Korea Display Sector - Credit Suisse

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16 February 2016

Asia Pacific/South Korea

Equity Research

Technology (Consumer Durables KR (Asia)/Technology - Hardware KR

(Asia)/Conglomerates KR (Asia)/Technology - TFT KR (Asia))

Korea Display Sector INDUSTRY PRIMER

OLED Display: Flexible for the mass market

Figure 1: OLED penetration into $400+ price segment

0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

700

800

900

2013 2014 2015E 2016E 2017E 2018E 2019E

(mn unit)

Total units (lhs) OLED penetration rate

Source: Credit Suisse estimates

■ Apple and flexible OLED drive mass market adoption. Samsung dominates

OLED usage with a 95% market share. Adoption at Chinese brands is

accelerating and AAPL will likely join forces by 2H18, driving suppliers to invest

in capacity early. AAPL is motivated by: (1) positive OLED experience through

AAPL's watch; (2) more availability at OLED suppliers; (3) OLED surpassing

LTPS TFT-LCDs in terms of performance at similar costs; and (4) addressing

the form-factor design limitations, breakage and battery life issues.

■ OLED suppliers' strategic positioning. Samsung should still dominate over

the next three years with a 90% market share and focus on advancing flexible

OLEDs, while increasing external sales. LGD will drive WOLED for TVs, but will

also become a key supplier of small OLED. JDI has the potential, but no

experience, so becoming a supplier for AAPL by 2018 is critical. AUO and

Chinese LCD producers are in the R&D stage with limited production.

■ PI and TFE materials enable mass market flexible OLEDs. The Achilles'

heel in advancing truly flexible OLED is substrates and cover window

materials. TFE equipment/methods will play a vital role in improving

productivity and lower costs. LCD panel and component suppliers with slow

transition and adaption to the OLED era risk becoming marginalised.

■ Flexible OLED panel and supply chain adds value. Producers of flexible

OLED panels and the supply chain that enables advancement will add value, in

our view. OLED is still a developing industry with rapid technological changes

still to come, and stock calls based on the pure OLED growth theme remain

limited. We like Samsung's positioning and believe Himax and AMAT will

benefit. LGD, JDI and AUO will see deep losses on the initial OLED investment

requirement before recovering on OLED growth. Time will be required for LGD,

JDI and AUO to turn profits in OLED as initial OLED investment is high.

Research Analysts

Keon Han

82 2 3707 3740

[email protected]

Jerry Su

886 2 2715 6361

[email protected]

Mika Nishimura

81 3 4550 7369

[email protected]

Farhan Ahmad

415 249 7929

[email protected]

Derrick Yang

886 2 2715 6367

[email protected]

16 February 2016

Korea Display Sector 2

Focus charts and table Figure 2: Global OLED capacity growth accelerating Figure 3: Apple—% of new iPhone 12-months post launch

0%

20%

40%

60%

80%

100%

120%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

( K m²)

Total glass input area (lhs) YoY (%)

34.9%26.0%

47.0%40.1%

52.9%

65.1%74.0%

53.0%59.9%

47.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2013 2014 2015 2016E 2017E

iPhone New iPhone

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 4: LGE's OLED TV models and pricing Figure 5: LG Display's OLED capacity next to take off

Model

Suggested

Retail Price Screen Size Thickness Picture Quality

55EC9300 $1,799.99 55'' 3.1''FHD

(1920x1080)

55EG9100 $1,999.99 55'' 3.4''FHD

(1920x1080)

55EF9500 $2,999.99 55'' 2.0''UHD

(3840x2160)

55EG9600 $3,999.99 55'' 2.0''UHD

(3840x2160)

65EC9700 $4,999.99 66'' 2.2''UHD

(3840x2160)

65EF9500/

65EG9600$5,999.99 66'' 2.0''

UHD

(3840x2160)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

(K m²)

Samsung Display LG Display AUO

BOE GoVisionox EverDisplay

JDI Source: Company data Source: Company data, Credit Suisse estimates

Figure 6: Samsung dominates Flexible OLED IP Figure 7: AMOLED cost premium for mobile devices is

shrinking

156

3023

10 8 5 4 4 4

0

20

40

60

80

100

120

140

160

180

Samsung LGElectronics

LG Display Apple ITRI SEL AuOptronics

Blacberry BOETechnology

# of application

90%

95%

100%

105%

110%

115%

120%

125%

130%

5.5" Smartphone 7" Tablet PC

LCD LCD with QD film AMOLED

Source: Company data, IHS Source: Company data, IHS, Credit Suisse estimates

16 February 2016


OLED display: Flexible for the mass market Apple and flexible OLED drive mass market adoption

Samsung dominates OLED usage with a 95% market share. Adoption at Chinese brands is

accelerating as Samsung begins to sell OLED externally. APPL will likely join forces by 2H18,

driving suppliers to invest in capacity early. Display technology is one of the key focal

marketing points for AAPL. OLED performance is now superior to LTPS TFT-LCD while still

addressing the shortcomings of LCD-based displays. AAPL is motivated by: (1) positive

OLED experience through AAPL watches; (2) more availability in OLED suppliers; (3) OLED

surpassing LTPS TFT-LCDs in terms of performance at similar costs; and (4) addressing

form-factor design limitations, breakage and battery life issues. Samsung and LG Display are

expected to become major AAPL suppliers; JDI will likely too, but it needs a proven product.

OLED suppliers' strategic positioning

Samsung is expected to continue to dominate the OLED industry for the next three years with

more than a 90% market share, focusing mainly on advancing flexible mobile OLEDs and

increasing external sales. Samsung commercialised the OLED application and keeps most of

the learned technology proprietary through a strong patent portfolio to ensure much higher

profitability than the experience it had with the LCD industry. LGD's key focus is to first

commercialise WOLED for TVs, but it is investing simultaneously in RGB OLED to become a

major supplier of small OLED. JDI has the potential, but it is just entering the R&D stage. With

strong support from the Japanese OLED supply chain and backing by AAPL, it should be able

to become a producer with a limited scale by 2018. AUO's focus is mainly on smaller OLEDs

for IOT, wearable and VR, while China is mostly in the R&D stage with limited production

PI and TFE materials enable mass market flexible

OLEDs

The Achilles' heel in advancing truly flexible OLED has been substrates and cover window

materials. TFE equipment/methods will play a vital role in improving productivity and

lowering costs. Advantages of thin-film type sealants over glass-type sealants are: (1) lighter

—reducing the weight of the display; (2) thinner—enabling slim designs and better display

quality by removing another layer of glass; (3) unbreakable—when bonded also with plastic

protective cover window layer; (4) most importantly, flexible/foldable—a must requirement for

flexible displays. The flexible era is already here enabled by liquid polyimide as base

substrate material and TF encapsulation equipment/process that lowers costs rapidly. Most

future mobile displays will likely be flexible OLEDs. LCD panel and component suppliers

slow transition and adaption to the OLED era risk becoming marginalised.

Flexible OLED panel and supply chain adds value

For the next three to five years, companies that are able to scale flexible OLED panels and

the supply chain that enable the advancement of flexible OLED will add value. Because

OLED is still very much a developing industry with rapid technological changes still to

come, stock calls are based on a pure OLED growth theme mainly due to: (1) even for

Samsung with 95% market share, OLEDs make up only about 7% of profits; (2) for LCD

companies converting to OLED, initial investment will be very expensive and the

investment requirement comes at a time the TFT-LCD industry is in oversupply with some

producers seeing losses, pressuring profitability further; (3) for large equipment and

material companies, OLED is a smaller addition to their main businesses, while for smaller

companies, concentration risk to one special product or customer is high. We like

Samsung's positioning, and believe Himax and AMAT will benefit. LGD, JDI and AUO will

see deep losses first on initial investment, before recovering on OLED. Time will be

required for LGD, JDI and AUO to turn profits in OLED as initial OLED investment is high.

Samsung dominates OLED

application; AAPL to drive

mass-market adoption of

flexible OLED display

LG Display next to scale up

OLED, JDI has good

potential, AUO and China in

R&D stage and small scale

production

Polyimide and equipment

technology and process key

to enabling affordable

flexible OLEDs

OLED panel makers and

supply chain flexible OLED

enablers to add value

16 February 2016


OLED supply chain companies Figure 8: OLED supply chain companies

Ticker Company Product Manufactuing Stage

OLED panel makers

005930.KS SEC Rigid/Flexible small OLED Mature, entered flexible OLED stage

034220.KS LGD Rigid/Flexible small OLED, TV Growing, WOLED focus, growing mobile OLED

6740.JP JDI OLED R&D Production by 2018

2409.TW AUO R&D Rigid/Small OLED Wearable VR Auto

Unlisted CSOT R&D Rigid/Small OLED R&D, limited production

000725.CH BOE R&D Rigid/Small OLED R&D, limited production

Unlisted GoVisionox R&D Rigid/Small OLED R&D, limited production

Unlisted EverDisplay R&D Rigid/Small OLED R&D, limited production

000050.CH Tianma R&D Rigid/Small OLED R&D, limited production

732.HK Truly R&D Rigid/Small OLED R&D, limited production


OLED Equipment Suppliers:

AMAT.US AKT (Applied Materials) CVD TFT Process

AMAT.US AKT (Applied Materials) CVD Thin Film Encap - Organic

AIXA.GR Aixtron ALD Thin Film Encap

7751.JP Canon (Tokki) CVD Organic Material Evaportion System

Unlisted YAS CVD Organic Material Evaportion System

Unlisted Sunic Systems CVD Organic Material Evaportion System

6728.JP Ulvac Sputtering Thin Film Encap - Inorganic

080000.KQ SNU Precision CVD Organic Material Evaportion

036930.KQ Jusung Engineering Encapsulator Encapulation

Unlisted Kateeva (Du Pont) Ink jet deposition Thin Film - Organic

054620.KQ AP Systems Lazer Annealing Backplance - a-Si to Polysilicon

054620.KQ AP Systems Lazer Lift Off LLO for delamination

COHR.US Coherent Lazer Annealing Backplane - a-Si to Polysilicon

5631.JP Japan Steel Works Lazer Annealing Backplane - a-Si to Polysilicon

6724.JP Epson Ink jet deposition General soluable OLED material

056190.KQ SFA Engineering PECVD (TFT), Evaporator TFT, OLED Deposition

030530.KQ Wonik IPS Evaporator, Etch, TF Encap Deposition, Etch, Encapsulation

141000.KQ Viatron Thermal Curing Dehydrogenation, PI curing, IGZO annealing

123100.KQ Tera Semicon Thermal Curing LTPS and PI lamination


OLED Material Suppliers :

OLED.US Universal Display (UDC) Red/Green Dopants (Emitter) RGB pixel formation

OLED.US Universal Display (UDC) Yellow for WOLED TV White back light

DOW.US Dow Chemical Red Host RGB pixel formation

006400.KS Samung SDI Green Host RGB pixel formation

5019.JP Idemitsu Kosan Blue - Dopant and Host RGB pixel formation

5019.JP Idemitsu Kosan Blue for WOLED TV White back light

077360.KQ Duksan Hi-Metal HIL/HTL Conductive Hole layers

5019.JP/077360.KQ Idemitsu Kosan/Duksan Blue - Dopant and Host RGB pixel formation

006400.KS Samsung SDI (Novaled) EIL/ETL Emissive Electron Emission layers

4112.JP Hodogaya (SFC) Blue Host/Dopant RGB pixel formation

MRK.US Merck Broad spectrum of materials various

MMM.US 3M Protective cover film Protective Cover

6988.JP Nitto Denko Circular Polarizer Circular polarizer for contrast enhancement

4208.JP Ube Industries Polyimide liquid Flexible substrate formation

036830.KQ Soulbrain Etchants - general material TFT

Glass:

5214.JP Nippon Electric Glass Glass Substrate, cover window

5201.JP Asahi Glass Glass Substrate, cover window

GLW.US Corning Glass Substrate, cover window

Others:

108320.KQ Silicon Works DDI for OLED OLED Display Driving

HIMX.US Himax DDI for OLED OLED Display Driving

3673.TW TPK Touch sensor TSP

6456.TW GIS Touch sensor TSP

6770.JP Alps TSP Flexible TSP Source: Company data

16 February 2016


Apple and flexible OLED to drive mass market adoption Apple to drive mass market mobile OLED adoption

Our base case remains that APPL will begin adopting OLED display on its iPhone 8

beginning in 2H18. We believe AAPL will adopt flexible OLED screens from the onset.

Prior to AAPL's adoption of OLED, other smartphone makers, particularly the high-end

Chinese smartphone brands, should offer OLED displays. All of Samsung's high-end

smartphones' displays are OLED-based screens. Samsung is adopting basic rigid OLEDs

also in its mid-priced smartphones. Any earlier adoption by AAPL than 2H18 would be

nearly impossible, given that the supply chain, while making some capacity preparation

and implementing better flexible OLED properties, would not be ready until 2H17. AAPL

should drive up the next leg of OLED penetration in global smartphone devices.

Figure 9: Global OLED capacity growth accelerating Figure 10: OLED penetration into $400+ price segment

0%

20%

40%

60%

80%

100%

120%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

( K m²)

Total glass input area (lhs) YoY (%)

0%

10%

20%

30%

40%

50%

60%

0

100

200

300

400

500

600

700

800

900

2013 2014 2015E 2016E 2017E 2018E 2019E

(mn unit)

Total units (lhs) OLED penetration rate

Source: Company data, Credit Suisse estimates Source: OLED-Association, Credit Suisse estimates

We believe AAPL's reasons behind the switch from LPTS TFT-LCD to AMOLED are

as follows:

■ Display technology has always been one of the focal marketing points for AAPL.

During the start of the "Retina Display" (LTPS TFT-LCD) campaign, the only OLED

supplier available globally was Samsung Electronics, which posed supplier

concentration risk. Today, LG Display already supplies AAPL with limited flexible

OLED for AAPL watches. Japan Display (JDI) could also become a viable supplier by

2H18, with support from APPL.

■ During the initial "Retina Display" campaign, OLED displays used by Samsung had

more limitations, such as poor viewing angle, limited pixel count, weaker performance

in the sunlight and questionable lifetime hours. Also, there was not much advantage in

the form factor compared to the rigid OLED displays.

■ One of the key obstacles for Retina Display is still the short battery life (the

consequence of using LED backlights) and breakage. OLED and key organic

materials have improved to make it superior to the LTPS TFT-LCD technology, such

as customisable colour gamut and much brighter light emission on lower battery

consumption. OLED material advancement has progressed to enable driving higher

pixel count (OLED, including sub-pixels can offer 2x PPI) with much less battery

Flexible OLED adoption at

AAPL begins with iPhone 8

in 2018

Display remains a key

production strategy at AAPL

and OLED will provide the

company more options

16 February 2016


consumption. Therefore, AAPL has experimented with OLED in its Watches (small

scale and panel size), and has expressed satisfaction with OLED's performance.

■ Form factor flexibility. High-end smartphones are experiencing product fatigue,

including for both AAPL and Samsung. Hardware innovation has stalled, which is a

major concern for AAPL. The flexible OLED screens can lead to much more innovative

hardware design. OLED guarantees a much thinner smartphone design, potential for

foldable screens, and at least unbreakable screen characteristics.

■ Supply chain due diligence. According to OLED Association, AAPL has contacted

various equipment and OLED material companies. As one of the largest OLED panel

customers in the world, it would have to control and conduct due diligence on all major

OLED suppliers, including the basic supply chain. AAPL will likely also control and

approve all the equipment and materials used by its panel producers, including

product quality, financial stability and material performance. This is already occurring

with several Korean equipment companies.

No capacity constraints for 2018. We believe capacity constraints will not be a factor in

2018. Despite the high volume of AAPL's iPhones sold annually, the new product cycle is

technically once every two years (major design change). The usual September launch of

iPhone 8 is likely in 2018, and would require only limited number of OLED panels, but

capacity requirement would rise quickly in 2019 to 2020. Typically, a new flagship model

launched in September in a given year represents about 25% to 29% of the calendar year's

total volume. That ratio rises to about 50% for the following 12 months. For example, AAPL

could require about 60 mn units of OLED displays for the calendar year in 2018 since iPhone

8 would be launched in September 2018, but total panel requirement could rise to 130 mn

units for the entire 2019 calendar year. Demand for OLED will rise as all AAPL's

smartphones could use OLED. The capacity outlook could change rapidly if AAPL chooses

to offer OLED displays on the iPads' or iMacs'. Any AAPL OLED project will likely occur with

the success of the printable/inkjet OLED technology. Earlier, Panasonic introduced 4K UHD

56-inch OLED TV using the inkjet printing method on oxide backplane that offered extremely

good image quality. Although Panasonic contacted AAPL to invest in the technology, there

was a lack of interest, given the scalability and performance of inkjet printing—including the

lifetime of soluble OLED materials used.

Figure 11: Apple—% of new iPhones 12 months post launch Figure 12: Apple—% of new iPhones on calendar year

34.9%26.0%

47.0%40.1%

52.9%

65.1%74.0%

53.0%59.9%

47.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2013 2014 2015 2016E 2017E

iPhone New iPhone

72.0%61.7%

75.4% 71.2% 73.9%

28.0%38.3%

24.6% 28.8% 26.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

2013 2014 2015 2016E 2017E

iPhone New iPhone

Note: Based on 12-month figures of new iPhone launch. Source: Company data, Credit Suisse estimates

Note: Based on calendar year of new iPhone launch in September.

Source: Company data, Credit Suisse estimates

OLED phase-in should be

slow; we see no capacity

risk for AAPL

16 February 2016


Samsung and LG Display likely to dominate AAPL

supply Samsung: Samsung will likely dominate the OLED supply for AAPL. Despite the conflicts

in the past, Samsung remains the most critical component supplier for AAPL, which

includes the A/Ps, LP DDR4 DRAM and NAND flash. Samsung is the only supplier in the

world with a proven track record in OLED display performance and a cost structure that is

now lower than making LTPS TFT-LCDs. Also, Samsung's IP related to OLED and

extensive control of its supply chain can guarantee the high volume supply required by

AAPL. We believe Samsung A3 6G OLED fab will be the site to manufacture for AAPL.

High level discussions between the two companies have been taking place and APPL has

been active, going through the qualification process of products from Samsung's key

suppliers. Samsung is the only supplier that can provide high-volume flexible OLED today.

LG Display: LG Display remains the largest supplier to AAPL for its existing LTPS TFT-

LCD displays. LGD is also the major supplier for flexible 1.5-inch OLED displays for AAPL

Watch; therefore, it already has experience in supplying RGB-based flexible OLED. Two

drawbacks for LG Display are: (1) it does not have any experience in larger screen sizes

for the RGB OLED; and (2) idling of the existing TFT-LCD capacity dedicated to AAPL

becomes an issue, particularly given the investments made over time. While the existing

LTPS facilities can easily be converted to OLED use, new equipment must be acquired.

Strategically, LG Display is more focused on commercialising the WOLED TV product

compared to advancing RGB mobile OLED. We believe LGD's upcoming 6G OLED fab in

Kumi will produce flexible OLED displays for AAPL in addition to panels for automobile use.

