxy S and Galaxy S2 had notched up

total global sales of 30m units (20m and 10m, respectively). Launched in April, the Galaxy

S2 hit the 10m mark in just five months, sporting a WVGA (480x800) 4.3-inch screen.

Factoring in production yield and cutting loss ratio, 259 Galaxy S2 panels can be made

from a single AMOLED mother glass produced at a 5.5G line, suggesting that SMD�s 5.5G

A2 line (which started in April) and 3.5G A1 line (which produces 44,500 mother glasses

per month) together now have a 4.3-inch panel capacity of 18m units per month.

With the exception of SEC, all handset makers gave up on the idea of using AMOLED

panels last year due to supply shortages and high prices. This year, however, they began

launching AMOLED phones amid improvements on the supply side. Motorola rolled out

4.3-inch AMOLED phone Droid RAZR in 2H11 while Kyocera and Dell are preparing to

launch AMOLED phones in December and January, respectively. Next year should be the

first in which AMOLED panels are commonly used by handset makers.

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AMOLED

9

2) AMOLED tablet PCs

Many AMOLED tablet PCs should hit the market in 2012. The question is whether

powerful and popular models will emerge, as was the case with mobile handsets. We

expect various models�with the 7.7-inch Galaxy Tab at the centre�to make their debut in

2012, and foresee total shipment volume of 4m units.

SEC hinted that tablet PCs would feature AMOLED panels when it disclosed the 7.7-inch

Galaxy Tab in September. One 5.5G mother glass can produce 81 AMOLED panels for the

7.7-inch Galaxy Tab (1,280 x 800 resolution) and 47 for the 9.7-inch iPad.

By incorporating AMOLED panels, SEC has differentiated its tablet PCs from Apple�s. At

issue is whether Apple, a dominant player in the tablet PC market, will similarly adopt

AMOLED panels in iPads. As mentioned in our Sep 26 report, �AMOLED value chain

shifting,� AMOLED panels are sure to impress Apple, which now uses retina displays in

the iPhone. Compared to glass-based TFT-LCDs, plastic substrate-based AMOLED panels

are thin, light, and rugged�an ideal combination for use in mobile devices.

Table 10. AMOLED vs LCD comparisons between devices

Tablet PCs Smartphones

iPad1 iPad2 Galaxy Tab 7.7 iPhone4 iPhone4S Galaxy S Galaxy S2

Image

Width (mm) 13.4mm 8.8mm 7.9mm 9.3mm 9.3mm 9.9mm 8.5mm

Weight (g) 730g 607g 335g 137g 140g 121g 121g

Display

9.7" LCD

9.7" LCD

7.7" Super AMOLED Plus

3.5" LCD

3.5" LCD

4.0" Super AMOLED

4.3" Super AMOLED Plus

Resolution 1024 x 768 1024 x 768 1280 x 800 960 x 640 960 x 640 800 x 480 800 x 480

PPI 132ppi 132ppi 196ppi 330ppi 330ppi 233 ppi 217 ppi

Battery capacity (mAh) 6600 6800 5100 1420 1420 1500 1650

Note: Galaxy Tab 7.7 has yet to be released

Source: GSM Arena, Samsung Securities

Following the success of its iPad1 and iPad 2, which have together achieved sales of 55m

units, Apple plans in 1Q12 to launch the iPad 3 and in 3Q12 a new 7-inch product

temporarily referred to as the iPad mini. The company is reportedly aiming to sell more

than 100m iPads in 2012, and plans to use higher-resolution IPS panels in the iPad3�

Sharp is trying to produce panels for iPads at its 8G fab, hoping to develop and mass

produce IGZO LCD panels for the iPad3. That said, Apple may yet decide to use flexible

panels in its next iPad models, if panel makers (such as SMD) can mass produce flexible

AMOLED panels and improve resolution. SMD could produce only 54m AMOLED panels

per year, even if its 5.5G line were fully used for tablet PC production.


December 8, 2011

AMOLED

10

3) AMOLED TVs

Next year should see Korea�s two leading TV makers�SEC and LGE�competitively roll

out AMOLED TVs. Annual shipments of such TVs should come in at 500,000 units or 0.2%

of flat TV shipments as a whole.

Both SEC and LGE announced plans to roll out 55-inch AMOLED TVs at CES 2012, while

their respective AMOLED panel suppliers, SMD and LGD, have reportedly decided on

different panel-development methods. Assuming that SMD and LGD divide their 8G

mother glasses into six and two partitions, respectively, for evaporation, they should have

the same cutting efficiency in manufacturing 32-inch and 55-inch panels as those based

on a single mother glass. However, as manufacturing a 32-inch panel is less economical in

terms of price, entering a premium market with a 55-inch panel would offer more

advantages. Although it is too early to predict the popularity of AMOLED TVs, SEC and

LGE�s strong intention to introduce them before the 2012 London Olympic Games

suggests that consumers will not have long to wait.

Table 11. AMOLED TV panel development comparison

SMD LG Display

Time 2Q12 2Q12

Target model 55" TV 55" TV

EML structure RGB White OLED + Color filter

TFT substrate Oxide or LTPS (non-laser) Oxide TFT

Deposition method SMS or LITI FMM

Cutting method 6 partitions (2x3), 2 partitions (1x2), no cutting 2 partitions (1x2), no cutting

Encapsulation method Metal, thin film Metal

Source: Displaybank, Samsung Securities

Table 12. Number of panels per mother glass, by panel size and cutting method

Generation 8.5G (2,200mm x 2,500mm)

Cutting method 3x2 2x2 1x2 1x1

(730x1,250) (1,100x1,250) (2,200x1,250) (2,200x2,500)

TV

pan

el siz

e

32� 18 12 18 18

37� 6 8 8 12

40� 6 8 8 10

42� 6 8 8 8

46�/47� 6 8 6 8

52�/55� 6 4 6 6


The key issue for TV-use AMOLED panels is whether the TFT backplane will shift away

from the LTPS type (adopted mostly in small-panel lines) to the oxide type. Compared to

oxide TFT, the LTPS type is superior in electron mobility, but since TV-panel production

lines are currently based on a-Si, considerable investment will be needed for the

construction of new LTPS-based large-sized TV-panel fabs it notably costs much less to

convert an a-Si fab to an oxide TFT fab. Moves are being considered to switch backplane

to oxide TFT, which is more than 40 times superior to the a-Si type, but inferior to the

LTPS type�LGD is reportedly testing an oxide backplane in an 8G pilot line, but SMD

still doubts the reliability of oxide TFT backplanes in large panels.


December 8, 2011

AMOLED

11

Table 13. Comparison between TFT backplanes

Poly-Si TFT a-Si TFT Oxide TFT

Semiconductor Polycrystalline Si Amorphous Si Amorphous IGZO

TFT uniformity Poor Good Good

Channel mobility ~100 /Vs 1 /Vs 10-40 /Vs

Reliability Vth < 0.5V Vth > 30V Variation in Vth

TFTF type PMOS (CMOS) NMOS NMOS

TFT mask steps 5-11 4-5 4-5

Cost / yield High / Low Low / High Low / High

Process temperature 450-550 150-350 150-350

Source: DisplaySearch, Inha University, Samsung Securities


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December 8, 2011

AMOLED

13

Projected supply-demand conditions in 2012

The AMOLED panel oversupply ratio should come in at 19% this year, but fall to 5.7% in

2012 due to the aforementioned changes in supply-demand dynamics. Given that TV set

makers normally hold one month�s worth of inventory, an oversupply ratio of less than 8%

would indicate supply-demand tightness.

Supply-demand dynamics next year should be determined by two major factors: 1) SMD�s

A1 and A2 lines�its phase-two A2 line should be fully operational during the year and its

phase-three A2 line will go online in 2Q12; and 2) shipments of AMOLED smartphones

and tablet PCs. If SEC is the only buyer of AMOLED panels�as was the case this year and

as market concerns suggest�the market would be oversupplied based solely on SMD�s

production capacity. We believe, however, that other players will increasingly adopt

AMOLED panels, having witnessed SEC�s AMOLED phone competiveness.

Earlier this year, we predicted that SMD would ramp its A2 line in 2012, and that the

proportion of AMOLED handsets made by phone makers other than SEC would reach 5%.

In fact, most of the ramp-up was done in 2011, and the proportion has remained at only

1%. The projected rise in glut ratio this year stems from a steady capacity ramp-up by

SMD, in preparation for demand growth in 2012. We expect tight supply next year, and

the shortage could worsen (assuming demand forecasts are unchanged) if production at

SMD�s A3 line is delayed beyond 3Q,

Chart 3. AMOLED panel glut ratio trends and projections (current vs previous)


When AMOLED displays start featuring in tablet PCs and TVs will be key in terms of

overall AMOLED panel demand. AMOLED tablet PCs should hit the market next year, as

SEC tries to overtake Apple with devices boasting flexible displays and higher resolutions.

However, a decision by Apple to go with AMOLED panels for its new tablet PCs would

have the biggest impact on the industry. LED TVs have become the mainstay of the global

TV market, two years after their debut at CES 2009 and the start of mass production in

2H09. True, an LED TV was a far cry from the existing LCD TV and cost only 2-2.5 times

more�even now it has only a 20% price premium�suggesting perhaps that AMOLED

TVs may find it difficult to attain the same rapid rise in popularity. However, SEC and

LGE�s AMOLED TV product launches and ensuing mass production should have a

significant impact on supply-demand dynamics.

(50)

(40)

(30)

(20)

(10)

0

10

20

30

2007 2008 2009 2010 2011E 2012E 2013E 2014E

This report Jan 2011 report

(%)

Oversupply

Shortage

8%


December 8, 2011

AMOLED

14

Chart 4. TV BLU trends (CCFL vs LED)

Source: DisplaySearch, Samsung Securities

Chart 5. Effect of three production scenarios on glut ratio


Chart 6. Effect of three demand scenarios on glut ratio


0

10

20

30

40

50

60

70

80

90

100

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

CCFL LED

(%)

(10)

(5)

0

5

10

15

20

25

2011E 2012E

Both A3 and V1 ramp up (base) only A3 ramps up Both do not ramp up

(%)

(5)

0

5

10

15

20

25

2011E 2012E

SEC sells 3.1m AMOLED tablets (base) SEC sells 1m AMOLED tablets

SEC sells 10m AMOLED tablets

(%)


December 8, 2011

AMOLED

15

2. Issues in 2012

I. Price competitiveness of AMOLEDThe proportion of smartphones worldwide stood at 24.9% at end-3Q, up from 18.7% at

end-2010. Looking ahead, AMOLED displays will likely be adopted in 25% of

smartphones, given the rising preference for handsets with large, high-resolution displays.

According to Display Search, AMOLED panel prices have jumped 45% over the past year

because SMD�s steady capacity expansion has fallen short of meeting demand while the

panels themselves have rapidly evolved in terms of size and resolution.

Table 15. Mobile phone panel price trends

Panel type 3Q11 4Q11 1Q11 2Q11 3Q11

AMOLED 26.9 32.7 37.5 37.9 39.0

LCD 8.4 8.6 9.5 10.0 10.8


We believe AMOLED-related applications will hinge on how competitive the displays are

in price. Wider use of the technology should therefore depend on aggressive capex

investments by SMD and progress made in improving production efficiency in areas such

as the deposition process.

The table above shows that a handset AMOLED panel ASP is four times that of its LCD

counterpart. So what of the price comparison between premium screens for the iPhone

and Galaxy phone? A 3.7-inch retina display for Apple�s iPhone 4 costs USD38.50

whereas a 4.3-inch on-cell touch AMOLED (OCTA) panel for the Galaxy S2 costs USD50-

55. On a price-per-square-centimeter basis, however, the two are similar. We expect

companies to secure stronger price competitiveness in premium phones once the increase

in AMOLED mobile panel production capacity and improvements in production

efficiency succeed in pulling down costs. Looking ahead, cheaper AMOLED panels should

further facilitate their adoption by a wider variety of handset companies.

Table 16. Price per square centimeter, by panel type

Panel type Price/cm2(USD)

LTPS AMOLED (Galaxy S series) 1.01

LTPS LCD (iPhone series) 1.02

a-Si LCD (iPad series) 0.44

Source: iSuppli, Samsung Securities estimates

At issue now is whether AMOLED tablet PCs will successfully enter the market next

year�a key example is SEC�s 7.7-inch Galaxy Tab, which features Super AMOLED Plus.

For AMOLED displays to be competitive in the market, the price gap between them and

premium LCDs needs to be as narrow as it is for mobile handsets. As shown in the

following table, a 4.3-inch OCTA panel is priced at USD50-55 while the price of a 7.7-inch

Galaxy Tab panel (three times larger than that for a Galaxy S2) is estimated at around

USD150-170---higher than the USD127 of an iPad2 IPS panel and touch-screen module

combined. The iPad3 will incorporate a new high-resolution TFT-LCD technology,

making its display more expensive than a iPad2 IPS panel, but close to the estimated price

CONTENTS




p15



p17



December 8, 2011

AMOLED

16

of a Galaxy Tab 7.7 panel. That said, if Apple were to use AMOLED panels in its 9.7-inch

iPad, the estimated cost would be around USD250-290 per unit, making their inclusion

unlikely in the foreseeable future as a product margin exceeding USD100 would be

sacrificed.

Table 17. Panel price estimates, by type and size

Product Estimated price (USD)

iPhone 4 (3.7" LCD) 38.50

Galaxy S2 (4.3" AMOLED) 50-55

Galaxy Tab 7.7 (7.7" AMOLED) 150-170

iPad (9.7") if AMOLED display is used 240-260

Source: iSuppli, Samsung Securities estimates

II. AMOLED panel evolution In our Jan 14 report, �AMOLED: Next-generation technology starting to emerge,� we

mentioned the merits and pitfalls of OLED compared to TFT-LCD. Although the use of

AMOLED in TVs remains doubtful, , the world�s leading TV maker (SEC) is committed to

creating a new market, while LG Display (LGD) is eager to predominate the TV-use panel

market. The two firms aim to boost competitiveness and bring forth commercialization by

complementing weakness in the mobile segment (vs TFT-LCD) and launching products

unknown to the TFT-LCD space.

In 2H11, debate has grown over whether flexible displays can be used in mobile devices as

well as TVs�see our September report for more details. In sum, flexible display panels,

which are thinner and lighter than glass type TFT-LCD panels, will be a major

differentiating factor among AMOLED panel makers.

Having showcased flexible displays at CES 2011, SEC has reportedly completed the design

of flexible displays it plans to launch as Galaxy Skin in 2Q12.

Chart 7. Galaxy Skin concept Chart 8. Flexible OLED prototype

Source: Samsung Electronics, Samsung Securities Source: Samsung Electronics, Samsung Securities

We now take a look at likely changes in the AMOLED value chain amid the shift to larger

and flexible displays.


December 8, 2011

AMOLED

17

III. Changes in AMOLED value chain1. Process changes

1) TFT backplane process

The low-temperature polysilicon (LTPS) process�using excimer laser annealing (ELA)

equipment to crystallize TFT substrates�remains the mainstream method of creating a

TFT backplane. The process, however, has limitations in that the narrow laser beams used

in ELAs requires multiple scans for substrates more recent than 4.5G. As the cost of this is

increasing, more and more companies are seeking to switch to oxide TFT substrates.

Jusung Engineering is currently attempting to develop metalorganic chemical vapor

deposition (MOCVD) equipment to replace oxide sputtering systems in its 8G and more

recent lines. While conventional sputtering systems use fixed proportions of materials in

the deposition process, Jusung Engineering�s MOCVD allows the proportion to be

adjusted in order to raise productivity and safety levels. However, the newly-developed

equipment will remain subject to a series of quality tests before production of large TV-

use AMOLED panels can begin. Samsung Mobile Display (SMD) uses ELA equipment for

the TFT backplane process in its 5.5G and older lines, but is known to be considering the

cheaper�in terms of equipment price and maintenance costs�super grain silicon (SGS)

process for 8G and more recent lines. Tera Semicon is currently seeking to supply heat-

treatment equipment for the SGS process.

