AMOLED sector - jrj.com.cnpg.jrj.com.cn/acc/Res/CN_RES/INVEST/2012/5/9/d58ab60b-468f-46a1-… · A1 4G 730*920 50 53 53 53 53 52 53 53 53 53 53 53 53 53 53 53 53 A2 P1/P2 5.5G 1300

Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our

website www.macquarie.com.au/disclosures.

ASIA

Samsung’s smartphone shipment vs SMD’s AMOLED panel shipment (4.8”)

Source: Macquarie Research, May 2012

AMOLED supply chain

Company Code Rating TP

(12M) CP Up/

downside

AP Systems 054620 OP 20,000 13,850 44% Cheil Industries

001300 OP 115,000 100,500 14%

ICD 040910 OP 37,000 25,050 48% DS Hi-Metal 077360 N 25,500 26,950 -5% SFA Engg 056190 N 51,000 58,900 -13%


Analyst(s) Macquarie Securities Korea Limited Soyun Shin +822 3705 8659 [email protected] Daniel Kim +82 2 3705 8641 [email protected] Macquarie Capital Securities Limited, Taiwan Branch Jeff Su +886 2 2734 7512 [email protected]

9 May 2012

AMOLED sector Long-waited orders coming through Event

Our channel checks indicate that Samsung is likely to expand its AMOLED

capacity from July 2012 to meet robust demand for AMOLED-based

smartphones. We expect AMOLED equipment vendors to benefit from this

development.

Impact

Strong Galaxy S III (GS3) momentum to lead to tight AMOLED supply.

We believe Samsung faces tight AMOLED supply through the rest of 2012,

given strong potential sales momentum of the GS3. We expect Samsung’s

smartphone shipment to increase 35% HoH to 129m units in 2H12 from 96m

units in 1H12, whereas 4.8” AMOLED panel shipments are likely to rise by

only 25% HoH (101m units in 2H12 from 81m units in1H12), reflecting

flexible-AMOLED capacity addition of 20K/month.

A3 order momentum to start kick in early 3Q12. We believe Samsung is

likely to place equipment orders for A3 lines (another 5.5Ge) to ramp up from

early 2013. We expect equipment makers to receive orders equivalent to 48K

glasses per month in 2H12. We also expect Korean makers to continue to

gain market share at Samsung’s AMOLED lines, given increasing penetration

to front-end equipment. The biggest beneficiary from this trend should be AP

Systems, given its exposure to all three manufacturing processes.

Targeting 1Q13 for flagship model with bendable AMOLED and higher

resolution. We believe Samsung is likely to launch a flagship model

equipped with a more advanced AMOLED panel (plastic substrate, more than

330ppi, clearer image) in 1Q13, after it has secured enough AMOLED panel

shipments to meet demand. We estimate flexible AMOLED shipments in 2012

at only 7.9m units, since the mass line is expected to start from July 2012.

Outlook

Weak 1H12 results outlook largely known. AMOLED supply chain vendors

under our coverage have underperformed the KOSPI by 6–14% YTD due to a

lack of capacity expansion in 1H12, its impact on 1H12 earnings outlook and

the limited visibility on Samsung’s capacity expansion plan. AMOLED supply

chain vendors are likely to report their 1Q12 earnings on 15 May.

Expect positive earnings momentum from 2H12. We expect the AMOLED

supply chain to report robust HoH earnings growth in 2H12 due to AMOLED

capacity expansion from July and increasing installation demand for A3 lines,

which are expected to ramp up from 2013. We prefer equipment makers at

this stage of capacity growth. We estimate total equipment capex of around

Won2.3trn for A2 and over Won3.0trn for A3 lines.

We like AP Systems among equipment names and Cheil Industries in

the material supply chain. Our preferred pick is AP Systems in the

equipment supply chain, due to its diversified product portfolio and margin

improvement in mobile AMOLED lines, and undemanding valuation. We also

like Cheil, which posted margin recovery in the tech material division in 1Q12

on restructuring efforts under new leadership (Cheil Industries: Margin

recovery to continue in 2Q12, Soyun Shin, 3 May 2012)

0

100

200

300

400

500

2010 2011 2012e 2013e 2014e

Samsung’s smartphone shipment 4.8" AMOLED panel shipment

(m units)

https://www.macquarieresearch.com/rp/d/r/publication.do?pub_id=7170472&file_name=CheilIndustries030512xe115189.pdf&

https://www.macquarieresearch.com/rp/d/r/publication.do?pub_id=7170472&file_name=CheilIndustries030512xe115189.pdf&

Macquarie Research AMOLED sector

9 May 2012 2

AMOLED order momentum to return

Fig 1 Annual AMOLED panel shipment from SMD vs Samsung smartphone shipments (4.8” equivalent)

Source: Company data, Macquarie Research, May 2012

Fig 2 Quarterly AMOLED panel shipment (4.8”) vs Samsung smartphone shipments


Fig 3 Samsung’s capacity expansion schedule (glasses/month)

SMD Gen. Size 2010 2011 2012 2013 2014 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

A1 4G 730*920 50 53 53 53 53 52 53 53 53 53 53 53 53 53 53 53 53

A2 P1/P2 5.5G 1300*1500 0 56 56 56 56 12 24 56 56 56 56 56 56 56 56 56

A2 P3 5.5G 1300*1500 0 0 20 20 20 16 20 20 20 20 20

A3 5.5G 1300*1500 0 0 0 96 100 24 48 72 96

V1 - Pilot 8.0G 2200*2500 0 8 8 8 8 8 8 8 8 8 8 8 8 8 8

V2 8.0G 2200*2500 0 0 0 24 60 24 24

Total capacity (based on 4.5Ge)

50 281 339 814 1,121 52 88 188 281 281 281 328 339 409 479 745 814

Q/Q change (%) 4% 69% 114% 49% 0% 0% 17% 4% 21% 17% 56% 9% Y/Y change (%) 108% 462% 21% 140% 38% 117% 203% 300% 462% 441% 220% 74% 21% 45% 70% 127% 140%


0

20

40

60

80

100

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q

11

4Q

11

1Q

12e

2Q

12e

3Q

12e

4Q

12e

1Q

13e

2Q

13e

3Q

13e

4Q

13e

Smartphone shipments of Samsung AMOLED panel shipments

(m units)

We need more capacity in 2013

!!!