JDI: JDI is another key supplier to AAPL for Retina Display screens. Therefore, the legacy

TFT-LCD capacity dedicated to AAPL is also a concern. While JDI has one of the largest

LTPS capacities in the world, it has no commercial experience in mass producing mobile

OLED screens. JDI will increase OLED R&D in 2016 and will aim to start mass production

in 2018. JDI, with cooperation with Japanese OLED equipment and material suppliers, will

likely succeed in becoming a supplier. Japan cares about advancing the OLED technology

and has critical supply chain support within the country, including key equipment and

organic material suppliers. One advantage for JDI would be that AAPL would want a third

and non-Korean supplier.

AUO: AUO could be a possible supplier, but has low probability in early phases. It

currently has an AMOLED capacity of ~8,000 substrates/month for Gen 3.5 fab (a small

line) in Linko Taiwan and ~15,000 substrates/month capacity for Gen 4.5 fab in Singapore.

AUO has sold small quantities of OLED externally, but these products had very low

resolution. The end market included niche markets in Chinese smartphone brands, and

wearable devices. Progress would have to be monitored.

China: While basic R&D has been carried out, full entry into the OLED supply chain will

likely take time. Chinese LCD panel makers have less experience in LTPS and limited

exposure to OLED material technology. OLED is simply too different from the LCD

technology; the process itself resembles more an analog than a digital process. Trial and

error R&D method won't work. It took Samsung seven years to fully develop OLED

products and apply it to its own products with full backing of the corporate strategy.

Samsung also had its own demand. Also, supply chain commitment to China is less than

that to Korea, which will dominate the industry for the next five years.

Figure 13: OLED panel suppliers to Apple Company APPL Supplier Flexible OLED capability Comment

Samsung Display Very High Yes Likely to dominate supply

LG Display Very High Yes Tier 1 supplier

Japan Display High R&D Strong AAPL support

AUO Medium R&D Tier 2 supplier

BOE Low R&D

GoVisionox Low R&D

Ever Display Low R&D

Tianma Low R&D

CSOT Low R&D

Truly Low R&D Source: Company data, Credit Suisse research

Samsung dominates, LGD's

focus is on WOLED TVs

and JDI is entering R&D

with strong supply chain

support

16 February 2016


OLED suppliers' strategic positioning LG Display: More focus on TV OLED

Rushed transition to WOLED TVs. LG Display (LGD) believes the market is ready to

adopt OLED TVs at the premium, large-sized niche segments. We believe the early push

for OLED adoption in TVs has more to do with the chronic oversupply condition of the

TFT-LCD panel supply, which shall persist through 2018. The early conversion to OLED

provides the company an opportunity to jump first on to the future display technology curve.

For the TV OLED strategy, LGD and Samsung Display Corp (SDC) took different paths in

the beginning. Samsung's R&D focused more on RGB pixels using small mask on LTPS

backplane. LGD decided on White OLED (WOLED), still requiring colour filter, on oxide

(IGZO) substrates. Given technological limits and high costs of RGB OLED for TVs, LGD

was able to introduce OLED TV based on WOLED into the market first in 1H15. The

company produced 400K OLED TV panels in 2015 ranging from 55-inch, 65-inch and 77-

inch. The target for 2016 is 1 mn; for 2017, 1.5 mn units. LG Display sees OLED TVs as

an opportunity to technologically overtake Samsung permanently in the TV segment.

However, LGD remains much behind in the RGB mobile OLED technology.

Pushing early OLED TV adoption risky. Transition from TFT-LCD to WOLED TV has

many associated risks. If technology can be driven efficiently, LGD stands to become the

only producer of OLED TVs for several years, giving it ample time to firmly establish

market leadership. However, as the technology innovator, it also has to overcome many

risk hurdles.

■ High costs. It takes time to scale-up and bring the cost of OLED TV down. Being the

only company promoting OLED TVs to consumers, the company bears the burden of

creating its own demand, including all promotion-related costs such as marketing, and

advertising expenses and increasing general public awareness of OLED. Also, its

small scale relative to the overall TV industry implies that raw material costs are still

very expensive. LGD has already recorded cumulated losses over US$1 bn since the

start of the OLED TV project, which also included the fab start-up costs.

■ Difficult to catch up to LCD TV technology. LCD TV technology is mature and

production costs are competitive. Depreciation burden in mature fabs is low.

Technologically, TFT-LCDs TVs have moved to large-sized screens offering

technologies such as 4K2K UHD resolution, Quantum Dot and Wide Colour Gamut.

The quality of LCD TVs is already very high. OLED TV is currently moving from FHD

to UHD level.

■ Technological hurdles. For WOLED TV panels, catching up to UHD TV resolution is

difficult. Going from FHD to UHD is much simpler for LCDs which require change in

panel type, inserting brighter LED backlights, higher quality colour filter, etc. To make

OLED panels into UHD level, up to 13 layers of organic materials have to be

deposited. The bottleneck is the OLED light brightness. On average, OLED is a

composition of five layers of organic materials. To improve the light efficiency capable

of providing UHD resolution, two to three sets of normal five organic layers are

required. In essence, the OLED layers become thicker, voltage requirement rises and

longer TACT time is needed to make the panel.

Also, there are advantages:

■ For any flat panel displays, the biggest addressable market is TVs. LG Display clearly

has the first mover advantage and would have time to build up scale and drive

consumer adoption. Niche, premium pricing could also provide the turnaround in

profitability, which has contracting on declining LCD prices.

LG Display's early adoption

of OLED TV provides first

mover advantage

Risks related to early

adoption of OLED TV

16 February 2016


■ WOLED is currently expensive. However, inkjet solution printing technology could be

available in the next three to five years for TV production. LGD/Seiko Epson/

Idemitsu/Hodogaya/Sumitomo Chemical/Merck are jointly working on solution-based

inkjet printing for OLED, where manufacturing can be done outside the confines of

vacuum with considerably faster TACT time. However, the current soluble material

lifetime is only one-half of small molecule OLED deposition done in a vacuum. Seiko is

known to have a good track record in inkjet printing.

■ Some of the existing LCD fabs are re-usable. This is particularly the case for mobile

display as LTPS/TFT processes are very similar for mobile RGB OLED displays.

Even for TVs, existing 8.5G facilities can be converted, although the IGZO process

and deposition/encapsulation equipment must be added.

LGE’s OLED TV approach: WOLED TV on IGZO

LGE is already mass producing 55-inch, 65-inch and 77-inch WOLED TV panels (list TV

models). Technology is now shifting from FHD to UHD OLED panels. Initial target markets

include the EU, the US and Korea in the highly affluent TV market segment with a current

price range of $1,800 to $6,000. Its longer-term strategy is to lower the price premium to 1.5x

of LCD TV of similar size and quality using technology and OLED material advancements.

Figure 14: LGE's OLED TV models and pricing Figure 15: Sample of LGE OLED TV

Model

Suggested

Retail Price Screen Size Thickness Picture Quality

55EC9300 $1,799.99 55'' 3.1''FHD

(1920x1080)

55EG9100 $1,999.99 55'' 3.4''FHD

(1920x1080)

55EF9500 $2,999.99 55'' 2.0''UHD

(3840x2160)

55EG9600 $3,999.99 55'' 2.0''UHD

(3840x2160)

65EC9700 $4,999.99 66'' 2.2''UHD

(3840x2160)

65EF9500/

65EG9600$5,999.99 66'' 2.0''

UHD

(3840x2160)

Source: Company data Source: Company

LGD's OLED layer design and process method. Initially, LG Display has had various

WOLED panel designs. The first generation of lighting mixture was to generate white light

by mixing blue with yellow lines (like LED) and doubling the emitting layers to increase

brightness. As OLED materials improved, it is now using two layers of blue on one red-

and-green layer to generate white. Two blue layers are used to improve the lifetime of blue

and overall OLED materials' lifetime. This gives the panel much better white light intensity,

which is required because LGD’s WOLED method still requires colour filters, which absorb

the emitted light and reduce performance. Currently, the WOLED panels are being

designed with IGZO substrates, where yields are still the main issue to overcome due to

plane uniformity and voltage threshold. LGD’s current WOLED capacity allocation is 34K

substrates at its 8.5G fab. Reported yield is about 66%, thus the net capacity effect is

about 22K substrates, which has 6 cuts to make 55-inch TVs. The incremental addition of

capacity will continue with the roll-out of a new 9G or above fab that is scheduled to go

into mass production by 1H18.

Mobile OLED strategy. LG Display has been behind Samsung in mobile OLED. Mainly, it

did not have key flagship customers to drive the adoption (LGE's smartphone volumes

never reached a large enough scale). Also, APPL decided on LTPS TFT LCD, which LGD

became a major supplier for. Therefore, LGD's mobile display focus was different vs

Samsung's. LGD has succeeded in developing small-sized flexible RGB OLED for AAPL

Watch. Already having abundant LTPS capacity, LGD would have the ability to ramp-up

mobile OLED, including bendable OLEDs quickly. We believe TV is the foremost important

product, but LGD is investing in flexible OLED for both smartphone and automobile use.

Recently, Kumi 6G fab was announced to focus on wearables, smartphones and

automotives. We believe LGD will become a major supplier to APPL by 2018 and will

become the largest OLED producer after Samsung.

OLED TV price points

remain high compared to

conventional LCD TVs

Barrier to OLED TVs are

strength of light as is

technology moves to higher

resolution

16 February 2016


Figure 16: LGD product mix—revenue based Figure 17: LGD capacity—technology based

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

TV Monitor Notebook & Tablet Mobile

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

(M m²)

Gen 2~5 Gen6 Gen7 Gen 8

Source: Company data Source: Company data

LGD's OLED capacity investment plans

Through 2018, LG Display plans to invest about $8.5 bn primarily into OLED displays for

large products such as TVs, and flexible screens for smartphones and wearables. LGD

plans to expand OLED applications to signage and automobiles.

Paju P10. LGD plans to build a new OLED panel plant in Paju, Korea. Although total

capacity has yet to be announced, this will likely be a mega facility with production

expected to commence in the first half of 2018. The P10 plant will mainly produce both

large-sized OLED TV panels and flexible OLED panels for smartwatches and automotive

displays. The total investment in the P10 plant is expected to reach more than W10 tn over

time, with LG Display gradually expanding the scale of the production line based on

customer demand. This will be the core OLED-dedicated production facility.

Paju P9. This fab is the central hub for LGD's WOLED TV strategy. Currently, it is running

26K 8.5G substrates with plans to ramp to 34K by the end of 2016 and expand up to 60K

by 2017. The company has been converting the existing a-Si capacity to oxide (IGZO),

thereby maximising the reuse of the TFT-LCD facility.

Kumi P6. It is currently being retrofitted to convert into 6G OLED fab. It already

accommodates a 40K LTPS facility with plans to expand to 60K by 2017 for LTPS. OLED

production is being prepared and will begin in 1H17. Key products will be smartphone

panels, wearable and automobile infotainment displays. New capacity build will likely be

for plastic RGB OLED.

Paju AP2. Flexible OLED 4.5G is part of the larger fab that houses LTPS feeding both

small TFT-LCD and OLED lines. Flexible OLED capacity is 4.5-inch and this is the only

RGB OLED facility that LGD runs. The facility makes plastic OLED panels for AAPL

watches, LGE's G-flex screens and some auto display.

LG Display will be the next major OLED producer after Samsung.

16 February 2016


Figure 18: LG Display's OLED capacity next to take off

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

(K m²)

Samsung Display LG Display AUO

BOE GoVisionox EverDisplay

JDI Source: Credit Suisse, company data

Figure 19: LGD OLED panel capacity

Factory Location Target product Capacity (k sheet/month) Production status

4.5 Gen OLED Wearables, smartphones 14 Mass production

8.5 Gen OLED OLED TV 34 Mass production

6 Gen OLED Wearables, smartphones, automotive 7.5 1H17

9 Gen or above OLED OLED TV, wearables, automotive NA 1H18 Source: Company data

16 February 2016


Samsung's black box OLED strategy

Focus on OLEDs for mobile products. From the beginning, Samsung preferred to keep

OLED a proprietary technology in order to advance its "Super AMOLED" smartphone

campaign. From a marketing standpoint, it wanted to differentiate its high-end Galaxy

series smartphone/note products. While the basic concepts of OLED technology have

been around for decades, the company was the first globally to mass produce and adopt

OLED in the majority of its high-end smartphones. With the demand growth slowdown,

over-investment, and likely technological catch-up by some competitors eventually,

Samsung has opened up OLED sales to external customers. Its mobile OLED strategy is

simple: (1) maintain 100% UTR; (2) sell all excess to external customers; and (3) enable

mass market adoption. About 20% of OLED revenue in 2015 was derived from external

sales, with 30% targeted in 2016. The company is now open to selling its latest flexible

OLED to external customers and will likely be the dominant supplier for AAPL in 2018.

OLED products make the majority of profits for the Samsung's display division. Samsung

is the only OLED producer in the world that is capable of producing flexible OLED in large

scale.

Figure 20: Samsung's AMOLED-based phones

Pic Pic Pic Pic Pic

Model Galaxy S5 Galaxy S5 Prime Galaxy S6 Galaxy S6 Edge Galaxy S6 Edge +

Launching Mar. 2014 Jun. 2014 Mar. 2015 Apr. 2015 Jul. 2015

Resolution

1920x1080/

432ppi

2560x1440/

577ppi

2560x1440/

577ppi

2560x1440/

577ppi

2560x1440/

515ppi Source: Company data

The black box strategy approach. Developing and keeping OLED technology proprietary

mainly stems from financial reasons and the desire to build-up a strong patent portfolio.

The TFT-LCD experience was not a pleasant one for Samsung as it was mostly an open

technology with independent equipment and material suppliers assisting all panel makers

to build capacity quickly. The initial addressable market was vast ($70 bn market size) that

included notebook PCs, desktop PC monitors, and eventually TVs. But, the period of high

profit returns was short with the industry witnessing profit margin compression very quickly

on rapid supply build-up. OLED is generally a much more difficult technology to master

and Samsung was both the pioneer and the sole commercial producer. Driving its own

demand, Samsung wanted to strictly control the supply chain, including building up its IP

portfolio around production methods, equipment advancement and organic material

science. Various methods of controlling the supply chain included the full acquisition of

Vitex Systems and Novaled for both material and production techniques. Samsung also

acquired 5% to 10% of its critical equipment supplier and has often times forbade product

sales to its competitors due to the co-development of products for Samsung-only use and

to limit competitive threat.

Samsung adopted a black

box OLED strategy to keep

competition at bay

16 February 2016


Figure 21: Samsung dominates flexible OLED IP

156

3023

10 8 5 4 4 4

0

20

40

60

80

100

120

140

160

180

Samsung LGElectronics

LG Display Apple ITRI SEL AuOptronics

Blacberry BOETechnology

# of application

Source: Company data, IHS

Figure 22: Samsung's equity investment and acquisition of OLED supply chain

Ticker Company Share (%) / Acquisition

080000.KQ SNU Precision : manufactures LCD inspection and OLED deposition equipment 5.26%

056190.KQ SFA Engineering : manufactures factory automation and logistics systems 10.14%

006400.KS Samsung SDI : produces LCD components, PDAs, and solar panels 19.58%

Unlisted Novaled : produces technologies and materials that enhance OLED Acquired in 2013

Unlisted Samsung/Ube JV : JV formed with Ube to produce polyimide Formed May 2011, 50:5)

Unlisted Kateeva : Injet TFT - organic layer, R&D for other OLED layers Seed funding

Unlisted Vitex Systems : specializes in Thin-Film Encapsulation Acquired in 2010 Source: Company data, Credit Suisse research

Reversing course on OLED TVs from RGB to WOLED

We believe Samsung made two critical strategic errors in its initial TV OLED development:

(1) insistence on LTPS backplane and (2) RGB pixels. Samsung's small molecule RGB

OLED approach for large-sized TVs proved to be too ambitious. Various efforts including

vertical mask, small mask, upside-down deposition, including various evaporation

techniques, could not yield good RGB deposition effectively in terms of manufacturing

cycle time. Also, LTPS backplane, due to the large substrate required, was simply not cost

effective. While the basic technology did work, from a manufacturing cost and economic

point of view, it reached a dead end. Without a back-up plan, the company has mainly

focused on selling large UHD and curved LCD TVs. This is buying the company some time

to develop alternative OLED TV technology. While the TFT-LCD industry should remain in

an oversupply condition for a sustainable period of time, Samsung is not likely to give up

on LCD TVs until its OLED TVs become fully price competitive.

Back to the drawing board. Samsung recently announced that it will reengage in OLED

TV development using WOLED approach (RGBW) with IGZO backplane—similar to LG

Display's WOLED. The only difference would be that Samsung's display would be top

emission using a glass colour filter. In theory, this is designed to provide a higher aperture

ratio in order to advance the display to 8K4K resolution capability in the future from 4K2K

currently. The OLED TV production target is set for the end of 2017 likely, by adding

capacity in its 8.5G V1 TV OLED fab. Scale build-up for OLED TV could be limited initially.

Samsung believes that ultimately, OLED TV must be made using inkjet printing technology

in order to catch up to the cost efficiency of making TFT-LCD TVs today. It is using

Kateeva's inkjet printing for the organic layer thin-film encapsulation layer currently. It is

trying to adapt this technology to RGB deposition using solution-based organic light

RGB small molecule OLED

strategy for TVs was a

strategic error

Samsung will develop OLED

TV again using WOLED

approach focusing on 8K4K

resolution

16 February 2016


emitting materials. This will likely take another three to five years due to the complexity of

applying organic layers outside of a vacuum environment. Instability (ink degradation) and

the short lifetime of solution-based OLED materials are other current issues.

Samsung's OLED capacity investment plans

■ Samsung A1: This fab is the world's first OLED facility that produced panels for the

original Samsung Galaxy S launched in 2010. It was constructed in three phases,

consisting of seven total lines to construct mobile rigid OLED using 2 cut 920x730mm

4.5G substrate rated at 55K substrates per month. The fab began production in 3Q07

and all lines fully depreciated, making it a very cost-efficient fab in producing mid-

range rigid OLEDs.

■ Samsung A2: This fab is world's first 5.5G OLED facility and also houses Samsung's

first flexible OLED lines. It steadily increased capacity through five various phase

investment to reach 140K 5.5G (1300x1100mm) substrates per month, of which

Phase 3 consisting of 35K substrates per month is dedicated to flexible OLED

projection. The majority of Samsung's OLED production occurs here. It initially began

as a four cut substrate, but later converted to a 2 cut substrate facility when the FMM

mask technology improved. Initial hybrid TF encapsulation for flexible OLED was set

up here. During the mask performance limitation, laser-induced thermal imaging (LITI)

was installed in order to improve the pixel density to above 300 ppi. LITI never went

into production as better masks were developed.

■ Samsung A3: This is Samsung's first 6G OLED production line dedicated to flexible

OLEDs. So far, the announced capacity is 15K of 6G (1500x1300mm) substrates per

month, which is cut into two pieces prior to deposition. This fab fully incorporates all new

equipment to take the manufacturing capability into a foldable OLED era. We believe

this will be the facility that majority of AAPL-related OLED displays will be manufacturing.

