display

Display OLED spending undeterred by coronavirus

Panel makers’ OLED spending: Nothing has changed

We expect flexible OLED spending by global panel makers to expand from 75,000

sheets/month in 2019 to 120,000 sheets/month in 2020 and 135,000 sheets/month in

2021. As a percentage of global display capex, we forecast LCD to decrease from 61%

in 2019 to 43% in 2020 and 29% in 2021, and OLED to increase from 39% in 2019 to

57% in 2020 and 71% in 2021.

This capex shift from LCD to OLED reflects the direction of demand. The expected

CAGR over the next three years is just 0.8% for LCD TV shipments vs. 20% for

small/mid-sized OLED panel shipments. For foldable devices, the three-year CAGR is

projected at 396%. If foldable laptops, such as Intel’s (INTC US/CP: US$51.66)

Horseshoe Bend, become commercialized, OLED panel demand forecasts could be

revised higher.

Chinese panel makers’ flexible OLED spending undeterred by coronavirus

Chinese panel suppliers, including BOE (000725 CH/CP: RMB4.62), CSOT (0334 HK/CP:

HK$0.485), and Visionox (002387 CH/CP: RMB12.45), are restarting their flexible OLED

spending, which was temporarily suspended in the wake of the COVID-19 outbreak.

Bidding for equipment resumed for BOE’s B12 line (Chongqing) on February 13th and

for CSOT’s T4 line and Visionox’s V3 line on February 6th (based on China Bidding). For

its V2 line (Gu'an), Visionox commenced spending (15,000 sheets/month) on March 4th,

starting with order placements for exposure and sputtering equipment. The monthly

number of new tenders—42 in January, 39 in February, and 37 in March (as of March

9th)—has been recovering. Overall, Chinese panel makers are continuing their

investments regardless of the COVID-19 outbreak.

For Samsung Display’s A5 capex, direction is more important than timing; Cost reduction is critical

We believe Samsung Display will begin capex for its A5 fab (small/mid-sized OLED) this

year in order to meet demand in 2022. Assuming global foldable device unit sales in

2022 at 44mn and Samsung Display’s market share at 80%, we estimate the company

needs capacity of around 45,000 sheets/month.

But what’s more important than the timing or size of the A5 capex is its direction. The

key will be reducing costs. We expect the A5 fab to come online in 2022, which is when

the useful life of a competitor’s initial line is set to end. Depreciation expenses will

gradually start to end in 2022 at LG Display (LGD; 034220 KS/Buy/TP: W20,000/CP:

W12,050) and in 2024 at Chinese companies (including BOE). In order for the A5 fab to

gain competitiveness over competing fabs, cost reduction through process

improvement will be critical.

To make A5 more cost competitive than existing fabs, we believe Samsung Display will

1) increase spending on Y-OCTA (front-end process), 2) introduce inkjet OCR lamination

(back-end process), and 3) consider investments in Gen 7 or later.

Korean OLED equipment/material stocks look reasonable in terms of both earnings and multiples

Korean OLED equipment stocks are trading at a 44% discount to global peers on a P/E

basis. This is mainly because their 2020 earnings estimates have been revised up

ahead of those of global peers due to the Korean stock market’s unique “order

disclosure” requirement. Given Chinese companies’ recent order placement schedule,

we think it is highly likely global OLED equipment makers’ earnings estimates will also

be revised up after 1Q20. If so, we think global investors will begin to take a greater

interest in Korean OLED equipment names.

Overweight (Maintain)

Industry Report

March 12, 2020

Mirae Asset Daewoo Co., Ltd. [Display/Batteries]

Chuljoong Kim +822-3774-1464 [email protected]

Display

Mirae Asset Daewoo Research

March 12, 2020

Panel makers’ OLED spending: Nothing has changed

Rapid capex shift (LCD �� OLED) is ongoing globally

We expect flexible OLED spending by global panel makers to expand from 75,000

sheets/month in 2019 to 120,000 sheets/month in 2020 and 135,000 sheets/month in 2021.

Amid the sluggish LCD market, Chinese panel makers are expected to gradually scale back

their LCD investments. As a percentage of global display capex, we forecast LCD to decrease

from 61% in 2019 to 43% in 2020 and 29% in 2021, and OLED to increase from 39% in 2019

to 57% in 2020 and 71% in 2021.

This capex shift from LCD to OLED reflects the direction of demand. The expected CAGR

over the next three years is just 0.8% for LCD TV shipments vs. 20% for small/mid-sized

OLED panel shipments. For foldable devices, the three-year CAGR is projected at 396%. If

foldable laptops, such as Intel’s Horseshoe Bend, become commercialized, OLED panel

demand forecasts could be revised higher.

Figure 1. Global panel makers’ capex breakdown: LCD vs. OLED

Source: DSCC, Mirae Asset Daewoo Research

Figure 2. Global panel makers’ capex mix by application: TV/other vs. mobile


0

20

40

60

80

100

0

5

10

15

20

25

2016 2017 2018 2019 2020F 2021F 2022F

(%)(US$bn)

LCD capex (L) OLED capex (L) OLED proportion (R) LCD proportion (R)

0

20

40

60

80

100

0

5

10

15

20

25

2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F

(%)(US$bn)

TV/other capex (L) Mobile capex (L) Mobile proportion (R) TV/other proportion (R)

Display

Mirae Asset Daewoo Research 3

March 12, 2020

Figure 3. LCD TV shipment outlook Figure 4. Small/mid-sized OLED panel shipment outlook

Source: Omdia, Mirae Asset Daewoo Research


Figure 5. Foldable device market outlook Figure 6. Foldable display market outlook

Source: DSCC, Mirae Asset Daewoo Research Source: DSCC, Mirae Asset Daewoo Research

Figure 7. Large-screen (over 10”) foldable devices Figure 8. Foldable phones with new designs expected to hit

the market

Source: Company materials, Mirae Asset Daewoo Research Source: Company materials, press materials, Mirae Asset Daewoo Research

Intel Horseshoe Bend

• 17.3”; to be released in 2021; price TBD

• 6G capacity needed for output of 1mn units: 7,000 sheets/mo.

Lenovo ThinkPad X1

• 13.3” (LGD); to be released in 2020; US$2,499


Dell foldable PC

• 13.4”; release date and price TBD


0

10

20

30

40

50

2019F 2020F 2021F 2022F

(mn units)

Foldable laptops

Foldable tablets

Foldable smartphones

2020-22F CAGR: 395.9%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2019F 2020F 2021F 2022F

(Wbn)

Foldable laptop panels

Foldable tablet panels

Foldable smartphone panels

2020-22F CAGR: 320.6%

0

50

100

150

200

250

300

2017 2018 2019 2020F 2021F 2022F

(mn units)

2020-22F CAGR: 0.8%

0

200

400

600

800

1,000

1,200

2017 2018 2019 2020F 2021F 2022F

(mn units)

2020-22F CAGR: 20%

Display


March 12, 2020

Global flexible OLED investments to exceed levels seen during 2016-18

upcycle

We expect global panel makers to continue to expand their flexible OLED investments, given

the strong demand outlook. Top-tier players like Samsung Display are expected to expand

capex gradually while aiming to reduce costs and improve panel form factor. Second-tier

(including Chinese) panel makers are also likely to expand capex, with an eye toward

attracting new customers (market share gains) and ending the depreciation of existing lines

earlier than planned.

We expect 6G flexible OLED investments by global panel makers to increase from 75,000

sheets/month in 2019 to 120,000 sheets/month in 2020 and 135,000 sheets/month in 2021.

Our cumulative 2019-21 estimate (330,000 sheets/month) exceeds the level seen during the

2016-18 flexible OLED capex cycle (315,000 sheets/month).

Global panel suppliers’ new capex since 2H19 has totaled around 135,000 sheets/month

(nine lines). This includes 15,000 sheets/month from Tianma (00050 CH/CP: RMB15.61;

Wuhan), 30,000 sheets/month from Visionox (V3), 30,000 sheets/month from CSOT (T4),

45,000 sheets/month from BOE (B12), and 15,000 sheets/month from GVO (V2). We expect

the following capex (13 lines; 195,000 sheets/month) to begin within the next year: 1) 45,000

sheets/month from Samsung Display (A5); 2) 15,000 sheets/month from BOE (B12); 3)

45,000 sheets/month from Visionox (V3 and V4); 4) 45,000 sheets/month from CSOT (T5);

and 5) 45,000 sheets/month from Tianma (Xiamen).