Chart 9. TFT-LCD backplane technology


Product Size

10"

5"

20"

30"

40"

50"

60" Large Size Product

1. High Resolution $ UD: Oxide TFT

2. Normal Resolution $ FHD: a-Si TFT

Small Size Product

1. High Resolution & Thin: LTPS TFT

2. Normal product: a-Si TFT

a-Si TFT

Oxide TFT

a-Si TFT

a-Si TFT

LTPS TFT


December 8, 2011

AMOLED

18

Chart 10. AMOLED backplane technology


Chart 11. TFT backplane crystallization methods


Table 18. ELA vs SGS

SGS ELA

Large area Feasible Hard to use

Cost Low High

Performance High High

Mass production Not tested Tested


Companies will also need to choose between oxide and LTPS for the active layer in flexible

AMOLED panels once the technology becomes mainstream�oxide TFT eliminates the

need for ELA equipment (which crystallizes a-Si into polysilicon). We do, however, expect

ELA equipment to remain within the value chain, as SMD will likely favor LTPS over

oxide for the time being. Tera Semicon supplies heat treatment equipment for the curing

process, required after polyimide (PI) films are adhered to flexible displays.

Also required in the production of flexible displays is laser lift-off (LLO) equipment, which

lifts the glass placed for PI deposition using lasers. AP Systems has been supplying SMD

with such equipment, but LTS also aims to be a supplier.

Product Size

10"

5"

20"

30"

40"

50"

60" Merit � Oxide TFT

Similar process with a-Si TFT process

High mobility of electron than a-Si TFT

Demerit � Oxide TFT

Variation of Vth

Not yet mass production

Merit - LTPS TFT

High Mobility of electron than Oxide, a-Si TFT

Stable characteristics of Device

Demerit - LTPS TFT

Increase of process step : 8~11 masks

Too diff. to make large size production: Poly - Si

Large investment of equipment

Oxide TFT

LTPS TFT

As-DepositedPoly-Si

Crystallized Solid

Liquid

SGS

ELA


December 8, 2011

AMOLED

19

Chart 12. Flexible display process


2) Color deposition process

The fine-metal-mask (FMM) method using a point source has so far been the mainstream

AMOLED color deposition process. However, the FMM method spreads materials all over

the mask and thus creates a lot of waste. An additional problem is mask distortion for

larger panels. Panel makers have consequently been experimenting with a variety of

deposition methods in efforts to create flexible and larger panels. While the FMM method

is still widely used, we believe SMD has partially adopted laser induced thermal imaging

(LITI) equipment for its phase-two A2 line, as the LITI method offers advantages over

FMM at larger panel sizes as well as higher resolution. The LITI method uses vacuum

deposition to coat organic materials on polymer film to produce donor film, and then uses

lasers for the imaging process. Overall costs are higher for the LITI process, which is also

subject to yield issues due to inferior organic material efficiency and lifespan during the

imaging process. As a result, firms are seeking a hybrid patterning system�ie, the

deposition process (without using masks) for most of the common layers and some of the

emission layers, and the LITI method for the remaining layers�in order to achieve higher

resolutions.

Chart 13. FMM deposition using point source� Chart 14. �creates a lot of waste

Source: Nutmeg Consultants Source: Nutmeg Consultants

Once LITI becomes the mainstream color deposition process, LITI equipment supplier

AP Systems, donor film manufacturer SFA Engineering, and related component producer

LMS should emerge as key beneficiaries. In our view, companies have yet to find a

definitive solution for the deposition process beyond 8G, and are seeking to choose

between six-partition FMM and three-partition SMS methods.

Carrier Glass

PI film

Carrier Glass

PI film

TFT

Thin Film Encap

R G B

Carrier Glass

PI film

TFT

Thin Film Encap

R G B

Laser Delamination


December 8, 2011

AMOLED

20

Chart 15. SMS deposition method


When moving beyond mobile appliances to TVs, display resolution becomes less of a

factor when comparing product competitiveness. We therefore believe SMD is

experimenting with FMM, LITI, and SMS to find an optimal production method for larger

panels. SFA Engineering is currently working with SNU on a government-funded project

to develop 1,300mm-wide FMM equipment, which would allow the deposition of a 5.5G

panel in one step. However, the newly developed equipment has yet to inspire confidence

in quality. The key issue weighing on AMOLED TV panel production (as opposed to TFT-

LCD panels) is size�the limited reach of the laser beam used in the LTPS crystallization

process causes difficulties in covering the entire panel in one step, similar to challenges

faced in the deposition process. In sum, companies will need to find solutions to size-

related issues before they can mass produce AMOLED TVs.

Table 19. OLED evaporation methods vs LGD�s white OLED Evaporation : FMM (Fine metal mask)

Laser Printing : LITI (Laser-induced thermal imaging)

Soluble : Ink-Jet Printing White OLED + CF

Performance Average to good Very good Good Average

Width of pattern ± 15 ± 2.5 ± 10 ± 2.5

Resolution ~ 250 ppi 300-400 ppi ~ 200 ppi 300- 400 ppi

Aperture ratio 40-50 % 70-80 % ~ 60% 60-70%

Advantages Verified (currently used for mass production)

Large size High resolution Multi layer

Large size Minimizes use of materials

Large size Superior productivity

Issues

Large-area production Equipment and process (mask sagging / alignment)

Problem with blue phosphorescence Donor film cost Needs delamination process

Poor performance of materials Limited suppliers of materials Not proven yet (for MP)

Needs color filter process High power consumption Not proven yet (for MP)


Meanwhile, LG Display continues to focus on the white-OLED method, putting speedy

commercialization of OLED TVs as top of its priority list. The method does not use RGB

independent patterning, and is thus free from FMM or LITI efficiency and yield issues.

The use of color filters further facilitates application of the method to larger substrates at

higher resolution. On the negative side, using a color filter is a disadvantage (vs the RGB

method) in terms of cost and aperture ratio.

Mask

Substrate moving

(Scanning Method)

Pixel Electrode = Anode

WR G B

WOLED Layers

( Tandem by Kodak )


December 8, 2011

AMOLED

21

3) Encapsulation process

Also unique to AMOLED displays (vs conventional TFT-LCDs) is the encapsulation

process, required to prevent the organic material from coming into contact with air and

moisture. Glass encapsulation has so far been the widely used method, but flexible

displays require a switch to thin-film encapsulation using multi-film packaging of organic

and inorganic layers.

AP Systems, a supplier of glass encapsulation equipment, is now focused on developing

metal-sheet encapsulation equipment. LTS is SMD�s sole supplier of sealing equipment

used in the final stage of the encapsulation process. Although these suppliers will

inevitably face a drop in equipment sales as SMD makes the shift to flexible displays,

recent efforts of Chinese panel makers to begin producing AMOLED panels suggest new

opportunities for glass encapsulation equipment suppliers. In addition, as costs and

stability are increasingly crucial at larger panel sizes, glass encapsulation methods may be

chosen over the thin-film method when producing larger AMOLED panels.

Chart 16. Current development of encapsulation process


Thin-film encapsulation equipment is currently supplied by SNU and Ulvac, the former

having reportedly supplied some of its organic thin-film encapsulation equipment for

SMD�s phase-two A2 line. We also believe that Ulvac has supplied SMD with inorganic

thin-film encapsulation equipment. Wonik IPS is also trying to develop proprietary

encapsulation equipment ahead of the shift to larger-area (8G) AMOLED panels.

Chart 17. Glass encapsulation structure Chart 18. Thin film encapsulation structure

Source: DisplaySearch Source: DisplaySearch

Thin film encapGlass Encap

Metal sheet encap

Seal uniformity

Too brittle

Good for large panels

Simple structure & low cost

Flexibility

High cost & low throughput


December 8, 2011

AMOLED

22

Table 20. AMOLED equipment value chain

Process Sub-process Equipment Korean equipment makers Foreign equipment makers

TFT

Cleaning

Cleaner

DMS, KC Tech, STI, Meere Company, Semes*

Shibaura Mechatronics, Hitachi High-Technologies, DNS Electronics*, Kaijo*

Deposition PECVD Jusung Engineering, SFA AKT, Ulvac, Tokyo Electron, OC Oerlikon

Sputtering

Avaco, SFA

AKT, Ulvac, Tokyo Electron,OC Oerlikon, Canon Anelva*

Crystallization ELA AP Systems Japan Steel Works

SGS Tera Semicon

Thin beam LTPS TCZ*

Lithography

PR coater

DMS, KC Tech, Semes*

Tokyo Electron, Tokyo Ohka Kogyo, Toray Engineering*, DNS Electronics*

Scanner Canon, Nikon

Developer

DMS, KC Tech, STI, Semes*

Tokyo Electron, Shibaura Mechatronics, Hitachi High-Tech, DNS Electronics*

Etching Dry etcher / asher ICD, Wonik IPS, LIG ADP Ulvac, Tokyo Electron, YAC*, DNS Electronics*

Wet etcher / cleaner

DMS, KC Tech, STI, SFA, Semes*

Shibaura Mechatronics, Hitachi High-Tech, Kaijo*, DNS Electronics*

Stripping

PR Stripper

DMS, KC Tech, STI, Semes*

Shibaura Mechatronics, Tokyo Electron, YAC*, DNS Electronics*

RGB Patterning

Evaporator

SFA, SNU, Jusung Engineering, LIG ADP, Avaco, Wonik IPS, Sunic System* (Dong A Eltek), YAS*

Ulvac, Hitachi High-Technologies, Tokki* (Canon)

LITI AP Systems

Encapsulation

Encapsulator

SNU, Avaco, AP Systems, LTS, Wonik IPS, SFA, Jusung Engineering, LIG ADP, Tes, Sunic System*

Ulvac, Hitachi High-Technologies, Tokki*

Others LLO AP Systems

Laser cutting Toptec, Rorze Systems

Inspection SNU, Top Engineering, LIG ADP, Meere Company AKT, Takano, Orbotech

Logistics SFA, Toptec, Avaco Daifuku, Shibaura Mechatronics

Note: Denotes companies capable of both mass production and development * Denotes unlisted companies

Source: Samsung Securities


December 8, 2011

AMOLED

23

Changes in materials

1) PI film and oxide raw materials for flexible AMOLED display

The main TFT backplane method is still LTPS. However, as panel sizes get bigger,

investment in the LTPS process becomes increasingly burdensome. In particular, the shift

to flexible displays requires PI film deposition between the TFT and carrier glass and

separation of the glass after encapsulation. SMD has set up a joint venture with Japanese

firm Ube Kosan, which leads the world in PI film technology, and has resolved a patent

issue, increasing the possibility that it will commercialize related technology. The process

of evaporating oxide semiconductor on a plastic substrate, also has a high chance of being

commercialized, as does IGZO, which can be evaporated between flexible plastic substrate

and TFT at a low temperature�LGD is currently testing oxide for use in its 8G TFT

backplane process. SMD, however, seems skeptical regarding the efficiency of oxide TFT,

and will likely continue using the LTPS method for flexible displays following the

introduction of PI films capable of withstanding high temperatures. The key competitors

in IGZO oxide are Japanese firms Ulmat and Nikko, and Korea�s Advanced Nano

Products.

Chart 19. Flexible AMOLED process Chart 20. Mobile components made with polyimide

Source: DisplaySearch, Samsung Securities Source: Samsung Securities

Table 21. IGZO target makers

Company Country Ticker

Advanced Nano Products Korea 121600 KQ

Heesung Metal Korea Unlisted

Samsung Corning Precision Materials Korea Unlisted

Materion US NYSE: MTRN

Umicore SA Belgium UMI:BB

Heraeus Germany Unlisted

Ulmat Japan Subsidiary of Ulvac (6728 JP)

Nippon Mining & Metals Japan Unlisted (formerly Nikko Metals)

Mitsui Kinzoku Japan Mitsui Mining & Smelting (5706 JP)

Beijing Goodwill Metal Tech China Unlisted

Beijing Fang Yuan Material Tech China Unlisted


Carrier Glass

PI film

Carrier Glass

PI film

TFT

Thin Film

Encap

R G B

Carrier Glass

PI film

TFT

Thin Film

Encap

R G B

Laser Delamination


December 8, 2011

AMOLED

24

2) Organic materials also to be used in large panels

Common layers: Dow Chemical is SMD�s sole supplier of ETL and EIL layers, while LG

Chem is the same for LGD. SMD is reportedly considering sourcing ETL layers from Cheil

Industries as well. Duksan Hi-Metal remains SMD�s primary HTL layer supplier,

although CS Elsolar (a 45.3%-owned subsidiary of CS) became a supplier in September

through Doosan Electro-Materials. LMS is reportedly awaiting SMD approval for its

sample HTL layer, but as it will be unable to start mass production before 2H12, Duksan

Hi-Metal and CS Elsolar should remain the key suppliers for the time being�Duksan Hi-

Metal, in particular, should be able to keep its market share above 60% in terms of

capacity.

LGD�s 8G line will mainly produce white OLEDs (WOLEDs), which require double layers

of HTL and ETL. Our channel check shows that WOLEDs are around twice as thick as

RGB OLEDs. Although it remains to be seen whether WOLEDs will become the mainstay

of large TV panels, production of WOLEDs is definitely good news for suppliers of

common layer materials (HTL and ETL).

Chart 21. White OLED structure


Emission layers: AMOLED organic materials, by nature, have a short lifespan.

Prolonging the life of each color-emitting pixel (red, green, and blue) is a challenge

AMOLED makers have to wrestle with. Blue pixels have the shortest life span, which is

not a problem in mobile phones given the short replacement cycle. For TVs, however, the

life span has to be at least 10 years.

In SMD�s value chain, red phosphorescence is solely supplied by Dow Chemical and blue

fluorescence by Sun Fine Chemical. As for green pixels, SMD is increasingly replacing

Doosan Electro-Materials� fluorescence materials with phosphorescence materials from

UDC�Doosan Electro-Materials procures green fluorescence host materials from CS,

which sources them from subsidiary CS Elsolar.

Cathode

ETL

Yellow GreenPh. YG

HTL

P-CGL

N-CGLCGL

ETL

BlueFl. Blue

HTL

ITO

Glass

Anode

Substrate


December 8, 2011

AMOLED

25

Organic materials for white OLED panels come mainly from Japan:

Organic materials for white OLED panels are mainly sourced from Japan. Currently

supplying pilot lines are Idemitsu Kosan, Hodogaya, Merck, and LG Chem. White OLED

panels not only require more common layers (ie, HTL and ETL), as mentioned earlier, but

also replace red and green pixels with yellow-green pixels. Yellow-green phosphorescent

materials are provided by Merck and UDC.

SMD strengthening control over value chain: Number-one OLED panel maker

SMD is strengthening control over the value chain, something that should have

implications on the materials market. As summarized in the table below, the company set

up a polyimide-producing joint venture with Ube Industries and has signed strategic

partnerships (eg, equity investments and licenses) with most emission layer companies.

Table 22. SMD�s recent moves to enhance OLED materials value chain

Date Source News

May 27 Electronic Times Set up joint venture with Japan s Ube Kosan for polyimide production

Jul 20 Yomiuri Online* Licensed patents for IGZO TFT technology invented by Professor Hideo Hosono at Tokyo Institute of Technology

Aug 12 Financial News Samsung Venture Investment has increased stake in blue fluorescent materials maker SFC

Aug 22 SMD Announced strategic alliance with UDC

Sep 29

Electronics Times

Ube Kosan announced USD9m investment in SUM s Tanjung factory, a JV between SMD and Ube Kosan.