Figure 23: Samsung Display OLED panel capacity

Factory Location Target product Capacity (k sheet/month) Production status

4.5 Gen OLED Glass Rigid OLED 56 Mass production

5.5 Gen OLED Glass Rigid OLED/Flexible OLED 121 Mass production

6 Gen OLED Flexible OLED 15 Mass production

8 Gen or above OLED OLED TV 8 V1 RGB TV R&D Source: Company data

16 February 2016


AMOLED activity among Greater China panel makers

AUO and Innolux have been converting their existing LTPS lines for AMOLED production

since 2010 but only in small scale. Both believe AMOLED is more likely to become an

alternative display technology for premium smartphones, wearable devices, and

automotive applications as AMOLED could achieve flexible form-factor, is thinner/lighter

as it does not require backlight module, and as the cost gap of AMOLED vs TFT for

smaller screen size has shrunk. For larger-sized applications like TV, the cost gap and

retail price for AMOLED vs TFT has shrunk in the past couple of years but AMOLED is still

2-3x the price of TFT.

Figure 24: AMOLED cost premium for mobile devices is

shrinking

Figure 25: AMOLED is still expensive for TVs (55" 4K as

an example)

90%

95%

100%

105%

110%

115%

120%

125%

130%

5.5" Smartphone 7" Tablet PC

LCD LCD with QD film AMOLED

80%

130%

180%

230%

280%

330%

LCD LCD with QDtube

LCD with QDfilm

AMOLED

LCD LCD with QD tube LCD with QD film AMOLED

Source: Company data, IHS, Credit Suisse estimates Source: Company data, IHS, Credit Suisse estimates

Unlike the Taiwanese panel makers, Chinese AMOLED makers have been aggressively

building new LTPS and AMOLED lines with the government's support since 2010. Besides

the larger-scale Chinese panel makers BOE and CSOT, small/medium size panel makers

like Tianma, Truly, EverDisplay and GoVisionox continue to ramp fabs, and showcased

some samples in 2015. We discuss the progress and strategies of AMOLED panel makers

in Taiwan and China below.

Figure 26: Summary of announced AMOLED fabs in Taiwan and China

Company name Fab location Substrate size (mm) Gen K Capacity/month Status

AUO Linko, Taiwan 620 x 750 3 8 MP

AUO Singapore 730 x 920 4.5 15 MP

BOE Ordos, China 1300 x 1500 5.5 4 MP

BOE Chengdu, China 1500 x 1850 6 24 (max 45) mid-2017 MP

Tianma Shanghai, China 1300 x 1500 5.5 15 1Q16 MP

Tianma Wuhan, China 1500 x 1850 6 15 (30 max) 2Q17 MP

EverDisplay Shanghai, China 730 x 920 4.5 15 (21 max) MP

EverDisplay Shanghai, China 1500 x 1850 6 TBC 1H18 MP

GoVisionox Kunshan, China 1300 x 1500 5.5 4 (max 15) MP

Truly Huizhou, China 730 x 920 4.5 30 2Q16 MP

Truly Huizhou, China 1500 x 1850 6 TBC TBC

CSOT Wuhan, China 1500 x 1850 6 15 (30 max) 3Q17 MP


AUO

AUO currently has an AMOLED capacity of ~8,000 substrates/month for Gen 3.5 fab in

Linko Taiwan and ~15,000 substrates/month capacity for Gen 4.5 fab in Singapore. It is

also building a new Gen 6 LTPS fab in Kunshan China with 20,000-30,000 substrates/

month capacity, but it currently does not have a plan to covert that fab into AMOLED. AUO

AMOLED is more likely to

be adopted for S/M

applications

China is aggressively

building LTPS/AMOLED

fabs

AUO's round shape

AMOLED panel for

wearables received good

review

16 February 2016


has been shipping AMOLED smartphone panels to Chinese whitebox makers for the past

two years, as well as round-shape AMOLED panels for wearable devices.

Figure 27: AUO's 5" bendable AMOLED display Figure 28: AUO's 1.4" round shape AMOLED display

Source: AUO website Source: AUO website

AUO said at its 4Q15 result conference on 28 January that it will continue to manage its

capex and strengthen its cash flow in this cycle. It believes rigid AMOLED panels might

become a commodity in the future, hence it would rather allocate its AMOLED resource to

wearable, VR and automotive applications. It is also developing flexible AMOLED

technology and will ramp up the volume when the market (and its technology) is ready. For

the TV application, it believes the technology debate is still ongoing (WOLED vs RGB

OLED), production yield remains low, and scale still cannot compete with TFT.

Innolux/Hon Hai

Innolux has been working on white-OLED technology with its limited LTPS-capacity for

smartphone applications in the past few years. Management said it has been monitoring the

AMOLED market development, but it believes the cost gap and capex requirement for

AMOLED to become the mainstream technology for TV will not happen in the near term. It

believes AMOLED for handset and wearable is more likely to be accepted by smartphone

makers, given that display-related hardware accounts for 6-10% of the retail price vs 32-37%

for TV. Management noted at the 4Q15 analyst meeting that Innolux already has the sample

for smartphone flexible AMOLED and will accelerate the commercialisation road map.

Figure 29: AMOLED is more likely to be adopted by smartphone—TVs remain niche

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Vivo X5 Pro(5.0" FHD

OLED)

HuaweiMate S 64GB

(5.1" FHDOLED)

iPad Air 264GB (9.7"2048x1536

TFT)

Galaxy S664GB (5.1"2K OLED)

iPhone 6+64GB (5.5"FHD TFT)

Vizio 55" 4KTV

LG 55" 4KOLED TV

US$ Panel cost Set price panel as % of set (RHS)

Source: Company data, IHS, Credit Suisse estimates

Innolux/Hon Hai are building

three new LTPS fabs

16 February 2016


Although Innolux has not yet begun mass production on AMOLED panels, the company

and its parent company Hon Hai have rolled out aggressive LTPS capacity expansion

plans since 2H14. Innolux has announced to set-up a Gen 6 LTPS fab JV with Hon Hai in

Kaohsiung Taiwan with initial capacity of 24,000 substrates/month and has started pilot

production since for mass production from 2Q16. Its parent company Hon Hai is also

building two other Gen 6 LTPS fabs in Zhengzhou China and Guiyang China with initial

capacity of 24,000 substrates/month and 20,000 substrates/month, respectively. Both

Zhengzhou and Guiyang LTPS fabs will begin mass production by 2018, and we believe it

could potentially convert part of the LTPS capacity for AMOLED if the market and its

technology is ready.

Figure 30: Innolux/Hon Hai announced new LTPS capacity plan


Innolux Kaohsiung, Taiwan 1500 x 1850 6 24 2Q16 MP

Hon Hai Zhengzhou, Taiwan 1500 x 1850 6 24 2018 MP

Hon Hai Guiyang, China 1500 x 1850 6 20 (max 40) 2018 MP


BOE

BOE has been building its first LTPS fab (Gen 5.5) in Ordos China since 2012, and started

mass production in 1H14. The Ordos LTPS fab is designed with LTPS capacity of 24,000

substrates/month with 4,000 substrates/month capacity for RGB AMOLED. However, its

AMOLED expansion plan in Ordos has slowed down, given the lack of local government

further support. Our checks suggest its current focus for the Ordos LTPS fab is to improve

its production yield for its leading China smartphone customers (such as Xiaomi) and ramp

the next-generation in-cell touch display.

BOE is also building a new Gen 6 LTPS fab in Chengdu with the initial capacity of 24,000

substrates/month (design capacity 45,000 substrates/month). It will also install 2,000

substrates/month flexible AMOLED capacity. The Chengdu Gen 6 LTPS fab is targeted to

start mass production by mid-2017. For large-sized applications, BOE has set up a

WOLED R&D line at its HeiFei Gen 8.5 fab. Nevertheless, BOE believes TFT will still have

better cost structure than OLED for TV application in the next 10-15 years, especially for

the larger-sized and higher-resolution (4K, 8K) applications.

Figure 31: BOE 4.8" flexible OLED display prototype Figure 32: BOE's 9.55" flexible OLED display prototype

Source: BOE website Source: BOE website

BOE's LTPS yield rate still

needs to be improved

16 February 2016


Tianma

Tianma is the most aggressive small/medium-sized panel maker in China. It built the first

AMOLED R&D line (Gen 4.5) in Shanghai in 2011, after hiring several LTPS and AMOLED

experts from Taiwan during the 2008 financial crisis. It also built a Gen 5.5 LTPS fab in

Xiamen and started mass production in 2013, and is now building another two Gen 6

LTPS fabs in Xiamen and Wuhan for mass production in 2H16-2017. Tianma had the

largest LTPS area shipment among its Chinese and Taiwanese peers in 2015, as its LTPS

panel has entered leading smartphone makers' supply chain, including Huawei, Xiaomi,

Sony, HTC and LG.

Based on its success on LTPS, Tianma also invested in a four-cut Gen 5.5 fab AMOLED

line in Shanghai with a capacity of 15,000 substrates/month and will start mass production

by 1Q16. It plans to produce AMOLED panels for smartphone (HD, FHD, WQHD),

wearables, VR and automotive applications in the future.

Figure 33: Tianma announced new LTPS capacity plan


Tianma Xiamen, China 1300 x 1500 5.5 30 MP

Tianma Shanghai, China 1300 x 1500 5.5 15 1Q16 MP

Tianma Xiamen, China 1500 x 1850 6 30 3Q16 MP

Tianma Wuhan, China 1500 x 1850 6 30 2Q17 MP

Source: Company data, Credit Suisse research

Figure 34: Tianma's 5.5" FHD AMOLED panel

Source: Tianma website

EverDisplay

EverDisplay was established in 2012 and is a S/M sized AMOLED display maker backed

by the Shanghai government with top management and R&D talents from Taiwan. It has

built a Gen 4.5 LTPS/AMOLED line with 21,000 substrates/month capacity and started

sampling 5" HD AMOLED panels since 2H14. Nevertheless, its smartphone AMOLED

panel shipment was only about 70-80K per month (vs a theoretical capacity of 1.2 mn per

month on 5.5" equivalent), given the poor production yield rate. It also started shipment for

1.4" round shape AMOLED panel for watches in 2015.

EverDisplay has also developed 5.2"/5.5" FHD, flexible 5.6" WQHD, 6" 4K, 8" FHD and

0.2mm thickness AMOLED panels in its lab. Its strategy is to enter automotive and

wearable applications, besides the existing smartphone market. EverDisplay is also

planning to build a Gen 6 LTPS fab in Shanghai in 2016 for mass production by 1H18.

Tianma is most aggressive

on building LTPS fabs in

China

EverDisplay is an early

mover in China on AMOLED

display

16 February 2016


Figure 35: EverDisplay's 6" 4K AMOLED panel Figure 36: EverDisplay's 5.6" flexible OLED prototype

Source: EverDisplay website Source: EverDisplay website

GoVisionox

GoVisionox was established in November 2012, combining PMOLED maker Visionox and

some assets from Kunshan New FPD Technology Centre. Visionox is the largest maker of

PMOLED with its technology from Tsinghua University. It has built 4,000 substrates/month

Gen 5.5 (four-cuts) AMOLED capacity in Kunshan with maximum design capacity of

15,000 substrates/month.

GoVisionox has started pilot production of 5.5" AMOLED panel and 1.45" round shape

wearable panels in 2H15. The company said the 1.45" round shape AMOLED panel for

wearable devices has a resolution of 300PPI (272x340), and supports both MIPI and SIPI

data transfer standard. It also said the wearable watch with its AMOLED panel will be

available for sale in China during CNY and the 5.5" smartphone with its AMOLED will be

available in the overseas market in March. Besides smartphone and wearable applications,

it has also developed a prototype of 4.6" flexible AMOLED display and targets for mass

production in the next two years.

Figure 37: GoVisionox's 5.5" AMOLED panel Figure 38: GoVisionox's 1.45" AMOLED panel

Source: GoVisionox website Source: GoVisionox website

Truly

Truly is one of the leading LCM makers in China, and it also provides touch panel, camera

module, fingerprint modules, etc. It bought a Gen 4.5 TFT line (60,000 substrates/month)

from Samsung in 2014 (equipment move in 4Q15 for 1H16 mass production) and recently

announced to buy another Gen 5 TFT line (50,000 substrates/month) from Samsung. It

also built a Gen 4.5 AMOLED line in Huizhou with 30,000 substrates/month capacity and

plans to begin mass production in 1H16. Management targets penetrating into smart-

watch, other wearables, and automotive applications. It will allocate half of the AMOLED

capacity for flexible display. Truly also plans to build another Gen 6 AMOLED line after the

Gen 4.5 fab is fully utilised.

GoVisionox started pilot

production of 5.5" and 1/45"

AMOLED panels

Truly's Gen 4.5 AMOLED

fab will start to ramp from

1H16

16 February 2016


CSOT

CSOT (China Star) belongs to the TCL Group (81% owned) and currently has two Gen 8.5

fabs in Shenzhen. It has built a Gen 4.5 OLED R&D line in Shenzhen in 2013 and

announced to build a Gen 6 LTPS line in Wuhan in 2014. The Gen 6 LTPS line in Wuhan

started construction in September 2014 and aims for mass production by mid-2017. The

design capacity for the Wuhan line is at 30,000 substrates/month and it recruited ex-AUO

executives to run the fab. CSOT said that it will produce LTPS and AMOLED panels for

wearable devices, smartphones and tablet applications, which it believes can help improve

its sister company TCL Comm's (~60% owned by TCL) cost structure.

CSOT also received Rmb1b n (US$153 mn) investment from China's National

Development Fund in December 2015. The fund is dedicated to building its Gen 8.5 TFT-

LCD (including Oxide and AMOLED) production line. According to the filing, the National

development Fund has the right to ask CSOT to buy back its shares from April 2018 with

buyback amount of Rmb100 mn p.a.

Implications to Taiwan TFT and Display Component

Makers

We believe the AMOLED take-off would start from smartphone and wearable applications,

while the adoption of larger-sized TVs might be limited to high-end, niche models. We

believe the impact will be neutral to positive for the driver IC supply chain and touch panel

makers, neutral to slight negative for panel and LEDs, and negative for backlight makers

that have more exposure to high-end smartphones. We would prefer driver IC fabless like

Himax and Novatek to play the AMOLED theme, and would avoid Radiant as it has ~30%

of sales from iPhone.

Panel makers: Limited impact as majority of sales still come from large-sized TFT

We expect to see more AMOLED smartphones in China in 2016-17, given Samsung plans

to increase its shipment to external parties, as well as the mass production from Chinese

peers. For larger-sized applications like TV, we believe AMOLED will only capture the

premium model in the next few years since the cost gap vs TFT remains significant, not to

mention the capex that is required for AMOLED to reach a similar economic scale vs TFT.

As a result, we believe the potential impact to AUO and Innolux's earnings on AMOLED

take-off should be limited in 2016-17, given smartphones only account for 6-15% of their

total sales.

Figure 39: AUO's revenue mix by application Figure 40: Innolux's revenue mix by application

50% 46% 46% 44% 44% 44% 46% 45% 48% 49% 49%

14% 16% 16% 16% 15% 15% 15% 16% 14% 14% 14%

20% 18% 19% 20% 20% 20% 18% 18% 14% 14% 17%

6% 8% 8% 8% 9% 9% 9% 8% 9% 6% 6%

10% 12% 11% 12% 12% 12% 12% 13% 15% 17% 14%

0%

20%

40%

60%

80%

100%

2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

TV Monitor Notebook/tablet Mobile Commercial and others

41% 45% 45% 46% 44% 46% 50% 51% 54% 57% 53% 52%

18%19% 19% 17% 17% 15%

15% 14% 12% 10%10% 10%

18%16% 15% 15% 16% 16%

17% 17% 15% 13%14% 13%

21% 19% 20% 21% 22% 22% 17% 17% 18% 19% 22% 24%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15

TV Desktop Notebook Small & Medium Others


Driver IC supply chain: AMOLED still requires driver ICs….

AMOLED is processed on LTPS substrate and still requires driver ICs, although the design

is different (TFT is voltage-driven while AMOLED is current-driven). Given AMOLED will

be mainly used for mid- to high-end smartphones, we believe the ASP and GM for

CSOT's LTPS line will start

to ramp in mid-2017

Prefer driver IC names to

play the AMOLED theme,

while Radiant will be hurt

the most

16 February 2016


AMOLED driver IC will be better than same-resolution TFT driver IC. We believe Himax

could be one of the major beneficiaries as it has been working with Samsung and Chinese

AMOLED makers such as GVO, EverDisplay and BOE, and we expect its driver IC for

Samsung's HD resolution AMOLED panel to begin shipment in late 1Q16. Novatek also

said that it is working with Samsung on FHD-resolution AMOLED driver IC and it will

submit the sample to its customers in the near term. For Chipbond, we believe the impact

will be limited since its ASP for bumping and packaging should be similar for AMOLED

driver IC vs TFT driver IC.

Backlight: Radiant could be impacted the most

We believe the backlight supply chain would be hurt the most if high-end smartphones

adopt AMOLED since it is self-emitting, and hence does not need a backlighting module

(including optical films, LED, etc.). We believe Radiant would be impacted the most if

AMOLED becomes the future display technology for high-end smartphone as ~30% of its

sales is from iPhone, not to mention it does not have another smartphone customer.

For Coretronic, we believe the impact will be limited, since ~90% of its BLM sales (65% of

total sales) are from TV and IT-related. Since we also believe AMOLED for TV will only be

for premium models, the migration to AMOLED might trigger more outsourcing of

mainstream models to Coretronic, in our view.

LED: OLED impact manageable as growth driver is now lighting

Due to the maturing LED penetration within TFT backlighting and increasing LED adoption

in the general lighting market, LED revenue share from the general lighting application has

been increasing. We estimate that 45% of LED market revenues were from the general

lighting market in 2015 and the portion should further rise to 52% in 2016. On the other

hand, 38% of revenues are from large-sized backlighting and mobile applications in 2015

and the portion should trend down to 33% in 2016.

Figure 41: LED market revenue breakdown (2015) Figure 42: LED market revenue breakdown (2016E)

General lighting 45%

Backlighting (large size) 25%

Mobile (includ backlighting,

camera flash, etc) 13%

Automotive 5%

Signage 7%

Others 4%

General lighting 52%

Backlighting (large size) 21%

Mobile (includ backlighting,

camera flash, etc) 12%

Automotive 5%

Signage 7%Others 4%

Source: Company data, Credit Suisse research Source: Company data, Credit Suisse estimates

At the company level, we expect to see over 40% revenue contribution from the general

lighting market for most LED players, while the backlighting revenue contribution could

range from 10% for some players like Edison and LEDlink, to 55% for Lextar. However,

the majority of the backlighting revenues from LED players will be generated from large-

sized panel applications like TV, NB and monitor, as LED consumption is generally in

proportion to the screen size. The smartphone backlighting application, which is going to

be mostly impacted by the OLED transition, should account for 10% or less of the total

revenues for most players. Thus, while we think the increasing OLED penetration into

smartphone displays could be negative to LED players, the impact should not be

significant, given the relatively small exposure, unless we see OLED gaining more traction

in the large-sized display as well.