Based only on customer capex for which order placements have already begun (135,000

sheets/month), we forecast OLED equipment suppliers’ 2020 revenue to match the levels

seen during Samsung Display’s 2016-17 A3 (105,000 sheets/month) and A4 (30,000

sheets/month) capex cycle. If additional capex is confirmed, our revenue projections for

OLED equipment suppliers could be revised higher.

Table 1. 6G flexible OLED investments by line (‘000 sheets/month)

Company Line 2016 2017 2018 2019 2020F 2021F

Samsung Display A3 105

A4

30

A5 15 30

Total 105 30 0 0 15 30

LG Display E5 15

E6-1 15

E6-2

15

Total 30 15 0 0 0 0

BOE B7 15 30

B11

15 30

B12

45

B15 15

Total 15 45 30 0 45 15

Visionox V2

15

15

V3

30 30

V4 15

Total 0 15 0 30 45 15

CSOT T4

15

30

T5

45

Total 0 15 0 30 0 45

Tianma Wuhan 15

15

Xiamen

15 30

Total 15 0 0 15 15 30

Global total 165 120 30 75 120 135

Source: Company data, Mirae Asset Daewoo Research

Display


March 12, 2020

Figure 9. Global panel makers’ 6G flexible OLED capex

Source: IHS, Mirae Asset Daewoo Research

Figure 10. Global panel makers’ flexible OLED lines: Overview and capex schedule


0

5

10

15

20

25

0

50

100

150

200

2016 2017 2018 2019 2020F 2021F

(Wtr)('000 sheets/mo.) Tianma CSOT

Visionox BOE

LGD Samsung Display

Global 6G flexible OLED capex (R)

Display


March 12, 2020

Table 2. Global OLED capacity overview

Location Gen. Type Capacity

(‘000 sheets/mo.) Status Notes

1) Samsung Display

A1 Cheonan 4.5 Rigid 56 MP Low/mid-range smartphone displays

A2 Tangjeong 5.5 Rigid 180 MP Galaxy A; China, etc.

A2 Tangjeong 5.5 R/F 35 MP Non-Y-OCTA flexible; watch displays; automotive; UT R&D

A3 Tangjeong 6 Flexible 30 MP Galaxy S20, etc.; foldable phones

A3 Tangjeong 6 Flexible 105 MP QD-OLED for use in iPhones (R&D)

A4 Tangjeong 6 Flexible 30 MP Galaxy S20

A5 Tangjeong - - - Planning -

2) LG Display

E2 Paju 4.5 Flexible 24 MP Set to be closed in 2020; Apple Watch to be produced from the E5 line

E5-1 Gumi 6 Flexible 7.5 MP Automotive panels

E5-2 Gumi 6 Flexible 7.5 MP Panels for use in Huawei Mate 30 Pro and Google Pixel 4 smartphones

E6-1 Paju 6 Flexible 15 MP OLED panels for iPhones (2H20)

E6-2 Paju 6 Flexible 15 MP Apple iPhone model (6.46" screen)

E6-3 Paju 6 Flexible 15 Pending -

3) BOE

B7 Chengdu 6 Flexible 15 MP Huawei P40

B7 Chengdu 6 Flexible 15 MP Huawei P40, P40 Pro

B7 Chengdu 6 Flexible 15 MP testing iPhone panel samples

B11 Mianyang 6 Flexible 15 MP Oppo Reno3 Pro; Huawei Nova; foldable phones

B11 Mianyang 6 Flexible 15 MP testing iPhone panel samples

B11 Mianyang 6 Flexible 15 Installation Equipment delivery in Oct. 2019

B12 Chongqing 6 Flexible 45 Planning Equipment delivery expected in 2020

B15 Fuzhou 6 Flexible 45 Planning Equipment delivery expected in 2021

4) Visionox

V1 Kunshan 5.5 Flexible 4 MP Panel supply to the white box (electronics) market

V1 Kunshan 5.5 Flexible 11 MP Rigid panels (mass production); flexible panels (under development)

V2 Gu’an 6 Flexible 15 MP Panel samples (A/S)

V2 Gu’an 6 Flexible 15 Planning Set to begin new capex in 1H20

V3 Hefei 6 Flexible 30 Planning Equipment delivery in 4Q19

V3 Hefei 6 Flexible 30 Planning Equipment delivery expected in 2H20

V4 Guangzhou 6 Flexible 30 Planning Planning stage

5) Tianma

Sh-AM Shanghai 5.5 Rigid 11 MP Panels for use in watches and the Apple Touch Bar; shut down its rigid panel operation in 2020

Wh-AM Wuhan 6 R/F 15 MP Panels for use in Huawei, Lenovo, and Asus smartphones

Wh-AM Wuhan 6 Flexible 15 Planning Equipment delivery in Nov. 2019; investing in TOE (15,000 sheets/month)

XI-AM Xiamen 6 Flexible 45 Planning Announced capex plans in Aug. 2019; equipment delivery (phase 1) expected in 1H21 (order placement expected in 2H20)

6) CSOT

T4 Wuhan 6 Flexible 15 MP testing Panels for use in foldable phones and smartphones

T4 Wuhan 6 Flexible 30 Planning Equipment delivery expected in Jun.-Oct. 2020

T5 Wuhan 6 Flexible 45 Planning Construction work to begin in 2020; equipment delivery expected in 2021

7) EDO

Sh-1 Shanghai 4.5 Rigid 21 MP Panels for use in smartphones and watches; panel supply to the white box market

Sh-2 Shanghai 6 R/F 15 MP Began operation in Sep. 2019

Sh-3 Shanghai 6 Flexible 15 Planning Deposition equipment delivered

8) Royole

Sz-1 Shenzhen G5.5 Flexible 4 MP FlexPai (foldable)

Sz-1 Shenzhen G5.5 Flexible 10 Planning

Source: Stone Partners, Mirae Asset Daewoo Research

Display


March 12, 2020

Chinese panel makers’ flexible OLED spending undeterred by coronavirus

Bidding for equipment resumes; OLED investments continue

Chinese panel suppliers, including BOE, CSOT, and Visionox, are restarting their flexible

OLED spending, which was temporarily suspended in the wake of the COVID-19 outbreak.

Bidding for equipment resumed for BOE’s B12 line (Chongqing) on February 13th and for

CSOT’s T4 line and Visionox’s V3 line on February 6th (based on China Bidding). For its V2 line

(Gu'an), Visionox commenced spending (15,000 sheets/month) on March 4th, starting with

order placements for exposure and sputtering equipment. The monthly number of new

tenders—42 in January, 39 in February, and 37 in March (as of March 9th)—has been

recovering. Overall, Chinese panel makers are continuing their investments regardless of

the coronavirus outbreak.

We expect the following flexible OLED capacity to be added by major Chinese panel makers

over the next year: 1) 45,000 sheets/month from Tianma (Xiamen); 2) 45,000 sheets/month

from Visionox (30,000 sheets/month for V3 and 15,000 sheets/month for V5); 3) 45,000

sheets/month from CSOT (T5); and 4) 15,000 sheets/month from BOE (B15). Going forward,

global panel suppliers are forecast to aggressively expand capex to meet growing flexible

OLED demand and gain market share.

Figure 11. No. of new tenders

Source: China Bidding, Mirae Asset Daewoo Research

Figure 12. Major OLED equipment suppliers’ orders from Chinese panel makers (from 2H19)

Source: DART, Mirae Asset Daewoo Research

50

37

5651

64

4047

24

15 11 14 15

2429

6559

53

7268

90

79

60

7266

42 39 37

0

40

80

120

1/18 7/18 1/19 7/19 1/20

As of March 9th

4

3 3 3

1

3

2

1

2

0

1

2

3

4

5

0

100

200

300

400

500

AP Systems SFAEngineering

ICD Philoptics Wonik IPS HIMS Viatron HBTechnology

STI

(Wbn)

Order value (L) No. orders (R)

Display


March 12, 2020

Figure 13. BOE: No. of new tenders by line Figure 14. Visionox: No. of new tenders by line



Figure 15. BOE: Bidding for equipment resumes for B12 line Figure 16. CSOT: Bidding for equipment resumes for T4 line



Figure 17. Visionox: Bidding for equipment resumes for V3

line

Figure 18. Visionox: Capex begins for V2 �� Bidding invitation

for sputtering equipment

Source: China Bidding, Mirae Asset Daewoo Research Source: China Bidding, Mirae Asset Daewoo Research

41

28

2326

0

10

20

30

40

50

BOE CSOT Visionox Tianma

7

1816

4

19

2825

1

0

10

20

30

40

50

BOE B7 BOE B11 BOE B12 VisionoxV2

VisionoxV3

CSOT T4 TianmaWuhan

TianmaXiamen

Display


March 12, 2020

Samsung Display’s A5 capex: Direction is more important than timing

For Samsung Display’s A5 capex, direction is more important than timing

and scale

We believe Samsung Display will begin capex for its A5 fab (small/mid-sized OLED) this year

in order to meet demand in 2022. Assuming global foldable device unit sales in 2022 at

44mn and Samsung Display’s market share at 80%, we estimate the firm needs capacity of

around 45,000 sheets/month.