SUM will start providing polyimide materials to SMD in 1H12

Note: * Yomiuri Online story quoted by Yonhap News

Source: Company news

Table 23. OLED materials value chain

Korean players Foreign Players

HIL Duksan Hi-Metal, Cheil Industries, CS Elsolar (Doosan Electronics), LG Chem Hodogaya, Idemitsu Kosan, Merck, DuPont, NSC*

HTL Duksan Hi-Metal, CS Elsolar (Doosan Electronics), Cheil Industries, LMS, LG Chem Hodogaya, Idemitsu Kosan, Merck, Toyo Ink, NSC*

EIL LG Chem ,Cheil Industries Dow Chemical, Idemitsu Kosan, Merck, Toray, NSC*

ETL

LG Chem ,Cheil Industries

Dow Chemical, Idemitsu Kosan, Merck, Toray, Toyo Ink, NSC*

Red Dopant UDC

Red Host

Dow Chemical (Gracel), Idemitsu Kosan, Mitsubishi Chemical, Toyo Ink, Toray

Green Dopant UDC

Green Host CS Elsolar (Doosan Electronics), Duksan Hi-Metal UDC, Idemitsu Kosan, Toyo Ink, NSC*

Blue Dopant SFC*, Daejoo EM Hodogaya, Idemitsu Kosan, Toray, Merck

Blue Host SFC*, Daejoo EM Hodogaya, Idemitsu Kosan, Toray, Merck

Note: Denotes companies capable of both mass production and development * Denotes unlisted companies



December 8, 2011

AMOLED

26

Changes in battery capacity

As flexible displays are thin and light, handset makers have more room for the battery.

Flexible panels are at least 1mm to 1.4mm thinner than TFT-LCD panels, which need 0.5-

0.7mm for top and bottom glasses. The saved space can be used for a higher-capacity

battery, providing business opportunities for battery makers. Samsung SDI should benefit

from moves to expand battery capacity, as its major client SEC is strategically focusing on

flexible displays.

Apple�s iPad and iPad2 are 13.4mm and 8.8mm thick, respectively, the latter comprising a

3.51mm-thick display panel and 4mm-thick 6,900mAh battery. As high-specification

parts consume more battery power, next year�s tablet PCs will reportedly use a 3mm-thick

11,000mAh battery. Battery capacity can be increased using a flexible display, without

changing screen thickness and size.

Table 24. Thickness and battery capacity comparisons

Company Model Display Thickness (mm) Battery capacity (mAh)

Motorola RAZR AMOLED 7.1 1,780

Samsung Galaxy S2 AMOLED 8.5 1,650

Samsung Galaxy Nexus AMOLED 8.9 1,750

Apple iPhone 4 LCD 9.3 1,420

Apple iPhone 4S LCD 9.3 1,420

Samsung Galaxy Note AMOLED 9.7 2,500

Samsung Galaxy S AMOLED 9.9 1,500

Samsung Google Nexus S AMOLED 10.9 1,500

Samsung Omnia 7 AMOLED 11.0 1,500

Samsung Focus Flash I677 AMOLED 11.0 1,500

HTC Google Nexus One AMOLED 11.5 1,400

Nokia Lumia 800 AMOLED 12.1 1,450

Dell Venue AMOLED 12.9 1,400

Samsung Galaxy Tab 7.7 AMOLED 7.9 5,100

Apple iPad2 LCD 8.8 6,800

Apple iPad1 LCD 13.4 6,600


Chart 22. Flexible display less than 150 micrometers thin

Source: NICE


December 8, 2011

AMOLED

27

3. Stock recommendations

Overweight on AMOLED firms Industry recommendation

Next year will be a good one for AMOLED equipment makers, with supply-demand

conditions likely to be tight throughout the year and leading AMOLED panel maker SMD

expected to increase investments in its A3 and V2 lines. It should also be a year of growth

for material makers, given the increasing size of TV panels and the upcoming emergence

of flexible displays. We recommend OVERWEIGHT on the AMOLED industry as a whole.

Chart 23. AMOLED market size forecasts


Beneficiaries

There are several Korean equipment and parts makers that stand to benefit from launches

of flexible AMOLED panels and large AMOLED TVs next year. Equipment makers will

see fresh order momentum late this year and early in 2012 if SMD decides to ramp up its

A3 line in 2H12. The biggest beneficiaries would be SFA Engineering, SMD�s strategic

partner and local supplier of all AMOLED process-related equipment, and AP Systems if

SMD�s A3 line uses the LITI method. Any delays in such line investments, however, would

weaken order momentum as well as investor sentiment.

Among materials makers, Duksan Hi-Metal stands out as it should grow in tandem with

AMOLED device expansion next year, regardless of changes in panel makers' process and

application technologies. Also poised to benefit are: 1) IGZO target manufacturer

Advanced Nano Products as oxide TFT backplanes are increasingly used amid a trend

toward larger panels; and 2) Samsung SDI, although not a pure player, amid rising

demand for high-capacity batteries�major client SEC is expected to use flexible

AMOLED displays that allow room for bigger batteries. Our top pick for 2012 is Duksan

Hi-Metal.

CONTENTS




p15



p17


0

2

4

6

8

10

12

14

16

18

2010 2011E 2012E 2013E 2014E

(KRWt)


December 8, 2011

AMOLED

28

AMOLED peer group valuations

The best way to value AMOLED equipment makers, in our view, is P/B vs ROE. As shown

in table 25, companies currently trade near 1.3x 2012 P/B, with domestic players

commanding higher multiples (averaging 1.8x) than their overseas peers (1.0x) because of

higher ROE and greater exposure to the expanding AMOLED market. Most produce TFT-

LCD equipment and those more involved in AMOLED equipment trade at higher

multiples.

In contrast, P/E vs EPS growth is a better method for materials firms. UDC, a maker of

phosphorescent materials, currently trades at 46.9x 2012 P/E, much higher than the

organic materials sector average of 11.2x. Players with greater exposure to AMOLED are

trading at even higher multiples on expectations of high earnings growth.


December 8, 2011

AMOLED

29

Table 25. Valuations of OLED-related equipment names

Company Currency Market cap P/E (x) P/B (x) EV/EBITDA (x) ROE (%) OPM (%) EPS growth (%)

(USDm) 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E

AP Systems KRW 272.2 21.5 11.4 3.9 2.8 12.3 7.3 22.1 29.2 8.0 10.6 (171.2) 89.8

SFA KRW 1,011.1 13.9 11.6 3.4 2.7 9.8 7.7 27.9 26.1 12.3 12.7 108.2 20.2

SNU KRW 204.6 27.4 9.4 1.8 1.5 15.3 6.4 6.1 16.3 7.5 12.9 (4.5) 192.0

ICD KRW 366.2 8.0 7.3 3.2 2.2 5.7 4.7 52.7 36.0 22.3 20.8 1,243.0 8.6

Avaco KRW 102.0 11.0 9.7 1.5 1.3 6.3 6.2 15.0 14.8 5.2 6.4 (30.5) 14.5

Wonik IPS KRW 588.0 19.5 12.1 3.5 2.7 15.9 9.5 12.0 21.1 10.7 12.6 (36.8) 61.2

Jusung Engineering KRW 285.1 18.4 12.1 1.3 1.2 14.8 9.4 9.2 11.0 6.5 9.2 (53.4) 52.2

Tes KRW 77.4 12.3 7.5 n/a n/a n/a n/a 13.1 18.0 9.0 11.1 9.6 64.3

DMS KRW 75.7 6.1 5.1 0.6 0.5 4.4 5.3 9.0 9.4 12.2 11.1 617.3 19.6

KC Tech KRW 151.7 7.4 6.4 0.9 0.8 5.1 4.0 12.9 13.6 11.1 12.0 (7.2) 16.0

Domestic front-end avg 14.6 9.2 2.2 1.8 10.0 6.7 18.0 19.5 11.4 12.0 167.4 53.8

Top Engineering KRW 69.2 5.1 5.7 0.6 0.5 3.6 4.8 12.2 9.8 12.7 12.6 129.2 (10.2)

Domestic avg 13.7 8.9 2.1 1.6 9.3 6.5 17.5 18.7 11.5 12.0 164.0 48.0

Ulvac JPY 651.0 21.5 18.8 0.5 0.5 7.6 7.1 2.4 1.6 2.5 2.8 (127.1) 14.1

TEL JPY 9,695.5 19.9 20.1 1.3 1.2 5.9 6.2 6.5 6.7 9.2 9.0 (47.7) (1.1)

Shibaura Mechatronics JPY 142.0 19.1 18.7 0.6 0.6 6.0 6.0 5.0 3.2 1.4 1.8 13.2 2.5

Hitachi High-Tech JPY 2,964.7 12.8 12.4 0.9 0.8 2.8 2.1 7.1 6.6 4.2 4.3 1.1 3.2

JSW JPY 2,370.9 14.0 10.7 1.5 1.3 4.6 4.2 10.7 13.2 10.1 12.0 (20.5) 30.7

Canon Anelva (Canon) JPY 58,495.0 16.6 13.4 1.5 1.4 5.5 4.6 9.1 10.8 10.3 12.2 3.0 24.1

Nikon JPY 9,205.1 12.8 12.8 1.6 1.5 5.2 4.5 13.9 12.5 8.1 8.5 103.1 (0.5)

TOK JPY 956.3 15.7 14.3 0.6 0.6 2.4 2.3 3.9 4.3 8.6 9.9 25.4 9.5

Applied Materials USD 13,702.3 13.7 8.7 1.5 1.4 7.5 5.2 11.8 16.6 15.6 21.0 (47.9) 56.5

OC Oerlikon CHF 1,712.7 9.3 8.8 0.9 0.8 3.2 3.1 10.1 9.8 8.9 8.8 5,160.0 5.7

Daifuku JPY 586.8 34.2 16.5 0.6 0.6 n/a n/a 1.7 3.6 2.1 2.9 383.5 107.7

Orbotech USD 425.8 5.9 6.6 n/a n/a n/a n/a 33.4 26.9 13.2 13.3 70.9 (10.4)

Foreign avg 16.3 13.5 1.0 1.0 5.1 4.5 9.6 9.6 7.8 8.9 459.8 20.2

Global avg 15.1 11.3 1.5 1.3 7.2 5.5 13.4 14.0 9.7 10.4 318.3 33.5

Note: As of Dec 7

Source: Bloomberg, Samsung Securities

Table 26. Valuations of OLED-related material names

Company Currency Market cap P/E (x) P/B (x) EV/EBITDA (x) ROE (%) OPM (%) EPS growth (%)

(USDm) 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E

Duksan Hi-Metal KRW 679.8 26.6 14.4 7.0 4.7 18.5 11.2 28.8 35.7 25.6 26.9 103.1 85.4

LG Chem KRW 19,210.3 9.8 8.5 2.5 2.0 5.8 5.0 27.4 25.1 13.8 14.7 26.2 14.8

Cheil Industries KRW 4,631.2 15.9 12.5 1.7 1.5 10.4 8.0 11.0 13.0 6.4 7.3 17.9 26.9

CS KRW 113.3 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a

Advanced Nano Products KRW 117.9 26.2 11.3 2.5 2.0 16.0 7.7 15.9 22.1 15.8 25.7 (45.7) 131.8

Daejoo EM KRW 68.0 10.7 6.4 n/a n/a n/a n/a 28.8 39.0 8.3 11.3 1,198.5 68.1

LMS KRW 195.4 10.6 7.1 2.7 2.0 9.1 6.0 27.5 31.7 25.0 26.0 5.9 50.0

Domestic avg 16.6 10.0 3.3 2.4 11.9 7.6 23.2 27.8 15.8 18.6 217.7 62.8

Idemitsu Kosan JPY 4,114.7 5.2 5.4 0.6 0.5 6.0 6.0 11.6 11.3 3.0 2.9 2.3 (4.0)

Hodogaya JPY 249.6 11.4 10.6 0.7 0.6 n/a n/a 5.9 6.1 5.6 7.9 185.8 6.9

Mitsubishi Chemical JPY 8,511.6 8.8 8.0 0.8 0.7 4.7 4.3 9.3 9.0 6.0 6.2 (14.9) 10.2

Toyo Ink JPY 1,089.9 11.4 9.8 n/a n/a n/a n/a 5.0 5.6 5.6 6.3 (36.5) 16.3

UDC USD 1,852.5 452.2 46.9 5.3 5.1 n/a n/a 1.0 7.5 8.2 36.6 (116.8) 865.2

Dow Chemical USD 30,313.5 9.6 9.1 1.3 1.2 5.8 5.6 14.8 13.6 8.7 8.4 52.0 5.9

Merck USD 104,421.8 9.1 8.9 2.0 1.7 5.2 5.2 21.0 20.0 32.5 32.6 1,240.4 2.3

Kodak USD 307.7 (0.4) (0.9) (0.2) (0.1) (0.5) (32.0) n/a n/a (6.0) (3.9) (0.1) (51.7)

DuPont USD 41,585.6 11.1 10.3 3.7 3.0 7.7 6.8 34.9 31.3 13.7 13.9 21.7 8.7

Coherent USD 1,209.7 13.1 11.5 1.7 1.6 5.7 4.4 11.0 12.2 15.3 16.2 (1.8) 14.7

Foreign avg 53.2 11.9 1.8 1.6 4.9 0.0 12.7 12.9 9.3 12.7 133.2 87.4

Foreign avg (excluding UDC & Kodak) 10.0 9.2 1.5 1.3 5.9 5.4 14.2 13.6 11.3 11.8 181.1 7.6

Global avg 39.5 11.2 2.3 1.9 7.9 3.2 16.9 18.9 11.7 14.9 164.9 78.2

Global avg (excluding UDC & Kodak) 12.8 9.6 2.2 1.8 8.6 6.4 18.1 19.7 13.2 14.7 196.8 31.3

Note: As of Dec 7; UDC and Kodak are excluded as their figures would distort the averages;



December 8, 2011

AMOLED

30

Chart 24. OLED-related equipment players: P/B vs ROE

Note: As of Dec 7


Chart 25. OLED-related materials players: P/E vs EPS growth

Note: As of Dec 7


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0 10 20 30 40 50 60

ROE (2011E, %)

Avaco

P/B (2011E, x)

AP Systems

Wonik IPS SFA

SNU

Ulvac

ICD

Top EngineeringDMS

Hitachi Hi-TechJusung Engineering

TEL

JSWApplied MaterialsCanon

0

2

4

6

8

10

12

14

16

18

(20) 0 20 40 60 80 100 120 140

EPS Growth (2012E, %)

Merck

Duksan Hi-Metal

LG Chem

DuPont

Dow Chemical

Hodogaya

Mitsubishi Chemical

Coherent

Advanced Nano Products

LMS

Cheil Industries

Daejoo EM

Toyo Ink

P/E (2012E, x)

Idemitsu Kosan


December 8, 2011


WHAT�S THE STORY?

Event: A check on Samsung SDI and how it will benefit from expansion in

the AMOLED display market

Impact: The ever-increasing sizes of AMOLED displays in tablet PCs and

mobile phones are sure to raise per-unit battery capacity in 2012. This will

mean strong top- and bottom-line growth at SDI, driven by the firm�s high-

capacity polymer batteries used in tablets and ultra-thin notebooks.

Action: We raise our 2012 sales and operating profit forecasts for SDI to

KRW5.6t and KRW297b, respectively, and raise our target to KRW170,000.

Samsung SDI (006400 KS)

Profits rising as displays evolve

THE QUICK VIEW

Raising 2012 forecasts on battery business prospects: We foresee strong top- and bottom-line growth at Samsung SDI next year, driven by its rechargeable battery business�particularly high-capacity polymer batteries used in tablet PCs and ultra-thin notebooks. The firm should see a notable increase in operating profit in 2H12, as depreciation of its PDP P4 line will come to an end and operating losses should narrow in its solar cell business. Against such a backdrop, we raise our 2012 sales and operating profit forecasts to a respective KRW5.6t and KRW297b (including an anticipated KRW20b in dividend income in 1Q12). Although SDI�s solar market debut was disappointing, the intention of management not to invest heavily before the solar industry recovers, and the fact that module makers (including SDI) have taken the brunt of the slump, suggest that costs will be kept to a minimum, making 2012 a strategic year during the wait for a solar market recovery.

Ever-increasing size of AMOLED displays positive: The ever-increasing sizes of AMOLED displays in tablet PCs and mobile phones are sure to raise per-unit battery capacity in 2012. When demand picks up for flexible displays�which allow more battery space�SDI will benefit significantly, having steadily increased its capacity to produce high-capacity polymer batteries.