0

100

200

300

400

500

2010 2011 2012e 2013e 2014e

A1 A2-P1/P2 A2-P3 A3 Smartphone shipments of Samsung

(m units)

We need A3 lines!


9 May 2012 3

Fig 4 Samsung’s AMOLED capex trend Fig 5 2012 AMOLED capex breakdown

Source: Company data, Macquarie Research, May 2012 Source: Company data, Macquarie Research, May 2012

Fig 6 AMOLED supply chain’s relative price performance in 2011

Fig 7 AMOLED supply chain’s 2012 YTD relative price performance

Source: Quantiwise, Macquarie Research, May 2012 Source: Quantiwise, Macquarie Research, May 2012

Fig 8 Equipment supply chain of mobile AMOLED at Samsung

Samsung

Line Capacity details Backplane Patterning Encapsulation Others

A2 P1/P2 64K (8K of flexible R&D line + 56K of glass encap mass lines)

Tech LTPS ELA 1/4 FMM Glass encap SFA. Toptek and Rorze Systems

Supply chain AP System, Tera Semicon and ICD

Tokki AP System + LTS + Tera Semicon

A2 P3 3.5 lines (2.5 lines for flexible AMOLED for mobile, one line for larger-sized products)

Tech LTPS ELA Laser patterning with R,G + B thermal evaporation

Thin-film encap


Tokki (or Hitachi high tech) + AP Systems + SFA

ULVAC + SNU + AP Systems

A3 Addition of 24K for each quarter in 2012

Tech LTPS - ELA Laser patterning with R,G + B thermal evaporation

Thin-film encap


Tokki (or Hitachi high or one Korean supplier) + AP Systems + SFA

ULVAC (or Wonik IPS or Applied Materials) + SNU + AP Systems


0.0

1.0

2.0

3.0

4.0

5.0

6.0

2009 2010 2011 2012e

(Won bn)

equipment

capex for A3-

P1/P2

44%

equipment

capex for A2-

P3

20%

Land &

buildings for

A3/V2

20%

R&D for

AMOLED TV

16%

-20%

0%

20%

40%

60%

80%

AP

Systems

SFA Eng Duksan Cheil ICD

-16%

-12%

-8%

-4%

0%

AP

Systems

Duksan Cheil SFA Eng ICD


9 May 2012 4

Fig 9 Mobile AMOLED material supply chain

A2-P1/P2 A2-P3 A3

(+) HTL/HIL Duksan HiMetal Duksan HiMetal and Doosan (CS Elsolar)

Duksan HiMetal and Doosan (CS Elsolar)

Red Phosphorous dopant UDC UDC UDC Phosphorous hopant Dow Chem Dow Chem Dow Chem

Green Phosphorous dopant UDC Phosphorous hopant Dow Chem

Green Flourescent dopant Dow Chem Dow Chem Flourescent host Doosan (CS Elsolar) Doosan (CS Elsolar)

Blue Flourescent dopant Sun Fine Chem Sun Fine Chem Sun Fine Chem Flourescent host Sun Fine Chem Sun Fine Chem Sun Fine Chem

(-) ETL/EIL LG Chem LG Chem and Cheil LG Chem and Cheil


Fig 10 Galaxy flagship series

Model Galaxy S Galaxy S II Galaxy Note LTE Galaxy S III

Picture

Dimensions 122.4 x 64.2 x 9 9 mm 125.3 x 66.1 x 8.49 mm 146.8 x 82.9 x 9.65 mm 136.6 x 70.6 x 8.6 mm

Weight 118 116g 182g 133g

Embedded OS Android 2.1 (Eclair) Android 2.3 (Ginger Bread)

Android 2.3 (Ginger Bread)

Android 4.0 (Ice-cream Sandwich)

CPU Samsung Exynos 3110 single-core

Samsung Exynos 4210 dual-core

Qualcomm SnapDragon MSM8660 dual-core

Samsung Exynos 4412 quad-core

CPU clock 1.0GHz 1.2GHz 1.5GHz 1.4GHz

Battery 1500mAh 1650mAh 2500mAh 2100mAh

Memory capacity 8/16GB 16/32GB + microSD 32GB 16/32/64GB + microSD

RAM 512MB 1GB 1GB 1GB

Display diagonal 4" Super AMOLED 4.3" Super AMOLED plus

5.30" HD Super AMOLED

4.80" HD Super AMOLED

Display resolution 400 x 800 480 x 800 800 x 1280 720 x 1280

Wi-Fi 802.11 b/g/n 802.11 a/b/g/n 802.11 a/b/g/n 802.11 b/g/n, Channel Bonding, HT40

Camera resolution 5 MP / 0.3 MP (front) 8 MP / 2 MP (front) 8MP / 2MP (front) 8MP / 1.9MP (front)



9 May 2012 5

Fig 11 AMOLED supply chain peer valuation – equipment

Tokyo

Electron Dainippon

Screen Nikon ULVAC AP Systems ICD SFA

Engineering

Code 8035 JP 7735 JP 7731 JP 6728 JP 054620 KS 040910 KS 056190 KS Rec Outperform Outperform Neutral Underperform Outperform Outperform Neutral TP 5620 860 1650 490 20,000 37,000 51,000 Price 4005 670 2288 537 13,850 25,050 58,900 Up/down (%) 40.3% 28.4% -27.9% -8.8% 44.4% 47.7% -13.4%

PER (x) FY11 17.9 24.1 24.9 nmf 20.6 12.5 14.0 FY12e 12.8 10.2 15.3 nmf 9.3 11.6 14.9 FY13e 7.6 7.8 23.6 16.0 7.0 8.0 13.3

PBR (x) FY11 1.2 1.8 2.2 0.8 3.6 4.3 3.1 FY12e 1.1 1.5 2.0 0.7 2.6 3.0 2.7 FY13e 1.0 1.3 1.8 0.7 1.9 2.1 2.4