But what’s more important than the timing or size of the A5 capex is its direction. The key

will be reducing costs. We expect the A5 fab to come online in 2022, when the useful life of a

competitor’s initial line is set to end. Depreciation of A5 lines will end in 2022 for LGD and in

2024 for Chinese companies (including BOE). In order for the A5 fab to gain competitiveness

over competing fabs, cost reduction through process improvement will be critical.

To make A5 more cost competitive than existing fabs, we believe Samsung Display will 1)

increase spending on Y-OCTA (front-end process), 2) introduce inkjet OCR lamination (back-

end process), and 3) consider investments in Gen 7 or later.

Table 3. Capacity required for Samsung Display to meet rising demand for foldable devices (80% yield, 80% utilization)

2019 2020 2021 2022 2023

Global foldable device shipment forecasts (mn units) 0.4 5.5 18.7 43.9 70.9

Foldable smartphones 0.4 5.0 15.0 35.0 55.0

Foldable tablets 0.0 0.3 2.3 5.1 8.8

Foldable laptops 0.0 0.2 1.4 3.8 7.1

Samsung Display’s market share 100 90 90 80 80

6G panel cutting

Foldable smartphone panels (7”, 16:9) 121 121 121 121 121

Foldable tablet panels (11”, 4:3) 42 42 42 42 42

Foldable laptop panels (15”, 4:3) 23 23 23 23 23

Samsung Display’s shipments (mn units) 0.4 5.9 20.2 42.1 68.1

6G flexible OLED capacity needed (‘000 sheets/month) 0.3 5.1 21.6 46.1 77.8

Required capacity for foldable smartphones 0.3 3.7 11.2 23.1 36.4

Required capacity for foldable tablets

0.6 4.9 9.7 16.8

Required capacity for foldable laptops 0.0 0.8 5.5 13.2 24.7

Source: Mirae Asset Daewoo Research estimates

Figure 19. Capex: Direction is more important than timing/scale

Source: Mirae Asset Daewoo Research

Set to reduce more costs vs. competing fabs

Considering investments in 7G+

Introduction of inkjet OCR lamination

Continued spending on Y-OCTA (TOE)

Display


March 12, 2020

1) Increase spending on Y-OCTA (front-end process)

With Apple’s (APPL US/CP: US$275.43) introduction of Y-OCTA panels in 2020, we believe

demand from other device/set makers will continue to grow. The application of Y-OCTA

technology by the world’s no. 1 device maker (Apple) and no. 1 OLED panel maker (Samsung

Display) should serve as an important catalyst for demand. As demand increases, we expect

global OLED panel producers to continue to convert to TOE capacity and make related

investments. Global OLED makers’ TOE capacities are shown in <Figure 20>.

Samsung Display currently has four Y-OCTA production lines (A3 phase 1 and phase 2 lines

and A4 phase 1 and phase 2 lines; 60,000 sheets/month) and is converting three (45,000

sheets/month) of its Apple-dedicated A3 lines (105,000 sheets/month) to Y-OCTA in order to

meet Apple’s 2020 Y-OCTA panel demand. We believe Y-OCTA will be a critical part of the

company’s future capex, as well.

LGD is also converting to TOE capacity to fulfill Apple’s 2021 demand. We expect LGD to

switch around 30,000 sheets/month of its E6 line capacity to TOE by 1H21. We also project a

total of 60,000 sheets/month of capacity (30,000 sheets/month each at B7 and B11) at BOE

and 15,000 sheets/month of capacity (T4 phase 2) at CSOT to be converted to TOE. New

lines, such as CSOT’s T4, Visionox’s V3, and Tianma’s Wuhan line, are being built as TOE

capacity from the beginning.

Figure 20. Global OLED makers’ TOE capacities and investment schedules


Figure 21. Y-OCTA panel structure Figure 22. Application of Y-OCTA technology can cut costs by

up to 15.5%

Source: DSCC, Mirae Asset Daewoo Research Source: Stone Partners, Mirae Asset Daewoo Research

0

10

20

30

40

50

60

POLED TOE (Y-OCTA) POLED

(US$) Module (other) Back sheet Circuits

Touchscreen panel POL Adhesives

Window Display

Y-OCTA to drive down costs by 15.5%

0

20

40

60

80

A3 SEC A3Apple

A4 E5 E6 B7 B7 B11 B11 T4-1 T4-1 T4-2/3 V2 V3 Wuhan

Samsung Display LGD BOE CSOT Visionox Tianma

('000 sheets/mo.)

Conversion to TOE capacity ongoing

Conversion to TOE capacity expected Installation of new TOE

lines

Display


March 12, 2020

2) Introduction of inkjet OCR lamination (back-end process)

Among back-end processes, we see ample room for cost savings in lamination. During

lamination, multiple films are pasted on panels that have gone through the front-end

processes. Films can be pasted using either optically clear adhesive (OCA; an adhesive film)

or optically clear resin (OCR); a liquid). For OCR, there are two types of processes depending

on the dispensing method: slot die and inkjet. Currently, most global flexible OLED lines,

including Samsung Display’s, adopt OCA lamination, while rigid OLED and LCD lines

generally apply slot-die OCR lamination.

Compared to OCR, OCA is superior in terms of design (no possibility of shedding) and

production yield (shorter process time, etc.) thanks to its film-type structure, but is less cost

competitive due to its higher price. Samsung Display’s annual OCA purchases are estimated

at more than W200bn. And because foldable devices have panels requiring more films than

those of conventional smartphone models, the company’s OCA purchase needs could

increase over the medium/long term in line with foldable demand growth.

Figure 23. OCA structure


Figure 24. OCA process


Roller

Roller

Release film

Release film

UV lamp

Adhesive

Polymerization

Reaction of

monomers with

additives

Slitting to pieces

Release film

Release film

Silicone layer (1um)

PET film

Silicone layer (1um)

PET film

Adhesive (OCA)

Peeling off 1st release film

Cover glass

Pressing with rollerOCA preparation

Release film

Adhesive

Release film

Cover glass

Peeling off 2nd release film

Cover glass

DisplayCover glass

1st autoclave 2nd autoclave

1 2 3

4 5 6

1st autoclave (optional) to remove

bubbles between cover glass and OCA

2nd autoclave to remove bubbles

between OCA and display

Gap filling

Flipping/bonding to display (Vacuum chamber)(Vacuum chamber)

Ink

Heat/pressure Heat/pressure

Jig (200um)/CCD (100um)

Display


March 12, 2020

As such, we expect Samsung Display to begin to apply inkjet OCR lamination. This process

can reduce costs relative to OCA, and, unlike slot-die OCR lamination (used for rigid panel

production), it can facilitate various panel designs. Since 2019, we think the company has

been developing inkjet-OCR-related equipment/materials in cooperation with 1) STI (039440

KQ/CP: W14,050) and a Japanese maker (inkjet system for OCR dispensing), as well as with 2)

YEST (122640 KQ/CP: W6,880) and Jastech (090470 KQ/CP: W9,420; OCR bonder).

Recently, Samsung Display appears to have initiated back-end process investments for

tablet and auto displays at its Tianjin and Dongguan lines in China. We believe the Tianjin

and Dongguan lines will be the company’s first mass production lines to introduce inkjet

OCR lamination equipment.

For OCR bonders, Toptec (108230 KQ/CP: W9,990), which was the primary OCR bonder

supplier for the A3 fab, is now out of the picture due to a technology leak scandal.

Accordingly, we recommend keeping an eye on OCR bonder makers with the potential to

secure supply contracts from Samsung.

Figure 25. OCA/OCR shipments and breakdown


Figure 26. OCR process


Dam drawing (low viscosity)

Display

Internal drawing (high viscosity)

Flipping/bonding to display

(depending on equipment, OCR and process)

Display

UV lamp

Final curing

(Vacuum chamber)

Flipping for optical bondingOCR dispensing Curing

1st curing

Cover glass

Touch module

Display module

cleaning

OCR

dispensingAlignment

1st UV curing

(partial)

Final

curing

Cleaning

Inspection

Functional test

Yes

No

Rework

Shipping

OCR bonding workflow

Jig (200um)/CCD (100um)

0

20

40

60

80

0

20

40

60

80

2017 2018 2019 2020 2021 2022

(%)(mn m²) PSA shipments (L) OCR shipments (L) OCA shipments (L)

OCA proportion (R) OCR proportion (R) PSA proportion (R)

Display


March 12, 2020

3) Need to consider investments in 7G+

For its flexible OLED panel production, we expect Samsung Display to consider investments

in 7G+. While this would entail many technological challenges, migrating to next-generation

displays would be a sure way to strengthen cost competitiveness.