Concerns over stake in SMD overblown: In 4Q, Samsung Mobile Display (SMD) issued corporate bonds worth KRW700b and announced aggressive capex plans for 2012. The possibilities that SMD could be acquired by major shareholder Samsung Electronics (SEC) and that SDI would consequently be forced to sell its stake in SMD have raised market concern that SDI would suffer EPS losses. However, rather than pay KRW2t for SMD, which it already effectively controls, SEC will likely choose to solely participate in a future rights offering to help SMD raise funds for capex needs next year. If the acquisition were to go ahead, related losses to SDI�s equity-method income would be offset by cash proceeds from the stake sale.

Reiterating BUY, raising target price: Believing that SDI shares already reflect the SMD-stake-related risk and that earnings will be driven higher by a rechargeable-battery boom and an end to the PDP P4 line depreciation, we raise our 2012 sales and earnings forecasts. These and a change in valuation basis raise our 12-month target price for SDI from KRW150,000 to KRW170,000. We consider the shares attractive trading near 12.8x 2012 P/E and 0.9x P/B.

CompanyUpdate


AT A GLANCE

Target price KRW170,000(21.9%)

Current price KRW139,500

Bloomberg code 006400 KS

Market cap KRW6.4t/USD5.7b

Shares (float) 45,558,341 (74.5%)

52-week high/low KRW201,000/KRW100,000

Average daily trading value (60-day)

KRW 64.71b/USD 57.47m

One-year performance 1M 6M 12M

Samsung SDI (%) -1.1 -16.2 -21.0

Vs Kospi (%pts) -1.1 -7.6 -18.8

KEY CHANGES

(KRW) New Old Diff (%)

Recommendation BUY BUY

Target price 170,000 150,000 +13.3

2011E EPS 8,789 8,729 +0.7

2012E EPS 10,881 9,378 +16

2013E EPS 12,646 11,197 +12.9

SAMSUNG vs THE STREET

No of I/B/E/S estimates 38

Target price vs I/B/E/S mean -1.1%

Estimates up/down (4 weeks) 0/0

1-year-fwd EPS vs I/B/E/S mean -


I/B/E/S recommendation BUY(2.0)

SUMMARY FINANCIAL DATA

2010 2011E 2012E 2013E

Revenue (KRWb) 5,124.3 5,456 5,630 5,670.2

Net profit (adj) (KRWb) 385.1 437 547 645.7

EPS (adj) (KRW) 6,884 8,789 10,881 12,646

EPS (adj) growth (%) 182.2 27.7 23.8 16.2

EBITDA margin (%) 15.3 14.6 17.6 19.9

ROE (%) 6.7 6.8 8.0 8.8

P/E (adj) (x) 20.3 15.9 12.8 11.0

P/B (x) 1.0 1.0 0.9 0.9

EV/EBITDA (x) 7.2 7.8 6.4 6.0

Dividend yield (%) 1.1 1.0 1.1 1.1

Source: Company data, Samsung Securities estimates


December 8, 2011

Samsung SDI

32

Table 1. 4Q preview

(KRWb) 4Q11E 4Q10 3Q11 Chg

(% y-y) (% q-q)

Sales 1,450.2 1,245.0 1,447.7 16.5 0.2

Operating profit 39.4 14.7 43.0 168.2 (8.4)

Pre-tax profit 135.9 77.4 135.9 75.7 0.0

Net profit 138.8 81.3 100.0 70.7 38.9

Margins (%)

Operating profit 2.7 1.2 3.0

Pre-tax profit 9.4 6.2 9.4

Net profit 9.6 6.5 6.9

Note: IFRS-based consolidated figures


Table 2. Annual forecast revisions

(KRWb) 2011E 2012E

Old New Diff (%) Old New Diff (%)

Sales 5,456 5,456 0.0 5,630 5,630 0.0

Operating profit 232 232 0.0 217 297 37.0

Pre-tax profit 511 514 0.7 553 644 16.4

Net profit 434 437 0.7 470 547 16.4

Note: IFRS-based consolidated figures


Table 3. Valuation

(KRWb) 2011-2012E Notes

Operating value* 4,370

CRT 0

PDP 1,218

Rechargeable battery 3,152

Non-operating value 3,443

Listed subsidiaries 1,208 30% discount to market value

Unlisted subsidiaries 2,234 30% discount

SMD 1,792 1.2x book value

Net debt (97) 2012E

NAV 7,910

NAVPS (KRW) 167,660

Target price (KRW) 170,000

Current price (KRW) 139,500 As of Dec 7 close

Upside (%) 21.9

Note: * Calculated by applying average peer EV/EBITDA multiple to consolidated EBITDA for each division


Table 4. Sales and operating profit trends and forecasts (consolidated)

(KRWb) 1Q11 2Q11 3Q11 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 2010 2011E 2012E

Sales 1,209 1,349 1,448 1,450 1,393 1,409 1,416 1,411 5,124 5,456 5,630

CRT 101 97 92 85 81 78 74 71 496 374 304

PDP 525 527 539 541 430 432 443 428 2,269 2,131 1,734

Rechargeable battery 570 718 768 775 829 837 836 844 2,282 2,831 3,345

Other 14 8 49 50 53 62 63 68 77 120 247

Operating profit 60.3 89.2 43.0 39.5 50.1 64.7 104.8 77.6 286.8 232.0 297.2

CRT 2.0 1.9 0.3 0.2 0.8 1.6 1.5 0.7 2.5 4.4 4.6

PDP (5.2) 9.8 0.5 1.1 4.3 13.0 26.6 25.7 26.2 6.2 69.6

Rechargeable battery 51.3 79.0 76.7 74.4 49.7 75.3 100.3 75.9 248.5 281.4 301.3

Other (2.7) (1.6) (34.5) (36.2) (24.8) (25.1) (23.5) (24.8) (4.4) (75.0) (98.2)

Operating margin (%) 5.0 6.6 3.0 2.7 3.6 4.6 7.4 5.5 5.6 4.3 5.3

CRT 2.0 2.0 0.3 0.2 1.0 2.0 2.0 1.0 0.5 1.2 1.5

PDP (1.0) 1.9 0.1 0.2 1.0 3.0 6.0 6.0 1.2 0.3 4.0

Rechargeable battery 9.0 11.0 10.0 9.6 6.0 9.0 12.0 9.0 10.9 9.9 9.0

Note: Losses at SB LiMotive are excluded from 2010 figures; dividend gains reflected in 1Q each year Source: Company data, Samsung Securities estimates


December 8, 2011

Samsung SDI

33

Income statement

Year-end Dec 31 (KRWb) 2009 2010 2011E 2012E 2013E

Sales 4,950 5,124 5,456 5,630 5,670

Cost of goods sold 4,226 4,334 4,529 4,662 4,695

Gross profit 724 790 928 968 975

(Gross margin, %) 14.6 15.4 17.0 17.2 17.2

SG&A expenses 617 556 583 606 611

Operating profit 185 287 232 297 342

(Operating margin, %) 3.7 5.6 4.3 5.3 6.0

Net interest income 11 14 6 (3) (13)

Net forex-related gains (15) 0 (14) (0) 10

Net equity-method gains 146 151 290 350 420

Other (27) (29) 0 0 0

Pre-tax profit 300 423 514 644 760

Taxes 7 37 77 97 114

(Effective tax rate, %) 2.4 8.9 15.0 15.0 15.0

Net profit 215 385 437 547 646

(Net margin, %) 4.3 7.5 8.0 9.7 11.4

Operating net profit* 115 325 415 513 597

(Operating net margin, %) 2.3 6.3 7.6 9.1 10.5

EBITDA 765 784 798 989 1,126

(EBITDA margin, %) 15.5 15.3 14.6 17.6 19.9

Reported EPS (KRW) 4,550 8,163 9,262 11,601 13,687

Adjusted EPS (KRW)** 2,439 6,884 8,789 10,881 12,646

DPS (common, KRW) 1,000 1,600 1,600 1,600 1,600

DPS (preferred, KRW) 1,050 1,650 1,650 1,650 1,650

Dividend payout ratio (%) 20.4 20.1 17.8 14.2 12.0

Cash flow statement


Cash flow from operations 720 489 698 725 689

Net profit 215 385 437 547 646

Depreciation & amortization 476 375 290 342 354

Net forex-translation income (18) (2) 14 0 (10)

Net equity-method income (53) (151) (280) (350) (420)

Gross cash flow 604 614 616 632 632

(-) Change in working capital 116 (135) 74 70 38

Interest received (paid) 8 19 (4) 11 7

Other (24) (33) (0) 0 0

Cash flow from investments (241) (252) (1,081) (659) (1,008)

Capex (448) (347) (550) (400) (550)

Free cash flow 272 142 148 325 139

Change in investment assets (23) 13 (498) (269) (476)

Other 229 82 (34) 10 18

Cash flow from financing 47 (623) (206) (160) 31

Change in debt (35) (586) 1 2 151

Change in equity 0 0 0 0 0

Dividends (38) (60) (72) (72) (72)

Other 120 24 (135) (90) (49)

Change in cash 501 (367) (589) (94) (288)

Cash at beginning of year 1,009 1,434 1,066 477 383

Cash at end of year 1,510 1,066 477 383 96

Note: * Excluding one off items ** Fully diluted, excluding one-off items


Balance sheet


Current assets 3,015 2,451 1,888 1,782 1,420

Cash & equivalents 1,510 1,066 477 383 96

Accounts receivable 590 695 684 662 630

Inventories 368 484 496 512 473

Other current assets 547 206 231 225 221

Fixed assets 4,371 5,482 6,504 7,176 8,263

Investment assets 2,224 3,457 4,224 4,843 5,738

(Equity in affiliated companies) 920 1,149 1,739 2,089 2,509

Tangible assets 1,884 1,727 2,004 2,075 2,282

Intangible assets 80 79 63 51 41

Other long-term assets 183 219 213 208 202

Total assets 7,386 7,934 8,392 8,958 9,683

Current liabilities 1,520 1,098 1,220 1,334 1,355

Accounts payable 417 385 455 512 473

Short-term debt 78 32 33 35 36

Other current liabilities 1,025 682 732 787 846

Long-term liabilities 595 604 577 553 682

Bond & long-term debt 379 228 228 228 378

Other long-term liabilities 216 376 349 325 304

Total liabilities 2,115 1,703 1,796 1,887 2,037

Capital stock 241 241 241 241 241

Capital surplus 1,331 1,264 1,264 1,264 1,264

Retained earnings 2,892 3,391 3,723 4,158 4,683

Other 524 1,156 1,156 1,156 1,156

Non-Controlling Interests Equity 284 180 213 254 302

Total equity 5,271 6,231 6,596 7,072 7,646

Net debt (838) (778) (208) (97) 350

Book value per share (KRW) 110,414 133,484 141,029 150,997 162,937

Financial ratios

Year-end Dec 31 2009 2010 2011E 2012E 2013E

Growth (%)

Sales (6.6) 3.5 6.5 3.2 0.7

Operating profit 39.0 55.1 (19.1) 28.1 15.1

Pre-tax profit 50.8 41.1 21.6 25.3 18.0

Net profit 34.3 79.4 13.5 25.3 18.0

Operating net profit* nm 182.2 27.7 23.8 16.2

EBITDA 68.6 44.7 (24.6) 28.1 15.1

Adjusted EPS** 0.0 182.2 27.7 23.8 16.2

Ratios

ROE (%) 4.3 6.7 6.8 8.0 8.8

ROA (%) 3.0 5.0 5.4 6.3 6.9

ROIC (%) 3.4 4.2 3.0 3.6 3.6

Net debt to equity (%) (15.9) (12.5) (3.1) (1.4) 4.6

Interest coverage (x) 8.0 15.1 28.3 35.9 35.3

Receivables turnover (days) 45.8 45.8 46.1 43.7 41.6

Payables turnover (days) 24.5 28.6 28.1 31.3 31.7

Inventory turnover (days) 29.0 30.3 32.8 32.7 31.7

Valuations (x)

P/E 43.7 20.3 15.9 12.8 11.0

P/B 1.0 1.0 1.0 0.9 0.9

EV/EBITDA 5.3 7.2 7.8 6.4 6.0

EV/EBIT 14.1 13.8 12.3 9.8 8.8

Dividend yield (common, %) 0.7 1.1 1.0 1.1 1.1


December 8, 2011


WHAT�S THE STORY?

Event: A check on Duksan Hi-Metal (DSHM) to get a better handle on next

year�s performance

Impact: Sales should come in at KRW200.6b next year with an operating

profit of KRW54.2b, both powered by the AMOLED materials division, in

which sales are expected to jump 88.5% to KRW132.8b. Even if the firm

loses some of its share of the AMOLED materials market, we expect strong

quarterly growth throughout next year as Samsung Mobile Display (SMD)

ramps up its production lines.

Action: Upgrading DSHM shares to BUY and raising target price by

9%, for three reasons�the firm�s strong growth potential, steady margins,

and position as leading beneficiary of the coming OLED boom.

Duksan Hi-Metal (077360 KS)

Strong steady profit growth ahead

THE QUICK VIEW

To benefit steadily from AMOLED throughout 2012: Duksan Hi-Metal

(DSHM) should this year enjoy sales growth of 102% in its AMOLED materials

division, where sales of KRW70.4b are expected to account for 54% of total gross

sales. Next year, we foresee sales of KRW200.6b and an operating profit of

KRW54.2b, both powered by a projected 88.5% jump in EL materials sales to

KRW132.8b.

Further strong growth ahead despite temporary setbacks in 4Q11:

Although recent visits to the company show that Samsung Mobile Display (SMD) will

expand capacity by 28.9% q-q in 4Q11, we expect DSHM to report only a 17% q-q

increase in AMOLED material shipments. We noticed similar trends in 3Q, when: 1)

SMD ramped up its A2 lines (phase two) by monthly increments, causing material

shipment growth to drop below reported capacity growth; and 2) test runs of new

equipment also hindered growth in materials shipments. However, we expect visibly

strong momentum throughout 2012, as: 1) materials shipments for SMD�s phase-two

ramp-up of A2 lines are expected to reach planned levels next year; and 2) additional

growth should come from SMD�s capacity expansions at its A2 and A3 lines.

Three reasons to upgrade to BUY : We expect only a temporary impact

on share prices from a new competitor supplying HTL materials to SMD. While the

low-demand season for IT set makers should weigh on solder-ball earnings in 1Q, we

expect a noticeable improvement in profits entering the high-demand season. Even if

the firm loses some of its share of the AMOLED materials market, we expect strong

quarterly growth throughout next year as Samsung Mobile Display (SMD) ramps up

its production lines. We therefore upgrade DSHM shares to BUY and raise our

12-month target price by 9%. Our target is now entirely based on projected 2012 EPS.

The stock is currently trading at 15.8x 2012 P/E, yet the company should continue to

outperform peers in terms of EPS growth, with a projected 67.6% next year.