EV/EBITDA (x) FY11 6.6 8.1 7.9 47.0 9.5 6.9 10.2 FY12e 4.7 5.1 8.7 9.6 5.1 5.4 10.4 FY13e 3.3 4.0 5.6 9.0 4.5 4.3 9.5

OP margin (x) FY11 9.5 6.1 7.5 (3.6) 11.6 22.8 12.2 FY12e 12.0 8.9 6.0 1.4 15.0 23.2 11.3 FY13e 17.0 10.8 10.2 2.5 15.5 22.5 11.6

Net margin (%) FY11 5.9 2.7 5.8 (24.8) 5.3 18.0 10.0 FY12e 8.5 5.9 4.0 0.4 10.3 18.4 9.0 FY13e 12.4 7.2 6.7 0.9 11.9 18.3 9.7

ROE (%) FY11 6.9 7.5 14.7 (40.8) 20.6 51.0 24.8 FY12e 9.2 16.2 8.9 1.3 32.7 30.6 19.4 FY13e 14.3 18.1 14.0 4.5 30.9 31.4 19.0

EPS growth (%) FY11 (45.9) (74.3) 63.0 nmf (169.1) nmf 94.2 FY12e 39.3 136.9 (35.2) nmf 172.9 59.9 (6.0) FY13e 68.9 30.3 72.5 267.0 32.4 46.1 12.0

Source: Macquarie Research, May 2012. Prices as at close of business on 8 May 2012.

Fig 12 AMOLED material supply chain peer valuation in Asia

Company Ticker Analyst Rating Market

cap Last

close TP P/E (x) P/B (x) ROE (%) EV/EBITDA

AMOLED 12E 13E 12E 13E 12E 13E 12E 13E

Cheil Industries 001300 KS Soyun Shin OP 4,289 100,500 115,000 17.1 13.4 1.4 1.2 9.0 9.9 12.5 10.1 DS Hi-Metal 077360 KS Soyun Shin N 627 26,950 25,500 21.1 18.5 4.5 3.6 24.2 21.4 19.1 17.3

Semiconductor

Shin-Etsu Chemical

4063 JP Damian Thong OP 2,065 4,340 5,250 13.6 11.7 1.2 1.1 9.0 9.9 5.4 4.5

JSR 4185 JP Damian Thong OP 426 1,512 2,000 10.3 8.8 1.2 1.1 12.2 12.9 4.0 3.6

LCD business

Konica Minolta 4902 JP Jeff Loff N 384 623 590 10.0 9.5 0.8 0.8 7.8 8.2 3.5 3.1 Kuraray 3405 JP Jeff Loff N 448 1,111 1,290 10.5 10.1 1.0 1.0 9.9 9.8 2.7 2.3 Nitto Denko 6988 JP Jeff Loff UP 579 3,365 3,000 10.1 9.9 1.2 1.1 12.3 11.6 3.0 2.6

Source: Macquarie Research, May 2012. Prices as at close of business on 8 May 2012.

Macquarie Research AMOLED Sector

9 May 2012 6

KOREA

054620 KS Outperform

Price (at CLOSE#, 08 5 2012) Won13,850

12-month target Won 20,000

Upside/Downside % 44.4

Valuation Won 20,000 - Price To Book

GICS sector Semiconductors & Semiconductor Equipment

Market cap Wonm 299,170

30-day avg turnover US$m 4.9

Market cap US$m 263

Number shares on issue m 21.60

Investment fundamentals

Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue bn 222.4 311.5 357.9 386.0 EBIT bn 25.8 46.7 55.4 58.5 EBIT growth % nmf 81.0 18.5 5.7 Reported profit bn 14.5 32.0 42.4 45.6 Adjusted profit bn 14.5 32.0 42.4 45.6

EPS rep Won 673 1,487 1,970 2,116 EPS rep growth % 40.0 120.9 32.4 7.4 EPS adj Won 673 1,487 1,970 2,116 EPS adj growth % 15.8 120.9 32.4 7.4 PER rep x 20.6 9.3 7.0 6.5 PER adj x 20.6 9.3 7.0 6.5 Total DPS Won 0 0 0 0 Total div yield % 0.0 0.0 0.0 0.0 ROA % 13.3 15.9 17.5 15.5

ROE % 20.6 32.7 30.9 24.2 EV/EBITDA x 9.5 5.1 4.5 4.0 Net debt/equity % 16.6 13.5 -20.7 -26.9

P/BV x 3.6 2.6 1.9 1.4

054620 KS rel KOSPI performance, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, May 2012

(all figures in Won unless noted)

Analyst(s) Soyun Shin +822 3705 8659 [email protected]

9 May 2012 Macquarie Securities Korea Limited

Asia Pacific Systems To benefit most from mobile AMOLED Event

We expect Asia Pacific Systems (AP Systems) to beat consensus 1Q12 OP

by 8% due to product mix improvement. We believe AP Systems’ strong

earnings momentum should continue into 2H12. Maintain Outperform.

Impact

HoH OP growth of 48%, the outstanding growth among AMOLED supply

chain. We expect a HoH OP growth of 48% due to strong AMOLED order

momentum and robust double-digits margin in 2H12. We expect total new

orders to reach Won190bn in 2H12, more than double compared to 1H12,

mainly for Samsung’s A3/P1-P2 capacity expansion in 2013 (5.5Ge). AP

Systems should benefit most from mobile AMOLED capacity expansion given

its exposure to all three manufacturing processes (ELA for backplane, laser

patterning for evaporation and laser lift off for thin-film encapsulation)

Significant YoY margin improvement on AMOLED technology

development. We expect AP Systems’ OP margin to reach 15% in 2012 from

12% in 2011 since equipment for flexible AMOLED with higher resolution

should provide higher margin compared to normal AMOLED equipment. We

expect Samsung’s AMOLED panel to be bendable and generate resolution of

340ppi (competing to iPhone’s 330 ppi) by using AP Systems’ equipment.

We like equipment makers in 2012. We continue to highlight our positive

view on AMOLED equipment makers at this stage of capacity growth as we

believe demand for equipment installation should remain robust. We expect

additional 5.5Ge capacity expansion of 28K/m in 2H12 and 48K/month in

1H13 from zero capacity expansion in 1H12.