Notably, 7G mother glass is 58% larger than 6G mother glass (with 30% greater width and

22% greater length), and one 7G mother glass yields 59% more panels than the previous

generation (based on 6” smartphone panels). 7G thus represents a meaningful cost-saving

opportunity. 7G investments would also boost cost efficiency by allowing Samsung Display

to meet increased customer demand with smaller production capacity.

More importantly, making investments in 7G would put Samsung Display in a better

position to satisfy demand for 10”-or-larger foldable IT devices, which are set to grow over

the medium and long term. 7G is better suited for larger displays, given that the cutting

efficiency (panel surface area/mother glass size) declines as the size of panels cut from a

mother glass increases. Based on 6G mother glass, the cutting efficiency is in the 94-96%

range for 5.5”-8.0” panels but declines to 89-92% for 11”-or-larger panels. Accordingly, we

think investments in 7G+ are needed to meet the likely increase in demand for 10”-or-larger

foldable devices over the medium and long term.

Table 4. Number of panels produced per mother glass: 6G vs. 7G

Inches

No. of panels per mother glass

Annual panel output (based on capacity of 15,000 sheets/mo.)

Diff. in the no. of panels produced

(%) Aspect ratio

6G 7G 6G 7G

5.5 233 369 41,940,000 66,420,000 58.4 9 :16

6.0 190 302 34,200,000 54,360,000 58.9 9:16

6.5 158 259 28,440,000 46,620,000 63.9 9:16

7.3 115 187 20,700,000 33,660,000 62.6 4:3

8.0 97 143 17,460,000 25,740,000 47.4 4:3

11.0 48 79 8,640,000 14,220,000 64.6 4:3

13.0 35 55 6,300,000 9,900,000 57.1 4:3

15.0 26 40 4,680,000 7,200,000 53.8 4:3

17.0 20 30 3,600,000 5,400,000 50.0 4:3

Source: Mirae Asset Daewoo Research

Figure 27. 7G technology allows for a 50-65% increase in panel

output

Figure 28. Production efficiency by panel size (6G mother

glass)

Source: Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

0

100

200

300

400

500

5.5" 6.0" 6.5" 7.3" 8.0" 11" 13.0" 15.0" 17.0"

(No. of panels)

6G 7G7G mother glass yields 50-65% more panels than 6G mother glass 95.5 96.0

93.9 95.2

96.4

89.1

92.4

90.4 90.3

80

85

90

95

100

5.5" 6.0" 6.5" 7.3" 8.0" 11" 13.0" 15.0" 17.0"

(%)

Production efficiency (total panel area/mother glass area)

Display


March 12, 2020

Investment criteria for OLED equipment/ materials stocks

OLED equipment: Value creation for customers

In terms of our investment criteria for OLED equipment companies, we look for the ability to

create added value for customers through distinctive form factors/designs and lower costs.

In other words, a company deserves a high valuation if its equipment enables customers to

produce cutting-edge flexible displays in a cost-efficient way.

In 2015, Samsung Display introduced Y-OCTA technology to its A3 fab ahead of its rivals,

allowing flexible panels to be produced more cheaply (cutting production costs by more

than 15%). With Apple’s introduction of Y-OCTA panels in 2020, Chinese panel makers and

LGD have also begun to invest in TOE technology from 2H19.

For 2020, we expect Y-OCTA equipment suppliers’ revenue growth to outpace the peer

average. It is worth noting that even during Samsung Display’s capital spending hiatus in

2018-19, Y-OCTA equipment suppliers continued to receive orders related to the conversion

of its A3 lines (phase 1 and phase 2) to Y-OCTA, along with orders from other panel makers.

And considering that seven other A3 lines (phase 3 through phase 9; total capacity of

105,000 sheets/month) did not adopt Y-OCTA technology, we expect Samsung Display to

invest in such technology for its A5 lines, benefiting related equipment makers such as ICD

(040910 KQ/TP: W27,000; dry etchers).

As for the back-end process, inkjet OCR lamination equipment deserves attention.

Considering that Samsung Display’s annual spending on OCA films amounts to W200bn, we

expect the firm to gradually shift to inkjet OCR lamination.

Figure 29. 2020F revenue growth by major OLED equipment

company Figure 30. Supply chain for inkjet OCR equipment

Source: WISEfn Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research

25.0

62.0 49.5

185.4

0

50

100

150

200

250

0

500

1,000

1,500

2,000

2,500

SFA Engineering Wonik IPS AP Systems ICD

(%)(Wbn)

2019 (L) 2020F (L) Revenue growth (R)

Lamination (back-end)

OCR (inkjet)

Inkjet systems

STIJapan-based player

OCR bonders

YEST Jastech

OCA

OCR bonders

AP Systems

YEST

Display


March 12, 2020

OLED materials: Companies offering new products

In the OLED materials segment, we recommend seeking out companies with above-market

growth potential. (The overall OLED panel market is projected to expand 28% YoY in 2020.)

The key to achieving such growth, in our view, is the ability to offer competitive new

products. This is a more important factor than the acquisition of new customers, given that,

in a basically oversupplied OLED market, any utilization increase at one customer should

lead to lower utilization at rivals.

Among OLED materials/parts companies, we believe SKC Kolon PI and Duksan Neolux fit our

criteria.

For SKC Kolon PI, we see several new products that can support revenue growth, including:

1) modified PI (MPI) materials for 5G smartphones; 2) PI base films for foldable devices; and

3) PI films for COF (related to import substitution). For 2020, we forecast SKC Kolon PI’s

revenue and operating profit to grow 33% and 123% YoY, respectively.

For Duksan Neolux, we expect green prime materials (used in the Galaxy S20 and foldable

devices) to contribute to revenue in 2020. It is notable that the firm supplies the same

materials set to both Samsung and Apple, and it appears poised to supply green prime

materials for new iPhone models in 2H20. For 2020, we forecast Duksan Neolux’s revenue

and operating profit to grow 31% and 63% YoY, respectively.

Figure 31. Capacity utilization by OLED panel makers

Source: Mirae Asset Daewoo Research estimates

Figure 32. SKC Kolon PI: Revenue and OP margin Figure 33. Duksan Neolux: Revenue and OP margin

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

-40

-20

0

20

40

0

30

60

90

120

150

180

1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20F 3Q20F

(%)(mn units)

Samsung Display OLED shipments (L) QoQ (R)

0

7

14

21

28

35

0

20

40

60

80

100

120

140

1Q18 3Q18 1Q19 3Q19 1Q20F 3Q20F 1Q21F 3Q21F

(%)(Wbn) Foldable base film (L) COF (L)MPI (L) MLCC/batteries/other (L)Heat-resistant sheet PI (L) FPCB PI (L)OP margin (R)

0

7

14

21

28

35

0

10

20

30

40

1Q16 1Q17 1Q18 1Q19 1Q20F

(%)(Wbn)

HTL (L)

Red host/other (L)

OP margin (R)

Display


March 12, 2020

Global peer valuations

Korean OLED equipment and materials companies are undervalued relative to global peers.

Korean OLED equipment stocks are trading at a 2020F P/E of 9x (vs. global peer average of

16x). This is mainly because their 2020 earnings estimates have been revised up ahead of

those of global peers due to the Korean stock market’s unique “order disclosure”

requirement. Given Chinese companies’ recent order placement schedule, we think it is

highly likely global OLED equipment makers’ earnings estimates will also be revised up after

1Q20. If so, we think global investors will begin to take a greater interest in Korean OLED

equipment names.

Valuations of OLED materials suppliers vary by product type. On a P/E basis, Duksan Neolux

(OLED organic materials) is trading at a 41% discount to UDC (OLED US/CP: US$147.90), a

US-based OLED organic materials company. SKC Kolon PI (PI films) is trading at a 41%

discount to Taimide Tech (3645 TT/CP: NT$35,50), a Taiwanese PI film supplier, and a 43-51%

discount to key customers Tanyuan (603133 CH/CP: RMB21.20) and Jones Tech (300684

CH/CP: RMB34.91), China-based heat-resistant sheet makers.

