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www.oled-display.net
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)
Not ratedn/aTarget price
AP Systems (054620 KQ, KRW15,300)
Not ratedn/aTarget price
LTS (138690 KQ, KRW20,550)
Not ratedn/aTarget price
Advanced Nano Products (121600 KQ, KRW18,950)
Not ratedn/aTarget price
SectorUpdate
www.oled-display.net
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
www.oled-display.net
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%
Source: Samsung Securities estimates
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%
Source: Samsung Securities estimates
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
www.oled-display.net
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.
www.oled-display.net
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
Source: Samsung Securities estimates
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
Display
Sony Mobile
Display
Tokki
Japan Display
Innovation Network Corporation of Japan (INCJ)
100%
share
75%
share
25% share
(Planning to sell to
Hitachi)
100% share
100%
share
70%
share
10%
share
10%
share
10%
share
Toshiba Hitachi Canon Sony
www.oled-display.net
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
Source: Samsung Securities estimates
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.
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2007 2008 2009 2010 2011E 2012E 2013E 2014E
Handset Tablet PC Notebook Monitor TV Other
('000m2)
www.oled-display.net
Dec
emb
er 8
, 2
011
AM
OL
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7
Tab
le 8
. R
ecen
t S
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pro
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ep
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ct
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2011
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ct
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ct
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Nov 1
7,
2011 (
UK
)
Oct
29,
2011
(Germ
any)
De
c 2
011
(Exp
ecte
d)
Dim
ensio
ns (
mm
) 122.4
x 6
4.2
x 9
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x 6
6.1
x 8
.5
13
0.6
x 6
9.6
x 9
.5
132.7
x 6
8.8
x 9
.5
115.6
x 5
8.8
x 1
0.9
125.9
x 6
4.2
x 9
.9
116.1
x 5
8.7
x 1
1
126 x
66.8
x 8
.5
135.5
x 6
7.9
x 8
.9
146.9
x 8
3 x
9.7
196.7
x 1
33 x
7.9
Weig
ht
(g)
121
121
135.5
140
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122
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1280 x
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I 233 p
pi
217 p
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207 p
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316 p
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252 p
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316 p
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www.oled-display.net
Dec
emb
er 8
, 2
011
AM
OL
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8
Tab
le 9
. O
ther
recen
t p
rod
ucts
wit
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MO
LE
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s
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ell
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ate
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d (
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d (
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d (
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011
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ep 2
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Dim
ensio
ns (
mm
) 122.5
x 6
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65 x
10
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11
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11.5
11
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x 5
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1
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99
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5
4.4
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2.9
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Weig
ht
(g)
110
140
130
130
130
127
142
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n/a
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540
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480
854 x
480
960 x
540
PP
I 246 p
pi
256 p
pi
252 p
pi
252 p
pi
233 p
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December 8, 2011
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.
www.oled-display.net
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