Earnings and target price revision

We increase our 2012/13 net profit by 23%/21% respectively reflecting margin

improvement driven by product mix changes. We also lift our target price to

Won20,000 from Won18,000 on upward earnings revision. On the other hand,

we cut our ELA shipment forecast by 30% in the period of 1Q13-2Q14, given

increasing possibility for Samsung to adopt oxide TFT backplane for 8.0Ge,

based on our channel checks.

Price catalyst

12-month price target: Won20,000 based on a Price to Book methodology.

Catalyst: Increasing visibility of Samsung’s mobile AMOLED capacity

expansion as well as margin expansion on product mix improvement

Action and recommendation

AP Systems is our preferred equipment play in the AMOLED supply chain as

the biggest beneficiary of mobile AMOLED capacity expansion of Samsung.

We expect AP Systems’ strong order momentum to continue into 2H12 and

1H13 on robust installation demand for mobile AMOLED lines.

Despite of our more cautious stance on 8.0Ge order outlook, we maintain

positive view as near term order momentum looks promising in line with

mobile AMOLED roadmap development.


9 May 2012 7

Analysis

Fig 1 Quarterly earnings outlook

1Q11 2Q11 3Q11 4Q11 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 2011 2012e 2013e

Net sales 42.4 58.6 52.7 68.7 60.6 71.2 82.6 97.1 99.0 107.4 87.1 64.3 222.4 311.5 357.9 (% yoy) 14% 63% 53% 47% 43% 22% 57% 41% 63% 51% 5% -34% 40% 15% Semi equip 5.8 8.8 3.0 23.4 5.0 5.0 4.8 4.5 5.0 5.1 5.3 5.4 41.0 19.3 20.8 LCD equip 3.4 3.0 2.5 0.1 0.1 2.5 2.3 2.1 2.0 2.1 2.1 2.2 9.0 7.0 8.4 AMOLED equip 29.7 43.1 48.3 45.6 53.6 61.7 73.6 88.4 90.1 98.2 77.7 54.7 166.6 277.3 320.7 LED eqiup 0.0 1.2 0.0 0.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.2 4.0 4.0 S/W 0.9 0.7 0.0 0.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.6 4.0 4.0 Satelite 2.6 1.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.4 0.0 0.0

Sales mix - equipment

Semi equip 14.6% 15.5% 5.5% 33.9% 8.2% 7.0% 5.8% 4.6% 5.0% 4.8% 6.0% 8.4% 18.4% 6.2% 5.8% LCD equip 8.6% 5.3% 4.6% 0.1% 0.2% 3.5% 2.8% 2.2% 2.0% 1.9% 2.4% 3.4% 4.0% 2.2% 2.3% AMOLED equip 74.6% 75.8% 89.9% 66.0% 88.3% 86.7% 89.0% 91.1% 90.9% 91.5% 89.2% 85.0% 74.9% 89.0% 89.6% LED eqiup 0.1% 2.1% 0.0% 0.0% 1.6% 1.4% 1.2% 1.0% 1.0% 0.9% 1.1% 1.6% 0.6% 1.3% 1.1% S/W 2.2% 1.2% 0.0% 0.0% 1.6% 1.4% 1.2% 1.0% 1.0% 0.9% 1.1% 1.6% 0.7% 1.3% 1.1%

New orders

Semi Equip 6.9 14.2 0.0 10.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 31.1 0.0 0.0 LCD Equip 0.0 5.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.0 0.0 0.0 AMOLED Equip 87.2 9.2 31.0 110.3 44.1 25.6 86.9 104.1 84.6 113.3 39.4 39.4 237.7 260.8 276.6 ELA 65.0 6.5 6.5 35.8 8.1 8.1 24.4 33.7 33.7 45.5 14.6 14.6 113.8 74.3 108.5 Encap 22.0 0.0 22.0 0.0 0.0 0.0 0.0 7.9 7.9 24.8 24.8 24.8 44.0 7.9 82.2 LLO 0.0 0.0 0.0 5.5 22.0 0.0 27.5 27.5 13.8 13.8 0.0 0.0 5.5 77.0 27.5 LITI 0.0 0.0 0.0 63.0 14.0 17.5 35.0 35.0 26.3 26.3 0.0 0.0 63.0 101.5 52.5 Parts 0.2 2.7 2.5 6.0 0.0 0.0 0.0 0.0 3.0 3.0 0.0 0.0 11.4 0.0 6.0 LED Equip 0.0 1.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.2 0.0 0.0 S/W 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Operating profit -0.3 7.5 4.8 13.8 8.5 10.3 12.6 15.3 15.2 18.0 13.7 8.4 25.8 46.7 55.4

% YoY T/R 908% N/A T/B T/B 38% 162% 11% 78% 75% 9% -45% 81% 19% % margin -0.8% 12.8% 9.1% 13.0% 14.1% 14.4% 15.3% 15.8% 15.3% 16.8% 15.8% 13.0% 11.6% 15.0% 15.5%


Fig 2 Earnings revision of AP Systems

New Old Chg (%)

FY12E FY13E FY12E FY13E FY12E FY13E

Net sales 312 358 302 350 3.3 2.2 Gross profit 67 77 53 66 26.6 16.2 Operating profit 47 55 36 43 29.8 29.7 Pre-tax profit 43 57 34 49 26.8 16.5 Net profit 32 42 26 35 23.2 21.2

Profitability (%)

Gross profit 21.5% 21.4% 17.6% 18.9% Operating margin 15.0% 15.5% 11.9% 12.2% Pre-tax margin 13.8% 16.0% 11.3% 14.0% Net margin 10.3% 11.9% 8.6% 10.0%



9 May 2012 8

Fig 3 Historical PBR chart

Source: Quantiwise, Macquarie Research, May 2012

0

4,000

8,000

12,000

16,000

20,000

24,000

Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

AP (Won) x0.5 x1.7 x2.9 x4.2 x5.4


9 May 2012 9

Asia Pacific Systems (054620 KS, Outperform, Target Price: Won20,000) Quarterly Results 4Q/11A 1Q/12E 2Q/12E 3Q/12E Profit & Loss 2011A 2012E 2013E 2014E