16 February 2016


Figure 43: Revenue breakdown by applications for major LED players (2016E)

Company Ticker Lighting TV IT Others

Epistar 2448 TT 40-45% 20-25% 5-10% 25-30%

Everlight 2393 TT 20-25% 15% 10-15% 50-55%

Lextar 3698 TT 45% 20% 25% 10%

Genesis 3383 TT 45-50% 30% <5% 20-25%

Edison 3591 TT 90% 0% 0% 10%

Unity Opto 2499 TT 60-65% 15-20% 5-10% 10-15%

LedLink 5230 TT 90-95% 5-10% 0% 0%

LG Innotek 011070 KS 45-50% 35-40% 10% <5%

Seoul Semi 046890 KS 50-55% 20% 5% 20-25%

Cree CREE US 90% 0% 0% 10%


Touch panel makers: Flexible AMOLED might shift back to out-of-cell touch

The adoption of curved or flexible AMOLED for high-end smartphones might be a potential

catalyst for TPK since it will require a more complicated lamination process, and the

supply chain might shift away from on-cell to out-of-cell. For the display with curved cover

glass, the cover glass will need to be laminated with a touch sensor, a polarizer, and then

a flexible AMOLED panel. The complicated lamination procedures and potential yield loss

might be positive for leading touch panel makers such as TPK and GIS.

Figure 44: Curved display with flexible AMOLED requires more lamination process vs rigid AMOLED display

Source: IHS

For Flexible AMOLED, the on-cell touch structure might not be applied, given flexible

AMOLED panels do not have an encapsulation glass. Currently, panel makers adopt

single-layer out-of-cell touch panels for the flexible AMOLED. As a result, the potential

adoption of AMOLED for iPhone in 2H18 could become a catalyst for TPK and GIS, and

both companies have mentioned in 2H15 that they are already working with their

customers on touch solution for the potential display structure change.

Flexible AMOLED might

shift back to out-of-cell

touch

16 February 2016


Figure 45: Touch panel structure comparison—flexible OLED might need to shift back to out-of-cell solution

Source: IHS

16 February 2016


PI and TFE materials enable mass market flexible OLEDs From rigid to bendable to flexible: All are possible

Advancements are being made to convert conventional OLED into flexible displays.

OLED displays are different from all commonly known displays due to the potential for

physically bendable and flexible (roll-able) traits. Such changes enable much more

"flexibility" in design, advancing form factors, reducing weight, thinness and unbreakable

properties. First generation is the rigid OLED, commonly found in high-end Samsung

Galaxy S smartphone series. Samsung also introduced a hybrid second-generation curved

OLED display, where edges of the side displays are thermally reformed by using already

cut pieces of glass that is re-tempered and cured prior to the TSP, polarizer and OLED

layer integration. Here, the OLED lamination is based on flexible polyimide substrate that

is bendable—first applied to Galaxy S6 Edge. More bendable to foldable properties require

additional manufacturing steps and add to costs and TACT time. However, new

manufacturing methods and advancement in OLED materials are enabling fully bendable

displays with no glass usage in the final display product. Currently, bendable OLEDs are

mass produced at both Samsung and LG Display, but rigid, tempered glass is still being

used for the protective layer. Fully bendable OLED displays will go into mass production

within one year at Samsung, and likely at LG Display by 1H17 in its 6G OLED fab.

Figure 46: Diagram of flexible OLED—LG Display type

Source: LG Display

Figure 47: Flexible OLED evolution

1st Generation 2nd Generation 3rd Generation 4th Generation

UBP UBC UBF UBR

UnBreakable Plane UnBreakable Curved UnBreakable Foldable Unbreakable Rollable

2013 1H15 2H16 2H17

Source: Company data

Development of OLED: from

rigid to bendable to

flexible—now possible

through new material and

equipment breakthrough

16 February 2016


Polyimide: Key advancements

To have truly bendable and foldable properties, any rigid glass usage on the display has to

be eliminated. Traditionally, TFT-LCD screens used three layers of glass (protective cover

window, colour filter and backplane). Rigid RGB OLED displays reduced the glass

requirement to two layers (backplane and protective cover layer). Glass layer can be

reduced to one in the case of Samsung's flexible OLED on Galaxy S6 Edge. It is made of

flexible OLED substrates with the protective cover still using Corning's Gorilla glass.

Therefore, it still lacks truly bendable properties.

Solution vs film polyimide. Truly flexible (or even foldable) OLED is made possible by

converting solution polyimide into a solid substrate—on top of the carrier glass, prior to the

TFT and OLED deposition process. After the process is complete, the finished (completed)

display layer is detached from the carrier glass. While available polyimide film in the

market can withstand high range of heat during the display manufacturing process, no

known adhesives required to bond the polyimide film to the carrier glass have high enough

heat resistance. Also, the natural amber colour state of polyimide film prevents usage as a

substrate as it can filter the emitted light and distort natural colours. The polyimide film

using adhesives can withstand some high heat process phases such as the LTPS (only

the very top layer of a-Si glass is heated) process, the deposition stage (evaporation

chamber heat is lower than the source heat) and Laser Lift Off stage (lower temperature

laser required to delaminate the OLED layer from the carrier glass). However, it cannot

withstand the heat required during thermal dehydrogenation.

Samsung/Ube Industries: liquid polyimide breakthrough. The problem of heat

deteriorating plastic substrates was solved by Samsung/Ube Kosan inventing a solution-

based (liquid) polyimide that can withstand very high heat. The process was to slot coat

liquid polyimide on to the carrier glass. The polyimide coated a-Si glass is then inserted

into a furnace (400C to 450C) to cure, turning liquid polyimide to solid, but flexible

substrate. Then the polyimide-coated substrate starts the TFT process. A-si glass contains

hydrogen, which is released during the laser annealing process to turn a-Si into LTPS.

Prior to this step, a-Si glass must be dehydrogenated, which is done by putting it into a

high heat furnace for two hours in order to allow hydrogen to escape. Therefore, the

coated polyimide must be able to stand the heat of the dehydrogenation process. The heat

generated during the laser annealing process is less damaging to the polyimide substrate

because the base of the a-Si glass can absorb 97% of the heat generated by the laser

without damaging the cured polyimide. After crystallisation, the TFT process starts.

Key solution polyimide suppliers. For flexible displays, polyimide is the best known

substrate for making bendable OLED displays. It must also have the ability to withstand

very high temperature ranges. While a majority of the liquid polyimide used at Samsung is

being purchased directly from Ube Industries, Samsung and Ube Industries of Japan

formed a JV (50:50 $18 mn) to produce solution-based polyimide in Korea. Currently, the

temperature threshold is 490ºC. Kolon Industries in Korea is also working on high-

temperature (now reached up to 270ºC), transparent, solution polyimide, and could also

become one of the leading suppliers.

º

Polyimide is the most

suitable substrate to make

bendable OLED displays

16 February 2016


Figure 48: Performance of varnish Polyimide improving

Source: Kolon Industries

Solution polyimide lamination and curing. The lamination of PI on to the carrier glass

involves coating liquid polyimide on to the carrier glass, thermal curing and forming a

barrier coat. The thermal processing equipment suppliers for this stage are Tera Semicon

and Viatron. After the PI-coated substrate undergoes the backplane TFT layering, OLED

material deposition and encapsulation process, the finished layer of OLED display must be

delaminated from the carrier glass. After the delamination, On-Cell TSP sensor is layered

on top of the OLED display, then the polarizer layer is applied in order to bind with the

polished and tempered cover glass, which already has Deco film lamination attached.

The delamination process is complicated. During the initial lamination of PI to the carrier glass,

an a-Si layer is deposited between the PI and the carrier glass. Applying low power beam of

laser releases the hydrogen, which is in the natural state of a-Si. The heat generated from the

laser causes micro “explosions” of hydrogen, which lead to the detachment of the OLED layer

from the carrier glass. This explosion must be controlled in order to ensure that proper

delamination takes place while not damaging the OLED layer. Therefore, the right balance of

the a-Si layer and laser intensity must be struck. The LLO equipment is supplied by AP

Systems and the Glass Remover is provided by SFA Engineering.

Overcoming the rigid barriers in encapsulation

Foldable protective cover window the final Achilles' heel. To enable bendable and

flexible (foldable) OLED displays, the entire encapsulation technology, process and

materials must be changed. Rigid OLED encapsulation process is as straight forward as, if

not simpler than, the method used in making TFT-LCD displays. The key function of

encapsulation is to protect the OLED materials from the external elements such as air and

humidity to eliminate OLED material degradation. Hence, the cover must provide perfect

seal in addition to protection from scratches and breakage, while being rigid and thick

enough to support the inner OLED structure to keep shape. Therefore, existing glass

encapsulation must be changed to thin-film encapsulation.

Limitations of cover glass. Normal, rigid OLED simply uses tempered hard glass such

as the Corning Gorilla Glass. With deco film already laminated, two parts are sandwiched

together to form the finished OLED panel. However, to enable flexible OLED, rigid cover

glass cannot be used. The protective cover layer itself has to be flexible, foldable and roll-

able in the future, while also being hard enough to be scratch resistant. It must also be

transparent in order to not distort the emitting light. Particularly, the scratch resistance for

any flexible cover is the difficult problem to overcome. For example, Corning's Gorilla

Glass, which exhibits 6.5 on the Mohs scale of hardness (vs Sapphire at 9, max of

diamond at 10), has very good anti-scratch properties, but is very brittle and offers only

Encapsulation technology is

changing to enable flexible

OLED displays

16 February 2016


small curving traits. A cured polyimide may reach up to 5.5 on Mohs scale of hardness,

which is inferior to Gorilla Glass’ performance. Material science is being advanced to

develop scratch-resistant plastic that is flexible. Dupont's Kapton or SKC-Kolon’s CPI-V

polyimide are examples of transparent PI that can be used as protective cover window

layer, but their hardness is less than optimal. KAIST in Korea is currently developing hard,

but flexible plastic that could improve the hardness and anti-scratch properties. Currently,

3M – Scotch Guard Paint Protection Film Pro-series, which is being used as an anti-

scratch protective layer on auto paint has been modified to be used as a protective layer

for OLED displays. 3M's product can provide 1mm radius upon folding the flexible OLED

panel. This is the product that Samsung is currently employing for its foldable OLED

display R&D project.

Thin film encapsulation (TFE). TFE technology differs from the traditional glass barrier

method as it uses a thin film coating instead of bonding glass layer to provide the seal.

Many advantages of thin-film type sealants over glass-type sealants include: (1) lighter—

reducing the weight of the display; (2) thinner—enabling slim designs and better display

quality by removing another layer of glass; (3) unbreakable—when bonded also with

plastic protective cover window layer; (3) most importantly, flexible/foldable—a must

requirement for flexible displays. Bendable implies that the OLED display can be bended

once (Samsung GS6 Edge), or for limited times. Flexible implies limitless amounts of

bending and even folding and stretching. Therefore, the ability for the display to withstand

the stress caused by repetitive bending creates a new set of challenges during the

encapsulation process.

The flexible TFE challenge at Samsung: Vitex to Kateeva

Thin-film encapsulation (TFE) poses many challenges, mainly due to: (1) slow TACT time

as many layers of TFE material are deposited through the evaporation process; (2) related

costs of equipment investment; (3) durability—the ability to withstand micro cracks over

time. Cost issues aside, the micro cracks, which are caused by each bending could not be

addressed previously.

From Vitex beginning… Samsung has tried various methods of TFE in the past. It

narrowed its R&D effort to three technologies: (1) Vitex—vacuum polymer; (2) Atomic

Layer Deposition (ALD)/Plasma Enhanced Chemical Vapour Deposit (PECVD); (3)

Inkjet/organic, sputtering/inorganic using Kateeva/Ulvac method. Samsung has preferred

the Vitex method for the first generation TFE process. Vitex Systems' vacuum polymer

technology had been the most reliable method in the beginning for Samsung. Samsung

acquired Vitex Systems in 2010 for its process and materials, and has advanced the

technology to apply to its flexible OLED research. Through this acquisition, Samsung owns

all the IP and is the sole user of Vitex's TFE method. Vitex's method consists of forming a

micro-multilayer film by alternating organic and inorganic materials. The inorganic layer is

the protective layer (micro glass film), but susceptible to forming micro holes and cracks.

Therefore, the organic layer (monomer mixture) is added, which acts as the sealant.

Initially the Vitex method required seven organic layers, alternated by six inorganic layers

(five minutes TACT time). More layers ensure better seal, protection and bendability

without micro crack formation. But each layer requires more TACT time, and therefore is

more expensive. Samsung has reduced the number of layers to 5/4 organic/inorganic

layers, and currently the 3/2 layer combination is being tested (2 minutes TACT Time).

TF Encapsulation has many

advantages compared with

traditional glass barrier

method

16 February 2016


Figure 49: Thin Film Encapsulation—Vitex method

Source: Vitex/Samsung

Despite the reduction in the number of layers, the process of forming a layer of barrier film

using the evaporation method is time-consuming and expensive. An organic layer is

formed through non-conformal deposition (liquid-vapour-liquid) and must be heat cured

under ultraviolet light to form each seal layer. Then the process moves to inorganic layer

deposition into the PECVD chambers. The TACT time and equipment requirement ensure

this TFE method has been expensive—but also have been effective so far.

…now to Kateeva—inkjet method for organic material deposition. Samsung has been

working with Kateeva to evolve the organic layer deposition using the inkjet printing

method to reduce the organic layer of TFE to one. The inorganic layer has also been

reduced to one using the sputtering method by using Ulvac equipment. This combination

went into production six months ago. Kateeva exclusively licenses the OLED deposition

technology from MIT. Kateeva uses an inkjet printer and a micro-dryer called a T Jet

(thermal Jet) along with proprietary ink solutions. The target is also to enable application in

8.5G and larger substrates. Inkjet printing, instead of the vapour deposition process can

enable high throughput and also be advanced to adapt other layers of OLED materials,

including HIL/HTL/EIL/ETL and RGB pixel printing. So far, the application has only been

on TFE organic layer deposition. Key barriers to inkjet printing are: (1) it is not done in

vacuum, therefore OLED materials can decay rapidly; (2) the technology is still less

precise in terms of motion control; (3) printing head precision has to be advanced to

improve drop placement; and (4) material needs to be in solution/liquid form, which

currently has performance limitations. The most complex challenge is to come up with

OLED materials that do not have to be worked with under pure vacuum.

Samsung is now changing

from Vitex method to

Kateeva method for TF

encapsulation

16 February 2016


Figure 50: Kateeva method

Source: Company

LG Display: Faceseal. This is LG Display's own encapsulation technology. The layering

process seems similar to the Vitex method, but LG Display developed its own process.

Details are not widely known on the chemical composition of the materials, but it is a multi-

layered organic and in-organic film layering. LG Display currently uses Faceseal for both

flexible OLED display and lighting panels.

Figure 51: OLED Display Structure

Source: LG Display

Figure 52: Structure of OLED encapsulant (FSA Film)

Source: LG Display

LG Display has developed

its own TF encapsulation

method called Faceseal

16 February 2016


Flexible OLED panel and supply chain adds value OLED supply chain: Critical OLED equipment

Evaporation and encapsulation the key difference vs TFT-LCD.

For both LCD and OLED panels, the front-end TFT processes are predominantly the same.

Some process difference does occur depending on if panels are being prepared for

Flexible OLED (polyimide curing), or WOLED (oxide instead of LTPS). For making high

resolution mobile displays, both LCD and OLED use LTPS substrate. The similarity ends

here. The main differences in making OLED are the evaporation and encapsulation

processes. The evaporation stage is done under perfect vacuum in order to prevent OLED

material decay if exposed to air. The encapsulation stage is done under a nitrogen

environment. For OLED, light emitting materials are deposited through an evaporation

process. For rigid mobile OLED, encapsulation stage is a straight forward process, sealing

the deposited OLED material with a layer of glass. However, for flexible OLED, the

encapsulation stage is also complex given the requirement for substrate flexibility.

Because of these key differences, new opportunities are presented to the OLED specific

equipment makers.

Figure 53: OLED evaporation and encapsulation processes

Source: Tokki/Canon

Thermal deposition equipment dominated by Tokki, future opportunities for Korean

makers

Thermal deposition (evaporation) is currently used to deposit organic materials onto the

substrates. Deposition is a cluster of chambers where thermal deposition using chemical

vapour deposit (CVD) for OLED is possible from 4G to 8.5G. The source furnace, through

induction heating, vapourises (sublimation) the pellets of OLED material in each stage of

OLED material layer deposition. Fine metal masks are required only in colour pixel

Traditional RGB deposition

will change with flexible

OLED requiring many

additional steps and

equipment

OLED deposition system is

currently dominated by

Tokki. Few others are

entering the industry

16 February 2016


formation. Other OLED layers are blanket deposited. The majority of the globally installed

base of OLED deposition system is manufactured by Tokki (Canon).

Typically, one OLED line is composed of one evaporation system, which is composed of

multiple chambers per system. A typical system usually consists of 16 chambers and 3

transport systems to move the substrate. All critical organic layers are done in separate

chambers, including RGB deposition, where each colour is done separately. Only the

colours require shadow mask (FMM). Other layers are done using a blanket method.

Other Korean companies have reported some success, such as SFA and Wonik IPS, by

installing a limited number of evaporation equipment at Samsung. LGD has had limited

experience in mobile OLED. Due to the lack of capacity at Tokki, LGD has been

developing its own supply chain with YAS and Sunic Systems in Korea.

Fine metal masks (FMM)

Forming red, green and blue (RGB) pixels are done by using shadow masks in the

evaporation chamber during the RGB deposition stage. Fine metal masks (FMM) are

crucial in the evaporation process as they are used for RGB patterning. The FMM method

is effective because of its high luminous efficiency and relatively lower cost. However, this

method has its own limits when applied to larger substrates, as the mask tends to sag

because it is in a horizontal suspension state, causing uneven deposition. Masks have

advanced in both strength and in their efforts to raise OLED panel pixel density to 500 ppi .

In the past, laser induced thermal imaging (LITI) was used in order to form high density

RGB pixel. Also with changes in materials, masks have improved in both withstanding of

heat and deformation due to sag. Today, FMMs are used up to 6G OLED fabs 2 cuts of

substrates. New methods are currently being developed to substitute the FMM method for

forming colour pixels. LITI proved ineffective in terms of costs and slow TACT. Inkjet

printing method and spray nozzle methods could be future alternatives, but they cannot

reach the pixel density uniformity required for high resolution OLED panels. Also material

degradation remains an issue as these processes are not done under vacuum. FMM is not

required for manufacturing WOLED as no RGB pixel fabrication is required. WOLED

generates colour through a usage of colour filters (CF).