CompanyUpdate


AT A GLANCE

Target price KRW36,000 (32.1%)



Market cap KRW800.9b/USD711.3m

Shares (float) 29,392,370 (43.7%)



KRW 14.28b/USD 12.68m


Duksan Hi-Metal (%) -7.0 +21.9 +27.6

Vs Kosdaq (%pts) -6.2 +15.0 +27.4

KEY CHANGES


Recommendation BUY BUY

Target price 36,000 33,000 +9.1%

2011E EPS 1,028 1,016 +1.2%

2012E EPS 1,723 1,790 -3.7%

2013E EPS 1,986 2,586 -23.2%



Target price vs I/B/E/S mean -0.8%


1-year-fwd EPS vs I/B/E/S mean -5.8%




2010 2011E 2012E 2013E

Revenue (KRWb) 72.5 130 201 291.3

Net profit (adj) (KRWb) 10.1 32 51 58.5

EPS (adj) (KRW) 356 1,028 1,723 1,986

EPS (adj) growth (%) 74.1 189.1 67.6 15.2

EBITDA margin (%) 29.4 29.0 31.1 24.3

ROE (%) 12.4 28.9 34.1 28.5

P/E (adj) (x) 76.6 26.5 15.8 13.7

P/B (x) 10.2 7.2 4.7 3.4

EV/EBITDA (x) 37.8 21.2 12.5 10.7

Dividend yield (%) 0.0 0.0 0.0 0.0



December 8, 2011

Duksan Hi-Metal

35

Chart 1. 2010 sales, by division Chart 2. Estimated 2011 sales, by division

Source: Company data, Samsung Securities Source: Company data, Samsung Securities estimates

Chart 3. Quarterly sales vs operating margin Chart 4. Shareholder structure

Source: Company data, Samsung Securities estimates Source: Company data, Samsung Securities

Table 1. Forecast revisions

(KRWb) 2011E 2012E

Old New Diff (%) Old New Diff (%)

Sales 128.9 130.2 1.0 216.1 200.6 (7.2)

Operating profit 32.5 32.9 1.2 59.5 54.2 (9.0)

Pre-tax profit 32.7 33.0 1.2 59.3 54.0 (9.0)

Net profit 31.1 31.5 1.2 53.3 51.3 (3.9)


Table 2. Valuation

(KRW) 2012E Remarks

EPS 1,723 2012E EPS

Applied P/E (x) 15.8 P/E of AMOLED-materials peers

Premium (%) 30.0 Reflecting high EPS growth

Fair value per share 35,308

Target price 36,000

Price 27,250 As of Dec 7 close

Upside (%) 32.1


0

5

10

15

20

25

30

0

5

10

15

20

25

30

35

40

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11E

Sales (LHS) Operating margin (RHS)

(KRWb) (%)

EL Materials Division 54%

Semiconductor Materials

Division 46%

EL Materials Division 48%

Semiconductor Materials

Division 52%

Joonho Lee and 11 others

41.97%

Morgan Stanley

4.31%

Treasury stock 14.35%

Other 39.37%


December 8, 2011

Duksan Hi-Metal

36

Table 3. Quarterly earnings trends and forecasts

(KRWb) 1Q11 2Q11 3Q11 4Q11E 1Q12E 2Q12E 3Q12E 4Q12E 2010 2011E 2012E

Sales 23.3 33.9 35.4 37.7 39.8 43.1 54.6 63.1 72.5 130.2 200.6

Solder balls 12.6 15.2 16.1 15.8 14.7 16.7 18.5 17.9 37.7 59.7 67.8

EL materials 10.7 18.6 19.3 21.9 25.1 26.4 36.1 45.2 34.8 70.4 132.8

Operating profit 5.5 8.5 9.8 9.1 9.7 11.7 15.6 17.1 13.1 32.9 54.2

Operating margin (%) 23.7 25.0 27.8 24.0 24.5 27.2 28.6 27.0 18.1 25.3 27.0

Pre-tax profit 5.8 8.3 10.1 8.9 9.6 11.7 15.6 17.1 12.5 33.0 54.0

Net profit 5.3 8.6 9.8 7.8 8.7 10.5 14.0 18.0 10.1 31.5 51.3



December 8, 2011

Duksan Hi-Metal

37

Income statement


Sales 32.1 72.5 130.2 200.6 291.3

Cost of goods sold 19.7 42.7 70.7 94.0 165.1

Gross profit 12.4 29.7 59.5 106.6 126.2

(Gross margin, %) 38.7 41.0 45.7 53.2 43.3

SG&A expenses 7.7 16.6 26.7 51.5 62.5

Operating profit 4.7 13.1 32.9 54.2 61.5


Net interest income (0.6) (0.2) (0.4) (0.2) 0.1

Net forex-related gains 0.1 (0.2) 0.6 0.0 0.0

Net equity-method gains 2.2 (0.3) 0.0 0.0 0.0

Other (0.7) 0.1 (0.0) (0.0) (0.0)

Pre-tax profit 5.7 12.5 33.0 54.0 61.6

Taxes 1.0 2.4 1.5 2.7 3.1


Net profit 4.7 10.1 31.5 51.3 58.5

(Net margin, %) 14.7 14.0 24.2 25.6 20.1

Operating net profit* 4.3 8.8 30.1 50.7 58.4


EBITDA 9.8 21.3 37.8 62.3 70.7

(EBITDA margin, %) 30.5 29.4 29.0 31.1 24.3

Reported EPS (KRW) 224 409 1,077 1,744 1,990

Adjusted EPS (KRW)** 204 356 1,028 1,723 1,986

DPS (common, KRW) 0 0 0 0 0

DPS (preferred, KRW) 0 0 0 0 0


Cash flow statement


Cash flow from operations 10.4 10.3 23.2 46.6 53.0

Net profit 4.7 10.1 31.5 51.3 58.5

Depreciation & amortization 3.5 8.6 4.3 8.2 9.2

Net forex-translation income (0.2) 0.2 (0.6) 0.0 0.0

Net equity-method income (1.4) 0.3 0.0 0.0 0.0

Gross cash flow 6.1 22.4 35.6 60.6 69.8

(-) Change in working capital 4.4 (12.1) (12.4) (14.1) (16.7)

Interest received (paid) 0.0 0.0 0.0 0.0 0.0

Other (0.0) (0.0) 0.0 0.0 0.0

Cash flow from investments (10.2) (28.4) (21.0) (25.2) (28.9)

Capex (7.2) (28.2) (9.8) (12.0) (15.0)

Free cash flow 3.3 (17.9) 13.4 34.6 38.0

Change in investment assets 0.6 1.4 (2.2) (4.0) (4.0)

Other (3.6) (1.6) (9.0) (9.2) (9.9)

Cash flow from financing 0.2 8.9 1.6 (1.2) (2.1)

Change in debt (12.1) 2.5 5.5 2.5 2.5

Change in equity 0.0 6.0 0.1 0.0 0.0

Dividends 0.0 0.0 0.0 0.0 0.0

Other 12.3 0.4 (4.0) (3.7) (4.6)

Change in cash 0.4 (9.2) 3.8 20.2 22.0

Cash at beginning of year 14.1 14.6 5.3 9.1 29.3

Cash at end of year 14.6 5.3 9.1 29.3 51.3



Balance sheet


Current assets 26.0 21.5 46.2 88.5 135.2

Cash & equivalents 14.1 5.3 9.1 29.3 51.3

Accounts receivable 3.7 7.2 16.3 26.5 36.4

Inventories 3.6 6.7 12.4 18.7 27.2

Other current assets 4.6 2.4 8.4 13.9 20.2

Fixed assets 65.8 90.1 101.4 112.8 126.3

Investment assets 15.1 16.3 18.5 22.6 26.5

(Equity in affiliated companies) 0.3 0.1 0.1 0.1 0.1

Tangible assets 18.4 44.3 51.1 56.7 64.7

Intangible assets 29.8 27.1 29.5 31.5 33.1

Other long-term assets 2.5 2.3 2.2 2.0 1.9

Total assets 91.8 111.6 147.5 201.3 261.5

Current liabilities 15.7 11.1 12.9 15.5 17.1

Accounts payable 1.3 2.6 5.5 8.1 9.7

Short-term debt 6.0 1.9 1.9 1.9 1.9

Other current liabilities 8.4 6.6 5.5 5.5 5.5

Long-term liabilities 5.6 7.3 9.7 9.7 9.7

Bond & long-term debt 5.2 6.6 9.6 9.6 9.6

Other long-term liabilities 0.4 0.7 0.1 0.1 0.1

Total liabilities 21.3 18.3 22.7 25.2 26.8

Capital stock 4.9 5.8 5.9 5.9 5.9

Capital surplus 67.7 75.8 75.8 75.8 75.8

Retained earnings 20.6 30.7 62.3 113.5 172.0

Other (22.7) (19.1) (19.1) (19.1) (19.1)

Non-controlling interest equity 0.0 0.0 0.0 0.0 0.0

Total equity 70.5 93.3 124.9 176.1 234.6

Net debt (3.0) 5.7 0.9 (22.5) (47.7)


Financial ratios

Year-end Dec 31 2009 2010 2011E 2012E 2013E

Growth (%)

Sales 41.8 125.5 79.6 54.1 45.3

Operating profit (4.4) 179.2 150.5 64.7 13.6

Pre-tax profit RB 119.8 163.9 63.3 14.1

Net profit RB 114.0 210.7 62.7 14.1


EBITDA (20.5) 171.9 194.9 64.1 13.6

Adjusted EPS** 34 74 189 68 15

Ratios

ROE (%) 8.7 12.4 28.9 34.1 28.5

ROA (%) 6.1 10.0 24.3 29.4 25.3

ROIC (%) 5.5 10.7 24.9 29.2 24.9

Net debt to equity (%) (4.2) 6.1 0.7 (12.8) (20.3)





Valuations (x)

P/E 42.1 76.6 26.5 15.8 13.7

P/B 4.3 10.2 7.2 4.7 3.4

EV/EBITDA 18.8 37.8 21.2 12.5 10.7

EV/EBIT 29.3 63.1 24.0 14.4 12.2



December 8, 2011


WHAT�S THE STORY?

Event: A check on display and logistics-automation equipment maker SFA

Engineering and its steady inflows of back-end-process and vacuum-

logistics equipment orders

Impact: Having secured KRW450.2b-worth of orders over 1Q-3Q, the firm

expects to meet its annual target of more than KRW700b helped by robust

orders for OLED front-end equipment�such orders should continue to

drive growth next year.

Action: With SFA shares now trading at 2.6x 2012 consensus P/B, a

premium to the peer average, we expect stock-price momentum to hinge on

the timing and size of next-generation (AMOLED) capacity expansion at

Samsung Mobile Display.

SFA Engineering (056190 KS)

All-round OLED player

THE QUICK VIEW

Growing in sync with Samsung Group: Having spun off from Samsung

Techwin�s automation division in Dec 1998, display and logistics-automation

equipment maker SFA Engineering was founded as a holding company and went

public in 2001. Since the IPO, it has grown an average of 22% pa, powered by

aggressive LCD and PDP investments at Samsung Electronics (SEC) and Samsung

SDI. SEC became the firm�s strategic partner in May 2010 by purchasing a 10.2%

stake. The firm�s largest shareholder DY Asset has a 33.09% stake.

Expected to win orders for diverse types of OLED-related equipment:

SFA enjoys steady inflows of back-end-process and vacuum-logistics equipment

orders from Samsung Mobile Display (SMD) for its AMOLED and TFT-LCD

businesses. The firm is currently developing 8G OLED PECVDs used in TFT

deposition, a key front-end process, and sputter equipment in preparation for an

SMD-shift toward oxide TFT display. It is also expected to supply evaporation

equipment, an integral part of the color patterning process.

Valuation: Having secured KRW450.2b-worth of orders over 1Q-3Q, the firm

expects to meet its annual target of more than KRW700b helped by robust orders for

OLED front-end equipment. Such orders should also drive growth next year�

consensus estimates foresee sales of KRW920b and an operating profit of KRW116.6b.

With SFA shares now trading at 2.6x 2012 consensus P/B, a premium to the peer

average, we expect stock-price momentum to hinge on the timing and size of next-

generation (AMOLED) capacity expansion at Samsung Mobile Display.

CompanyUpdate


AT A GLANCE

Not rated

Target price n/a



Market cap KRW1.1t/USD1.0b

Shares (float) 17,954,380 (51.8%)



KRW 10.99b/USD 9.76m


SFA Engineering (%) +2.5 +10.8 +28.7

Vs Kosdaq (%pts) +3.3 +3.8 +28.5

KEY CHANGES


Recommendation n/a n/a

Target price n/a n/a -

2011E EPS n/a n/a -

2012E EPS n/a n/a -

2013E EPS n/a n/a -



Target price vs I/B/E/S mean -






2007 2008 2009 2010

Revenue (KRWb) 307 431 307 423.0

Net profit (adj) (KRWb) 42 50 18 39.4

EPS (adj) (KRW) 2,349 2,783 910 2,198

EPS (adj) growth (%) (21.0) 18.5 (67.3) 141.5

EBITDA margin (%) 17.8 15.2 8.0 11.9

ROE (%) 22.5 23.4 8.0 16.0

P/E (adj) (x) 19.2 19.9 43.6 29.7

P/B (x) 4.0 4.4 3.1 4.4

EV/EBITDA (x) 5.2 6.8 10.9 19.8

Dividend yield (%) 2.1 2.1 0.6 0.8



December 8, 2011

SFA Engineering

39

Chart 1. Quarterly sales vs operating margin Chart 2. 1Q-3Q11 sales, by equipment type

Note: K-GAAP based figures until 4Q10, K-IFRS based from 1Q11



Chart 3. Yearly sales vs new orders Chart 4. 1Q-3Q11 new orders, by area

Source: Company data, Samsung Securities Source: Company data, Samsung Securities

Chart 5. Shareholder structure


Logistics66%

FGA17%

Backend & module

15%

Front end2%

SalesKRW495b

Logistics63%

FGA17%

Backend & module

18%

Front end2%

Accrued new orders

KRW450.2b

0

100

200

300

400

500

600

700

800

2006 2007 2008 2009 2010

Sales New Orders

(KRWb)

0

2

4

6

8

10

12

14

0

50

100

150

200

250

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11


(KRWb) (%)

DY Asset and 4 others

36.6%

Samsung Electronics

10.2%

Treasury Stock 1.5%

Other 40.0%

Korea Investment Management and 3

others 11.7%


December 8, 2011

SFA Engineering

40

Chart 6. OLED-related equipment makers: P/B vs ROE


Table 1. Peer valuations

Company Code Market Cap P/E (x) P/B (x) EV/EBITDA (x) ROE (%) OPM (%)

(USDm) 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E

Wonik IPS 030530 KS 594.5 19.4 12.0 3.5 2.7 15.8 9.4 12.0 21.1 10.7 12.6

SNU Precision 080000 KS 224.3 29.5 10.1 1.9 1.6 16.5 6.9 13.8 20.0 7.5 12.9

ICD 040910 KS 427.3 9.2 8.4 3.7 2.6 6.6 5.6 52.7 36.0 22.3 20.8

Avaco 083930 KS 107.8 11.5 10.0 1.6 1.4 6.6 6.5 15.0 14.8 5.2 6.4

AP Systems 054620 KS 292.9 23.1 12.0 4.2 3.0 13.2 7.0 21.7 29.3 7.9 11.7

Domestic 18.5 10.5 3.0 2.3 11.7 7.1 23.0 24.2 10.7 12.9

TEL 8035 JP 10,050.7 20.5 20.9 1.3 1.2 6.2 6.5 6.5 6.7 9.2 9.0

Ulvac 6728 JP 717.6 24.3 22.1 0.6 0.6 7.9 7.4 2.3 1.6 2.4 2.6

Hitachi Hitech 8036 JP 2,973.8 12.9 12.5 0.9 0.8 2.8 2.1 7.1 6.6 4.2 4.3

International 19.2 18.5 0.9 0.9 5.7 5.4 5.3 4.9 5.3 5.3

Overall average 18.8 13.5 2.2 1.7 9.5 6.4 16.4 17.0 8.7 10.0


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0 10 20 30 40 50 60

ROE (2011E, %)

P/B (2011E, x)


December 8, 2011

SFA Engineering

41

Income statement

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010

Sales 380.8 306.8 430.8 307.1 423.0

Cost of goods sold 297.3 244.3 355.1 270.4 352.8

Gross profit 83.5 62.5 75.7 36.7 70.2

(Gross margin, %) 21.9 20.4 17.6 12.0 16.6

SG&A expenses 19.5 18.4 22.2 21.5 32.4



Net interest income 6.7 6.9 7.5 4.9 4.6

Net forex-related gains (0.3) 0.3 5.6 (1.8) 2.3

Net equity-method gains 2.6 1.0 0.5 2.9 2.2

Other (2.3) 5.3 1.4 3.9 3.2

Pre-tax profit 70.7 57.6 68.5 25.1 50.0

Taxes 17.2 15.5 18.7 7.0 10.7


Net profit 53.5 42.0 49.8 18.0 39.4

(Net margin, %) 14.1 13.7 11.6 5.9 9.3



EBITDA 67.5 54.5 65.5 24.7 50.2

(EBITDA margin, %) 17.7 17.8 15.2 8.0 11.9

Reported EPS (KRW) 2,981 2,341 2,773 1,004 2,192

Adjusted EPS (KRW)** 2,972 2,349 2,783 910 2,198

DPS (common, KRW) 1,200 1,400 1,400 400 500



Cash flow statement

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010

Cash flow from operations (32.6) 31.9 30.5 (3.3) 84.8

Net profit 53.5 42.0 49.8 18.0 39.4

Depreciation & amortization 3.5 3.9 4.5 4.6 4.8

Net forex-translation income 0.2 (0.2) (2.6) 1.0 (0.6)