Revenue m 68,721 60,647 71,197 82,604 Revenue m 222,444 311,522 357,879 386,003 Gross Profit m 20,270 13,949 14,951 17,347 Gross Profit m 44,742 67,118 76,665 84,921 Cost of Goods Sold m 48,451 46,698 56,246 65,257 Cost of Goods Sold m 177,702 244,404 281,215 301,082 EBITDA m 18,155 12,051 13,808 16,134 EBITDA m 40,293 60,807 69,462 77,288 Depreciation m 870 72 72 72 Depreciation m 4,125 288 288 4,983 Amortisation of Goodwill m 0 0 0 0 Amortisation of Goodwill m 0 0 0 0 Other Amortisation m 3,452 3,452 3,452 3,452 Other Amortisation m 10,357 13,809 13,809 13,809 EBIT m 13,833 8,527 10,283 12,610 EBIT m 25,811 46,711 55,366 58,496

Net Interest Income m -503 -530 -325 -426 Net Interest Income m -1,111 -1,593 -670 443 Associates m -7,525 0 0 0 Associates m -7,525 0 0 0 Exceptionals m 0 0 0 0 Exceptionals m 0 0 0 0 Forex Gains / Losses m 0 -1 1 0 Forex Gains / Losses m 0 0 0 0 Other Pre-Tax Income m 853 -500 -500 -500 Other Pre-Tax Income m 60 -2,000 2,400 2,400 Pre-Tax Profit m 6,658 7,496 9,459 11,683 Pre-Tax Profit m 17,235 43,117 57,096 61,339 Tax Expense m 819 -1,927 -2,431 -3,003 Tax Expense m -2,736 -11,081 -14,674 -15,764 Net Profit m 7,477 5,570 7,028 8,681 Net Profit m 14,499 32,036 42,422 45,575 Minority Interests m 0 0 0 0 Minority Interests m 0 0 0 0

Reported Earnings m 7,477 5,570 7,028 8,681 Reported Earnings m 14,499 32,036 42,422 45,575 Adjusted Earnings m 7,477 5,570 7,028 8,681 Adjusted Earnings m 14,499 32,036 42,422 45,575

EPS (rep) 347.1 258.6 326.3 403.0 EPS (rep) 673.2 1,487 1,970 2,116 EPS (adj) 347.1 258.6 326.3 403.0 EPS (adj) 673.2 1,487 1,970 2,116 EPS Growth yoy (adj) % nmf nmf 45.1 283.1 EPS Growth (adj) % 15.8 120.9 32.4 7.4

PE (rep) x 20.6 9.3 7.0 6.5 PE (adj) x 20.6 9.3 7.0 6.5

EBITDA Margin % 26.4 19.9 19.4 19.5 Total DPS 0.0 0.0 0.0 0.0 EBIT Margin % 20.1 14.1 14.4 15.3 Total Div Yield % 0.0 0.0 0.0 0.0 Earnings Split % 51.6 17.4 21.9 27.1 Weighted Average Shares m 22 22 22 22 Revenue Growth % 47.0 43.1 21.5 56.6 Period End Shares m 22 22 22 22 EBIT Growth % nmf nmf 37.5 161.5

Profit and Loss Ratios 2011A 2012E 2013E 2014E Cashflow Analysis 2011A 2012E 2013E 2014E

Revenue Growth % 44.1 40.0 14.9 7.9 EBITDA m 40,293 60,807 69,462 77,288 EBITDA Growth % -37.0 50.9 14.2 11.3 Tax Paid m -2,736 -11,081 -14,674 -15,764 EBIT Growth % nmf 81.0 18.5 5.7 Chgs in Working Cap m -51,475 -15,294 3,723 5,177 Gross Profit Margin % 20.1 21.5 21.4 22.0 Net Interest Paid m -1,111 -1,593 -670 443 EBITDA Margin % 18.1 19.5 19.4 20.0 Other m 38,876 -24,039 2,120 -31,857 EBIT Margin % 11.6 15.0 15.5 15.2 Operating Cashflow m 23,847 8,800 59,962 35,287 Net Profit Margin % 6.5 10.3 11.9 11.8 Acquisitions m 0 -1,259 -1,361 -1,472 Payout Ratio % 0.0 0.0 0.0 0.0 Capex m -21,624 -12,000 -14,000 -14,420 EV/EBITDA x 9.5 5.1 4.5 4.0 Asset Sales m 0 0 0 0 EV/EBIT x 17.1 6.7 5.6 5.3 Other m -14,950 4,244 4,681 4,925

Investing Cashflow m -36,575 -9,015 -10,680 -10,967 Balance Sheet Ratios Dividend (Ordinary) m 0 0 0 0 ROE % 20.6 32.7 30.9 24.2 Equity Raised m 56 0 0 0 ROA % 13.3 15.9 17.5 15.5 Debt Movements m 44,936 0 -10,000 0 ROIC % 33.7 36.4 31.8 34.1 Other m 4,386 -1,593 -670 443 Net Debt/Equity % 16.6 13.5 -20.7 -26.9 Financing Cashflow m 49,378 -1,593 -10,670 443 Interest Cover x 23.2 29.3 82.6 nmf Price/Book x 3.6 2.6 1.9 1.4 Net Chg in Cash/Debt m 36,650 -1,809 38,612 24,763

Book Value per Share 3,796.4 5,298.1 7,462.4 9,992.3 Free Cashflow m 2,223 -3,200 45,962 20,867

Balance Sheet 2011A 2012E 2013E 2014E Cash m 52,321 50,512 89,124 113,886 Receivables m 115,100 136,243 107,219 151,873 Inventories m 13,563 21,332 14,146 33,455 Investments m 15,899 17,160 18,523 19,998 Fixed Assets m 39,489 47,191 56,453 65,890 Intangibles m 0 0 0 0 Other Assets m 36,624 43,137 31,051 51,986 Total Assets m 272,996 315,575 316,517 437,090

Payables m 37,845 51,350 18,809 87,894 Short Term Debt m 40,405 40,405 40,405 40,405 Long Term Debt m 25,519 25,519 15,519 15,519 Provisions m 0 0 0 0 Other Liabilities m 87,455 84,185 81,051 78,048 Total Liabilities m 191,225 201,460 155,784 221,866 Shareholders' Funds m 82,080 114,116 156,538 202,113 Minority Interests m 0 0 0 0 Other m -309 -1 4,194 13,110 Total S/H Equity m 81,771 114,115 160,732 215,224

Total Liab & S/H Funds m 272,996 315,575 316,517 437,090

All figures in Won unless noted.