Requirements for cutting substrates prior to evaporation stage

Related to FMM, the substrate size in the past, prior to entering the deposition chambers,

was limited to both the FMM size and the evaporation equipment's chamber size relative

to uniform deposition. Chamber size and uniformity of OLED material evaporation was

less of an issue. Rather, because both masks and substrates had to be stationary during

the RGB process, the size of the substrate that can be processed is physically limited. For

example, Samsung' first (world's first) 4G OLED fab (A1) with initial 4G substrate size was

cut into two smaller substrates (730x460mm) prior to the evaporation stage. Its next 5.5G

substrates was cut into four pieces (650x460mm) due to the mask size limitations. Today,

Samsung's 6G A3 OLED fab can process two cut (1500x925mm) substrates per run.

LGD's 8.5G WOLED fab can process the entire 2200x2500mm substrate without cutting

into smaller pieces as WOLED does not require a FMM. The size of the substrate is

important when making larger OLED panels. TACT penalty is less when making smaller

mobile displays such as 5-inch panels on smaller substrates, but costs become

burdensome when making larger TV panels, for example, as each substrate can only yield

limited number of TV panels. Therefore FMM is the bottleneck, when it comes to making

OLED based on RGB. This is the key reason alternative deposition methods (faster

methods) are constantly being developed.

LG Display advancing its own deposition equipment supply chain

Having only limited OLED capacity in the past (4.5G flexible OLED), LGD did not have

much equipment requirement. Capacity at Tokki remains tight, given the simultaneous

OLED R&D being carried out globally. Tokki also dominates the global deposition systems,

having installed the majority of equipment (albeit mostly at one customer, Samsung).

Korean makers are also

making progress on both

deposition and

encapsulation, especially at

LG Display supply chain

16 February 2016


Concerns exist that LGD may not have adequate equipment support from Tokki for the

next several years given that capacity preparation must be done for AAPL's surge in

demand and Tokki having to support Samsung first. Also, LGD's path is slightly different

as it mostly needs larger 8G equipment for its WOLED project which do not require mask

steps. LGD still needs RGB based system for its upcoming 6G fab project, although so far

capacity requirement is small (7.5K, or one line). LG Display has been working with YAS

and Sunic Systems, two Korean suppliers, to enable both WOLED 8G and 6G RGB

systems.

Figure 54: Sunic System's OLED CVD

Source: Sunic System

16 February 2016


Key OLED supply chain companies

Figure 55: OLED supply chain companies


OLED panel makers

005930.KS SEC Rigid/Flexible small OLED Mature, entered flexible OLED stage

034220.KS LGD Rigid/Flexible small OLED, TV Growing, WOLED focus, growing mobile OLED

6740.JP JDI OLED R&D Production by 2018

2409.TW AUO R&D Rigid/Small OLED Wearable VR Auto

Unlisted CSOT R&D Rigid/Small OLED R&D, limited production

000725.CH BOE R&D Rigid/Small OLED R&D, limited production

Unlisted GoVisionox R&D Rigid/Small OLED R&D, limited production

Unlisted EverDisplay R&D Rigid/Small OLED R&D, limited production

000050.CH Tianma R&D Rigid/Small OLED R&D, limited production

732.HK Truly R&D Rigid/Small OLED R&D, limited production


OLED Equipment Suppliers:

AMAT.US AKT (Applied Materials) CVD TFT Process

AMAT.US AKT (Applied Materials) CVD Thin Film Encap - Organic

AIXA.GR Aixtron ALD Thin Film Encap

7751.JP Canon (Tokki) CVD Organic Material Evaportion System

Unlisted YAS CVD Organic Material Evaportion System

Unlisted Sunic Systems CVD Organic Material Evaportion System

6728.JP Ulvac Sputtering Thin Film Encap - Inorganic

080000.KQ SNU Precision CVD Organic Material Evaportion

036930.KQ Jusung Engineering Encapsulator Encapulation

Unlisted Kateeva (Du Pont) Ink jet deposition Thin Film - Organic

054620.KQ AP Systems Lazer Annealing Backplance - a-Si to Polysilicon

054620.KQ AP Systems Lazer Lift Off LLO for delamination

COHR.US Coherent Lazer Annealing Backplane - a-Si to Polysilicon

5631.JP Japan Steel Works Lazer Annealing Backplane - a-Si to Polysilicon

6724.JP Epson Ink jet deposition General soluable OLED material

056190.KQ SFA Engineering PECVD (TFT), Evaporator TFT, OLED Deposition

030530.KQ Wonik IPS Evaporator, Etch, TF Encap Deposition, Etch, Encapsulation

141000.KQ Viatron Thermal Curing Dehydrogenation, PI curing, IGZO annealing

123100.KQ Tera Semicon Thermal Curing LTPS and PI lamination


OLED Material Suppliers :

OLED.US Universal Display (UDC) Red/Green Dopants (Emitter) RGB pixel formation

OLED.US Universal Display (UDC) Yellow for WOLED TV White back light

DOW.US Dow Chemical Red Host RGB pixel formation

006400.KS Samung SDI Green Host RGB pixel formation

5019.JP Idemitsu Kosan Blue - Dopant and Host RGB pixel formation

5019.JP Idemitsu Kosan Blue for WOLED TV White back light

077360.KQ Duksan Hi-Metal HIL/HTL Conductive Hole layers

5019.JP/077360.KQ Idemitsu Kosan/Duksan Blue - Dopant and Host RGB pixel formation

006400.KS Samsung SDI (Novaled) EIL/ETL Emissive Electron Emission layers

4112.JP Hodogaya (SFC) Blue Host/Dopant RGB pixel formation

MRK.US Merck Broad spectrum of materials various

MMM.US 3M Protective cover film Protective Cover

6988.JP Nitto Denko Circular Polarizer Circular polarizer for contrast enhancement

4208.JP Ube Industries Polyimide liquid Flexible substrate formation

036830.KQ Soulbrain Etchants - general material TFT

Glass:

5214.JP Nippon Electric Glass Glass Substrate, cover window

5201.JP Asahi Glass Glass Substrate, cover window

GLW.US Corning Glass Substrate, cover window

Others:

108320.KQ Silicon Works DDI for OLED OLED Display Driving

HIMX.US Himax DDI for OLED OLED Display Driving

3673.TW TPK Touch sensor TSP

6456.TW GIS Touch sensor TSP

6770.JP Alps TSP Flexible TSP Source: Company data

16 February 2016


Key stock calls

OLED industry remains relatively small compared to the overall TFT-LCD industry, but

growth and penetration should accelerate, especially in the smartphone segment.

Eventually, the entire TFT-LCD industry would become an addressable market for OLED.

For smartphones, we think penetration will reach over 50% for the $400+ price segment in

a few years. More time will be required for TVs, but given production and material

technological breakthroughs are more frequent, they could rapidly cut costs. LGD has

already entered the OLED TV segment while Samsung will refocus on OLED TVs by 2018.

One key difference in OLED is that it is much more versatile compared to TFT-LCDs—the

application range is much broader to include displays for auto segment, OLED lighting and

transparent, large screens. Therefore, the TAM will go beyond displays for smartphones,

PC monitors and TVs, the traditional target market for TFT-LCDs. Up to now, majority of

the industry itself was just Samsung (created its own supply and demand) and most of the

supply chain's efforts to advance OLED was done with Samsung leading the way. As

OLED is still a developing industry with rapid technological changes to come, stock calls

are based on a pure OLED growth theme mainly due to:

■ Even for Samsung, the largest OLED producer (95% M/S), OLED products make up

only about 7% of total revenue and operating profit. Although its contribution should

grow, OLED is not a dominant product in terms of overall profit weighting.

■ For standalone LCD panel makers, initial investment in OLED will be very expensive.

This comes at a time when the TFT-LCD industry is in oversupply, with some

producers already experiencing operating losses. Large OLED capex leads to high

start-up expenses, which will pressure the profitability even further for the next few

years.

■ For equipment makers, OLED is also a small addition to their main TFT-LCD or

semiconductor equipment, as in the case of Canon or AMAT. Most of the small

equipment producers are simply too small, with concentration risk to one special

product or customer.

■ Similar to equipment makers, OLED material supply chain faces a similar dilemma.

For example, polyimide would be only a limited portion of overall Ube Industries' or

Kolon Industry's sales. Broader OLED material sales would represent only a very

small portion of total revenues in the case of LG Display, Dow, 3M, among others.

The table below lists major companies and products that will participate in OLED industry's

rapid growth.

Figure 56: Valuation table

Company Ticker Rating Currency

TP

(local curr.)

Price

(local curr.)

Mkt cap

(local curr.)

2015E

P/E (x)

2016E

P/E (x)

2015E EPS

growth (%)

2016E EPS

growth (%)

2015E

P/B (x)

2016E

P/B (x)

2015E

ROE (%)

2016E

ROE (%)

Samsung Electronics 005930.KS O KRW 1,550,000 1,154,000 167,410 8.8 7.4 -17% 19% 0.9 0.8 10.0% 10.6%

LG Display 034220.KS N KRW 24,000 21,500 7,693 7.7 20.2 12% -62% 0.6 0.6 8.1% 3.3%

Seoul Semiconductor 046890.KQ N KRW 16,600 13,400 781 28.1 17.0 4326% 65% 1.2 1.1 4.2% 6.5%

Japan Display 6740.T N JPY 350 218 131 -10.7 32.4 NM NM 0.3 0.3 -3.2% 2.1%

Applied Material AMAT.OQ O USD 23 16 18 13.5 12.5 11% 8% 2.6 2.5 19.1% 102.1%

AUO 2409.TW N TWD 10 8 79 16.1 77.9 -72% -79% 0.4 0.4 2.7% 0.6%

Himax HIMX.OQ O USD 10 8 1 54.0 24.2 -62% 123% 3.0 2.9 5.6% 11.9%

Radiant 6176.TW N TWD 70 63 29 8.8 7.2 -11% 22% 1.2 1.1 13.1% 15.0%

Note: Priced as of 15 February 2016. O= Outperform, N = Neutral

Source: Thomson Reuters, Credit Suisse estimates

16 February 2016


Samsung Electronics: Dominant and clear leader in

OLED

Samsung Electronics (005930.KS, W1,154,000, Outperform, TP W1,550,000, Keon

Han)

■ Samsung will likely be the top OLED supplier for AAPL. Despite the conflicts in the

past, Samsung remains the most critical component supplier to AAPL which includes

the A/Ps, LP DDR4 DRAM, NAND flash, etc. Also, Samsung's IP related to OLED and

tight control of its supply chain can guarantee high volumes required by AAPL.

■ Samsung has strict control over its supply chain including wealth of IP portfolio around

production methods, equipment advancements and organic material science. Various

methods of controlling the supply chain included full acquisition of Vitex Systems and

Novaled for both material and production techniques. This strategy has led to

substantially higher OLED profitability as compared with LCDs. OLED returns are

much higher as older fabs are becoming fully depreciated.

■ Samsung is re-engaging in OLED TV development using WOLED approach (RGBW)

with IGZO backplane. Its RGB small molecule technique in the past was not

commercially economical. In the future, OLED TV will most likely be made using inkjet

printing technology in order to catch up to the cost efficiency of making TFT-LCD TVs

today. Currently, it is the industry leader in inkjet printing for the organic layer thin-film

encapsulation layer. This method is being applied to general organic layer deposition

including use on TVs.

■ The stock remains very undervalued, in our view, despite balanced earnings,

abundant FCF and balance sheet strength. We maintain our target price at

W1,550,000 which only targets a 1.15x P/B—the low-end of the historical trading

range from the previous 1.25x P/B target.

LG Display: Next in line to become a major OLED

supplier

LG Display (034220.KS, W21,500, Neutral, TP W24,000, Keon Han)

■ LG Display is the largest supplier to AAPL for its existing LTPS TFT-LCD displays. LG

Display is also the major supplier for flexible 1.5-inch OLED displays for AAPL Watch,

therefore already has experience in supplying RGB based flexible OLED. It should

become the second largest supplier to AAPL by 2017 or 2018.

■ LG Display has been lagging Samsung in mobile OLED. With abundant LTPS

capacity, LGD will likely have the ability to ramp-up mobile OLEDs, including bendable

OLEDs quickly. We think OLED TV focus is of foremost importance to LGD, but it is

investing in flexible OLED for both smartphone and automobile use.

■ OLED capex is unlikely to surpass W2.5 tn in 2016 as some of the existing 8.5G LCD

facilities will be retrofit to become OLED facilities, despite the aggressive expansion

plan. OLED's related allocation will go toward adding 8K in the E-4 line to bring 8G

OLED capacity to 34K substrates per month, which will be expanded to 60K by 2017.

P10 investment will also start.

■ We maintain our NEUTRAL rating. Most of OLED's benefits will not be visible until

2018, but due to the initial OLED transition and investment, the high level of expenses

will continue to pressure profit, which is already contracting due to the majority of the

business being exposed to the TFT-LCD industry. Cumulative loss on OLED transition

is already $1 bn and will continue to mount in 2016 before seeing a turnaround based

on improved scale and lower raw material cost and yield improvements. We maintain

16 February 2016


our target price at W24,000 on 0.7x P/B target. We see potential improvement once

the OLED related losses start abating.

Seoul Semiconductor: Back light prospects dimming

Seoul Semi (046890.KQ, W13,400, Neutral, TP W16,600, Keon Han)

■ One of the major achievements for Seoul Semi is that it has become a tier-one

supplier to AAPL for LED back modules. Supplying iPhone 6S was short-lived, with

Seoul experiencing the largest order cuts on slowing component demand from AAPL

as iPhone 6S production volume slows down. When AAPL begins to use OLED as its

main display, LED backlights are no longer a requirement. Smartphone related LED

sales represent a major portion of Seoul's profits.

■ Similarly, OLED TVs are a threat. LGD is committed to WOLED TVs, and Samsung

has announced a re-engagement in RGBW OLED for TVs, targeting mass production

of OLED based TVs. Seoul's TV related LED sales are not profitable and normally

report losses on an annual basis. However, LED sales related to LCD TV backlight is

20% of the company's revenues. This is also a long-term threat.

■ The auto business is expecting a YoY decline on lack of customer wins with major

auto component distributors. Qualification takes a long time and admittedly, the

company has emphasised that it would rather focus on higher margin headlamps than

lower margin, higher volume interior lights. Also, despite experiencing high YoY

growth rates, the general lighting mix remains weak, as more profitable, high power

lamp sales have yet to make impact on profit.

■ The momentum of 3Q15 rebound did not carry through to 4Q15. Large earnings jump

driven by AAPL was a one-quarter event and overall revenue growth remained in single

digits. Structurally, a large portion of Seoul's business is undergoing a product

obsolescence threat by OLED. We maintain our NEUTRAL rating but had trimmed

2016/17E earnings by 8%/23%, and had cut target price to W16,600 from W16,800

recently (2 Feb 2016).

Japan Display: Likely supplier to AAPL

JDI (6740.JP, ¥218, Neutral, TP ¥350, Mika Nishimura)

■ JDI has already started a prototype OLED and it released prototype products such as

notebook type, bangle type with touch function, and projection type in January 2016.

However, the company's current target for mass production is in 2018. The details of

mass production such as place or starting volume is not fixed yet. JDI is aware of the

current follower status compared to Korean companies but the company is apparently

aiming to achieve differentiation by leveraging LTPS technology in backplanes (low-

power technology named Advanced LTPS). About its Apple business, we expect JDI

can garner some share if it succeeds in mass production considering its strong

relationship with Apple.

■ We think uncertainties will remain for some time, including risks of declining market

share in Apple business by future transition to OLED displays. Also, we expect it to

continue having price pressure due to greater competition between LTPS and OLED,

especially in China's mobile phone market. Although we see potential benefits from

JDI's cost-cutting drive and restructuring plan, these might be offset by negatives

including fixed cost increase (dep cost increase for new fab (Hakusan) and R&D cost

increase related to OLED) and pricing pressure owing to greater competition. We

intend to check the details of restructuring and its effects which will be officially

released by late March. Our rating on JDI is Neutral and we base our ¥350 TP on

FY3/16E BPS of ¥669 and P/B of 0.5x.

16 February 2016


Applied Material: OLED supports growth in display

Applied Materials Inc. (AMAT, $16.06, Outperform, TP $22.50, Farhan Ahmad)

■ Applied Materials is world's largest supplier of capital equipment for semiconductor

and flat panel displays. Display revenues accounted for ~$1 bn of AMAT's revenues

(~10% of total) in 2015. We believe that OLED transition will be positive for the

company as it doubles the revenue opportunity (on per unit area basis) for AMAT. We

expect that OLED transition will allow AMAT revenues to grow to $1.5 bn/year by

2018-19 (vs $1 bn in 2015).

■ AMAT is the leading supplier for CVD and PVD Films. Within the equipment market for

Flat Panel Display, AMAT is the largest supplier of CVD equipment and also has

significant presence in PVD. OLED transition increases the opportunity for AMAT's

CVD and PVD tools as more advanced LTPS or Oxide technology is needed for

backplane; this potentially can double the number of layers relative to amorphous

silicon displays. The company also recently introduced a tool for encapsulation for

OLED, and expects to increase its market share within the encapsulation market,

which can potentially add $200 mn per year in revenues. Note that display companies

save on LED cost when they transition to OLED—this can allow for higher portion of

BOM costs to be allocated to display, which can in turn support higher equipment

spending.

■ Stronger presence at Chinese display companies. AMAT faces higher competition at

the Korean Display manufacturers due to higher competition from local Korean

companies. We expect that Chinese display companies will become large spenders

for OLED related equipment. Our checks also suggest that AAPL is heavily investing

on developing Display technology internally, and is evaluating Chinese partners for

supplying Display panels using AAPL's technology on a contract manufacturing

basis—if AAPL's plan is successful it can further increase the portion of spending from

China.

■ AMAT shares have underperformed relative to the SOX, and are now trading at a 15%

discount relative to SOX on NTM P/E, versus historical average premium of 7% over

the past five years. While Display represents only 10% of overall company revenues,

growth from OLED will differentiate AMAT from other semiconductor equipment

suppliers, and support multiple expansion. We continue to believe that AMAT is well

poised to benefit near term from strong C2Q revenues growth, and over longer term,

to benefit from China Semiconductor investments. Our target price of $22.50

represents 15x of CY16 of $1.43 plus net cash.

AUO: Focusing on niche applications for OLED

AUO (2409.TW, NT$8.3, Neutral, TP NT$10.2, Jerry Su)

■ AUO has been converting its LTPS capacity into OLED since 2010 and currently has

~8,000 substrates/month for Gen 3.5 fab in Linko Taiwan and ~15,000

substrates/month capacity for Gen 4.5 fab in Singapore. It is also building a new Gen

6 LTPS fab in Kunshan China with 20,000-30,000 substrates/month capacity but it

currently does not have plans to covert that fab into AMOLED.

■ AUO has been shipping AMOLED smartphone panels to Chinese whitebox makers for

the past two years, as well as round-shape AMOLED panels for wearable devices.

However, it has decided to focus on niche applications for AMOLED such as

wearable, VR, and automotive applications, given its limited capacity and potential

commoditisation of AMOLED for smartphone panels. It is also developing flexible

AMOLED technology and will ramp up the volume when the market (and its

technology) is ready.