Net equity-method income (2.6) (1.0) (0.5) (2.9) (2.2)

Gross cash flow 61.4 43.9 55.5 23.0 51.8

(-) Change in working capital (93.9) (12.0) (25.0) (26.3) 33.1

Interest Received (Paid) 0.0 0.0 0.0 0.0 0.0

Other 0.0 (0.0) 0.0 0.0 0.0

Cash flow from investments 4.1 (26.2) 26.8 6.0 (45.6)

Capex (10.3) (11.3) (10.4) (3.8) (8.1)

Free cash flow (42.9) 20.7 20.2 (7.0) 76.7

Change in investment assets 54.6 (12.6) (5.0) (0.5) (4.5)

Other (40.2) (2.3) 42.1 10.2 (33.0)

Cash flow from financing 5.3 (10.9) (29.7) (12.4) 0.8

Change in debt 0.0 0.0 0.0 0.0 0.0

Change in equity 0.0 0.0 0.0 0.0 0.0

Dividends (9.4) (10.9) (12.8) (12.4) (3.5)

Other 14.7 0.0 (16.9) 0.0 4.3

Change in cash (23.2) (5.2) 27.6 (9.7) 40.0

Cash at beginning of year 38.2 14.9 9.8 37.4 27.7

Cash at end of year 14.9 9.8 37.4 27.7 67.7



Balance sheet

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010

Current assets 233.7 248.1 274.3 166.6 494.1

Cash & equivalents 13.5 9.0 36.0 26.1 66.3

Accounts receivable 60.6 61.6 46.5 38.5 86.0

Inventories 34.7 49.2 109.3 26.8 215.7

Other current assets 124.9 128.3 82.5 75.3 126.1

Fixed assets 107.5 129.1 142.7 143.1 135.5

Investment assets 25.4 37.6 43.2 43.8 32.6

(Equity in affiliated companies) 19.3 20.3 21.1 20.3 24.6

Tangible assets 74.5 82.3 90.3 90.8 93.8

Intangible assets 0.0 0.0 0.0 0.0 0.5

Other long-term assets 7.6 9.2 9.2 8.5 8.5

Total assets 341.2 377.2 417.0 309.7 629.6

Current liabilities 148.8 155.1 178.0 69.3 356.8

Accounts payable 50.9 47.4 41.2 30.2 104.0

Short-term debt 0.0 0.0 0.0 0.0 0.0

Other current liabilities 97.9 107.7 136.8 39.0 252.7

Long-term liabilities 21.2 19.7 16.3 12.1 8.8

Bond & long-term debt 0.0 0.0 0.0 0.0 0.0

Other long-term liabilities 21.2 19.7 16.3 12.1 8.8

Total liabilities 170.0 174.8 194.3 81.4 365.6

Capital stock 4.6 4.6 4.6 4.6 9.0

Capital surplus 24.7 24.7 24.7 24.7 20.2

Retained earnings 142.1 173.2 210.3 215.9 251.7

Other (0.2) (0.2) (16.8) (16.9) (16.9)

Non-Controlling Interests Equity 0.0 0.0 0.0 0.0 0.0

Total equity 171.2 202.3 222.7 228.3 264.0

Net debt (129.0) (128.4) (110.2) (91.1) (179.5)


Financial ratios

Year-end Dec 31 2006 2007 2008 2009 2010

Growth (%)

Sales 8.4 (19.5) 40.4 (28.7) 37.7

Operating profit 37.2 (31.2) 21.4 (71.6) 148.6

Pre-tax profit 32.7 (18.6) 19.0 (63.4) 99.6

Net profit 30.2 (21.4) 18.4 (63.8) 118.3

Operating net profit* 30.2 (21.0) 18.5 (67.3) 141.5

EBITDA 34.6 (33.6) 20.8 (71.9) 171.8

Adjusted EPS** 30 (21) 18 (67) 142

Ratios

ROE (%) 37.5 22.5 23.4 8.0 16.0

ROA (%) 15.1 11.7 12.5 5.0 8.4

ROIC (%) 28.3 15.9 17.5 4.8 11.3

Net debt to equity (%) (75.4) (63.4) (49.5) (39.9) (68.0)

Interest coverage (x) nm 0.0 0.0 0.0 0.0




Valuations (x)

P/E 10.2 19.2 19.9 43.6 29.7

P/B 3.2 4.0 4.4 3.1 4.4

EV/EBITDA 2.2 5.2 6.8 10.9 19.8

EV/EBIT 2.3 5.6 7.3 13.3 21.9



December 8, 2011


WHAT�S THE STORY?

Event: A check on semiconductor equipment maker Wonik IPS prior to the

listing of subsidiary Wonik Materials

Impact: Market attention will be on Wonik IPS for two reasons: 1) the

firm�s stake in the subsidiary should be worth KRW70b based on the

guideline IPO price; and 2) its entry into the OLED market bodes well for

growth momentum.

Action: Shares in Wonik IPS are currently trading at 12.0x 2012 P/E and

2.7x P/B (based on Bloomberg consensus), similar to those of peers, but

worth considering as the firm�s semiconductor-related equipment sales

should steadily rise, its subsidiary will soon go public, and potential for

overall growth is high, shown by Samsung Electronics� investment in Wonik

IPS convertible bonds.

Wonik IPS (030530 KS)

OLED shift to spur growth

THE QUICK VIEW

Supplier of essential front-end equipment for semiconductors & displays:

Wonik IPS was created on Dec 29, 2010 following a merger involving IPS and Atto.

The former manufactured semiconductor ALDs, display dry etchers, and solar cell

PECVDs, while the latter produced semiconductor PECVD equipment. Atto

subsidiary Wonik Materials was spun off and will soon go public. Samsung

Electronics (SEC) owns convertible bonds in Wonik IPS worth around KRW22b,

equating to a 9.4% stake if converted.

Subsidiary Wonik Materials set to go public: Wonik Materials is scheduled

for book building on Dec 9 with a price range of KRW23,000-26,000. Based on such

a range, the subsidiary�s market cap should total KRW133.4b~KRW150.8b and

Wonik IPS�s post-IPO stake should be 49.66% and worth KRW65b-75b, equating to

around 10.5% of its own market cap.

AMOLED to become major growth driver: Wonik IPS is set to secure new

growth momentum following its recent development of a proprietary 8G AMOLED

dry etcher. Its deposition and encapsulation equipment division is expanding to

include the development of large-area equipment. The firm has secured an 11,000-

pyeong site in Asan, on which to build a clean-room plant for equipment

development and mass production.

Valuation worth a look: Wonik IPS�s 2012 guidance remains unchanged at sales

of KRW480b and operating margin in the low teens. The stock is currently trading at

12.0x 2012 P/E and 2.7x P/B (based on Bloomberg consensus), similar to those of

peers, but worth considering as the firm's semiconductor-related sales should

steadily rise, its subsidiary will soon go public, and potential for overall growth is

high, shown by Samsung Electronics' investment in Wonik IPS convertible bonds.

CompanyUpdate


AT A GLANCE

Not rated

Target price n/a




Shares (float) 69,392,633 (63.7%)



KRW 24.69b/USD 21.93m


Wonik IPS (%) +5.9 +67.7 +29.6

Vs Kosdaq (%pts) +6.7 +60.7 +29.3

KEY CHANGES




2011E EPS n/a n/a -

2012E EPS n/a n/a -

2013E EPS n/a n/a -









2008 2009 2010 2011E

Revenue (KRWb) 76 91 173 310

Net profit (adj) (KRWb) 12 12 26 n/a

EPS (adj) (KRW) 404 369 795 n/a

EPS (adj) growth (%) (13.5) (8.7) 115.6 n/a

EBITDA margin (%) 25.9 19.5 18.7 n/a

ROE (%) 18.2 14.6 11.9 n/a

P/E (adj) (x) 4.5 7.3 9.9 n/a

P/B (x) 0.9 1.0 2.9 n/a

EV/EBITDA (x) 2.2 3.0 16.4 n/a

Dividend yield (%) 0.0 0.0 0.0 n/a



December 8, 2011

Wonik IPS

43

Chart 1. Quarterly sales vs operating margin Chart 2. Customer breakdown


Chart 3. Shareholder structure Chart 4. Estimated 2011 sales, by client industry




(USDm) 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E

SFA Engineering 056190 KS 1,002.0 13.6 11.1 3.3 2.6 9.4 7.2 27.8 26.7 12.3 12.9

SNU Precision 080000 KS 224.3 29.5 10.1 1.9 1.6 16.5 6.9 13.8 20.0 7.5 12.9

ICD 040910 KS 427.3 9.2 8.4 3.7 2.6 6.6 5.6 52.7 36.0 22.3 20.8

Avaco 083930 KS 107.8 11.5 10.0 1.6 1.4 6.6 6.5 15.0 14.8 5.2 6.4

AP Systems 054620 KS 292.9 23.1 12.0 4.2 3.0 13.2 7.0 21.7 29.3 7.9 11.7

Domestic 17.4 10.3 2.9 2.2 10.5 6.6 26.2 25.4 11.0 12.9

TEL 8035 JP 10,050.7 20.5 20.9 1.3 1.2 6.2 6.5 6.5 6.7 9.2 9.0

Ulvac 6728 JP 717.6 24.3 22.1 0.6 0.6 7.9 7.4 2.3 1.6 2.4 2.6


International 19.2 18.5 0.9 0.9 5.7 5.4 5.3 4.9 5.3 5.3

Overall average 18.1 13.4 2.2 1.7 8.7 6.2 18.4 17.7 8.9 10.1


(15)

(10)

(5)

0

5

10

15

20

25

0

20

40

60

80

100

120

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11


(KRWb) (%)

Samsung Electronics

80%

Other 15%

Hynix Semiconductor 5%

Solar11%

LCD18%

Other16%

SalesKRW310b

Semiconductor55%

Wonik Corporation

11.8%

Yonghan Lee 7.9%

Treasury stock 7.5%

Horizon Capital 1.3%

Wonik Quartz 6.4%

Fidelity Funds and 2 others

5.0%

Other 60.1%


December 8, 2011

Wonik IPS

44

Income statement

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010

Sales 117 80 76 91 173

Cost of goods sold 87 56 48 64 119

Gross profit 30 24 28 27 54

(Gross margin, %) 25.4 29.9 36.7 30.0 31.3

SG&A expenses 17 14 18 22 35



Net interest income (1) 0 1 0 1

Net forex-related gains 1 (0) 2 (0) (0)

Net equity-method gains (1) 6 4 9 10

Other (1) (1) 1 0 0

Pre-tax profit 11 15 18 15 30

Taxes 0 0 4 3 3


Net profit 11 15 12 12 26

(Net margin, %) 9.0 18.4 16.5 13.2 15.3



EBITDA 15 17 20 18 32

(EBITDA margin, %) 13.0 21.7 25.9 19.5 18.7

Reported EPS (KRW) 357 471 376 363 787

Adjusted EPS (KRW)** 317 467 404 369 795




Cash flow statement

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010

Cash flow from operations 14 14 13 23 6

Net profit 11 15 12 12 26


Net forex-translation income 0 (0) (2) 0 0

Net equity-method income 1 (6) (4) (9) (10)

Gross cash flow 18 14 14 8 23

(-) Change in working capital (4) 0 (1) 15 (18)

Interest Received (Paid) 0 0 0 0 0

Other (0) 0 (0) 0 0

Cash flow from investments 1 (7) (9) (18) (34)

Capex (4) (2) (3) 0 (6)

Free cash flow 10 12 10 23 (0)

Change in investment assets 1 (0) (1) (10) (21)

Other 5 (4) (5) (8) (6)

Cash flow from financing (20) 6 2 (1) 5

Change in debt (20) (4) (0) 0 0


Dividends 0 0 0 0 0

Other (1) 3 3 (1) 5

Change in cash (9) 13 7 4 20

Cash at beginning of year 10 1 14 21 25

Cash at end of year 1 14 21 25 45



Balance sheet

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010

Current assets 31 35 44 61 134

Cash & equivalents 0 14 21 25 45


Inventories 17 10 11 15 46


Fixed assets 36 46 54 71 348

Investment assets 16 22 29 47 84

(Equity in affiliated companies) 14 20 27 43 75

Tangible assets 14 15 16 17 82



Total assets 67 82 98 132 482

Current liabilities 26 18 20 38 75



Other current liabilities 7 8 9 3 22




Total liabilities 28 20 23 44 127

Capital stock 15 17 17 17 34

Capital surplus 24 29 29 29 292

Retained earnings 2 16 28 40 67

Other (1) (1) 1 2 (38)


Total equity 39 61 76 88 356

Net debt 4 (14) (24) (35) (14)


Financial ratios

Year-end Dec 31 2006 2007 2008 2009 2010

Growth (%)

Sales 37.7 (31.5) (5.5) 20.5 90.0

Operating profit RB (19.5) 0.4 (41.9) 230.5

Pre-tax profit RB 42.2 18.4 (15.0) 98.1

Net profit RB 39.6 (4.8) (14.5) 120.5

Operating net profit* RB 55.9 (8.5) (8.7) 118.8

EBITDA RB (21.0) (19.2) (41.6) 267.9

Adjusted EPS** RB 47 (13) (9) 116

Ratios

ROE (%) 31.4 29.4 18.2 14.6 11.9

ROA (%) 13.3 19.8 13.9 10.4 8.6

ROIC (%) 28.7 15.7 10.3 5.2 4.7

Net debt to equity (%) 9.3 (22.0) (31.2) (40.0) (3.9)





Valuations (x)

P/E 6.8 6.1 4.5 7.3 9.9

P/B 1.9 1.7 0.9 1.0 2.9

EV/EBITDA 4.4 4.4 2.2 3.0 16.4

EV/EBIT 6.0 5.1 2.5 3.7 18.6



December 8, 2011


WHAT�S THE STORY?

Event: A check on equipment manufacturer AP Systems (APS) and its

steady inflow of AMOLED-related front-end equipment orders

Impact: As one of only a few firms in the OLED space that supply a variety of front-end equipment, APS stands to benefit even more when the OLED

market takes off. According to company guidance, orders for such

equipment will drive sales to KRW400b next year with an operating margin in the low teens.

Action: Investors should closely monitor APS given its solid growth

prospects and currently attractive valuation.

Asia Pacific Systems (054620 KS)

Top dog in OLED equipment

THE QUICK VIEW

Focused on AMOLED-related equipment: Having started out as a maker of

semiconductor and LCD equipment, Asia Pacific Systems (APS) entered the

AMOLED equipment business in 2008 after successfully developing excimer laser

annealing (ELA) equipment used in front-end processes. It then moved into the glass

encapsulation, laser lift-off (LLO), and laser induced thermal imaging (LITI)

equipment businesses, and currently generates 79% of its sales from AMOLED-

related equipment (as of end-September).

Order momentum rising on SMD�s 5.5G expansion: APS is the sole supplier

of core backplane equipment (including ELA), LITI evaporation equipment, and glass

encapsulation equipment�for Samsung Mobile Display (SMD) and its 5.5G lines.

Backed by a solid track record, the firm is now receiving equipment orders for SMD�s

third phase of A2 line expansion, which requires LLO equipment for the production

of flexible displays.