Source: Company data, Macquarie Research, 5월 2012


9 May 2012 10

KOREA

077360 KS Neutral

Price (at 06:00, 08 May 2012 GMT) Won26,950


Upside/Downside % -5.4

Valuation Won 25,500 - PER

GICS sector Semiconductors & Semiconductor Equipment

Market cap Wonm 792,124


Market cap US$m 696



Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue bn 129.4 154.5 181.6 215.0 EBIT bn 34.7 39.5 43.7 48.6 EBIT growth % 164.6 13.6 10.8 11.2 Reported profit bn 34.6 37.4 42.7 48.4 Adjusted profit bn 35.2 38.2 43.4 49.2

EPS rep Won 1,177 1,274 1,453 1,648 EPS rep growth % 191.9 8.2 14.1 13.4 EPS adj Won 1,198 1,301 1,480 1,674 EPS adj growth % 91.8 8.6 13.8 13.2 PER rep x 22.9 21.1 18.5 16.4 PER adj x 22.5 20.7 18.2 16.1 Total DPS Won 0 0 0 20 Total div yield % 0.0 0.0 0.0 0.1 ROA % 26.4 23.1 20.6 18.6

ROE % 30.3 24.2 21.7 19.9 EV/EBITDA x 20.2 19.1 17.3 15.6 Net debt/equity % -13.3 -28.5 -31.8 -37.3

P/BV x 5.7 4.5 3.6 2.9







Duksan Hi-Metal Outlook not exciting Event

Duksan Hi-Metal will report its 1Q12 earnings on 15th May. We expect

Duksan’s 1Q12 OP to miss consensus by 5%. We maintain our Neutral rating

with a slight downward revision in the target price revision, from Won26,000 to

Won25,500.

Impact

Lack of AMOLED capacity expansion negative for sales growth in 1H12.

We expect a QoQ decline in Duksan’s sales of AMOLED material by 9% and

5% in 1Q12 and 2Q12, respectively, given lack of capacity growth and loss of

~20 percentage points of market share to a domestic competitor in 1Q12.

Limited AMOLED sales growth in 2H12. We expect Duksan to register

relatively weak HoH sales growth in 2H12 compared to the equipment supply

chain, because of persistent pricing pressure and continuing vendor

diversification by Samsung. Overall, we cut our 2012 AMOLED sales

estimates by 10.9%.

Semi materials earnings momentum to stay solid. We increase our 2012

solder-ball material sales forecast by 3.5%. This is to factor in an increase in

the portion of Samsung’s LSI business from 50% of Duksan’s sales in 2011 to

65% in 2012E, leading to QoQ sales growth for the rest of 2012, with a stable

OP margin of 16%.

Potential technology roadmap change at mobile AMOLED is not positive.

We expect the AMOLED material supply chain to continue to evolve, as

AMOLED panel vendors seek to minimise power consumption. For example,

we expect increasing usage of materials from UDC or Novaleds at mass

production lines in 2013 (A3 lines). We believe this would result in further

pricing pressure on the common material supply chain.


We cut our 2012 net profit forecast by 4.1% on lower AMOLED material sales.

We also cut our target price to Won25,500 from Won26,000

Price catalyst

12-month price target: Won25,500 based on PER methodology.

Catalyst: Any change in SMD’s material supply chain for upcoming A3 lines.


We believe that as the AMOLED material market has grown more crowded

and Duksan has lost its position as sole vendor, the stock’s valuation premium

versus peers is no longer justifiable. We maintain our Neutral rating with a

reduced target price of Won25,500, based on a 2012e target PER of 19.7x.

Potential technology roadmap changes at 8.0Ge (adoption of white OLED for

low-end AMOLED TVs) could spur further demand for common materials.

However, we do not factor in this potential impact in our forecast, as the

8.0Ge technology roadmap is not yet clear.


9 May 2012 11

Analysis


(Won bn) 1Q11 2Q11 3Q11 4Q11 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 2011 2012E 2013E

Net sales 23.3 33.9 35.4 37.0 35.9 36.5 43.7 38.3 40.4 43.0 49.8 48.4 129.4 154.5 181.6 (% yoy) 86% 99% 62% 75% 54% 8% 24% 4% 13% 18% 14% 26% 19% 18% AMOLED materials 10.7 18.6 19.3 21.5 19.6 18.6 23.1 19.4 19.9 20.5 23.9 24.5 70.1 80.6 88.8 Solder ball 12.0 15.8 16.4 15.1 16.3 17.9 20.6 19.0 20.5 22.6 25.9 23.9 59.3 73.9 92.9

Sales mix

AMOLED materials 46% 55% 55% 58% 55% 51% 53% 50% 49% 48% 48% 51% 54% 52% 49% Solder ball 51% 47% 46% 41% 45% 49% 47% 50% 51% 52% 52% 49% 46% 48% 51%

Duksan's market share in HTL materials

A1 100% 100% 100% 95% 80% 80% 70% 65% 65% 65% 65% 65% 95% 65% 65% A2 100% 100% 100% 95% 80% 80% 70% 65% 65% 65% 65% 65% 95% 65% 65% A3 60% 60% 60% 60% 60% 8.0Ge 30% 30% 30%

Operating profit 5.6 8.3 9.8 10.9 9.3 9.4 11.0 9.8 9.4 10.4 11.8 12.1 34.7 39.5 43.7

% YoY 408.4% 173.9% 88.6% 190.8% 65.4% 12.3% 11.4% -10.0% 1.2% 10.6% 7.4% 23.8% 14% 11%

% margin 24.3% 24.7% 27.8% 29.5% 26.0% 25.7% 25.0% 25.6% 23.4% 24.1% 23.6% 25.1% 26.8% 25.5% 24.1%

Solder ball 14.0% 16.0% 16.5% 17.0% 14.0% 16.0% 15.0% 17.0% 14.0% 16.0% 15.0% 17.0% 16.0% 15.5% 15.5% AMOLED material 35.0% 34.5% 36.0% 38.0% 36.0% 35.0% 34.0% 34.0% 33.0% 33.0% 33.0% 33.0% 36.1% 34.7% 33.0%