Source: Displaybank, Samsung Securities
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.
www.oled-display.net
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
www.oled-display.net
Dec
emb
er 8
, 2
011
AM
OL
ED
12
Tab
le 1
4. O
LE
D T
Vs: A
his
tory
of
develo
pm
en
t
Co
mp
an
y 2004
2005
2006
2007
2008
2009
2010
2011
2011 a
nd
be
yo
nd
Sam
sung
SD
I: 1
7"
OLE
D p
anel
SE
C:
21"
OLE
D T
V
SE
C:
40"
OLE
D T
V
(a-S
i m
eth
od)
S
DI:
31"
OLE
D p
anel
SD
I: 4
0"
OLE
D p
anel
(LT
PS
meth
od)
SE
C:
31"
OLE
D T
V
SM
D:
30"
3D
OLE
D T
V
an
d p
roto
typ
es o
f 14.1
" and 3
1"
OLE
D T
Vs
SM
D:
19
OLE
D T
V
(in
k-jet
me
tho
d)
SM
D:
19
" tr
ansp
are
nt
OLE
D d
ispla
y
E
xpecte
d to d
isclo
se 5
5"
OLE
D T
V p
roto
type a
t C
ES
2012
LG
20.1
" O
LE
D T
V
19"
OLE
D T
V
15"
OLE
D T
V m
ass
pro
duction (
EL9500)
31"
3D
OLE
D T
V
(IFA
20
10
)
E
xpecte
d to d
isclo
se 5
5"
OLE
D T
V p
roto
type a
t C
ES
2012
Sony
11"
OLE
D T
V m
ass
pro
duction (
XE
L-1
)
27"
OLE
D T
V
pro
toty
pe
21"
OLE
D T
V
pro
toty
pe
24.5
" 3D
OLE
D T
V
dis
clo
sed;
XE
L-1
pro
duction
halte
d
(Feb)
Announced 2
4.5
" gla
ss-
free 3
D O
LE
D T
V
pro
toty
pe a
t C
ES
2011
Launched 2
5"
and 1
7"
OL
ED
mo
nito
rs fo
r m
ed
ica
l p
urp
oses
(Trim
aste
r se
rie
s)
Oth
er
C
ME
L:
25"
OLE
D T
V
AU
O 1
4"
OLE
D T
V
AU
O 1
4"
3D
OLE
D T
V
AU
O:
32"
OL
ED
TV
at
FP
D 2
011 (
Oxid
e T
FT
m
eth
od)
Haie
r: 2
2"
transpare
nt
OL
ED
TV
at
IF
A 2
011
(SM
D
)
So
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e: S
am
sun
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riti
es
www.oled-display.net
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)
Source: Samsung Securities estimates
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%
www.oled-display.net
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
Source: Samsung Securities estimates
Chart 6. Effect of three demand scenarios on glut ratio
Source: Samsung Securities estimates
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
(%)
www.oled-display.net
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
Source: DisplaySearch, Samsung Securities
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
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
www.oled-display.net
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.
www.oled-display.net
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
Source: DisplaySearch, Samsung Securities
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
www.oled-display.net
December 8, 2011
AMOLED
18
Chart 10. AMOLED backplane technology
Source: DisplaySearch, Samsung Securities
Chart 11. TFT backplane crystallization methods
Source: DisplaySearch, Samsung Securities
Table 18. ELA vs SGS
SGS ELA
Large area Feasible Hard to use
Cost Low High
Performance High High
Mass production Not tested Tested
Source: DisplaySearch, Samsung Securities
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
www.oled-display.net
December 8, 2011
AMOLED
19
Chart 12. Flexible display process
Source: DisplaySearch, Samsung Securities
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
www.oled-display.net
December 8, 2011
AMOLED
20
Chart 15. SMS deposition method
Source: Displaybank, Samsung Securities
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)
Source: DisplaySearch, Samsung Securities
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 )
www.oled-display.net
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
Source: DisplaySearch, Samsung Securities
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
www.oled-display.net
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
www.oled-display.net
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
Source: Samsung Securities
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
www.oled-display.net
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
Source: Displaybank, Samsung Securities
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
www.oled-display.net
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
Source: Samsung Securities
www.oled-display.net
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
Source: Samsung Securities
Chart 22. Flexible display less than 150 micrometers thin
Source: NICE
www.oled-display.net
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
Source: Samsung Securities estimates
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
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
0
2
4
6
8
10
12
14
16
18
2010 2011E 2012E 2013E 2014E
(KRWt)
www.oled-display.net
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.