Timing of A3 line investment key: In the run up to SMD�s phase-three capacity

ramp-up at its A2 line in 1H12, market attention should be on whether APS can win

another round of large-scale orders for the A3 line and whether thin-film encapsulation

will be chosen as the mainstay of the A2 line after phase three. If SMD goes for thin-film,

glass encapsulation equipment would not be needed, but the void would likely be filled

by orders for LLO equipment. Concerns that client migration to oxide TFT processes

may curb demand for ELA equipment seem premature, in our view.

Growth prospects exciting, valuation attractive: According to APS, sales

should come in at KRW240b this year with an operating profit of KRW20b, and

KRW400b next year with an operating margin in the low teens. Considering the

growth potential, APS shares are attractive trading at 12.0x 2012 P/E (based on

Bloomberg consensus). As the company is one of only a few firms in the OLED space

that supply a variety of front-end equipment, it stands to benefit even more when the

OLED market takes off. Investors should closely monitor APS given its solid growth

prospects and currently attractive valuation. Worthy of note, SMD acquired

KRW27.5b-worth of convertible bonds, which could be converted to the equivalent of

11% of common shares outstanding.

CompanyUpdate


AT A GLANCE

Not rated

Target price n/a




Shares (float) 21,538,926 (88.2%)



KRW 20.90b/USD 18.56m


Asia Pacific Systems (%) +9.3 +18.6 +106.2

Vs Kosdaq (%pts) +10.1 +11.7 +106.0

KEY CHANGES




2011E EPS n/a n/a -

2012E EPS n/a n/a -

2013E EPS n/a n/a -









2008 2009 2010 2011E

Revenue (KRWb) 20 92 154 240

Net profit (adj) (KRWb) 4 2 (17) n/a

EPS (adj) (KRW) 280 145 (687) n/a

EPS (adj) growth (%) RB (48) BR n/a

EBITDA margin (%) 28.0 11.1 (2.2) n/a

ROE (%) 9.5 3.2 (26.7) n/a

P/E (adj) (x) 15.3 31.3 (15.7) n/a

P/B (x) 2.1 1.9 4.5 n/a

EV/EBITDA (x) 15.2 7.8 (71.2) n/a




December 8, 2011

Asia Pacific Systems

46

Table 1. Key customers and products

Area Key Customers Other Customers Products

Semiconductor equipment Samsung Electronics Rapid Thermal Processing (RTP), Laser Thermal Annealing (LTA)

LCD equipment Samsung Electronics Hydis, Innolux One Drop Filling (ODF)

AMOLED equipment Samsung Mobile Display Excimer Laser Annealing (ELA), Encapsulation, Laser Lift-Off

LED equipment Samsung LED Philips Lumileds Laser Lift-Off, Wafer Bonder


Chart 1. 2010 sales, by equipment type Chart 2. 1Q-3Q11 sales, by equipment type


Chart 3. Shareholder structure Chart 4. Quarterly sales vs operating margin




(USDm) 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E

SFA Engineering 056190 KS 1,002.0 13.6 11.1 3.3 2.6 9.4 7.2 27.8 26.7 12.3 12.9

SNU Precision 080000 KS 224.3 29.5 10.1 1.9 1.6 16.5 6.9 13.8 20.0 7.5 12.9

ICD 040910 KS 427.3 9.2 8.4 3.7 2.6 6.6 5.6 52.7 36.0 22.3 20.8

Avaco 083930 KS 107.8 11.5 10.0 1.6 1.4 6.6 6.5 15.0 14.8 5.2 6.4

Wonik IPS 030530 KS 594.5 19.4 12.0 3.5 2.7 15.8 9.4 12.0 21.1 10.7 12.6

Domestic 16.6 10.3 2.8 2.2 11.0 7.1 24.2 23.7 11.6 13.1

JSW 5631 JP 2,514.0 15.1 11.5 1.5 1.4 4.9 4.5 10.7 13.2 10.1 11.9

Ulvac 6728 JP 717.6 24.3 22.1 0.6 0.6 7.9 7.4 2.3 1.6 2.4 2.6


International 17.4 15.4 1.0 0.9 5.2 4.7 6.7 7.1 5.6 6.3

Overall average 16.9 12.2 2.1 1.7 8.8 6.2 17.7 17.5 9.3 10.6


LCD equipment

26%

Semiconductor equipment

14%

AMOLED equipment

43%

Other equipment

17%

Sales: KRW154b

LCD equipment 6%

Semiconductor equipment

11%

AMOLED equipment

79%

Other equipment 4%

Sales: KRW153.7b

Kiro Jung and 3 others

10.21%Partners Venture

Capital 8.04%

Treasury stock 0.28%

Other 81.47%

(10)

(5)

0

5

10

15

0

10

20

30

40

50

60

70

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11


(KRWb) (%)


December 8, 2011

Asia Pacific Systems

47

Income statement

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010

Sales 61 42 20 92 154



(Gross margin, %) 23.0 0.5 33.7 19.9 8.6

SG&A expenses 9 7 6 15 15

Operating profit 5 (7) 1 4 (1)

(Operating margin, %) 7.5 (16.4) 4.5 3.9 (0.9)

Net interest income (0) (1) 0 (1) (0)

Net forex-related gains (0) 0 1 (1) 0

Net equity-method gains (0) (1) (0) 0 (0)

Other 1 0 0 (1) (14)

Pre-tax profit 4 (8) 3 0 (16)

Taxes 1 0 (2) (2) 1

(Effective tax rate, %) 29.0 (1.9) (57.6) (391.2) (8.9)

Net profit 3 (8) 4 2 (17)

(Net margin, %) 4.9 (19.9) 20.5 2.2 (11.0)

Operating net profit* 3 (9) 3 3 (14)

(Operating net margin, %) 5.2 (20.3) 15.1 3.2 (9.2)

EBITDA 7 (5) 6 10 (3)

(EBITDA margin, %) 11.2 (11.6) 28.0 11.1 (2.2)

Reported EPS (KRW) 231 (834) 380 101 (818)

Adjusted EPS (KRW)** 244 (849) 280 145 (687)




Cash flow statement

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010

Cash flow from operations (5) (18) (1) 26 (6)

Net profit 3 (8) 4 2 (17)


Net forex-translation income 0 (0) (0) 0 0

Net equity-method income 0 1 0 (0) 0

Gross cash flow 8 (4) 8 14 13

(-) Change in working capital (14) (13) (9) 12 (19)

Interest Received(Paid) 0 0 0 0 0

Other 0 0 (0) 0 0

Cash flow from investments (10) (3) (12) 1 (2)

Capex (1) (3) (1) (1) (6)

Free cash flow (6) (21) (1) 25 (12)

Change in investment assets (8) 3 (3) 0 (3)

Other (1) (2) (8) 2 8

Cash flow from financing 7 17 13 (24) 11

Change in debt 7 16 15 (29) 3


Dividends 0 0 0 0 0

Other 0 1 (2) 3 5

Change in cash (8) (4) 1 4 3





Balance sheet

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010






Fixed assets 31 27 73 55 42






Total assets 86 69 126 134 116











Retained earnings 5 (4) 13 15 (2)

Other (0) (4) (7) (5) (1)


Total equity 51 27 61 68 59

Net debt 11 27 36 (1) 8


Financial ratios

Year-end Dec 31 2006 2007 2008 2009 2010

Growth (%)

Sales 45.5 (30.1) (52.2) 353.2 67.8

Operating profit 139.9 BR RB 288.3 BR

Pre-tax profit 112.2 BR RB (84.2) BR

Net profit 94.0 BR RB (50.8) BR

Operating net profit* 105.9 BR RB (4.0) BR

EBITDA 119.3 BR RB 1,109.9 BR

Adjusted EPS** 80 BR RB (48) BR

Ratios

ROE (%) 6.1 (21.7) 9.5 3.2 (26.7)

ROA (%) 4.0 (10.9) 4.3 1.6 (13.6)

ROIC (%) 5.3 (13.0) 1.5 25.6 (2.2)

Net debt to equity (%) 20.8 100.3 59.5 (1.5) 13.6

Interest coverage (x) 9.7 (5.0) 4.6 1.1 (16.2)




Valuations (x)

P/E 17.3 (4.3) 15.3 31.3 (15.7)

P/B 1.1 1.4 2.1 1.9 4.5

EV/EBITDA 9.5 (13.1) 15.2 7.8 (71.2)

EV/EBIT 14.2 (9.2) 33.7 44.3 (15.9)



December 8, 2011


WHAT�S THE STORY?

Event: A check on laser-powered equipment maker LTS, as some are

concerned that order momentum for its OLED-related cell-sealing

equipment may weaken if customer Samsung Mobile Display (SMD) moves

toward flexible displays.

Impact: LTS has two key positives on the horizon that should outweigh the

negative concerns. First, expectations remain high that it will receive

equipment orders from Chinese panel makers seeking to mass produce

AMOLED panels. Second, even if SMD opts to migrate to flexible displays,

LTS should be able to win orders for laser lift-off (LLO), laser cutting, and

laser bonding equipment.

Action: We believe the positives outweigh the concerns, and see no reason

for the company to make guidance revisions. Trading at 7.7x 2012 P/E, LTS

shares notably remain more attractive than peer stocks.

LTS (138690 KS)

Positive prospects outweigh concerns

THE QUICK VIEW

Sales of AMOLED cell-sealing equipment on the rise: Listed in June, LTS

manufactures cell-sealing equipment used in OLED-related encapsulation processes,

and is the sole supplier to Samsung Mobile Display (SMD). As of end-3Q11,

AMOLED-related laser-driven equipment accounted for 38% of sales, the rest coming

mainly from LED TV light-guide-plate patterning equipment and solar-cell laser-

doping equipment.

Business opportunities solid, even if SMD migrates to flexible displays:

Although LTS boasts considerable knowhow and precious technologies, accumulated

during the process of developing laser equipment, some are worried that order

momentum for its cell sealing equipment could weaken if captive customer SMD

chooses to migrate to flexible displays. We, however, prefer to focus on two key

potential positives. First, expectations remain high that it will receive equipment

orders from Chinese panel makers seeking to mass produce AMOLED panels. Second,

even if SMD opts to migrate to flexible displays, LTS should be able to win orders for

laser lift-off (LLO), laser cutting, and bonding equipment�the latter two respectively

cut thin-film encapsulation layers into cells and bond them to glass substrates.

Valuation still attractive: Since our Nov 2 company update �LTS: Enjoying laser-

powered growth,� shares in the firm have jumped 81%. We believe the

aforementioned positives outweigh the concerns of some in the market, and see no

likelihood of changes in business conditions warranting guidance revisions. Based on

the company�s KRW150b sales target for 2012 and projected operating margin of

around 15%, both should double y-y. Assuming zero non-operating profit and income

tax at 15%, LTS shares trading at 7.7x 2012 P/E remain more attractive than peer

stocks.

CompanyUpdate


AT A GLANCE

Not rated

Target price n/a




Shares (float) 7,200,000 (42.0%)



KRW 6.55b/USD 5.82m


LTS (%) +51.7 +54.5 n/a

Vs Kosdaq (%pts) +52.5 +47.6 n/a

KEY CHANGES




2011E EPS n/a n/a -

2012E EPS n/a n/a -

2013E EPS n/a n/a -


No of I/B/E/S estimates -





I/B/E/S recommendation -


2008 2009 2010 2011E

Revenue (KRWb) 11 13 50.3 75

Net profit (adj) (KRWb) 0.2 0.3 8.2 n/a

EPS (adj) (KRW) 76 50 1,602 n/a

EPS (adj) growth (%) 325.1 (34.4) 3,119.9 n/a

EBITDA margin (%) 9.3 10.1 20.4 n/a

ROE (%) 4.9 5.2 86.0 n/a

P/E (adj) (x) 0.0 0.0 7.1 n/a

P/B (x) 0.0 0.0 4.7 n/a

EV/EBITDA (x) 6.3 4.0 7.7 n/a




December 8, 2011

LTS

49

Table 1. Product lineup

AMOLED equipment LED TV equipment Solar cell equipment

Laser cell sealing LGP engraving Selective emitter laser doping

Laser repair Acryl cutting Solar cell scribing

Lift-off LGP laser serration Solar cell drilling


Chart 1. Annual sales vs operating margin Chart 2. 1Q-3Q11 sales, by equipment type


Chart 3. LGP equipment customer breakdown (2010) Chart 4. AMOLED equipment customer breakdown (2010)


Chart 5. Shareholder structure


Hongjin Park and 5 others

54%

Treasury stock

3%

Other43%

0

2

4

6

8

10

12

14

16

18

20

0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011E


(KRWb) (%)

LGP engraving

equipment

28%

AMOLED cell sealing

equipment

38%

Solar cell equipment

14%

Other20%

Sales:KRW54.8b

New Optics41%

Heesung Electronics

30%

LS Tech27%

Exports2%

Sales:KRW33.2b

Samsung Mobile

Display

70%

AUO30%

Sales:KRW11.3b


December 8, 2011

LTS

50



(USDm) 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E 2011E 2012E

AP Systems 054620 KS 291.2 23.1 12.0 4.2 3.0 13.2 7.0 21.7 29.3 7.9 11.7

SFA Engineering 056190 KS 996.5 13.6 11.1 3.3 2.6 9.4 7.2 27.8 26.7 12.3 12.9

SNU Precision 080000 KS 223.0 29.5 10.1 1.9 1.6 16.5 6.9 13.8 20.0 7.5 12.9

ICD 040910 KS 424.9 9.2 8.4 3.7 2.6 6.6 5.6 52.7 36.0 22.3 20,8

EO Technics 039030 KS 293.5 11.7 7.5 1.7 1.4 7.9 4.7 15.7 20.5 18.2 21.0

Overall average 17.4 9.8 3.0 2.2 10.7 6.3 26.3 26.5 13.6 15.9



December 8, 2011

LTS

51

Income statement

Year-end Dec 31 (KRWb) 2007 2008 2009 2010

Sales 6.9 11.2 12.8 50.3

Cost of goods sold 5.6 8.2 8.2 35.7

Gross profit 1.3 3.0 4.6 14.7

(Gross margin, %) 18.5 26.7 35.8 29.1

SG&A expenses 0.9 2.0 2.9 5.2

Operating profit 0.4 1.0 1.7 9.5

(Operating margin, %) 5.6 8.9 13.4 18.8

Net interest income (0.3) (0.4) (0.4) (0.2)

Net forex-related gains (0.0) (0.4) 0.0 (0.0)

Net equity-method gains 0.0 0.0 0.0 0.0

Other (0.0) (0.1) (1.1) (0.1)

Pre-tax profit 0.1 0.2 0.3 9.1

Taxes 0.0 0.0 0.0 0.9

(Effective tax rate, %) 0.0 0.0 0.0 10.2

Net profit 0.1 0.2 0.3 8.2

(Net margin, %) 0.9 1.8 2.2 16.2

Operating net profit* 0.1 0.4 0.3 8.2

(Operating net margin, %) 1.1 3.3 2.0 16.2

EBITDA 0.4 1.0 1.3 10.3

(EBITDA margin, %) 6.5 9.3 10.1 20.4

Reported EPS (KRW) 14.6 40.9 53.9 1,600.7

Adjusted EPS (KRW)** 17.9 75.9 49.7 1,601.8

DPS (common, KRW) 0.0 0.0 0.0 0.0

DPS (preferred, KRW) 0.0 0.0 0.0 0.0

Dividend payout ratio (%) 0.0 0.0 0.0 0.0

Cash flow statement

Year-end Dec 31 (KRWb) 2007 2008 2009 2010

Cash flow from operations (0.5) (0.3) 2.0 10.5

Net profit 0.1 0.2 0.3 8.2

Depreciation & amortization 0.1 0.5 0.6 1.0

Net forex-translation income 0.0 0.2 (0.0) 0.0

Net equity-method income 0.0 0.0 0.0 0.0

Gross cash flow 0.3 1.1 2.2 9.9

(-) Change in working capital (0.8) (1.3) (0.2) 0.6

Interest Received (Paid) 0.0 0.0 0.0 0.0

Other 0.0 0.0 (0.0) (0.0)

Cash flow from investments (7.8) (1.9) (1.1) (7.4)