Fig 2 Earnings revision - Duksan

(Won bn) New Old Chg (%)


Net sales 155 182 162 179 -4.6 1.7 AMOLED materials 81 89 91 93 -10.9 -4.5 Semicon materials 74 93 71 86 3.5 8.4 Gross profit 65 77 65 74 -0.1 4.0 Operating profit 39 44 41 43 -3.7 1.7 Pre-tax profit 40 46 42 45 -4.7 1.4 Net profit 37 43 39 42 -4.1 1.6

Profitability (%)

Gross profit 42.0 42.4 40.1 41.4 Operating margin 25.5 24.1 25.3 24.1 Pre-tax margin 25.9 25.1 25.9 25.2 Net margin 24.2 23.5 24.1 23.5


Fig 3 Historical PBR chart

Source: Bloomberg, Macquarie Research, May 2012

Stocks mentioned:

Samsung Electronics (005930 KS, Won1,341,000, Outperform, TP: Won1,900,000)

0

10,000

20,000

30,000

40,000

50,000

Oct-05 Oct-07 Oct-09 Oct-11

Duksan (Won) x0.6 x2.3 x4.0 x5.7 x7.3


9 May 2012 12

Duksan Hi-Metal (077360 KS, Neutral, Target Price: Won25,500) Quarterly Results 4Q/11A 1Q/12E 2Q/12E 3Q/12E Profit & Loss 2011A 2012E 2013E 2014E

Revenue m 36,955 35,889 36,525 43,743 Revenue m 129,440 154,502 181,650 215,045 Gross Profit m 17,725 14,557 15,184 18,651 Gross Profit m 53,160 64,952 76,955 91,227 Cost of Goods Sold m 19,229 21,331 21,341 25,091 Cost of Goods Sold m 76,281 89,550 104,694 123,818 EBITDA m 12,037 9,563 9,607 11,184 EBITDA m 38,211 40,396 44,656 49,543 Depreciation m 939 38 38 38 Depreciation m 2,886 153 153 153 Amortisation of Goodwill m 195 195 195 195 Amortisation of Goodwill m 599 780 780 780 Other Amortisation m 0 0 0 0 Other Amortisation m 0 0 0 0 EBIT m 10,902 9,330 9,373 10,950 EBIT m 34,726 39,463 43,723 48,610

Net Interest Income m 100 45 103 196 Net Interest Income m 232 590 1,956 3,183 Associates m -37 0 0 0 Associates m 134 -41 -45 -48 Exceptionals m 0 0 0 0 Exceptionals m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Other Pre-Tax Income m -88 -0 0 -0 Other Pre-Tax Income m -27 0 -0 -0 Pre-Tax Profit m 10,877 9,375 9,476 11,147 Pre-Tax Profit m 35,065 40,012 45,634 51,745 Tax Expense m -37 -609 -616 -725 Tax Expense m -498 -2,601 -2,966 -3,363 Net Profit m 10,839 8,766 8,860 10,422 Net Profit m 34,568 37,411 42,668 48,382 Minority Interests m 0 0 0 0 Minority Interests m 0 0 0 0


EPS (rep) 369.2 298.6 301.8 355.0 EPS (rep) 1,177 1,274 1,453 1,648 EPS (adj) 375.8 305.2 308.4 361.6 EPS (adj) 1,198 1,301 1,480 1,674 EPS Growth yoy (adj) % 103.7 68.5 1.9 7.0 EPS Growth (adj) % 91.8 8.6 13.8 13.2

PE (rep) x 22.9 21.1 18.5 16.4 PE (adj) x 22.5 20.7 18.2 16.1

EBITDA Margin % 32.6 26.6 26.3 25.6 Total DPS 0.0 0.0 0.0 20.0 EBIT Margin % 29.5 26.0 25.7 25.0 Total Div Yield % 0.0 0.0 0.0 0.1 Earnings Split % 31.4 23.5 23.7 27.8 Weighted Average Shares m 29 29 29 29 Revenue Growth % 74.6 54.3 7.9 23.7 Period End Shares m 29 29 29 29 EBIT Growth % 190.8 65.4 12.3 11.4


Revenue Growth % 78.6 19.4 17.6 18.4 EBITDA m 38,211 40,396 44,656 49,543 EBITDA Growth % 76.3 5.7 10.5 10.9 Tax Paid m -498 -2,601 -2,966 -3,363 EBIT Growth % 164.6 13.6 10.8 11.2 Chgs in Working Cap m -7,821 -1,042 -2,536 -1,174 Gross Profit Margin % 41.1 42.0 42.4 42.4 Net Interest Paid m 232 590 1,956 3,183 EBITDA Margin % 29.5 26.1 24.6 23.0 Other m 6,196 -258 -4,559 -3,587 EBIT Margin % 26.8 25.5 24.1 22.6 Operating Cashflow m 36,321 37,085 36,550 44,602 Net Profit Margin % 26.7 24.2 23.5 22.5 Acquisitions m 8,495 -43 -41 -40 Payout Ratio % 0.0 0.0 0.0 1.2 Capex m -22,088 -11,117 -28,000 -28,560 EV/EBITDA x 20.2 19.1 17.3 15.6 Asset Sales m 0 0 0 0 EV/EBIT x 22.2 19.6 17.7 15.9 Other m -1,140 5,678 9,450 11,764

Investing Cashflow m -14,733 -5,482 -18,591 -16,836 Balance Sheet Ratios Dividend (Ordinary) m 0 0 0 0 ROE % 30.3 24.2 21.7 19.9 Equity Raised m 101 -7 0 0 ROA % 26.4 23.1 20.6 18.6 Debt Movements m -8,600 -2,406 0 0 ROIC % 34.6 30.7 32.2 30.0 Other m 2,207 590 1,956 3,183 Net Debt/Equity % -13.3 -28.5 -31.8 -37.3 Financing Cashflow m -6,292 -1,823 1,956 3,183 Interest Cover x nmf nmf nmf nmf Price/Book x 5.7 4.5 3.6 2.9 Net Chg in Cash/Debt m 15,296 29,781 19,915 30,950

Book Value per Share 4,718.3 6,052.7 7,566.9 9,276.0 Free Cashflow m 14,233 25,968 8,550 16,042