16 February 2016


■ We believe the impact on potential adoption of AMOLED for smartphone will be limited

for AUO given mobile only accounts for 6-9% of its revenue in the past few years. We

also believe it will need more time for OLED to penetrate into TV, hence the earnings

impact and stock driver for AUO in the next few years should still be related to the

supply-demand of TFT-LCD, especially for TVs. We rate AUO NEUTRAL with an

unchanged target price of NT$10.2, based on 0.55x forward P/B. We would revisit the

stock when panel pricing trend reverses.

Himax: Beneficiary of Samsung’s outsourcing

Himax (HIMX.OQ, US$7.90, OUTPERFORM, TP US$9.8, Jerry Su)

■ Himax has been Samsung’s major DDI outsourcing partner for TFT smartphone

panels in the past few years with ~20% of revenue contribution in 2H13-1H14. It has

suffered from weaker demand and Samsung’s strategy to shift away from TFT display

for smartphone in the past few quarters. However, its OLED DDI has received

qualification by Samsung and the shipment will start to ramp from late 1Q16. We

estimate sales contribution from Samsung could double to 10-15% in the next one

year.

■ Besides Samsung, Himax has also been working with Chinese OLED makers such as

GVO, EverDisplay, BOE, etc. Its experience in working with Samsung on OLED

should help it to secure the lion's share initially, since its driver IC peers are lagging on

OLED DDI development. Moreover, Himax has less exposure to Taiwanese panel

makers, hence the potential market share shift to Korean/Chinese panel makers on

smartphone panels should be viewed as a positive for Himax.

■ Himax is also one of the leading solution providers for wearable VR and AR displays.

Its LCOS display has been selected by Google, MSFT, and other global brands for

AR. It is now working with several leading VR companies by providing SoC solution

(OLED DDI, PMIC, T-Con, and ASIC) for OLED wearable displays. We estimate

Himax’s dollar content for these VR devices could range from US$10-20.

■ We rate Himax with an OUTPERFORM rating with a target price of US$9.8, based on

our DCF-model, implying 21x 2017E P/E. We believe Himax should outperform panel

makers in 2016 on OLED outsourcing and AR take-off, as well as continuing resolution

migration by panel makers amid TFT down-cycle for better profitability.

Radiant: iPhone story fading away

Radiant (6176.TW, NT$63.0, Neutral, TP NT$70, Jerry Su)

■ Radiant entered the iPhone supply chain from iPhone 6S and was the main source in

3Q15 as its Japanese peer faced some supply constraints on production issues.

However, its stock almost halved in the last three months on iPhone order cut, price

competition, and the story of iPhone shifting to OLED, although with iPhone it might

not happen until 2018.

■ We believe Radiant will be impacted the most among backlight supply chain if

AMOLED becomes the future display technology for high-end smartphone as ~30% of

Radiant’s sales is from iPhone, not to mention it does not have another smartphone

customer. Nevertheless, its revenue/earnings in 1H16 might have a decent YoY

growth given lower 1H15 base as it does not have iPhone business in 1H15.

■ We retain our NEUTRAL rating on Radiant with a target price of NT$70, based on 8x

12M P/E. The share price might rebound on the new 9.7” iPad ramp, decent YoY

comparison, and attractive dividend yield, but we believe it will be capped on OLED

overhang.

16 February 2016


Appendix Origin of OLED

The beginning

The origin of OLED technology dates back to the early 1950s. Andre Bernanose,

researchers at the Université de Nancy in France, produced electroluminescence (light

emission) by applying a high-voltage (thousands of volts) to organic materials such as

acridine orange dye and quinacrine deposited on thin films of cellophane. Dow Chemical

Co. followed in the 1960s by developing ac-driven electroluminescent cells using doped

anthracene. Other experiments followed using variations of organic materials/

semiconductors, where when high voltage of current passed through, electrons were being

absorbed in the regions of material devoid of charged particles (holes) and creating

excitons. Excitons released excess energy in the form of photons. Due to the requirements

of running thousands of volts to create light on rudimentary organic semiconductor

materials, there was no practical application.

Modern OLED

The invention of modern day OLED is credited to Kodak Company. The company was the

first to discover the diode OLED in the late 1970s and evolved little until the Kodak

scientists, Ching Tang and Steven Val Slyke, sandwiched two layers or organic

semiconductors—one layer to inject electrons, the other layer to inject holes—in order to

create light. Based on this process and material improvement, they created OLED capable

of producing light using very low voltage, which became the base of modern day OLED.

Continuous improvement in voltage and colour gamut enabled applications for displays

where OLED colour gamut is broader than the existing TFT-LCD displays. LG Group

acquired all of the OLED related patents from Kodak.

Figure 57: OLED evolution

Cathode

Cathode

Cathode Cathode

Cathode

Doped EML

Doped EML

Doped EML

EML

EML

Anode

Anode Anode

Anode

Anode

HTL HTL

HTL

HTL

HIL

HBL

ETL

ETL

N-doped EIL

P-doped HIL

1965 1985 1988

HBL: Hole Blocking layer Exciton confinement

Monolayer

2-layers

Multilayers

PIN OLED

Source: K. Leo, U. Dresden 2002

16 February 2016


How OLED works: light emitting process

Structure of small molecule OLED

The main principle behind OLED technology is electroluminescence (light emission). The

purpose of both process and material improvement is to generate brighter light and a

thinner device that uses the least amount of electricity. There are two main structures of

OLED. Traditionally, OLEDs use small organic molecules deposited on glass to produce

light. The second type of OLED is Polymer LEDs (PLED), which use large plastic polymer

molecules printed onto plastic to emit light. Conversely, PLED can absorb light and

convert it to electricity, as in the case of polymer solar cells. PLEDs can become a much

more economical solution for producing larger OLED displays once more stable

compounds and reliable manufacturing processes are found. The traditional small

molecule OLED is used currently for commercial applications, mainly displays made by

Samsung Electronics.

While early OLEDs only had one layer of organic material between two electrodes (anode

& cathode, today's OLED are bi-layer, composed of emissive layer and conductive layer

sandwiched between two electrodes. Over time, inner layers have been added and

evolved in order to improve the efficiency and stability of the device.

Main layers of OLED are:

■ Substrate: Glass or plastic that serves as a frame to hold all the OLED materials

together. Substrates are poly-silicon (LTPS), in the case of mobile devices, oxide

based (IGZO) for OLED TVs, or sometimes polyimide plastic when de-laminated from

the glass substrate in order to make flexible/bendable OLEDs

■ Anode is transparent and is generally made from indium tin oxide (ITO). It is the

positive charge that is mainly responsible for losing electrons (adds “holes”) when

current is applied.

■ Conducting Layer: Composition of Hole Injection Layer (HIL) and Hole Transport

Layer (HTL) which controls the injection of holes and transport holes.

■ Emissive Layer: Composition of Electron Injection Layer (EIL) and Electron Transport

Layer (ETL), responsible for transporting electrons from cathode. This is the point

where charges are recombined to generate light. Light emitting polymers such as

(Red, Green, Blue) are part of Emissive Layer.

■ Cathode is the negative charge that injects electrons to emissive layer when electric

current is applied.

When electric voltage is applied across the anode and cathode, electricity begins to flow.

Cathode receives electrons and anode loses electrons (or receives holes). The added

electrons from the cathode make the emissive layer negatively charged, while the

conductive layer becomes positively charged. As the more active positive hole jumps from

the conductive layer to the emissive layer, it meets an electron, where the recombination

process results in release of energy in the form of photons. The process continues as long

as the current continues to flow. Colours are created by either adding colour filters (as in

the case of LG Displays WOLED or putting red, green and blue (RGB) to create each pixel

that can be turned on or off independently (Samsung mobile RGB OLED).

16 February 2016


Figure 58: OLED structure Figure 59: Flexible OLED structure

Electroluminescence

LiF

AI AI

Electron transport layer

Hole blocking layer

Emission layer

Hole transport layer

Hole injection layer

ITO ITO ITO

Glass

Thin Film

Polyimide (Substrate)

LTPS

Emitting Layer

Polarizer

TSP Base Film

Touch Sensor

Glass or Plastic (Cover Window)

Panel

TSP

Source: IHS Source: IHS

Figure 60: OLED light emitting process

Source: HowStuffWorks

16 February 2016


Upcoming OLED Corporate Day Display technology is shifting to another curve. OLED is again on the rise, this time toward

TVs. Korean OLED panel-makers will continue to dominate this fast-growing display

segment. Given that investor interest is high toward OLEDs, Credit Suisse is hosting a

Korea Display Supply Chain Corporate Day on 17 February 2016 in Seoul. Nine

companies that are an important part of the OLED supply chain will be attending. The

following pages introduce the attending companies on basic facts, financial and product

information.

At the Corporate Day, we will also host a Keynote Luncheon by Mr. Jun Souk, Professor

from Hanyang University. Formerly, he was an executive vice president at Samsung

Electronics, head of Display R&D Center from January 1996 to January 2012. His

expertise is Display Technologies, TFT-LCD, OLED and Flexible OLED process and

related materials, such as glass, liquid crystal, Touch screen and TFT backplane.

Figure 61: Confirmed corporate list:

Company Name Ticker

Duksan HiMetal 077360 KQ

ICD 040910 KQ

Jusung Engineering 036930 KQ

Park Systems 140860.KQ

Silicon Works 108320.KQ

SKC Kolon PI 178920 KQ

SNU Precision 080000 KQ

Soulbrain 036830 KQ

Viatron Technologies 141000 KQ

Note: Please note that all the above companies are Not Covered by Credit Suisse. Credit Suisse Equity

Research does not provide ongoing coverage of these companies or offer an investment rating or

investment view on the equity security of these companies or related products.

Source: Credit Suisse

16 February 2016


Duksan Hi-Metal (NC, 077360.KQ) Dominant HIL/HTL OLEM material supplier

Duksan Hi-Metal was formed in 1999 and listed in 2005. The company was divided into

Duksan Hi-Metal and Duksan Neolux in 2014 (Duksan Neolux separately listed in 2015).

Historically, the company mainly produced solder ball (SB), which is an essential part of

high-tech packaging (BGA, CSP, Flip Chip). Solder Balls transmit electric signal

connecting chip and board. Duksan Hi-Metal has dominated the domestic solder ball

market with 70% of market share and has a stable market share with 37% globally.

Duksan Neolux mainly develops and manufactures high-efficiency, low-voltage organic

materials. It dominates both HIL and HTL organic OLED layers at Samsung with 90%

market share. Despite Samsung's internal efforts to develop the product through Samsung

SDI, Duksan remains dominant with competitive pricing. The company is currently working

on Blue fluorescent colour layer, which is considered the holy grail of OLED materials

Figure 62: Revenue and OPM trend Figure 63: Organisation chart

0%

2%

4%

6%

8%

10%

12%

14%

16%

11

12

13

14

15

16

1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15

(W bn)

Revenue (lhs) OPM

71%

35%

33% 70%

Subsidiary

Company

Subsidiary

CompanyListed(KQ 213420)


Figure 64: Global market share (2015) Figure 65: Domestic market share (2015)

DSHM37%

C143%

Others20%

DSHM70%

Others30%


16 February 2016


Growth catalysts according to Duksan

■ Duksan Neolux' specialisation in OLED materials. As Duksan Hi-Metal is divided

into two separate companies, Duksan Neolux focuses mainly on OLED materials.

Growing demand for mid/low end smartphones using OLED display panels will

increase revenue and improve profitability of both Duksan Hi-Metal and Neolux. From

the beginning of OLED, Duksan dominated the hole injection and transport layers for

OLED. It is a critical material supplier to Samsung and continues to work on

developing OLED colours with joint R&D with industry leaders.

■ Expand market share in solder ball market by client diversification. Duksan Hi-

Metal has Samsung Electronics and SK Hynix as its main clients and covers 70% of

the total domestic market. The company targets to expand its client base in the

overseas market.

Figure 66: Duksan Hi-Metal K-IFRS earnings

Year 2013 2014 2015E 2016E 2017E

Revenue (W bn) 69 58 59 68 77

EBITDA (W bn) 25 16 13 24 24

OP (W bn) 17 6 7 12 13

NP (Wbn) 31 41 7 12 13

EPS (W) 1,218 1,659 295 515 568

P/E(x) 7.6 5.6 31.4 18.0 16.3

EV/EBITDA (x) 10.6 7.2 14.8 7.8 7.1

Net debt (W bn) -10 -49 -15 -27 -40

Mkt cap (W bn) 272 161 211 211 211

EV (W bn) 263 112 196 183 171

BVPS (W) 7,334 7,978 8,673 9,189 9,755

P/B (x) 1.3 1.2 1.1 1.0 1.0

ROE (%) 14% 23% 4% 6% 6%

Market cap (W bn) 211

2015 Avg. daily T/O (Wbn) 1.8 Source: Company data, IBES consensus estimates

Figure 67: Shareholding structure (2015) Figure 68: Duksan Hi-Metal share price vs KOSDAQ index

Duksan Holdings

35%

CEO19%

Others46%

300

400

500

600

700

800

900

0

5,000

10,000

15,000

20,000

25,000

30,000

Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16

Duksan HiMetal share price (lhs)

KOSDAQ Index

KRW

Source: Company data Source: Datastream

16 February 2016


ICD (NC, 040910.KQ) Specialising in high density plasma etchers

ICD was established in 2000. It has three core products: Equipment (IT), Part (NT), and

Health care (BT). In Equipment business, it mainly produces core equipment of pre step,

plasma, AMOLED, LTPS-LCD, and TFT-LCD. For OLED, ICD specialises in dry etchers

and plasma ashers. Based on the MEMS technology, the company manufactures parts of

plasma coating, and surface treatment. In addition, ICD also targets to penetrate the

healthcare market with plasma medicine and bio marker. OLED related equipment

represents an opportunity for high growth, especially in markets outside of Korea.

Figure 69: Revenue by category (2015) Figure 70: Revenue by product (2015)

AMOLED97%

Others3%

HDP-Etcher59%

Evaporator16%

Plasma Asher3%

Others22%


Figure 71: Global customers Figure 72: Revenue and OPM trend

-250%

-200%

-150%

-100%

-50%

0%

50%

0

10

20

30

40

50

60

70

80

90

2012 2013 2014 2015

(W bn)

Revenue (lhs) OPM


Growth catalysts according to ICD

■ Expansion of AMOLED/flexible OLED related equipment. ICD has a long history of

AMOLED equipment business. As it will strengthen the AMOLED and Flexible Display

equipment business, ICD will be a beneficiary of OLED market expansion. Its core

strength is in the dry etcher and asher for TFT-LCD with strong sale to Taiwanese

companies. It has evolved into an OLED etcher and asher company, with dominant

share in HDP etcher and a near monopoly in plasma asher for OLED.

16 February 2016


■ Overseas penetration and new business. The company has supplied 6G equipment

to domestic clients. Based on the positive references, ICD will expand to the Chinese

market as well. It will also enter the healthcare market with plasma medicine and bio

marker. ICD targets revenue of W100 bn in 2016E and W300 bn in 2018E.

Figure 73: ICD K-IFRS earnings

Year 2011 2012 2013 2014

Revenue (W bn) 143 81 81 8

EBITDA (W bn) 35 15 11 -12

OP (W bn) 33 13 9 -15

NP (Wbn) 26 10 7 -11

EPS (W) 4,115 621 459 -699

P/E(x) 1.7 11.5 15.6 n.m

EV/EBITDA (x) 0.6 6.8 7.8 n.m

Net debt (W bn) -33 -12 -26 -26

Mkt cap (W bn) 56 111 115 118

EV (W bn) 23 100 89 92

BVPS (W) 11,568 6,289 6,589 5,710

P/B (x) 0.6 1.1 1.1 1.3

ROE (%) 51% 10% 7% -11%


2015 Avg. daily T/O (Wbn) 1.1 Source: Company data

Figure 74: Shareholder structure (3Q15) Figure 75: ICD share price vs KOSDAQ index

Seung Ho Lee (CEO)

26%

Others74%

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400

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0

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4,000

6,000

8,000

10,000

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18,000


ICD share price (lhs) KOSDAQ IndexKRW


16 February 2016


Jusung Engineering (NC, 036930.KQ) Critical part of LG Display's OLED strategy

Jusung Engineering was founded in 1995. The company specialises in display, solar cell,

lighting and semiconductor equipment. It has a diversified client base with a total of 78

clients in 16 countries, such as SK Hynix, LG Display, Winbond, and BOE. Jusung

Engineering's largest revenue source is semiconductors, which mainly benefits from

memory semiconductor technology migration. The company has a good relationship with

LG Display on the PE CVD side and has been benefitting from LGD's expansion of the

China fab in Guangzhou recently.

Figure 76: Revenue breakdown by product (2015) Figure 77: Revenue breakdown by region (2015)

Solar Cell8%

FPD24%

SEMI68%

US3%

Europe1%

China20%

Taiwan1%

Korea75%


Figure 78: Competitive technology Figure 79: Revenue and OPM trend

-120%

-100%

-80%

-60%

-40%

-20%

0%

20%

0

20

40

60

80

100

120

140

160

180

200

2012 2013 2014 2015

(W bn)

Revenue OPM


Growth catalyst according to Jusung

■ Major clients investment in OLED. Jusung will supply thin-film encapsulation

equipment, which is an essential part to protect OLED cells. As its major clients, such

as LG Display, expand their investment in OLED facilities, Jusung Engineering would

stand to benefit from high growth of earnings. In addition, the company is also further

diversifying its client base in both domestic and overseas markets.

16 February 2016


■ Mainly, Jusung's CVD systems are exposed to the thin film transistor process, thin film

OLED encapsulation, plastic OLED barriers and touch panel sensors. Its close

relationship with LG Display is a big advantage as the latter has aggressive investment

plans to build out OLED capacity for the next three years.

Figure 80: Jusung Engineering K-IFRS earnings

Year 2013 2014 2015E 2016E 2017E

Revenue (W bn) 154 142 175 233 249

EBITDA (W bn) -14 1 28 50 52

OP (W bn) 1 10 18 40 43

NP (Wbn) -36 -21 11 31 34

EPS (W) -851 -465 229 633 708

P/E(x) n.m n.m 30.7 11.1 10.0

EV/EBITDA (x) n.m 539.7 15.7 8.3 7.4

Net debt (W bn) 182 129 96 73 42

Mkt cap (W bn) 291 340 340 340 340

EV (W bn) 473 470 436 413 382

BVPS (W) 2,381 2,218 2,471 3,108 3,825

P/B (x) 3.0 3.2 2.9 2.3 1.8

ROE (%) -32% -21% 10% 23% 21%



Figure 81: Shareholders (2015) Figure 82: Jusung Eng. share price vs KOSDAQ index

CEO and related parties28%

Others72%

300

400

500

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900

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

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Jusung share price (lhs) KOSDAQ IndexKRW


16 February 2016


Park Systems (NC, 140860.KQ) Market leader in Atomic Force Microscopy

Park Systems was established in 1997 and listed in December 2015. It mainly

manufactures Atomic Force Microscopes. Atomic Force Microscopes utilises a fine tip to

scan the sample surface which results in much higher accurate measurements. The AFM

market will likely grow the fastest at 10% 2012-2018E CAGR. Its domestic competitors

include Hitachi High Technology, NT-MDT, and JPK Instruments. With a dominant position

in disk storage industry, Park Systems is recognised as the technology leader in the

emerging semiconductor market for AFM.