www.oled-display.net
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;
Source: Bloomberg, Samsung Securities
www.oled-display.net
December 8, 2011
AMOLED
30
Chart 24. OLED-related equipment players: P/B vs ROE
Note: As of Dec 7
Source: Bloomberg, Samsung Securities
Chart 25. OLED-related materials players: P/E vs EPS growth
Note: As of Dec 7
Source: Bloomberg, Samsung Securities
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
www.oled-display.net
December 8, 2011
Samsung Securities (Korea) www.samsungpop.com
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
JungHoon Chang [email protected] 822 2020 7752
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 -
Estimates up/down (4 weeks) 0/0
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
www.oled-display.net
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
Source: Company data, Samsung Securities estimates
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
Source: Samsung Securities estimates
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
Source: Samsung Securities estimates
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
www.oled-display.net
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
Year-end Dec 31 (KRWb) 2009 2010 2011E 2012E 2013E
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
Source: Company data, Samsung Securities estimates
Balance sheet
Year-end Dec 31 (KRWb) 2009 2010 2011E 2012E 2013E
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
www.oled-display.net
December 8, 2011
Samsung Securities (Korea) www.samsungpop.com
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
JungHoon Chang [email protected] 822 2020 7752
AT A GLANCE
Target price KRW36,000 (32.1%)
Current price KRW27,250
Bloomberg code 077360 KS
Market cap KRW800.9b/USD711.3m
Shares (float) 29,392,370 (43.7%)
52-week high/low KRW30,150/KRW19,150
Average daily trading value (60-day)
KRW 14.28b/USD 12.68m
One-year performance 1M 6M 12M
Duksan Hi-Metal (%) -7.0 +21.9 +27.6
Vs Kosdaq (%pts) -6.2 +15.0 +27.4
KEY CHANGES
(KRW) New Old Diff (%)
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%
SAMSUNG vs THE STREET
No of I/B/E/S estimates 18
Target price vs I/B/E/S mean -0.8%
Estimates up/down (4 weeks) 0/0
1-year-fwd EPS vs I/B/E/S mean -5.8%
Estimates up/down (4 weeks) 2/3
I/B/E/S recommendation BUY(1.6)
SUMMARY FINANCIAL DATA
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
Source: Company data, Samsung Securities estimates
www.oled-display.net
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)
Source: Samsung Securities estimates
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
Source: Samsung Securities estimates
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%
www.oled-display.net
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
Source: Company data, Samsung Securities estimates
www.oled-display.net
December 8, 2011
Duksan Hi-Metal
37
Income statement
Year-end Dec 31 (KRWb) 2009 2010 2011E 2012E 2013E
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
(Operating margin, %) 14.6 18.1 25.3 27.0 21.1
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
(Effective tax rate, %) 16.8 19.0 4.7 5.0 5.0
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
(Operating net margin, %) 13.4 12.2 23.1 25.3 20.0
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
Dividend payout ratio (%) 0.0 0.0 0.0 0.0 0.0
Cash flow statement
Year-end Dec 31 (KRWb) 2009 2010 2011E 2012E 2013E
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
Note: * Excluding one off items ** Fully diluted, excluding one-off items
Source: Company data, Samsung Securities estimates
Balance sheet
Year-end Dec 31 (KRWb) 2009 2010 2011E 2012E 2013E
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)
Book value per share (KRW) 2,010 2,682 3,787 5,745 8,006
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
Operating net profit* 46.1 104.0 241.4 68.4 15.2
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)
Interest coverage (x) 4.2 18.6 45.8 76.0 86.3
Receivables turnover (days) 34.3 27.3 32.8 38.9 39.4
Payables turnover (days) 12.2 9.8 11.4 12.4 11.1
Inventory turnover (days) 32.3 25.9 26.7 28.3 28.8
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
Dividend yield (common, %) 0.0 0.0 0.0 0.0 0.0
www.oled-display.net
December 8, 2011
Samsung Securities (Korea) www.samsungpop.com
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