Table 5. Global peer comparison: Display equipment companies (Wbn, %, x)

Market cap

Revenue Operating profit Net profit ROE P/E P/B EV/EBITDA

20F 21F 20F 21F 20F 21F 20F 21F 20F 21F 20F 21F 20F 21F

AP Systems 414 691 898 59 77 41 63 30.8 34.4 10.6 6.9 2.8 2.0 7.0 5.3

ICD 289 347 375 59 64 48 50 29.2 23.4 6.0 5.9 1.5 1.2 4.6 3.7

SFA Engineering 1,318 1,872 2,075 260 295 174 199 18.3 18.0 7.5 6.6 1.3 1.1 4.7 4.3

Wonik IPS 1,524 1,085 1,260 160 200 128 159 22.7 22.9 11.9 9.5 2.4 2.0 7.9 6.5

Coherent 3,611 1,652 1,917 203 366 59 171 8.6 14.3 27.0 14.1 2.1 1.8 12.5 8.0

AMAT 57,337 20,637 22,453 5,440 6,169 4,426 4,957 40.0 37.2 12.4 10.9 4.7 3.7 10.1 8.9

Ulvac 1,521 2,208 2,246 201 220 147 155 8.1 7.3 9.8 9.5 0.8 0.8 4.6 4.4

TEL 38,819 13,769 14,810 3,131 3,692 2,348 2,763 23.3 24.9 15.2 12.9 3.4 3.0 9.5 8.0

Average 22.6 22.8 12.5 9.5 2.4 1.9 7.6 6.1

Source: Bloomberg

Table 6. Global peer comparison: OLED materials companies (Wbn, %, x)

Market cap

Revenue Operating profit Net profit ROE P/E P/B EV/EBITDA

20F 21F 20F 21F 20F 21F 20F 21F 20F 21F 20F 21F 20F 21F

Duksan Neolux 824 129 154 34 41 30 38 17.3 18.2 26.5 21.0 4.2 3.5 19.6 15.9

UDC 8,304 552 718 216 338 179 282 18.2 24.1 44.9 30.6 7.3 5.8 32.4 19.5

SKC Kolon PI 966 297 344 75 88 54 67 19.6 21.8 17.8 14.2 3.2 3.0 10.2 8.7

Taimide Tech 207 72 - 8 - 6 - - - 30.2 - - - - -

Kaneka 2,005 6,946 7,147 342 385 186 216 5.0 5.6 9.9 8.5 0.5 0.5 4.3 4.0

Innox Advanced Materials 389 449 - 67 - 52 - 20.6 - 7.4 - 1.4 - 5.0 -

BHflex 627 888 1,003 108 126 92 107 29.2 25.8 6.8 5.8 1.7 1.3 4.9 4.3

Tanyuan Technology 772 206 248 26 44 24 40 12.3 17.3 31.2 18.9 4.0 3.3 - -

Jones Tech 1,400 205 284 45 62 38 53 23.4 23.1 36.2 25.7 8.6 6.9 28.0 23.1

Silicon Works 557 951 1,035 66 76 57 66 11.6 12.2 9.7 8.4 1.1 1.0 5.0 4.5

Novatek 4,728 2,847 3,093 453 505 369 411 27.3 28.7 12.8 11.5 3.3 3.2 8.3 7.5

Average 18.4 19.6 21.2 16.1 3.5 3.2 13.1 10.9

Source: Bloomberg

Display


March 12, 2020

Maintain TP of W42,000; A key beneficiary of the Chinese capex cycle

We maintain our target price of W42,000 on AP Systems. While 2019 was a period of

multiple expansion driven by expectations of customer capex, we believe earnings

growth will come into focus in 2020. Chinese OLED makers’ new capex since 2H19 has

totaled 135,000 sheets/month—equivalent to the size of Samsung Display’s 2016-17 A3

(105,000 sheets/month) and A4 (30,000 sheets/month) capex cycle.

We think parts revenue also merits attention. While Chinese OLED utilization has been

rising, we believe production yields still remain low. Flexible OLED shipment targets for

2020 appear aggressive, however, at 8mn units for BOE, 1.5mn units for Visionox, and

0.6mn units for Tianma. Therefore, Chinese customers’ demand for materials and

consumable parts should inevitably grow. We forecast AP Systems’ parts revenue to rise

from W210bn in 2019 to W280bn in 2020.

While there have been worries about potential capex delays due to the coronavirus

outbreak, new bid invitations posted on China Bidding suggest Chinese panel makers’

spending is continuing despite the outbreak. For materials, we do see risks to full-year

earnings due to lower customer plant utilization. But for equipment, we believe risks to

full-year earnings are limited, as long as customer capex continues.

Chinese capex already matches A3+A4 cycle

Chinese companies’ new capex since 2H19 has totaled around 135,000 sheets/month

(nine lines). This includes 15,000 sheets/month from Tianma (Wuhan), 30,000

sheets/month from Visionox (V3), 30,000 sheets/month from CSOT (T4), 45,000

sheets/month from BOE (B12), and 15,000 sheets/month from Visionox (V2). The total

figure is equivalent to the size of Samsung Display’s 2016-17 A3 and A4 capex cycle.

Based only on customer capex for which order placements have already begun, we

forecast AP Systems’ 2020 revenue and operating profit to grow to W691bn (+50% YoY)

and W59.2bn (+108% YoY), respectively.

2021 revenue to reach W900bn, based on just 50% of expected customer capex

Looking further ahead to 2021, we expect revenue to reach W898bn (+30% YoY). Our

forecast reflects only 50% of the customer capex expected to begin within the next year.

We expect the following capex to begin within the next year (through 1H21): 1) 45,000

sheets/month from Visionox (V3 and V4); 2) 45,000 sheets/month from Tianma (Xiamen);

3) 15,000 sheets/month from BOE (B15); 4) 45,000 sheets/month from Samsung Display;

and 5) 45,000 sheets/month from CSOT (T5).

FY (Dec.) 12/16 12/17 12/18 12/19 12/20F 12/21F

Revenue (Wbn) 0 962 714 462 691 898

OP (Wbn) 0 26 46 28 59 77

OP Margin (%) - 2.7 6.4 6.1 8.5 8.6

NP (Wbn) 0 19 25 9 41 63

EPS (W) 0 1,495 1,651 609 2,703 4,151

ROE (%) 0.0 21.3 25.8 8.4 30.8 34.4

P/E (x) - 23.5 13.1 55.2 10.6 6.9

P/B (x) - 6.0 3.0 4.4 2.8 2.0

Dividend Yield (%) - 0.0 0.7 0.4 0.5 0.5

Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests

Source: Company data, Mirae Asset Daewoo Research estimates

AP Systems (265520 KQ)

A reliable OLED equipment leader

Technology

(Maintain) Buy

Target Price (12M, W) 42,000

Share Price (03/09/20, W) 28,700

Expected Return 46%

OP (19, Wbn) 28

Consensus OP (19F, Wbn) 25

EPS Growth (19, %) -63.1

Market EPS Growth (19, %) -35.2

P/E (19, x) 55.2

Market P/E (19, x) 14.4

KOSDAQ 614.60

Market Cap (Wbn) 416

Shares Outstanding (mn) 15

Free Float (%) 78.3

Foreign Ownership (%) 9.9

Beta (12M) 1.45

52-Week Low 20,650

52-Week High 34,450

(%) 1M 6M 12M

Absolute -8.7 -0.7 0.0

Relative -0.1 1.1 19.7

60

70

80

90

100

110

120

3.19 7.19 11.19 3.20

AP Systems KOSDAQ

Display


March 12, 2020

Table 7. 1Q20 preview (Wbn, %, %p)

1Q19 4Q19

1Q20F Growth

Mirae Asset Daewoo Consensus YoY QoQ

Revenue 87.2 164.5 116.6 117.7 33.8 -29.1

Operating profit 3.2 11.2 7.5 6.6 131.7 -33.2

OP margin 3.7 6.8 6.4 5.6 2.7 -0.4

Pretax profit 1.1 2.5 6.8 4.9 497.7 177.0

Net profit 0.4 1.9 5.8 3.6 1,312.6 204.8

Source: Company data, WISEfn, Mirae Asset Daewoo Research

Table 8. Quarterly and annual earnings (Wbn, %)