Capex (3.3) (0.3) (0.8) (2.0)

Free cash flow (3.8) (0.5) 1.2 8.5

Change in investment assets (0.0) (0.0) 0.1 (0.3)

Other (4.5) (1.6) (0.4) (5.2)

Cash flow from financing 8.6 2.5 1.1 (1.6)

Change in debt 5.6 1.8 (0.3) (1.6)

Change in equity 2.9 0.7 0.0 0.0

Dividends 0.0 0.0 0.0 0.0

Other 0.0 0.1 1.5 0.0

Change in cash 0.2 0.4 2.0 1.5

Cash at beginning of year 0.0 0.2 0.6 1.8

Cash at end of year 0.2 0.6 2.7 3.2



Balance sheet

Year-end Dec 31 (KRWb) 2007 2008 2009 2010

Current assets 3.7 5.9 8.8 26.7

Cash & equivalents 0.2 0.6 1.8 3.2

Accounts receivable 2.1 2.0 4.1 12.2

Inventories 0.7 2.2 1.6 5.8

Other current assets 0.7 1.1 1.3 5.5

Fixed assets 7.4 9.7 9.5 10.7

Investment assets 0.0 0.1 0.0 0.3

(Equity in affiliated companies) 0.0 0.0 0.0 0.0

Tangible assets 6.5 7.6 8.0 8.5

Intangible assets 0.7 2.0 1.5 1.2

Other long-term assets 0.1 0.0 0.0 0.8

Total assets 11.1 15.6 18.2 37.4

Current liabilities 3.1 5.6 7.8 20.4

Accounts payable 1.9 2.2 2.8 14.1

Short-term debt 0.7 2.6 2.3 1.6

Other current liabilities 0.5 0.8 2.7 4.7

Long-term liabilities 5.0 4.8 5.0 3.5

Bond & long-term debt 5.0 4.6 4.0 2.8

Other long-term liabilities 0.1 0.2 0.9 0.6

Total liabilities 8.1 10.4 12.8 23.9

Capital stock 0.7 0.8 0.8 1.5

Capital surplus 2.2 2.9 2.9 2.1

Retained earnings 0.1 0.3 0.5 9.5

Other 0.0 1.3 1.3 0.4

Non-Controlling Interests Equity 0.0 0.0 0.0 0.0

Total equity 3.0 5.2 5.4 13.5

Net debt 5 7 5 (2)

Book value per share (KRW) 465 617 781 2,424

Financial ratios

Year-end Dec 31 2007 2008 2009 2010

Growth (%)

Sales 0.0 62.7 14.2 294.3

Operating profit 0.0 158.8 70.9 454.8

Pre-tax profit 0.0 212.4 36.5 3,204.4

Net profit 0.0 212.4 36.5 2,868.8

Operating net profit* n/a 374.0 (32.2) 3,119.9

EBITDA 0.0 158.8 70.9 398.4

Adjusted EPS** 0 325 (34) 3,120

Ratios

ROE (%) 2.1 4.9 5.2 86.0

ROA (%) 0.6 1.5 1.6 29.3

ROIC (%) 4.7 8.5 16.2 63.0

Net debt to equity (%) 174.3 127.4 94.4 (17.4)

Interest coverage (x) 1.2 1.4 1.5 26.9

Receivables turnover (days) 110.2 66.7 87.3 59.0

Payables turnover (days) 101.9 67.2 71.5 61.4

Inventory turnover (days) 36.2 47.4 54.6 26.7

Valuations (x)

P/E 0.0 0.0 0.0 7.1

P/B 0.0 0.0 0.0 4.7

EV/EBITDA 11.7 6.3 4.0 7.7

EV/EBIT 14.8 11.5 7.5 8.5

Dividend yield (common, %) 0.0 0.0 0.0 0.0


December 8, 2011


WHAT�S THE STORY?

Event: A check on electronic materials maker Advanced Nano Products

(ANP) in the wake of client Solyndra�s bankruptcy.

Impact: As expected, the firm�s solid growth prospects have meant that

shares have rapidly absorbed the impact of a major customer going under.

With all negatives now fully priced in, ANP shares deserve a valuation

premium on expected expansion in the firm�s indium gallium zinc oxide

(IGZO) semiconductor business�sputtering targets made of such material

are increasingly being used in flexible displays and large-sized AMOLED

panels.

Action: ANP warrants attention given such an exciting growth outlook, as

do panel makers and their decisions regarding oxide thin-film transistor

(TFT) adoption.

Advanced Nano Products (121600 KS)

Well positioned for oxide TFT boom

THE QUICK VIEW

Maker of next-generation electronic materials: Advanced Nano Products

(ANP) manufactures and sells chemically-processed nanocrystalline materials and

chemical precursors used in making solar cells, displays, and semiconductors. As of

end-3Q11, 27% of the firm�s sales came from its solar cell business, 31% from display

products, and 16% from semiconductors. Transparent conductive oxide (TCO) targets

(primarily used in solar cells and LED screens) accounted for 75% of sales in 2010,

while CMP slurry (supplied to Cabot Microelectronics in powder form) made up 9%.

Insolvency of major customer no longer weighing on shares: ANP shares

have surged 86.7% since we visited the company on Sep 26. As expected, growth

prospects have meant that shares have rapidly absorbed the impact of major

customer Solyndra going under. Also positive, ANP is one of only two firms (Umicore

is the other) boasting cylindrical TCO targets that have passed quality tests overseen

by Applied Materials subsidiary AKT�such targets are more efficient than their

planar counterparts. Despite bearish projections for investment in the display sector,

ANP should continue enjoying steady growth amid rising interest from Chinese LCD

and touch-panel manufacturers.

Poised to benefit from oxide TFT expansion: ANP deserves a valuation

premium on expected expansion in its indium gallium zinc oxide (IGZO)

semiconductor business�the proportion of oxide thin-film transistors (TFTs) used in

flexible displays and large AMOLED panels is expected to rise. The firm expects sales

to reach KRW33b this year, but has yet to provide guidance for 2012. The shares are

currently trading at 11.5x 2012 P/E and 2x P/B (based on Bloomberg consensus).

CompanyUpdate


AT A GLANCE

Not rated

Target price n/a




Shares (float) 7,232,222 (48.4%)



KRW 2.17b/USD 1.93m


Advanced Nano Products (%) -2.6 +8.3 n/a

Vs Kosdaq (%pts) -1.8 +1.3 n/a

KEY CHANGES




2011E EPS n/a n/a -

2012E EPS n/a n/a -

2013E EPS n/a n/a -









2008 2009 2010 2011E

Revenue (KRWb) 12 20 28 33

Net profit (adj) (KRWb) 2 5 7 n/a

EPS (adj) (KRW) 385 894 1,369 n/a

EPS (adj) growth (%) 38 132 53 n/a

EBITDA margin (%) 27.2 35.4 36.5 n/a

ROE (%) 15.6 31.1 31.7 n/a

P/E (adj) (x) 0.0 0.0 7.4 n/a

P/B (x) 0.0 0.0 2.2 n/a

EV/EBITDA (x) 2.1 2.2 8.8 n/a




December 8, 2011


53

IGZO targets to draw demand from AMOLED markets: ANP can leverage its

nanopowder manufacturing technology in three product areas.

Cylindrical TCO targets: Cylindrical TCO targets are more efficient than planar ones,

and ANP is one of only two firms (Umicore is the other) boasting such targets that have

passed quality tests overseen by Applied Materials subsidiary AKT, which controls 75%

of the global market for sputter equipment. ANP stands to benefit as panel makers

place sputter equipment orders with AKT as part of new capex plans.

Solar cell silver paste: ANP�s solar cell silver paste, used in crystalline solar cell

electrodes, is currently undergoing tests at equipment companies in Korea, China, and

Taiwan. The product should contribute meaningful sales once it passes qualification

tests.

Oxide targets: IGZO oxide targets are of superior quality to other oxide targets, and

should therefore be increasingly used in flexible displays and large AMOLED panels.

ANP is one of only three firms worldwide (the others are Japan�s Nikko and Ulmat) that

can supply IGZO targets tailored to customer needs. The business should bring ANP

shares a premium once mass production begins, as it will be the only domestic

operation capable of meeting customer demand.

Chart 1. 1Q-3Q11 sales breakdown Chart 2. Shareholder structure


Chart 3. Quarterly sales and operating margin


Solar cell material

27.4%

Display material

31.1%

Semiconductor material

16.0%

Other 25.6%

Sales: KRW26.7b

Jangwoo Park and 9 others

44.8%

Allianz Global Investors

5.2%ESOP 4.4%

Other 59.6%

(20)

(10)

0

10

20

30

40

50

0

2

4

6

8

10

12

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11


(KRWb) (%)


December 8, 2011


54

Income statement

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010

Sales 8 9 12 20 28



(Gross margin, %) 49.8 54.2 55.4 46.8 49.9

SG&A expenses 2 3 3 4 5



Net interest income (0) (0) (0) (1) (1)

Net forex-related gains (0) 0 0 0 (0)

Net equity-method gains 0 0 0 0 0

Other 0 (0) (2) 0 1

Pre-tax profit 1 2 2 5 8

Taxes 0 0 0 0 1


Net profit 1 1 2 5 7

(Net margin, %) 15.3 15.8 14.0 23.3 24.8



EBITDA 3 3 3 7 10

(EBITDA margin, %) 32.5 32.4 27.2 35.4 36.5

Reported EPS (KRW) 284 283 347 900 1,311

Adjusted EPS (KRW)** 284 280 385 894 1,369




Cash flow statement

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010

Cash flow from operations (2) 3 0 (2) 7

Net profit 1 1 2 5 7


Net forex-translation income 0 (0) 0 (0) 0

Net equity-method income 0 0 0 0 0

Gross cash flow 2 3 4 6 9

(-) Change in working capital (4) (0) (3) (8) (2)

Interest Received(Paid) 0 0 0 0 0

Other 0 (0) 0 0 0

Cash flow from investments (1) (3) (4) (6) (8)

Capex (1) (2) (3) (6) (7)

Free cash flow (3) 1 (2) (8) (0)

Change in investment assets 0 0 0 0 0

Other 0 (1) (1) (1) (1)

Cash flow from financing 3 (0) 4 8 3

Change in debt 2 (2) 4 8 1


Dividends 0 0 0 0 0

Other (0) (0) 0 0 0

Change in cash 0 (1) 0 0 2



Note: * Excluding one-off items ** Fully diluted, excluding one-off items


Balance sheet

Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010






Fixed assets 6 7 10 15 21






Total assets 16 17 23 38 49











Retained earnings 2 3 5 10 17

Other 0 0 0 0 0


Total equity 7 9 12 17 26

Net debt 6 4 7 16 16


Financial ratios

Year-end Dec 31 2006 2007 2008 2009 2010

Growth (%)

Sales 30.4 6.3 40.4 63.4 39.3


Pre-tax profit 33.8 7.2 17.0 186.3 56.6

Net profit 22.7 9.7 24.6 171.1 48.2


EBITDA 91.6 15.4 105.7 38.5 58.6

Adjusted EPS** 17 (2) 38 132 53

Ratios

ROE (%) 23.0 17.0 15.6 31.1 31.7

ROA (%) 8.7 8.3 8.6 15.3 15.8

ROIC (%) 11.0 11.8 17.3 14.1 17.7

Net debt to equity (%) 91.1 46.3 56.2 89.3 61.1





Valuations (x)

P/E 0.0 0.0 0.0 0.0 7.4

P/B 0.0 0.0 0.0 0.0 2.2

EV/EBITDA 2.3 1.6 2.1 2.2 8.8

EV/EBIT 3.4 2.4 3.2 2.7 10.2



December 8, 2011

AMOLED

55

Compliance Notice

- As of Dec 7, 2011, Samsung Securities shared group affiliation with Samsung SDI. - As of Dec 7, 2011, Samsung Securities had issued equity-linked warrants with shares in LG Display as underlying assets. - During the three months prior to Dec 7, 2011, Samsung Securities had not participated in any securities issuance (including DRs, CBs, and IPOs) by companies covered in this report.

- As of Dec 7, 2011, Samsung Securities' holdings of shares and debt instruments convertible into shares of each company covered in this report would not, if such debt instruments were converted, exceed 1% of each company's outstanding shares.

- As of Dec 7, 2011, the covering analyst(s) did not own any shares, or debt instruments convertible into shares, of any company covered in this report. - This material has not been distributed to institutional investors or other third parties prior to its publication. - This report has been prepared without any undue external influence or interference, and accurately reflects the views of the analyst(s) covering the company or companies herein.

- All material presented in this report, unless specifically indicated otherwise, is under copyright to Samsung Securities. - Neither the material nor its content (including copies) may be altered in any form, or by any means transmitted, copied, or distributed to another party, without prior express written permission from Samsung Securities.

- This memorandum is based upon information available to the public. While we have taken all reasonable care to ensure its reliability, we do not guarantee its accuracy or completeness. This memorandum is not intended to be an offer, or a solicitation of any offer, to buy or sell the securities mentioned herein. Samsung Securities shall not be liable whatsoever for any loss, direct or consequential, arising from the use of this memorandum or its contents. Statements made regarding affiliates of Samsung Securities are also based upon publicly available information and do not necessarily represent the views of management at such affiliates.

Target price changes in past two years

Samsung SDI Duksan Hi-Metal

SFA Engineering

Rating changes in past two years

Samsung SDI

Date 2009/12/14 2010/7/28 10/21 2011/1/13 4/29 9/15 12/8

Recommendation HOLD HOLD BUY BUY BUY BUY BUY

Target price (KRW) 165,000 174,000 174,000 200,000 210,000 150,000 170,000

Duksan Hi-Metal

Date 2011/1/13 8/16 12/8

Recommendation BUY BUY BUY

Target price (KRW) 31,000 33,000 36,000

SFA Engineering

Date 2010/2/12 3/10 5/13 10/21 2011/1/13 2/15 12/8

Recommendation BUY BUY BUY BUY BUY BUY not rated

Target price (KRW) 38,000 38,000 70,000 54,000 70,000 74,000 n/a

0

50,000

100,000

150,000

200,000

250,000

Dec 09 Jun 10 Dec 10 Jun 11 Dec 11

(KRW)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000


(KRW)

0

10,000

20,000

30,000

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(KRW)


December 8, 2011

AMOLED

56

Target price changes in past two years

Wonik IPS AP Systems

LTS Advanced Nano Products

Rating changes in past two years

Wonik IPS

Date 12/8

Recommendation not rated

Target price (KRW) n/a

AP Systems

Date 12/8



LTS

Date 12/8




Date 12/8



Samsung Securities uses the following investment ratings.

Company

BUY Expected to increase in value by 30% or more within 12 months and is highly attractive within sector

BUY Expected to increase in value by 10% or more within 12 months HOLD Expected to increase/decrease in value by less than 10% within 12 months SELL Expected to decrease in value by 10% or more within 12 months

SELL Expected to decrease in value by 30% or more within 12 months

On Oct 21, 2010, Samsung Securities changed the ratings in its five-tier system

to BUY , BUY, HOLD, SELL, and SELL from BUY , BUY , BUY , HOLD, and SELL.

Industry

OVERWEIGHT Expected to outperform market by 5% or more within 12 monthsNEUTRAL Expected to outperform/underperform market by less than 5% within 12 monthsUNDERWEIGHT Expected to underperform market by 5% or more within 12 months

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000


(KRW)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Jun 11 Dec 11

(KRW)

0

5,000

10,000

15,000

20,000

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Feb 11 Aug 11

(KRW)

0

2,000

4,000

6,000

8,000

10,000

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(KRW)


December 8, 2011

AMOLED

57

Global Disclosures & Disclaimers General

This research report is for information purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments or to participate in any trading strategy. This report does not provide individually tailored investment advice. This report does not take into account individual client circumstances, objectives, or needs and is not intended as recommendations of particular securities, financial instruments or strategies to any particular client. The securities and other financial instruments discussed in this report may not be suitable for all investors. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein and investors should seek the advice of a financial adviser.

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