JungHoon Chang [email protected] 822 2020 7752
AT A GLANCE
Not rated
Target price n/a
Current price KRW62,800
Bloomberg code 056190 KS
Market cap KRW1.1t/USD1.0b
Shares (float) 17,954,380 (51.8%)
52-week high/low KRW70,200/KRW44,500
Average daily trading value (60-day)
KRW 10.99b/USD 9.76m
One-year performance 1M 6M 12M
SFA Engineering (%) +2.5 +10.8 +28.7
Vs Kosdaq (%pts) +3.3 +3.8 +28.5
KEY CHANGES
(KRW) New Old Diff (%)
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 -
SAMSUNG vs THE STREET
No of I/B/E/S estimates 17
Target price vs I/B/E/S mean -
Estimates up/down (4 weeks) 0/0
1-year-fwd EPS vs I/B/E/S mean -
Estimates up/down (4 weeks) 1/0
I/B/E/S recommendation BUY(1.8)
SUMMARY FINANCIAL DATA
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
Source: Company data, Samsung Securities
www.oled-display.net
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
Source: Company data, Samsung Securities
Source: Company data, Samsung Securities
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
Source: Company data, Samsung Securities
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
Sales (LHS) Operating margin (RHS)
(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%
www.oled-display.net
December 8, 2011
SFA Engineering
40
Chart 6. OLED-related equipment makers: P/B vs ROE
Source: Bloomberg, Samsung Securities
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
Source: Bloomberg, Samsung Securities
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)
www.oled-display.net
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
Operating profit 64.1 44.1 53.5 15.2 37.8
(Operating margin, %) 16.8 14.4 12.4 4.9 8.9
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
(Effective tax rate, %) 24.3 27.0 27.3 28.1 21.3
Net profit 53.5 42.0 49.8 18.0 39.4
(Net margin, %) 14.1 13.7 11.6 5.9 9.3
Operating net profit* 53.4 42.2 50.0 16.3 39.5
(Operating net margin, %) 14.0 13.7 11.6 5.3 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
DPS (preferred, KRW) 0 0 0 0 0
Dividend payout ratio (%) 20.4 30.3 24.9 19.6 22.5
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
Note: * Excluding one off items ** Fully diluted, excluding one-off items
Source: Company data, Samsung Securities
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)
Book value per share (KRW) 9,535 11,268 12,590 12,906 14,894
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
Receivables turnover (days) 45.2 72.7 45.8 50.5 53.7
Payables turnover (days) 47.2 58.5 37.5 42.4 57.9
Inventory turnover (days) 50.5 49.9 67.1 80.8 104.6
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
Dividend yield (common, %) 1.8 2.1 2.1 0.6 0.8
www.oled-display.net
December 8, 2011
Samsung Securities (Korea) www.samsungpop.com
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
JungHoon Chang [email protected] 822 2020 7752
AT A GLANCE
Not rated
Target price n/a
Current price KRW9,640
Bloomberg code 030530 KS
Market cap KRW668.9b/USD594.0m
Shares (float) 69,392,633 (63.7%)
52-week high/low KRW11,300/KRW5,180
Average daily trading value (60-day)
KRW 24.69b/USD 21.93m
One-year performance 1M 6M 12M
Wonik IPS (%) +5.9 +67.7 +29.6
Vs Kosdaq (%pts) +6.7 +60.7 +29.3
KEY CHANGES
(KRW) New Old Diff (%)
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 -
SAMSUNG vs THE STREET
No of I/B/E/S estimates 5
Target price vs I/B/E/S mean -
Estimates up/down (4 weeks) 0/0
1-year-fwd EPS vs I/B/E/S mean -
Estimates up/down (4 weeks) 0/0
I/B/E/S recommendation BUY(1.8)
SUMMARY FINANCIAL DATA
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
Source: Company data, Samsung Securities
www.oled-display.net
December 8, 2011
Wonik IPS
43
Chart 1. Quarterly sales vs operating margin Chart 2. Customer breakdown
Source: Company data, Samsung Securities Source: Company data, Samsung Securities
Chart 3. Shareholder structure Chart 4. Estimated 2011 sales, by client industry
Source: Company data, Samsung Securities Source: Company data, Samsung Securities
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
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
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 18.1 13.4 2.2 1.7 8.7 6.2 18.4 17.7 8.9 10.1
Source: Bloomberg, Samsung Securities
(15)
(10)
(5)
0
5
10
15
20
25
0
20
40
60
80
100
120
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
Sales (LHS) Operating margin (RHS)
(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%