1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F 2018 2019 2020F

Revenue 87.2 144.8 65.6 164.5 116.6 139.0 219.7 215.6 714.2 462.1 690.9

Operating profit 3.2 10.9 3.1 11.3 7.5 10.4 23.1 18.2 45.8 28.5 59.2

Pretax profit 1.1 7.2 1.6 2.5 6.8 6.8 22.9 10.9 26.8 12.5 47.4

Net profit 0.4 5.6 1.4 1.9 5.8 6.8 19.4 9.3 24.1 9.3 41.3

OP margin 3.7 7.5 4.8 6.8 6.4 7.5 10.5 8.4 6.4 6.2 8.6

Pretax margin 1.3 4.9 2.5 1.5 5.8 4.9 10.4 5.1 3.8 2.7 6.9

Net margin 0.5 3.9 2.1 1.1 5.0 4.9 8.8 4.3 3.4 2.0 6.0

Growth (QoQ/YoY)

Revenue -46.3 66.1 -54.7 150.7 -29.1 19.2 58.1 -1.9 -25.8 -35.3 49.5

Operating profit -52.0 236.3 -71.0 257.6 -33.5 38.9 122.1 -21.2 74.9 -37.7 107.7

Pretax profit -129.2 531.0 -77.0 52.2 171.9 -0.3 236.6 -52.3 1.8 -53.5 280.6

Net profit -142.8 1261.6 -75.2 34.7 208.2 17.3 186.1 -52.3 26.4 -61.4 343.8


Figure 34. Revenue and OP margin Figure 35. Revenue breakdown by business

Source: Company data, Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research estimates

0

4

8

12

0

90

180

270

1Q18 3Q18 1Q19 3Q19 1Q20F 3Q20F

(%)(Wbn)

Revenue (L) OP margin (R)

0

200

400

600

800

1,000

2020 2021

(Wbn)Samsung Display A5 Semiconductors/other

QD-OLED Parts

China revenue

Display


March 12, 2020

Figure 36. Global panel suppliers’ OLED capex trends


Figure 37. AP Systems’ revenue vs. global panel suppliers’ capex


Figure 38. 12-month forward P/E Figure 39. 12-month forward P/B

Source: WiSEfn, Mirae Asset Daewoo Research Source: WISEfn, Mirae Asset Daewoo Research

10,000

20,000

30,000

40,000

50,000

17 18 19 20

(W)

9.0x

10.0x

11.0x

12.0x13.0x

10,000

20,000

30,000

40,000

50,000

17 18 19 20

(W)

2.5x2.7x

2.9x

3.1x

3.3x

0

5

10

15

20

25

0

50

100

150

200

2016 2017 2018 2019 2020F 2021F

(Wtr)('000 sheets/mo.) Tianma CSOT

Visionox BOE

LGD Samsung DisplayGlobal 6G flexible OLED capex (R)

0

50

100

150

200

0

500

1,000

1,500

2016 2017 2018 2019 2020F 2021F

('000 sheets/month)(Wbn)

AP Systems revenue (L) Global OLED investments (capacity, R)

Even after reflecting only 50% of customer capex expected to kick off within the next year, we project 2021 revenue to reach around W900bn; we may reflect more capex going forward

Display


March 12, 2020

Maintain TP of W27,000; Trading at 2020F P/E of 6.0x

We maintain our target price of W27,000 on ICD. We forecast ICD’s 2020 revenue to grow

185% YoY—faster than the average growth consensus for global peers (+42%)—mainly

because global OLED spending is moving toward TOE (Y-OCTA) technology. Customers’

continuous conversion to TOE technology has allowed ICD to steadily grab orders, even

during the capex void in 2018-19. At present, ICD is trading at a 2020F P/E of 6.0x, a

steep discount to global peers.

The stock’s recent correction has been triggered by worries about potential cancellations

or delays in Chinese capex due to the COVID-19 outbreak. But as we mentioned earlier in

our report, Chinese OLED makers have continued their spending in February-March.

Visionox has even started capex for its V2 line (bidding for exposure and sputtering

equipment began in early March).

Unlike materials suppliers, we believe equipment makers will deliver robust full-year

earnings regardless of the COVID-19 outbreak. While equipment delivery may be pushed

back by a quarter, this is unlikely to have a significant impact on full-year earnings.

Furthermore, the won’s recent depreciation against the dollar should support strong

earnings.

Likely to continue to benefit from ongoing TOE spending

With Apple’s introduction of Y-OCTA panels in 2020, we believe demand from other

device makers will continue to grow. The application of Y-OCTA technology by the world’s

no. 1 device maker (Apple) and no. 1 OLED panel maker (Samsung Display) should serve

as an important catalyst for demand. As demand increases, we expect global OLED panel

producers to continue to convert to TOE capacity and make related investments.

Samsung Display currently has four Y-OCTA production lines (A3 phase 1 and phase 2

lines and A4 phase 1 and phase 2; 60,000 sheets/month) and is converting three (45,000

sheets/month) of its Apple-dedicated A3 lines (105,000 sheets/month) to Y-OCTA in order

to meet Apple’s 2020 Y-OCTA panel demand. We believe Y-OCTA will be a critical part of

the company’s future capex, as well.

LGD is also converting to TOE capacity to fulfill Apple’s 2021 demand. We expect LGD to

switch around 30,000 sheets/month of its E6 line capacity to TOE by 1H21. We also

project a total of 60,000 sheets/month of capacity (30,000 sheets/month each at B7 and

B11) at BOE and 15,000 sheets/month of capacity (T4 phase 2) at CSOT to be converted

to TOE. New lines, such as CSOT’s T4, Visionox’s V3, and Tianma’s Wuhan line, are being

built as TOE capacity from the beginning.

FY (Dec.) 12/16 12/17 12/18 12/19 12/20F 12/21F

Revenue (Wbn) 231 312 234 122 347 375

OP (Wbn) 16 37 40 15 59 64

OP Margin (%) 6.9 11.9 17.1 12.3 17.0 17.1

NP (Wbn) 10 24 30 11 48 50

EPS (W) 629 1,484 1,789 679 2,752 2,824

ROE (%) 10.2 19.8 22.5 8.4 29.2 23.4

P/E (x) 28.5 9.3 3.8 28.9 6.0 5.9

P/B (x) 2.5 1.7 0.8 2.3 1.5 1.2

Dividend Yield (%) 0.6 1.1 2.2 0.8 0.9 0.9



ICD (040910 KQ)

Global OLED spending moving toward TOE

Technology

(Maintain) Buy


Share Price (03/09/20, W) 16,600

Expected Return 63%

OP (19, Wbn) 15

Consensus OP (19F, Wbn) 15

EPS Growth (19, %) -62.1


P/E (19, x) 28.9

Market P/E (19, x) 14.4

KOSDAQ 614.60



Free Float (%) 69.5


Beta (12M) 1.20

52-Week Low 8,530

52-Week High 19,650

(%) 1M 6M 12M

Absolute 0.3 27.7 63.5

Relative 9.8 30.0 95.8

60

110

160

210

3.19 7.19 11.19 3.20

ICD KOSDAQ

Display


March 12, 2020


1Q19 4Q19

1Q20F Growth


Revenue 34.2 44.5 77.8 58.7 127.8 75.0

Operating profit 0.4 10.1 12.2 7.1 2,797.7 21.1

OP margin 1.2 22.6 15.6 12.0 14.4 -7.0

Pretax profit 1.4 8.4 12.5 13.3 820.8 49.3

Net profit 1.1 6.2 9.9 5.7 775.5 58.9



1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F 2018 2019 2020F

Revenue 34.2 11.7 31.3 44.5 77.8 85.6 94.2 89.5 234.0 121.6 347.0

Operating profit 0.4 -3.7 8.2 10.1 12.2 15.5 17.5 14.3 39.7 15.0 59.5

Pretax profit 1.4 -3.3 10.3 8.4 12.5 16.0 18.0 14.7 34.3 16.7 61.2

Net profit 1.1 -2.6 6.8 6.2 9.9 12.6 14.2 11.6 29.9 11.5 48.3

OP margin 1.2 -31.8 26.3 22.6 15.6 18.1 18.5 16.0 17.0 12.3 17.1

Pretax margin 4.0 -28.2 32.8 18.8 16.1 18.7 19.1 16.4 14.6 13.7 17.6

Net margin 3.3 -22.5 21.7 14.0 12.7 14.8 15.1 12.9 12.8 9.5 13.9

Growth (QoQ/YoY, %)

Revenue -42.1 -65.8 167.7 42.1 75.0 10.0 10.0 -5.0 -25.0 -48.0 185.4

Operating profit -96.7 -994.6 -321.2 22.3 21.1 27.5 12.5 -18.0 7.6 -62.3 297.3

Pretax profit -89.2 -341.2 -411.8 -18.6 49.9 27.7 12.7 -18.7 19.2 -51.3 266.6

Net profit -91.7 -333.2 -357.2 -8.1 58.9 27.7 12.7 -18.7 58.8 -6.3 28.5


Figure 40. Revenue and OP margin Figure 41. Revenue breakdown by business

Source: Company data, Mirae Asset Daewoo Research Source: Mirae Asset Daewoo Research estimates