Figure 83: Global market expansion


Figure 84: Revenue & OPM trend Figure 85: Atomic Force Microscopy (AFM)

-5%

0%

5%

10%

15%

20%

25%

0

5

10

15

20

25

30

35

40

2014 2015E 2016E 2017E

(W bn)

Revenue (lhs) OPM


Growth catalysts according to Park Systems

■ Expansion in global network and product line. Park Systems has established new

subsidiaries in China, India and Europe, which could provide local support for industrial

customers. The expansion of global network will have positive impact on expanding

partnerships as well. In addition, the company continues to strengthen its R&D and

expand the product lines. As the dominant market leader, Park Systems will continue

to enjoy its earnings growth.

16 February 2016


■ AFM is a measuring tool that can provide three-dimensional topographic data and can

measure various properties such as mechanical, electrical and thermal. This is

important as fundamental measuring techniques such as electron microscopy and

optical microscopy do not meet the next generation electronic device manufacturing

process. AFM techniques can be used in such instances

■ For OLED, AFM techniques can be used to characterise the impedence and charge

transport/emission characteristics of individually addressed micro and nano scale

organic light-emitting diodes (OLEDs). AFEM offers real-time nanometer-scale spatial

resolution mapping of simultaneously acquired current, topography, and light emission

data and is capable of analysing device-to-device response variations across a broad

range of length scales and to provide unique quantification of intra-array device

variations.

Figure 86: Park Systems K-IFRS earnings

Year 2011 2012 2013 2014

Revenue (W bn) 17.9 20.9 16.3 15.3

EBITDA (W bn) 2.1 1.5 (0.7) 0.3

OP (W bn) 1.2 1.1 (1.2) (0.1)

NP (Wbn) 0.8 0.3 (1.6) (0.7)

EPS (W) 167 65 -334 -148

P/E(x) 62.9 161.5 n.m n.m

EV/EBITDA (x) 24.6 33.9 n.m 164.1

Net debt (W bn) 2 2 2 3

Mkt cap (W bn) 50 50 51 51

EV (W bn) 51 52 53 54

BVPS (W) 1,751 1,800 1,408 1,257

P/B (x) 6.0 5.8 7.5 8.4

ROE (%) 10% 4% -21% -11%


2015 Avg. daily T/O (Wbn) 5.9 Source: Company data

Figure 87: Shareholders (2015) Figure 88: Park Systems share price vs KOSDAQ index

CEO and related parties47%Others

53%

300

400

500

600

700

800

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

17-Dec 31-Dec 14-Jan 28-Jan 11-Feb

ParkSystems share price (lhs)

KOSDAQ Index

KRW


16 February 2016


Silicon Works (NC, 108320.KQ) Leading the OLED DDI transition

Silicon Works was established in 1999 and was acquired by LG Corp in 2014. LG became

the largest shareholder which owns 33.1% of total shares as of 3Q15. The company

mainly produces DDIs large and mobile displays. The company continues to increase the

number of patents and invests in R&D to develop better products. Silicon Works' global

market share is around 15–20% in terms of Driver IC. Its competitors are Novatec, Himax,

Synaptics among others. SW should benefit as LCD DDI shifts toward OLED DDIs which

have different characteristics.

Figure 89: Product mix (2015) Figure 90: Revenue breakdown by application (2015)

COG D-IC37%

COF D-IC43%

T-Con11%

PMIC6%

LED D-IC1%

Others2%

TV40%

TabletPC13%

NBPC21%

MNT16%

New Application

10%


Figure 91: Client breakdown (2015) Figure 92: Revenue & OPM trend

LGD80%

LGE10%

SDC5%

Royaly income

3%

Others2%

0%

2%

4%

6%

8%

10%

12%

0

50

100

150

200

250

300

350

400

450

500

2011 2012 2013 2014 3Q15 YTD

(W bn)

Revenue (lhs) OPM


Growth catalysts according to Silicon Works

■ Beneficiary of OLED market. The company has a relatively good position in the

OLED market and will be one of the key beneficiaries. OLED IC is still T-con based,

but the signal is different from LCD. LCD is grey scale requiring just one signal. OLED

is much more complicated because the brightness requirement and back light concept

is different. For example, to control RGG, it requires three signals and even on

WOLED the concept does not change. Chips related to OLED are price 2x to 3x higher

ASP than LCD Driver ICs In 2015, 5% of its revenue is made from OLED related

products and it targets to generate 7-8% of revenue (all TV use) in 2016E. In addition,

it is planning to supply to Apple from 2018 for OLED display.

16 February 2016


■ TV and Mobile Solution business. In the past, the growth was mainly from iPad and

MacBook, but now it has shifted to TV and mobile markets. As Silicon Works has

increased its TV solution business, it is expected to have further growth in the near

term.

■ Client diversification: The company will diversify its client base to China and Japan

as most of its revenue comes from the LG group. The company will target BOE,

CSOT, and JDI in the future.

Figure 93: Silicon Works K-IFRS earnings

Year 2013 2014 2015E 2016E 2017E

Revenue (W bn) 410 391 548 725 857

EBITDA (W bn) 39 38 70 76 93

OP (W bn) 34 36 57 66 85

NP (Wbn) 33 30 51 59 74

EPS (W) 2,108 1,906 3,114 3,647 4,566

P/E(x) 12.9 14.3 8.7 7.5 6.0

EV/EBITDA (x) 7.0 6.0 3.1 2.4 1.5

Net debt (W bn) -172 -215 -229 -258 -301

Mkt cap (W bn) 443 443 443 443 443

EV (W bn) 271 229 214 185 142

BVPS (W) 16,971 18,376 19,975 22,621 25,986

P/B (x) 1.6 1.5 1.4 1.2 1.0

ROE (%) 12% 10% 16% 17% 19%



Figure 94: Shareholder structure (2015) Figure 95: Silicon Works share price vs KOSDAQ index

LG Corp33%

In-house directors

4%

Others63%

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Silicon Works share price (lhs)

KOSDAQ Index

KRW


16 February 2016


SKC Kolon PI (NC, 040910.KQ) Polyimide future in OLED

SKC Kolon (SKCKPI) was formed in 2008 by combining polyimide (PI) divisions of SK

Corp and Kolon Industries. The company IPO was in December 2014. Today, SKC and

Kolon own 27% of the company each while employees own 3.3%. The rest is free float.

Of the company's revenue 95% is derived from PI product sales. Main applications include

FPCB, thermal radiation and general industry applications. About 53% revenue is derived

from the flexible-PCB use, 25% from radiant-heat sheet and the remaining general

industrial use. New applications include semiconductor products, camera modules and

also EV battery covers. Today, the company is the PI market leader and controls 22% of

global market share. Major competitors include Kaneka, Taimide, and Dupont.

Figure 96: Revenue breakdown by usage (2015) Figure 97: Revenue by region (2015)

FPCB57%

Radiant-heat Sheet

24%

General Industry

19%

Domestic47%

Overseas53%


Figure 98: Market share breakdown (2015) Figure 99: Revenue and OPM trend

SKPI22%

K co.20%

T co.10%

D co.8%

Others40%

0%

5%

10%

15%

20%

25%

30%

35%

105

110

115

120

125

130

135

140

2012 2013 2014 2015

(W bn)

Revenue (lhs) OPM


Growth catalysts according to SKC Kolon PI

■ OLED attraction in the future. The future attraction of polyimide will be to

manufacture flexible OLED. Ability to fold or roll-up displays can be achieved by using

PI as the main substrate. PI can be applied as the thin-film encapsulation (cover layer)

of OLED displays. Varnish PI can be cured on to a carrier glass, which can later be

delaminated to become the flexible OLED substrate.

16 February 2016


■ Capacity and entry barrier. SKCKPI currently runs five production lines capable of

producing 2,100 tons per year—one of the largest in the world. The company believes

the main entry barriers to the industry included chemical formula knowledge, long

duration of reaching product stability and qualification, which could take up to five

years.

Figure 100: SKPI K-IFRS earnings

Year 2013 2014 2015 2016E 2017E

Revenue (W bn) 134 137 136 157 177

EBITDA (W bn) 46 40 44 50 61

OP (W bn) 39 37 29 36 46

NP (Wbn) 26 22 17 28 36

EPS (W) 6,993 660 578 936 1,242

P/E(x) 1.3 14.2 16.2 10.0 7.6

EV/EBITDA (x) 0.3 6.9 6.1 5.6 4.1

Net debt (W bn) -21 -2 -6 4 -26

Mkt cap (W bn) 34 275 275 275 275

EV (W bn) 13 273 269 279 250

BVPS (W) 57,735 6,595 7,299 7,972 8,886

P/B (x) 0.2 1.4 1.3 1.2 1.1

ROE (%) 12% 11% 11% 12% 15%



Figure 101: Shareholder structure (2015) Figure 102: SKPI share price vs KOSDAQ index

SKC27%

Kolon Industries

27%

Others46%

300

400

500

600

700

800

900

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16

SKPI share price (lhs) Series2KRW


16 February 2016


SNU Precision (NC, 080000.KQ) Growth depends on China market

SNU, established in 1998, produces LCD inspection, OLED deposition equipment. It has

portfolios that can support both hardware and software for OLED deposition equipment.

The company's major clients are display companies, such as Samsung, BOE and

GoVisonox. In 2010, Samsung invested W30 bn in SNU for OLED encapsulation

equipment. As of 3Q15, Samsung Display owns 5.26% of the company.

SNU Precision's main business is LCD inspection equipment, which accounts for 94% of

its total revenue and OLED deposition accounts for remaining 6%. In LCD inspection

equipment business, PSIS (Photo Spacer Inspection System) generates W40 bn to W50

bn revenue annually in average. The company started to manufacture 5.5G OLED

deposition equipment starting in 2011 with some sales to BOE of China. It is currently

working on TFE (thin-film encapsulation) equipment commercialisation.

Figure 103: Product mix Figure 104: Backlog

-

10.0

20.0

30.0

40.0

50.0

60.0

2011 2012 2013 2014 2015

(W bn)

Inspection system Deposition system


Figure 105: Revenue breakdown (2015) Figure 106: Revenue and OPM trend

Inspection System

86%

Deposition System

14%

-40%

-30%

-20%

-10%

0%

10%

20%

0

20

40

60

80

100

120

2011 2012 2013 2014 2015

(W bn)

Revenue (lhs) OPM


Growth catalyst according to SNU Precision

■ Potential involvement in the OLED deposition for GoVisionox' coming line.

GoVisionox plans to start phase 2, building two more lines at 5.5G, in Kunshan. As

SNU Precision has already started a Phase 1 contract with GoVisionox back in 2013,

16 February 2016


the company expects high possibility of getting the orders. Based on previous

experience and positive reference, the company is confident of further expansion in

China, possibly with Tianma as the next target.

Figure 107: SNU Precision K-IFRS earnings

Year 2013 2014 2015 2016E 2017E

Revenue (W bn) 101 83 70 81 84

EBITDA (W bn) 15 -4 9 12 13

OP (W bn) 12 -10 3 6 7

NP (Wbn) 8 -13 2 4 5

EPS (W) 397 -637 85 160 212

P/E(x) 10.2 n.m 47.8 25.3 19.1

EV/EBITDA (x) 7.3 n.m 14.1 10.2 9.4

Net debt (W bn) 25 36 26 21 17

Mkt cap (W bn) 83 83 101 101 101

EV (W bn) 107 119 127 122 118

BVPS (W) 3,969 3,338 3,154 3,338 3,585

P/B (x) 1.0 1.2 1.3 1.2 1.1

ROE (%) 10% -17% 0% 6% 7%



Figure 108: Shareholder structure (2015) Figure 109: SNU Precision share price vs KOSDAQ index

CEO21.7%

SDC5.3% Foreign

investors0.9%

Treasury stock0.5%

Others71.6%

300

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800

900

0

2,000

4,000

6,000

8,000

10,000

12,000


SNU Precision share price (lhs)

KOSDAQ Index

KRW


16 February 2016


Soulbrain (NC, 036830.KQ) Metal etchants are also required in OLED production

Soulbrain, formed in 1986, has manufactured and supplied high technology industry core

materials. It specialises in semiconductor, display, lithium battery materials business.

Among them, semiconductor contributes the most in terms of revenue (50%) followed by

display materials (39%). The company covers almost 90% of the semiconductor market

(Etching/ Cleaning) and 30% in display materials market. Soulbrain's main clients are

Samsung Electronics, Samsung Display, SK Hynix, LG Display and LG Electronics.

Figure 110: Revenue breakdown (2015) Figure 111: Revenue and OPM trend

Display39%

Semiconductor50%

Lithium battery

6%

EM & Others

5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

100

200

300

400

500

600

700

2012 2013 2014 3Q15

(W bn)

Revenue (lhs) OPM


Figure 112: Products and customers by division


Growth catalysts according to Soulbrain

■ Increasing Etchant products by Samsung Electronics' new 3D NAND factory. By

utilising Samsung Electronics' new 3D NAND factory in China, Soulbrain is expected to

have increased shipment of etchant products, which will improve profitability.

■ Expansion of OLED panel shipments. As more clients are expanding the adoption of

OLED panels, Soulbrain will experience more demand, especially in rigid panels in

2016. In addition, its thin-glass business will also have stable growth.

16 February 2016


Figure 113: Soulbrain K-IFRS earnings

Year 2013 2014 2015E 2016E 2017E

Revenue (W bn) 635 539 613 672 729

EBITDA (W bn) 115 94 135 145 154

OP (W bn) 88 48 94 100 109

NP (Wbn) 62 38 77 82 90

EPS (W) 3,885 2,364 4,637 4,979 5,416

P/E(x) 9.1 14.9 7.6 7.1 6.5

EV/EBITDA (x) 5.4 6.4 4.2 3.5 2.8

Net debt (W bn) 48 13 -23 -78 -146

Mkt cap (W bn) 572 581 585 585 585

EV (W bn) 620 594 562 506 439

BVPS (W) 23,973 25,770 29,984 34,475 39,427

P/B (x) 1.5 1.4 1.2 1.0 0.9

ROE (%) 17% 9% 17% 16% 15%



Figure 114: Shareholder structure (2015) Figure 115: Soulbrain share price vs KOSDAQ index

CEO and related parties45%Others

55%

300

400

500

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700

800

900

0

10,000

20,000

30,000

40,000

50,000

60,000


Soulbrain share price (lhs)

KOSDAQ Index

KRW


16 February 2016


Viatron (NC, 141000.KQ) Growth driven by aggressive investment in OLED

Viatron was formed in 2001. It specialises in manufacturing heat treatment equipment for

emerging displays and the products encompassing from 2G to 8G. The company has

competitive technologies in coating and thermal process. It is the world's only supplier of

both in-line and batch type equipment. Viatron has a diversified client base in both

domestic and overseas markets.

Figure 116: Key customers by products


Figure 117: Revenue breakdown by categories (2015) Figure 118: Revenue breakdown by clients (2015)

LTPS-AMOLED

14%

LTPS-LCD63%

Oxide-TFT16%

Flexible PIC7%

SDC15%

LGD55%

BOE17%

Century13%


16 February 2016


Growth catalyst according to Viatron

■ Domestic and overseas clients' expansion in OLED investments. More domestic

display companies have increased their investments in OLED from 4Q15, and also will

expand OLED TV panels as well. In addition, Chinese clients are investing

aggressively in order to penetrate the market from 2016. As these major clients are

expanding their investment, Viatron will strengthen its market position and improve its

profitability according to the company.

■ Viatron is mainly involved in the front end of the OLED process, which is similar to

LCD production. All small OLED requires LTPS backplane. Viatron is exposed to rapid

thermal annealing to convert a-Si into polysilicon, dehydrogenation of a-Si glass and

the new growth area will be liquid polyimide curing to form flexible substrates for

flexible OLED era. The equipment can be used also for annealing IGZO, which will

become the main backplane for OLED TVs.

Figure 119: Viatron K-IFRS earnings

Year 2013 2014 2015E 2016E 2017E

Revenue (W bn) 33 33 45 94 117

EBITDA (W bn) 5 4 11 25 33

OP (W bn) 4 1 8 24 32

NP (Wbn) 4 2 7 20 26

EPS (W) 374 188 645 1,849 2,387

P/E(x) 58.6 116.5 34.0 11.8 9.2

EV/EBITDA (x) 43.8 53.9 19.1 8.4 6.0

Net debt (W bn) 0 -27 -28 -26 -37

Mkt cap (W bn) 231 237 238 238 238

EV (W bn) 231 210 210 212 201

BVPS (W) 5,350 5,363 6,050 7,857 10,060

P/B (x) 4.1 4.1 3.6 2.8 2.2

ROE (%) 7% 3% 13% 26% 26%



Figure 120: Shareholder structure (2015) Figure 121: Viatron share price vs KOSDAQ index

CEO & Major shareholder

22%

Foreigner22%

Others56%

300

400

500

600

700

800

900

0

5,000

10,000

15,000

20,000

25,000

30,000


Viatron share price (lhs) KOSDAQ IndexKRW


16 February 2016


Companies Mentioned (Price as of 15-Feb-2016)

AU Optronics (2409.TW, NT$8.26, NEUTRAL, TP NT$10.2) Apple Inc (AAPL.OQ, $93.99, OUTPERFORM, TP $140.0) Applied Materials Inc. (AMAT.OQ, $16.06, OUTPERFORM, TP $22.5) Chipbond (6147.TWO, NT$49.5) Coretronic Corp (5371.TWO, NT$26.6) DUKSAN HIMETAL (077360.KQ, W9,370) Google (GOOAV.OQ, $568.67) HTC Corp (2498.TW, NT$74.9) Himax Technologies, Inc. (HIMX.OQ, $7.9, OUTPERFORM[V], TP $9.8) ICD (040910.KQ, W7,320) JUSUNG ENGIN (036930.KQ, W7,450) Japan Display (6740.T, ¥218, NEUTRAL[V], TP ¥350) LG Display Co Ltd. (034220.KS, W21,500, NEUTRAL, TP W24,000) LG Electronics Inc (066570.KS, W57,700, NEUTRAL, TP W49,000) Merck KGaA (MRCG.DE, €75.07) Microsoft Corporation (MSFT.OQ, $50.5) NOVATEK (NVTKq.L, $80.0) Park Systems (140860.KQ, W10,750) Radiant Opto-Electronics (6176.TW, NT$62.7, NEUTRAL, TP NT$70.0) SFA (056190.KQ, W52,800) SKC Kolon PI (178920.KQ, W9,300) SNU Precision (080000.KQ, W3,805) Samsung Electronics (005930.KS, W1,154,000, OUTPERFORM, TP W1,550,000) Samsung SDI (006400.KS, W93,300, NEUTRAL, TP W91,000) Seoul Semiconductor Co Ltd (046890.KQ, W13,400, NEUTRAL[V], TP W16,600) Silicon Works (108320.KQ, W28,050) Sony (6758.T, ¥2,447) Soulbrain (036830.KQ, W36,050) Sumitomo Chemical (4005.T, ¥480) Tianma Microelectronics Co. Ltd (000050.SZ, Rmb16.46) Truly International (0732.HK, HK$1.69) Viatron Technolo (141000.KQ, W22,250) Xiaomi (Unlisted)