www.oled-display.net
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
Operating profit 12 10 10 6 19
(Operating margin, %) 10.5 12.3 13.1 6.3 11.0
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
(Effective tax rate, %) 0.0 1.8 21.0 20.6 11.6
Net profit 11 15 12 12 26
(Net margin, %) 9.0 18.4 16.5 13.2 15.3
Operating net profit* 9 15 13 12 27
(Operating net margin, %) 8.0 18.3 17.7 13.4 15.4
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
DPS (common, KRW) 0 0 0 0 0
DPS (preferred, KRW) 0 0 0 0 0
Dividend payout ratio (%) 0.0 0.0 0.0 0.0 0.0
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
Depreciation & amortization 4 3 2 3 4
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
Change in equity 0 7 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
Note: * Excluding one off items ** Fully diluted, excluding one-off items
Source: Company data, Samsung Securities
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
Accounts receivable 11 9 6 8 17
Inventories 17 10 11 15 46
Other current assets 3 2 6 11 26
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
Intangible assets 5 6 6 3 170
Other long-term assets 1 3 3 5 12
Total assets 67 82 98 132 482
Current liabilities 26 18 20 38 75
Accounts payable 16 10 11 35 46
Short-term debt 2 0 0 0 7
Other current liabilities 7 8 9 3 22
Long-term liabilities 2 2 2 6 52
Bond & long-term debt 0 0 0 0 41
Other long-term liabilities 2 2 2 6 11
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)
Non-Controlling Interests Equity 0 0 0 0 0
Total equity 39 61 76 88 356
Net debt 4 (14) (24) (35) (14)
Book value per share (KRW) 1,146 1,668 2,095 2,577 2,705
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)
Interest coverage (x) 11.6 109.6 2625.5 0.0 1618.2
Receivables turnover (days) 31.8 46.6 37.2 29.7 27.0
Payables turnover (days) 56.2 59.2 50.6 92.4 85.0
Inventory turnover (days) 59.0 62.0 52.6 53.8 65.1
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
Dividend yield (common, %) 0.0 0.0 0.0 0.0 0.0
www.oled-display.net
December 8, 2011
Samsung Securities (Korea) www.samsungpop.com
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
JungHoon Chang [email protected] 822 2020 7752
AT A GLANCE
Not rated
Target price n/a
Current price KRW15,300
Bloomberg code 054620 KS
Market cap KRW329.5b/USD292.6m
Shares (float) 21,538,926 (88.2%)
52-week high/low KRW16,850/KRW6,540
Average daily trading value (60-day)
KRW 20.90b/USD 18.56m
One-year performance 1M 6M 12M
Asia Pacific Systems (%) +9.3 +18.6 +106.2
Vs Kosdaq (%pts) +10.1 +11.7 +106.0
KEY CHANGES
(KRW) New Old Diff (%)
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 -
SAMSUNG vs THE STREET
No of I/B/E/S estimates 10
Target price vs I/B/E/S mean -
Estimates up/down (4 weeks) 0/0
1-year-fwd EPS vs I/B/E/S mean -
Estimates up/down (4 weeks) 0/1
I/B/E/S recommendation BUY(2.0)
SUMMARY FINANCIAL DATA
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
Dividend yield (%) 0.0 0.0 0.0 n/a
Source: Company data, Samsung Securities
www.oled-display.net
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
Source: Company data, Samsung Securities
Chart 1. 2010 sales, by equipment type Chart 2. 1Q-3Q11 sales, by equipment type
Source: Company data, Samsung Securities Source: Company data, Samsung Securities
Chart 3. Shareholder structure Chart 4. Quarterly sales vs operating margin
Source: Company data, Samsung Securities Source: Company data, Samsung Securities
Table 2. 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
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
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 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
Source: Bloomberg, Samsung Securities
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
Sales (LHS) Operating margin (RHS)
(KRWb) (%)
www.oled-display.net
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
Cost of goods sold 47 42 13 74 141
Gross profit 14 0 7 18 13
(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)
DPS (common, KRW) 0 0 0 0 0
DPS (preferred, KRW) 0 0 0 0 0
Dividend payout ratio (%) 0.0 0.0 0.0 0.0 0.0
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)
Depreciation & amortization 2 2 3 8 12
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
Change in equity 0 0 0 3 2
Dividends 0 0 0 0 0
Other 0 1 (2) 3 5
Change in cash (8) (4) 1 4 3
Cash at beginning of year 13 5 8 9 13
Cash at end of year 5 1 9 13 16