-45

-30

-15

0

15

30

0

20

40

60

80

100

1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F

(%)(Wbn)

Revenue (L) OP margin (R)

0

100

200

300

400

2020F 2021F

(Wbn) Parts QD-OLED

Dry etcher - Samsung Display Dry etcher - LGD

Dry etcher - Tianma Dry etcher - BOE

Display


March 12, 2020

Figure 42. Global OLED makers’ TOE capacities and investment schedules


Figure 43. ICD revenue vs. global OLED panel suppliers’ capex


Figure 44. 12-month forward P/E Figure 45. 12-month forward P/B

Source: WISEfn, Mirae Asset Daewoo Research Source: WISEfn, Mirae Asset Daewoo Research

0

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500

2016 2017 2018 2019 2020F 2021F

('000 sheets/mo.)(Wbn)

ICD revenue (L) Global OLED investments (capacity, R)

0

5,000

10,000

15,000

20,000

25,000

30,000

14 15 16 17 18 19 20

(W)

6.0x

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0

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15,000

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0

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A3 SEC A3Apple

A4 E5 E6 B7 B7 B11 B11 T4-1 T4-1 T4-2/3 V2 V3 Wuhan

Samsung Display LGD BOE CSOT Visionox Tianma

('000 sheets/mo.)

Conversion to TOE capacity ongoing

Conversion to TOE capacity expected Installation of new TOE

lines

Display


March 12, 2020

Maintain TP of W55,000; Attractive valuation

We maintain our Buy rating on SKC Kolon PI with a target price of W55,000. In 2020-21,

we expect the company’s growth to outstrip the global OLED market’s shipment growth

(estimated at +28% YoY in 2020), supported by a strong product lineup. For 2020, we

forecast revenue and operating profit to surge 33% and 123% YoY, respectively.

Shares of SKC Kolon PI have recently pulled back on COVID-19 fears. Given the firm’s

relatively high exposure to China, 1Q20 shipments are indeed likely to be weaker than

previously expected. Nevertheless, we think profits will be relatively resilient thanks to

declining costs (PMDA prices). We lower our 1Q20 operating profit estimate by 9.7% to

W13bn (+313% YoY).

The stock is currently trading at a historically low 2020F P/E of 17.8x. The current

valuation is also attractive relative to those of rivals and companies in peer industries.

Taiwanese rival Taimide Tech is trading at a 2020F P/E of 30x (Bloomberg), and heat-

resistant sheet customers Jones Tech and Tanyuan are trading at 36x and 31x,

respectively.

We also think the recent share transfer to a local private equity fund is positive in terms

of: 1) maintaining a high payout ratio from 2020 (dividend yield estimated at 4.5%,

assuming 80% of earnings are paid out as dividends); and 2) driving further earnings

growth through a potential increase in cost efficiency.

A must-have stock for 2020; Solid revenue streams

1) We forecast revenue from foldable display-use base films to reach W13bn in 2020.

Materials demand is likely to increase due to still-low production yields at customers. In

2H20 and beyond, the firm is expected to benefit from foldable volume growth at

another customer.

2) MPI materials for 5G smartphones are also likely to generate solid revenue in 2020

(our forecast: W18bn), mainly driven by increased sales to Chinese customers. In 2H20,

we expect more Chinese makers to adopt MPI films for their 5G smartphones, laying the

foundation for medium/long-term growth.

3) From 2H20, COF/battery-use PI films should meaningfully contribute to earnings. We

forecast annual revenue of W10bn for COF-use PI films and W40bn for battery-use PI films.

For these new items, we foresee stronger revenue growth in 2021 than in 2020. As the

world’s largest PI film producer in terms of production capacity and productivity, we

believe SKC Kolon PI is able to cut prices (to limit the entry of latecomers) and deliver

above-market revenue growth.

The company’s new products have significantly higher ASPs than existing products and

thus are better able to drive profits. Judging by their solid initial sales performance, we

think the company has secured medium- to long-term growth engines.

FY (Dec.) 12/16 12/17 12/18 12/19 12/20F 12/21F

Revenue (Wbn) 153 216 245 224 297 344

OP (Wbn) 32 53 61 34 75 88

OP Margin (%) 20.9 24.5 24.9 15.2 25.3 25.6

NP (Wbn) 21 33 35 18 54 67

EPS (W) 714 1,116 1,191 601 1,831 2,288

ROE (%) 9.6 13.8 13.8 6.9 19.6 21.8

P/E (x) 19.6 42.3 27.9 58.2 17.8 14.2

P/B (x) 1.8 5.6 3.8 4.1 3.2 3.0

Dividend Yield (%) 3.2 1.7 2.5 0.9 4.5 5.6



SKC Kolon PI (178920 KQ)

A must-have stock for 2020

Technology

(Maintain) Buy


Share Price (03/09/20, W) 32,500

Expected Return 69%

OP (19, Wbn) 34

Consensus OP (19F, Wbn) -

EPS Growth (19, %) -49.6


P/E (19, x) 58.2

Market P/E (19, x) 14.4

KOSDAQ 614.60



Free Float (%) 45.5


Beta (12M) 1.05

52-Week Low 26,050

52-Week High 41,500

(%) 1M 6M 12M

Absolute -16.7 7.8 -4.0

Relative -8.8 9.8 15.0

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SKC Kolon PI KOSDAQ

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March 12, 2020


1Q19 4Q19

1Q20F Growth


Revenue 40.2 56.7 60.5 66.9 50.5 6.7

Operating profit 3.2 6.1 13.0 15.1 313.2 115.1

OP margin 7.8 10.7 21.5 22.6 13.7 10.8

Pretax profit 2.5 2.6 10.6 12.8 331.5 303.6

Net profit 2.1 2.9 8.5 10.8 304.4 191.8



1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F 18 19F 20F

Revenue 40.2 62.4 64.3 56.7 60.5 72.4 82.3 81.9 245.3 223.6 297.1

FPCB PI 17.0 28.5 25.2 26.2 23.6 24.8 25.3 20.2 97.9 96.9 93.8

Heat-resistant sheet PI 7.8 22.6 25.5 19.0 20.8 24.0 26.4 25.1 93.4 74.9 96.2

Industrial PI 15.4 11.3 13.6 11.6 16.1 23.7 30.6 36.6 54.0 51.9 107.0

% of revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

FPCB PI 42.3 45.7 39.2 46.2 39.0 34.2 30.7 24.7 39.9 43.3 31.6

Heat-resistant sheet PI 19.4 36.2 39.7 33.4 34.4 33.1 32.1 30.6 38.1 33.5 32.4

Industrial PI 38.3 18.1 21.2 20.4 26.6 32.7 37.2 44.7 22.0 23.2 36.0

Operating profit 3.2 9.9 14.5 6.0 13.0 18.4 22.2 21.1 60.4 33.6 74.7

Pretax profit 2.5 4.7 11.3 2.7 10.6 16.0 20.8 19.7 43.8 21.2 67.1

Net profit 2.1 4.0 8.8 2.8 8.5 12.8 16.6 15.7 35.0 17.7 53.7

OP margin 7.8 15.9 22.6 10.6 21.5 25.4 27.0 25.7 24.6 15.0 25.1

Pretax margin 6.1 7.6 17.6 4.8 17.5 22.1 25.3 24.0 17.8 9.5 22.6

Net margin 5.2 6.4 13.7 5.0 14.0 17.7 20.2 19.2 14.3 7.9 18.1

Growth (QoQ/YoY, %)

Revenue -4.5 55.2 3.0 -11.8 6.7 19.7 13.6 -0.4 13.4 -8.9 32.9

FPCB PI -1.6 67.6 -11.6 4.0 -10.0 5.0 2.0 -20.0 -9.4 -1.0 -3.2

Heat-resistant sheet PI -30.5 189.7 12.8 -25.7 10.0 15.0 10.0 -5.0 24.7 -19.9 28.6

Industrial PI 13.2 -26.6 20.4 -15.1 39.3 47.2 29.3 19.6 62.3 -4.0 106.5

Operating profit -62.6 214.3 46.5 -58.6 116.9 41.4 20.5 -5.1 14.0 -44.5 122.5

Pretax profit -14.5 93.5 138.4 -76.1 293.1 50.8 29.8 -5.4 3.3 -51.6 216.5

Net profit -22.8 89.0 122.0 -67.8 199.5 50.8 29.8 -5.4 6.7 -49.4 202.8


Figure 46. Revenue and OP margin (quarterly) Figure 47. Revenue breakdown by business