Disclosure Appendix

Important Global Disclosures

Keon Han, Jerry Su, Derrick Yang, Mika Nishimura and Farhan Ahmad each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for AU Optronics (2409.TW)

2409.TW Closing Price Target Price

Date (NT$) (NT$) Rating

18-Feb-13 12.05 16.30 O

09-Apr-13 12.80 17.00

10-Oct-13 10.15 13.50

08-Apr-14 11.60 14.40

30-Apr-14 11.40 15.10

10-Jul-14 13.20 15.50

31-Jul-14 13.65 16.00

16-Oct-14 11.80 12.30 N

15-Jan-15 18.15 16.10

29-Jan-15 18.45 15.80

13-Apr-15 15.35 15.70

29-Jun-15 13.25 15.00

28-Jul-15 11.45 10.80

31-Aug-15 10.50 10.70

25-Jan-16 8.87 10.20

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

N EU T RA L

16 February 2016


3-Year Price and Rating History for Apple Inc (AAPL.OQ)

AAPL.OQ Closing Price Target Price

Date (US$) (US$) Rating

01-Mar-13 61.50 85.71 O

24-Apr-13 57.95 75.00

11-Sep-13 66.83 75.00 N

28-Jan-14 72.42 71.43

24-Apr-14 81.11 80.00

03-Jun-14 91.08 85.71

24-Jun-14 90.28 96.00

14-Oct-14 98.75 110.00

13-Jan-15 110.22 130.00 O

05-Feb-15 119.94 140.00

26-Mar-15 124.24 145.00

28-Oct-15 119.27 140.00


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for Applied Materials Inc. (AMAT.OQ)

AMAT.OQ Closing Price Target Price


19-Mar-13 12.96 12.50 N

17-May-13 14.96 13.00

26-Jul-13 16.13 *

16-Aug-13 15.62 15.00 N

15-Nov-13 17.52 17.00

16-May-14 20.21 21.00

15-Aug-14 22.47 22.00

13-Nov-14 22.62 26.00 O

20-Jan-15 23.63 30.00 *

27-Apr-15 19.97 25.00

15-May-15 20.20 24.50

14-Aug-15 16.64 24.00

10-Nov-15 16.76 22.00

12-Nov-15 16.53 22.50


N EU T RA L

O U T PERFO RM

16 February 2016


3-Year Price and Rating History for Himax Technologies, Inc. (HIMX.OQ)

HIMX.OQ Closing Price Target Price


02-May-13 5.95 R

12-Mar-14 15.65 19.00 O *

15-Apr-14 9.32 17.00

09-May-14 6.68 13.00

24-Jul-14 5.97 8.50

08-Aug-14 7.40 9.00

15-Sep-14 8.46 11.00

27-Oct-14 7.71 12.00

09-Feb-15 7.58 8.40 N

16-Apr-15 6.31 6.00

27-Apr-15 6.16 5.90

15-May-15 6.14 5.70

29-Jun-15 7.90 8.40

10-Aug-15 6.56 8.00

28-Aug-15 6.88 8.80 O

30-Oct-15 5.92 8.20

13-Nov-15 6.39 8.40

04-Dec-15 7.76 8.80

19-Jan-16 6.97 9.00

05-Feb-16 8.08 9.80


REST RICT ED

O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for Japan Display (6740.T)

6740.T Closing Price Target Price

Date (¥) (¥) Rating

17-Apr-14 791 870 N *

25-Sep-14 583 480 U

27-Feb-15 489 NR

03-Sep-15 379 410 N *

12-Jan-16 289 350


N EU T RA L

U N D ERPERFO RM

N O T RA T ED

16 February 2016


3-Year Price and Rating History for LG Display Co Ltd. (034220.KS)

034220.KS Closing Price Target Price

Date (W) (W) Rating

22-Apr-13 30,450 45,000 O

18-Jul-13 26,950 36,000

18-Oct-13 24,950 25,000 N

23-Jan-14 26,850 26,000

23-Apr-14 29,000 26,000 *

15-Oct-14 32,250 26,000 U

04-Dec-14 34,500 27,000

28-Jan-15 36,050 29,000

18-Jun-15 26,450 27,000 N

23-Jul-15 22,950 26,000

31-Aug-15 23,050 25,800

22-Oct-15 23,550 25,600

06-Jan-16 23,100 25,300

27-Jan-16 22,800 24,000


O U T PERFO RM

N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for LG Electronics Inc (066570.KS)


Date (W) (W) Rating

24-Apr-13 90,000 82,000 N

24-Oct-13 70,100 77,000

27-Jan-14 68,900 75,000

29-Apr-14 71,700 83,000 *

24-Jul-14 77,000 87,000

29-Oct-14 67,800 78,000

29-Jan-15 62,600 75,000

29-Apr-15 61,200 68,000

02-Jun-15 55,400 62,000

09-Jul-15 45,750 53,500

29-Jul-15 43,800 49,000

25-Aug-15 40,850 45,500

30-Oct-15 49,100 46,200

26-Jan-16 54,800 49,000


N EU T RA L

16 February 2016


3-Year Price and Rating History for Radiant Opto-Electronics (6176.TW)

6176.TW Closing Price Target Price

Date (NT$) (NT$) Rating

22-Mar-13 116.50 119.42 N

05-Jul-13 101.94 111.65

09-Aug-13 88.40 112.00 O

16-Sep-13 109.00 126.00

13-Jan-14 125.00 150.00

25-Apr-14 124.00 155.00

14-Jul-14 136.00 162.00

06-Oct-14 124.50 157.00

06-Nov-14 105.50 142.00

21-Nov-14 101.00 138.00

15-Jan-15 101.00 90.00 N

18-Mar-15 98.60 84.00 U

29-Apr-15 94.50 83.00

29-Jun-15 115.00 95.00

30-Jul-15 87.10 80.00 N

10-Sep-15 98.80 125.00 O

29-Oct-15 100.50 140.00

10-Nov-15 93.80 105.00 N

21-Jan-16 59.90 70.00


N EU T RA L

O U T PERFO RM

U N D ERPERFO RM

3-Year Price and Rating History for Samsung Electronics (005930.KS)


Date (W) (W) Rating

03-Apr-13 1,521,000 1,900,000 O

27-Jan-14 1,292,000 1,760,000

07-Jul-14 1,292,000 1,740,000

08-Jul-14 1,295,000 1,720,000

28-Aug-14 1,242,000 1,700,000

07-Oct-14 1,162,000 1,680,000

03-Sep-15 1,122,000 1,630,000

29-Oct-15 1,325,000 1,785,000

11-Jan-16 1,152,000 1,690,000

28-Jan-16 1,145,000 1,550,000


O U T PERFO RM

3-Year Price and Rating History for Samsung SDI (006400.KS)


Date (W) (W) Rating

28-Apr-13 124,000 142,000 N

28-Apr-15 126,000 132,000

30-Jul-15 94,600 105,000

31-Aug-15 84,500 88,000

02-Nov-15 111,000 91,000


N EU T RA L

16 February 2016


3-Year Price and Rating History for Seoul Semiconductor Co Ltd (046890.KQ)

046890.KQ Closing Price Target Price

Date (W) (W) Rating

11-Sep-13 38,100 53,000 O *

30-Jul-14 34,000 37,000 N

03-Nov-14 16,200 21,000

11-Feb-15 17,400 13,000 U

27-Jul-15 16,000 12,800

26-Oct-15 16,350 15,400 N

24-Nov-15 18,800 16,800

02-Feb-16 15,650 16,600

* Asterisk signifies initiation or assumption of coverage. O U T PERFO RM

N EU T RA L

U N D ERPERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American a nd non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12 -month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less tha n or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

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*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 56% (34% banking clients)

Neutral/Hold* 31% (29% banking clients)

Underperform/Sell* 12% (42% banking clients)

Restricted 1%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock rati ngs of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

16 February 2016


Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

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Target Price and Rating Valuation Methodology and Risks: (12 months) for AU Optronics (2409.TW)

Method: Our target price of NT$10.20 for AU Optronics is based on 0.55x 12 months forward price to book value, which is the trough cycle multiple for the stock from 2010-2014 and is at 20% discount to LGD. We use trough cycle multiple and 12-month forward book value to reflect more accurately the company's earnings potential. We stay NEUTRAL as we think falling panel prices will continue to weigh on its margins.

Risk: Risks to our AU Optronics target price of NT$10.20 and Neutral rating include the following industry risks: (1) Better/weaker-than-expected TV, IT and handset demand; (2) market share gain/loss to competitors; (3) significant ASP increase/decline; (4) greater/lower losses from solar operation.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Apple Inc (AAPL.OQ)

Method: We derive our target price of $140 based on applying 13x our CY2017 EPS estimate, with fully taxed net cash of ~$13 per share added. We believe this PE multiple is fair (also in-line to the IT hardware peer group in the US) given our view around Apple's high retention rate, complete eco-system and a growing installed base. As such, we maintain our Outperform rating.

Risk: Main risks to our TP of $140 and Outperform rating include i) slowing smartphone market in unit terms. ii) competitive pressures from other handset manufacturers who are relying on Android operating system, iii) failure to launch innovative products and iv) failure to maintain key media distribution for iTunes and v) regulatory risk. We believe all or any of these potential events may impact our TP and/or rating.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Applied Materials Inc. (AMAT.OQ)

Method: Our Target price of $22.50 is based on 15x of CY16 earnings of $1.37 plus post buyback cash adjusted for taxes. We are using 15x multiple based on historical average for the group. We rate AMAT as Outperform, as we would note that (i) AMAT is relatively cheap on CY16E PE. AMAT is trading at 12.5x of CY16E EPS (ex-cash), and at 14.9x of NTM EPS versus SOX at 16.0x and a historical NTM P/E of 15.0x. (ii) Announced $3bn buyback (~15% of Market Cap at current share price) will be more weighted in the first year (we expect

>$2bn within first year) – we estimate share count reduction will drive CY16 EPS growth of $0.12, from CY15. The company has potential

to return additional cash by increasing leverage on the balance sheet (we estimate up to additional $4bn). (iii) OpEx reduction in CY16E should add $0.03 to annual EPS.

Risk: There can be risk to AMAT's achievement of our $22.50 target price and our rating if the semicap cycle were to weaken materially due to disappointments in electronics end-demand, or if execution issues caused lower peak earnings than we expected. AMAT TEL merger and approval and rulings related to that are also a material factor. On the other hand, there can be upside risk if market multiples expand, or end-demand strengthens more than we expect causing a higher peak earnings potential.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Himax Technologies, Inc. (HIMX.OQ)

Method: Our target price of US$9.80 for Himax Technologies is derived from our DCF (discounted cash flow) model, implying 22x 2017 P/E (price-to-earnings). We assume a neutral beta with a risk-free rate of 3.5%, equity risk premium of 8.0%, and terminal growth rate of 3.0%. We rate Himax OUTPERFORM as we think Himax is a key beneficiary of China TFT ramp and OLED take-off.

Risk: Risks that could impede achievement of our US$9.80 target price and OUTPERFORM rating for Himax Technologies include: (1) Better/weaker-than-expected demand for smartphone and tablet PCs. (2) Better/slower-than-expected 4K2K penetration. (3) Intensifying pricing competition and failure to lower its manufacturing costs for DDI products. (4) Faster/slower ramp up of non-driver business.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Japan Display (6740.T)

Method: We base our ¥350 target price for Japan Display on FY3/16E BPS of ¥669 and P/B of 0.5x (recent average for Korean/Taiwanese competitors LG Display, AUO Optronics, and Innolux). Given uncertainty over how JDI will deal with increasing competition in small/mid-size LCDs, future adoption of OLEDs, the reorganization of Sharp's LCD business, and other issues, we doubt stock market expectations

16 February 2016


will improve anytime soon, and we expect the company's valuations to remain low. We base our NEUTRAL rating on our expectations for total returns and comparisons with our coverage universe over the next 12 months.

Risk: Upside risks for our ¥350 target price and NEUTRAL rating for Japan Display include faster-than-expected progress in cost-cutting due to accelerated restructuring measures, as well as announcements of such measures. Downside risks include reduced share of iPhone-related business (on which JDI is heavily dependent), a slump in new-iPhone sales, and yen appreciation.

Target Price and Rating Valuation Methodology and Risks: (12 months) for LG Display Co Ltd. (034220.KS)

Method: Our W24,000 target price for LG Display is based on 0.7x P/B (price-to-book). 0.7x is the last 5 FY's average historical trough multiple. We believe the stock will continue to struggle on the lack of near-term catalysts and concerns of China's TFT-LCD capacity increase. Recent positive stock movement on possible OLED adoption by Apple is overdone. Maintain NEUTRAL as next 12 months' earnings are likely to stay depressed.

Risk: Primary downside risks in reaching our target price of W24,000 and our NEUTRAL rating for LG Display may stem from: (1) any unforeseen supply growth in the market, (2) any delay in the planned execution of the company's cost reduction measures, and (3) any unforeseen changes in end demand of TVs. Primary upside risks include: (1) lower and disciplined overall supply, (2) better than expected cost controls and (3) significant panel ASP increase.

Target Price and Rating Valuation Methodology and Risks: (12 months) for LG Electronics Inc (066570.KS)

Method: Our W49,000 target price for LG Electronics is based on the target P/B of 0.6x FY16E book which represents a 40% discount to average of 1x since 2010 on lower earnings and ROE profile. While recent stock price has moved up from trough on positive vehicle component

orders, meaningful contribution is a few years away on lack of scale. LGE’s handset business is also on the downturn with losses

incurred suffering from competition. As a result, we maintain our NEUTRAL rating.

Risk: Potential risks in reaching our current target price of W49,000 for LG Electronics stem from: (1) the overall macro environment given the consumer-oriented product nature of the company, (2) any unforeseen changes in the supply-demand dynamics of key products (especially in handsets and display products), and (3) foreign exchange changes given its export-driven earnings nature.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Radiant Opto-Electronics (6176.TW)

Method: Our target price of NT$70 for Radiant is based on 8x 2016 P/E, the trough multiple since 2014. We rate Radiant NEUTRAL as we think weaker iPhone shipment and normalised order allocation in 2016 should cap its share price performance in the next six months.

Risk: Risks to our target price of NT$70 for Radiant include: (1) Market share gain/loss to Korean counterparts or TFT makers in-house BLM capacity for iPad; (2) Better/weaker-than-expected tablet PC and NB demand; and (3) Better/lower-than-expected for the smartphone BLM shipments.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Samsung Electronics (005930.KS)

Method: Our 12-month target price of W1,550,000 for Samsung Electronics is based on a price-to-book (P/B) target multiple of 1.15x, which is the mid-cycle P/B multiple for the past ten years. Our TP of W1,550,000 implies an undemanding 1.15x 2016 P/B on ROE of 13%. The dividend yield should rise for the next few years, driving P/E multiple expansion as Samsung's yield approaches the global tech average of about 2.5%. Maintain OUTPERFORM.

Risk: Risks that may impede achievement of our 12-month target price of W1,550,000 and Outperform for Samsung Electronics include: (1) Heavy earnings dependence on the strength of its smartphone products and its margin sustainability given the intensifying competition within the smartphone industry; (2) A meaningful downgrade in the PC and handset industry outlook; and (3) Samsung’s System LSI and OLED businesses which are ultimately tied to its handset business, and to a certain extent the growth of its key customers' businesses.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Samsung SDI (006400.KS)

Method: Our 12-month target price of W91,000 for Samsung SDI is based on 0.5x FY16 forecast book. 0.5x is the trough multiple as SDI's core businesses' earnings are expected to face slower recovery. While xEV demand will no doubt continue to grow, SDI needs more time to recuperate on its heavy investments. Maintain NEUTRAL.

Risk: Our 12-month target price of W91,000 for Samsung SDI is based on 0.5x FY16 forecast book. 0.5x is the trough multiple as SDI's core businesses' earnings are expected to face slower recovery. While xEV demand will no doubt continue to grow, SDI needs more time to recuperate on its heavy investments. Recent disposal of non-core chemical business is positive in the long-run but has eliminated most of the company's cash earnings as it's battery business continues to stay red. As a result, we maintain our NEUTRAL rating.

16 February 2016


Target Price and Rating Valuation Methodology and Risks: (12 months) for Seoul Semiconductor Co Ltd (046890.KQ)

Method: Our target price of W16,600 for Seoul Semiconductor (SSC) is based on 1.4x 2016E P/B (price-to-book). Our current multiple is below the average of 1-year forward P/B from 2010 on lower growth prospects. The company still needs to lower inventory levels while high-end lighting product penetration has been slower than expected. We therefore rate the stock NEUTRAL.

Risk: Upside risks to our target price of W16,600 and NEUTRAL rating for Seoul Semiconductor include: (1) Higher than expected cost reduction, (2) faster than expected general lighting margin recovery and (3) slow down in ASP decline. Downside risks include: (1) Slower than expected LED backlit LCD TV penetration, (2) aggressive promotion of LED backlit LCD TVs by TV makers, and (3) slower implementation of plans to phase out the use of incandescent light bulbs by governments.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (005930.KS, 006400.KS, 034220.KS, 046890.KQ, 066570.KS, AAPL.OQ, HIMX.OQ, AMAT.OQ, MSFT.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (006400.KS, AAPL.OQ, AMAT.OQ, MSFT.OQ) within the past 12 months.

Credit Suisse has managed or co-managed a public offering of securities for the subject company (AAPL.OQ, AMAT.OQ) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (006400.KS, AAPL.OQ, AMAT.OQ, MSFT.OQ) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (005930.KS, 006400.KS, 034220.KS, 046890.KQ, 066570.KS, 6740.T, AAPL.OQ, HIMX.OQ, AMAT.OQ, MSFT.OQ) within the next 3 months.

As of the date of this report, Credit Suisse makes a market in the following subject companies (AAPL.OQ, AMAT.OQ, MSFT.OQ).

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (2409.TW, 6176.TW).

Credit Suisse has a material conflict of interest with the subject company (005930.KS) . Credit Suisse is acting as exclusive financial advisor to Samsung Electronics and Samsung Fine Chemicals in relation to the proposed sale of their ownership stakes in the semiconductor wafer joint ventures with SunEdison, SMP Ltd and MEMC Korea Company Ltd, to SunEdison.

Credit Suisse has a material conflict of interest with the subject company (AMAT.OQ) . A member of the analyst's team received compensation from the subject company (AMAT) within the past 12 months.

As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (AAPL.OQ). A Credit Suisse analyst involved in the preparation of this report has a long position in the common stock of AAPL.

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

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Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

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As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

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Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports

16 February 2016


written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse Securities (Japan) Limited ......................................................................................................................................... Mika Nishimura

Credit Suisse Securities (Europe) Limited, Seoul Branch ...................................................................................................................... Keon Han

Credit Suisse AG, Taipei Securities Branch ........................................................................................................................ Jerry Su ; Derrick Yang

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

16 February 2016


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