Note: * Excluding one off items ** Fully diluted, excluding one-off items
Source: Company data, Samsung Securities
Balance sheet
Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010
Current assets 55 41 53 79 73
Cash & equivalents 5 1 8 10 12
Accounts receivable 34 26 21 34 38
Inventories 13 14 20 21 16
Other current assets 2 0 5 14 8
Fixed assets 31 27 73 55 42
Investment assets 8 3 4 4 7
(Equity in affiliated companies) 8 0 3 3 6
Tangible assets 20 20 41 28 24
Intangible assets 0 2 23 21 8
Other long-term assets 3 2 5 2 3
Total assets 86 69 126 134 116
Current liabilities 29 38 52 62 55
Accounts payable 15 10 10 21 14
Short-term debt 10 25 34 17 21
Other current liabilities 5 4 7 24 20
Long-term liabilities 6 3 14 4 2
Bond & long-term debt 3 1 11 0 0
Other long-term liabilities 3 2 3 4 2
Total liabilities 35 41 66 66 57
Capital stock 6 5 10 10 11
Capital surplus 40 31 45 48 52
Retained earnings 5 (4) 13 15 (2)
Other (0) (4) (7) (5) (1)
Non-Controlling Interests Equity 0 0 0 0 0
Total equity 51 27 61 68 59
Net debt 11 27 36 (1) 8
Book value per share (KRW) 3,946 2,638 2,066 2,415 2,397
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)
Receivables turnover (days) 156.2 260.5 424.0 109.6 85.5
Payables turnover (days) 60.2 108.0 182.8 62.3 41.1
Inventory turnover (days) 67.3 116.9 304.5 80.3 42.9
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)
Dividend yield (common, %) 0.0 0.0 0.0 0.0 0.0
www.oled-display.net
December 8, 2011
Samsung Securities (Korea) www.samsungpop.com
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
JungHoon Chang [email protected] 822 2020 7752
AT A GLANCE
Not rated
Target price n/a
Current price KRW20,550
Bloomberg code 138690 KS
Market cap KRW148.0b/USD131.4m
Shares (float) 7,200,000 (42.0%)
52-week high/low KRW21,200/KRW7,760
Average daily trading value (60-day)
KRW 6.55b/USD 5.82m
One-year performance 1M 6M 12M
LTS (%) +51.7 +54.5 n/a
Vs Kosdaq (%pts) +52.5 +47.6 n/a
KEY CHANGES
(KRW) New Old Diff (%)
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 -
SAMSUNG vs THE STREET
No of I/B/E/S estimates -
Target price vs I/B/E/S mean -
Estimates up/down (4 weeks) 0/0
1-year-fwd EPS vs I/B/E/S mean -
Estimates up/down (4 weeks) 0/0
I/B/E/S recommendation -
SUMMARY FINANCIAL DATA
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
Dividend yield (%) 0.0 0.0 0.0 n/a
Source: Company data, Samsung Securities
www.oled-display.net
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
Source: Company data, Samsung Securities
Chart 1. Annual sales vs operating margin Chart 2. 1Q-3Q11 sales, by equipment type
Source: Company data, Samsung Securities Source: Company data, Samsung Securities
Chart 3. LGP equipment customer breakdown (2010) Chart 4. AMOLED equipment customer breakdown (2010)
Source: Company data, Samsung Securities Source: Company data, Samsung Securities
Chart 5. Shareholder structure
Source: Company data, Samsung Securities
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
Sales (LHS) Operating margin (RHS)
(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
www.oled-display.net
December 8, 2011
LTS
50
Table 2. 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
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
Source: Bloomberg, Samsung Securities
www.oled-display.net
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
Note: * Excluding one off items ** Fully diluted, excluding one-off items
Source: Company data, Samsung Securities
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
www.oled-display.net
December 8, 2011
Samsung Securities (Korea) www.samsungpop.com
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
JungHoon Chang [email protected] 822 2020 7752
AT A GLANCE
Not rated
Target price n/a
Current price KRW18,950
Bloomberg code 121600 KS
Market cap KRW137.1b/USD121.7m
Shares (float) 7,232,222 (48.4%)
52-week high/low KRW22,350/KRW9,300
Average daily trading value (60-day)
KRW 2.17b/USD 1.93m
One-year performance 1M 6M 12M
Advanced Nano Products (%) -2.6 +8.3 n/a
Vs Kosdaq (%pts) -1.8 +1.3 n/a
KEY CHANGES
(KRW) New Old Diff (%)
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 -
SAMSUNG vs THE STREET
No of I/B/E/S estimates 4
Target price vs I/B/E/S mean -
Estimates up/down (4 weeks) 0/0
1-year-fwd EPS vs I/B/E/S mean -
Estimates up/down (4 weeks) 1/0
I/B/E/S recommendation BUY(1.5)
SUMMARY FINANCIAL DATA
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