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

0

10

20

30

40

0

20

40

60

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100

1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20F 3Q20F

(%)(Wbn)

Revenue (L)

OP margin (R)

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1Q18 3Q18 1Q19 3Q19 1Q20F 3Q20F 1Q21F 3Q21F

(Wbn)Foldable base film (L) COF (L)

MPI (L) MLCC/batteries/other (L)

Heat-resistant sheet PI (L) FPCB PI (L)

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March 12, 2020

Figure 48. Share performance relative to global peers (heat-resistant sheet and PI film)

Source: Bloomberg, Mirae Asset Daewoo Research

Figure 49. 12-month forward P/E band Figure 50 12-month forward P/B band

Source: WISEfn, Mirae Asset Daewoo Research Source: WISEfn, Mirae Asset Daewoo Research

Figure 50. P/E-EPSG comparison (2020) Figure 51. P/B-ROE comparison (2020)

Source: Bloomberg, Mirae Asset Daewoo Research Source: Bloomberg, Mirae Asset Daewoo Research

20

60

100

140

180

3/19 6/19 9/19 12/19 3/20

(3/19=100)

SKC Kolon PI Taimide Tech Kaneka

Jones Tech Tanyuan

SKC Kolon PI

Kaneka

Jones Tech

Tanyuan

0

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(ROE, %)

(P/B, x)

SKC Kolon PI

Taimide Tech

Kaneka

Jones Tech

Tanyuan

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(EPS growth, %)

(P/E, x)

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(W)

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March 12, 2020

SKC Kolon PI (178920 KQ/Buy/TP: W55,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized)

(Wbn) 12/18 12/19F 12/20F 12/21F (Wbn) 12/18 12/19F 12/20F 12/21F

Revenue 245 224 297 344 Current Assets 106 145 220 244

Cost of Sales 165 162 197 227 Cash and Cash Equivalents 11 32 64 77

Gross Profit 80 62 100 117 AR & Other Receivables 26 34 47 51

SG&A Expenses 20 28 25 29 Inventories 52 69 95 102

Operating Profit (Adj) 61 34 75 88 Other Current Assets 17 10 14 14

Operating Profit 61 34 75 88 Non-Current Assets 266 268 268 276

Non-Operating Profit -17 -13 -8 -4 Investments in Associates 0 0 0 0

Net Financial Income 0 -2 -2 -2 Property, Plant and Equipment 254 256 256 265

Net Gain from Inv in Associates 0 0 0 0 Intangible Assets 6 6 5 4

Pretax Profit 44 21 67 84 Total Assets 372 413 488 520

Income Tax 9 4 13 17 Current Liabilities 59 105 127 133

Profit from Continuing Operations 35 18 54 67 AP & Other Payables 35 47 64 69

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 15 46 46 46

Net Profit 35 18 54 67 Other Current Liabilities 9 12 17 18

Controlling Interests 35 18 54 67 Non-Current Liabilities 55 56 64 66

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 39 35 35 35

Total Comprehensive Profit 34 18 54 67 Other Non-Current Liabilities 16 21 29 31

Controlling Interests 34 18 54 67 Total Liabilities 114 161 191 199

Non-Controlling Interests 0 0 0 0 Controlling Interests 259 252 297 321

EBITDA 76 53 95 111 Capital Stock 15 15 15 15

FCF (Free Cash Flow) -49 8 42 56 Capital Surplus 188 188 188 188

EBITDA Margin (%) 31.0 23.7 32.0 32.3 Retained Earnings 135 128 172 197

Operating Profit Margin (%) 24.9 15.2 25.3 25.6 Non-Controlling Interests 0 0 0 0

Net Profit Margin (%) 14.3 8.0 18.2 19.5 Stockholders' Equity 259 252 297 321

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/18 12/19F 12/20F 12/21F 12/18 12/19F 12/20F 12/21F

Cash Flows from Op Activities 18 31 62 86 P/E (x) 27.9 58.2 17.8 14.2

Net Profit 35 18 54 67 P/CF (x) 16.1 23.1 10.6 8.8

Non-Cash Income and Expense 25 27 36 41 P/B (x) 3.8 4.1 3.2 3.0

Depreciation 15 18 20 22 EV/EBITDA (x) 13.2 20.5 10.2 8.7

Amortization 1 1 1 1 EPS (W) 1,191 601 1,831 2,288

Others 9 8 15 18 CFPS (W) 2,056 1,518 3,058 3,691

Chg in Working Capital -33 -9 -12 -3 BPS (W) 8,810 8,581 10,099 10,922

Chg in AR & Other Receivables 4 -9 -13 -3 DPS (W) 830 312 1,465 1,830

Chg in Inventories -32 -18 -26 -7 Payout ratio (%) 69.7 52.0 80.0 80.0

Chg in AP & Other Payables 3 -4 7 2 Dividend Yield (%) 2.5 0.9 4.5 5.6

Income Tax Paid -9 -3 -13 -17 Revenue Growth (%) 13.4 -8.6 32.6 15.8

Cash Flows from Inv Activities -69 -13 -20 -30 EBITDA Growth (%) 11.8 -30.3 79.2 16.8

Chg in PP&E -67 -23 -20 -30 Operating Profit Growth (%) 15.1 -44.3 120.6 17.3

Chg in Intangible Assets -2 0 0 0 EPS Growth (%) 6.7 -49.5 204.7 25.0

Chg in Financial Assets 10 0 0 0 Accounts Receivable Turnover (x) 9.0 7.5 7.3 7.1

Others -10 10 0 0 Inventory Turnover (x) 7.1 3.7 3.6 3.5

Cash Flows from Fin Activities -9 2 -9 -43 Accounts Payable Turnover (x) 12.2 10.2 9.1 8.8

Chg in Financial Liabilities 15 27 0 0 ROA (%) 9.8 4.5 11.9 13.3

Chg in Equity 0 0 0 0 ROE (%) 13.8 6.9 19.6 21.8

Dividends Paid -23 -24 -9 -43 ROIC (%) 18.6 10.5 20.3 21.0

Others -1 -1 0 0 Liability to Equity Ratio (%) 43.9 63.9 64.4 62.0

Increase (Decrease) in Cash -60 20 32 13 Current Ratio (%) 180.2 137.6 172.3 182.9

Beginning Balance 71 11 32 64 Net Debt to Equity Ratio (%) 12.6 19.6 5.8 1.3

Ending Balance 11 32 64 77 Interest Coverage Ratio (x) 65.0 15.4 26.8 31.6


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March 12, 2020

APPENDIX 1

Important Disclosures & Disclaimers

2-Year Rating and Target Price History

Company (Code) Date Rating Target Price Company (Code) Date Rating Target Price

AP Systems(265520) 05/25/2018 After 1yr

02/01/2019 Buy 42,000 05/25/2017 Buy 21,000

04/14/2018 Buy 36,000 SKC Kolon PI(178920)

09/24/2017 Buy 55,000 02/13/2020 Buy 55,000

ICD(040910) 10/28/2019 Buy 51,000

02/12/2020 Buy 27,000 04/30/2019 Buy 43,000

11/12/2019 Buy 22,000 10/22/2018 Buy 57,000

10/06/2019 Buy 19,000 01/29/2018 Buy 52,000

02/17/2019 Buy 16,000

11/07/2018 Buy 12,000

05/29/2018 Buy 14,000

Equity Ratings Distribution & Investment Banking Services

Buy Trading Buy Hold Sell

Equity Ratings Distribution 84.05% 9.82% 6.13% 0.00%

Investment Banking Services 76.67% 13.33% 10.00% 0.00%

* Based on recommendations in the last 12-months (as of December 31, 2019)

Disclosures

As of the publication date, Mirae Asset Daewoo Co., Ltd. and/or its affiliates do not have any special interest with the subject company and do not own 1% or more of

the subject company's shares outstanding.

Analyst Certification

The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean

securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst

responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about

any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly

related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts

and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer,

director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or

any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all

employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from,

among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this

report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as

otherwise stated herein.

Disclaimers

Stock Ratings Industry Ratings

Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving

Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes

Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening

Sell : Relative performance of -10%

Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆))

* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.

* Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material

development.

* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future

earnings.

* The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic

conditions.

0

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(W) AP Systems

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(W) ICD

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March 12, 2020

This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information

and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been

independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy,

completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an

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March 12, 2020

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