Dividend yield (%) 0.0 0.0 0.0 n/a
Source: Company data, Samsung Securities
www.oled-display.net
December 8, 2011
Advanced Nano Products
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
Source: Company data, Samsung Securities Source: Company data, Samsung Securities
Chart 3. Quarterly sales and operating margin
Source: Company data, Samsung Securities
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
Sales (LHS) Operating margin (RHS)
(KRWb) (%)
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December 8, 2011
Advanced Nano Products
54
Income statement
Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010
Sales 8 9 12 20 28
Cost of goods sold 4 4 5 11 14
Gross profit 4 5 7 9 14
(Gross margin, %) 49.8 54.2 55.4 46.8 49.9
SG&A expenses 2 3 3 4 5
Operating profit 2 2 4 5 9
(Operating margin, %) 19.8 21.0 28.9 25.9 31.1
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
(Effective tax rate, %) 12.4 10.3 4.5 9.6 14.5
Net profit 1 1 2 5 7
(Net margin, %) 15.3 15.8 14.0 23.3 24.8
Operating net profit* 1 1 2 5 7
(Operating net margin, %) 15.3 15.6 15.6 23.1 25.9
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
DPS (common, KRW) 0 0 0 0 0
DPS (preferred, KRW) 0 0 0 0 0
Dividend payout ratio (%) 0.0 0.0 0.0 0.0 0.0
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
Depreciation & amortization 1 1 1 1 1
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
Change in equity 1 1 0 0 2
Dividends 0 0 0 0 0
Other (0) (0) 0 0 0
Change in cash 0 (1) 0 0 2
Cash at beginning of year 2 2 1 2 2
Cash at end of year 2 1 2 2 3
Note: * Excluding one-off items ** Fully diluted, excluding one-off items
Source: Company data, Samsung Securities
Balance sheet
Year-end Dec 31 (KRWb) 2006 2007 2008 2009 2010
Current assets 10 10 13 23 28
Cash & equivalents 2 1 1 2 3
Accounts receivable 1 1 4 4 8
Inventories 7 6 8 16 16
Other current assets 0 1 1 1 2
Fixed assets 6 7 10 15 21
Investment assets 0 0 0 0 0
(Equity in affiliated companies) 0 0 0 0 0
Tangible assets 6 7 9 14 19
Intangible assets 0 0 1 1 1
Other long-term assets 0 0 0 0 1
Total assets 16 17 23 38 49
Current liabilities 5 5 5 11 11
Accounts payable 0 0 0 0 0
Short-term debt 3 3 3 8 5
Other current liabilities 2 3 2 3 6
Long-term liabilities 4 2 6 10 13
Bond & long-term debt 4 2 5 9 12
Other long-term liabilities 0 0 1 1 1
Total liabilities 9 7 11 20 23
Capital stock 2 2 2 3 3
Capital surplus 3 5 6 5 7
Retained earnings 2 3 5 10 17
Other 0 0 0 0 0
Non-Controlling Interests Equity 0 0 0 0 0
Total equity 7 9 12 17 26
Net debt 6 4 7 16 16
Book value per share (KRW) 1,347 1,840 2,313 3,231 4,676
Financial ratios
Year-end Dec 31 2006 2007 2008 2009 2010
Growth (%)
Sales 30.4 6.3 40.4 63.4 39.3
Operating profit 109.0 12.8 93.3 46.3 67.7
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
Operating net profit* 22.5 8.3 39.7 142.6 55.7
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
Interest coverage (x) 4.8 5.0 5.1 9.8 12.4
Receivables turnover (days) 47.1 52.1 74.2 72.5 80.9
Payables turnover (days) 40.3 9.4 3.6 4.4 2.8
Inventory turnover (days) 220.4 267.6 208.2 218.3 208.5
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
Dividend yield (common, %) 0.0 0.0 0.0 0.0 0.0
www.oled-display.net
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
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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
Dec 09 Jun 10 Dec 10 Jun 11 Dec 11
(KRW)
0
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Dec 09 Jun 10 Dec 10 Jun 11 Dec 11
(KRW)
www.oled-display.net
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
Recommendation not rated
Target price (KRW) n/a
LTS
Date 12/8
Recommendation not rated
Target price (KRW) n/a
Advanced Nano Products
Date 12/8
Recommendation not rated
Target price (KRW) n/a
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
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Dec 09 Jun 10 Dec 10 Jun 11 Dec 11
(KRW)
0
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10,000
15,000
20,000
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Jun 11 Dec 11
(KRW)
0
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Feb 11 Aug 11
(KRW)
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2,000
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Dec 09 Jun 10 Dec 10 Jun 11 Dec 11
(KRW)
www.oled-display.net
December 8, 2011
AMOLED
57
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