Balance Sheet 2011A 2012E 2013E 2014E Cash m 20,851 50,632 70,547 101,497 Receivables m 10,505 10,554 10,605 10,657 Inventories m 12,610 14,287 18,235 20,114 Investments m 3,509 3,604 3,701 3,800 Fixed Assets m 65,155 70,533 89,021 105,754 Intangibles m 28,569 28,569 28,569 28,569 Other Assets m 10,630 11,064 14,437 16,064 Total Assets m 151,829 189,242 235,115 286,455

Payables m 4,574 5,209 6,621 7,326 Short Term Debt m 2,406 0 0 0 Long Term Debt m 0 0 0 0 Provisions m 0 0 0 0 Other Liabilities m 6,321 6,328 6,335 6,789 Total Liabilities m 13,300 11,536 12,956 14,115 Shareholders' Funds m 159,111 196,516 239,183 287,062 Minority Interests m 0 0 0 0 Other m -20,583 -18,810 -17,024 -14,723 Total S/H Equity m 138,528 177,706 222,160 272,340


All figures in Won unless noted. Source: Company data, Macquarie Research, May 2012


9 May 2012 13

KOREA

056190 KS Neutral

Price (at CLOSE#, 08 5 2012) Won58,900


Upside/Downside % -13.4

Valuation Won 51,000 - Price To Book

GICS sector Technology Hardware & Equipment

Market cap Wonbn

1,058


Market cap US$m 929



Year end 31 Dec 2011A 2012E 2013E 2014E

Revenue bn 753.4 786.5 817.2 877.7 EBIT bn 92.1 88.8 95.0 111.0 EBIT growth % 144.0 -3.6 7.0 16.7 Reported profit bn 75.6 70.8 79.3 92.8 Adjusted profit bn 75.6 71.2 79.9 93.4

EPS rep Won 4,212 3,945 4,418 5,171 EPS rep growth % 94.2 -6.3 12.0 17.1 EPS adj Won 4,212 3,964 4,448 5,202 EPS adj growth % 92.6 -5.9 12.2 16.9 PER rep x 14.0 14.9 13.3 11.4 PER adj x 14.0 14.9 13.2 11.3 Total DPS Won 1,280 1,200 1,400 1,600 Total div yield % 2.2 2.0 2.4 2.7 ROA % 15.5 15.3 15.0 15.6

ROE % 24.8 19.4 19.0 19.4 EV/EBITDA x 10.2 10.4 9.5 8.2 Net debt/equity % -21.9 -22.2 -23.8 -26.4

P/BV x 3.1 2.7 2.4 2.1







SFA Engineering Limited growth outlook Event

SFA Engineering is likely to report its 1Q12 earnings on Friday. We expect

SFA’s 1Q12 OP to be in line with our estimates and Bloomberg consensus at

Won16bn. We maintain our Neutral rating but lowered our target price to

Won51,000 from Won55,000.

Impact

Limited YoY sales and new order growth for the full year of 2012. We

expect SFA to report YoY sales growth of 4.4% and a new order growth of 5.7%

for 2012, which is the lowest YoY growth for AMOLED supply chains under

our coverage. We attribute this mainly to increasing competition in the back-

end equipment (Toptek and Rorze Systems in Korea) market for Samsung as

well as continuous pricing pressure.

YoY margin improvement unlikely. We expect SFA to report full year 2012

operating margin of 11.3% from 12.5% in 2011 without product mix

improvement to front-end equipment. Our checks indicate that SFA is one of

the participants in developing evaporators of 8.0Ge AMOLED lines. However,

it is not likely to be materialized in earnings for 2012 and uncertainty on order

visibility is still too high, given the undecided 8.0Ge technology and capacity

expansion roadmap of Samsung.

What would make us turn more positive on SFA? We would turn more

positive on SFA if the company was able to diversify its vendors outside of

Korea or enter the front-end equipment market. However, our checks indicate

that AUO (2409 TT, NT$13.4, OP, TP:NT$20) is likely to source its AMOLED

equipment from Japanese vendors. Also, we do not expect a substantial

vendor transition in the near term, which would be not positive on SFA’s

earnings momentum in 2012 and 2013.


We cut our 2012/2013 net profit by 11.2%/16.4%, respectively, reflecting

margin deterioration driven by increasing competition in the back-end

equipment market for Samsung.

Price catalyst

12-month price target: Won51,000 based on a Price to Book methodology.

Catalyst: 2012 guidance revision at the earnings conference this Friday


Among AMOLED equipment makers, we prefer front-end equipment makers

(AP Systems and ICD) to SFA Engineering.

We expect shares to be range-bound, considering a weak earnings

contribution from stalled mix improvement. We would pay attention to any

meaningful developments (yield rate improvements) of its front-end equipment

or customer diversification, which we think would be a re-rating catalyst for

SFA shares.


9 May 2012 14

Analysis


(Won bn) 1Q11 2Q11 3Q11 4Q11 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 2011 2012E 2013E

Net sales 134.1 209.1 152.1 258.1 146.5 239.8 164.0 236.3 186.9 232.4 138.0 259.9 753.4 786.5 817.2 (% yoy) 175% 128% 54% 41% 9% 15% 8% -8% 31% -3% -16% 10% 78% 4% 4% Fine glass 24.1 41.8 18.3 46.5 74.1 53.2 45.8 18.5 56.5 21.3 15.6 12.0 130.7 191.7 105.4 Front-end 5.4 4.2 3.0 28.4 21.1 9.9 7.3 53.3 37.2 17.2 11.3 67.6 41.0 91.7 133.3 Modulation 18.8 27.2 30.4 20.6 27.5 41.4 37.1 28.5 26.1 31.7 26.9 20.2 97.0 134.4 104.9 Logistics 85.8 135.9 100.4 162.6 23.8 135.3 73.8 135.9 67.1 162.2 84.1 160.1 484.7 368.8 473.6

Sales mix

Fine glass 18% 20% 12% 18% 51% 22% 28% 8% 30% 9% 11% 5% 17% 24% 12% Front-end 4% 2% 2% 11% 14% 4% 4% 23% 20% 7% 8% 26% 5% 12% 16% Modulation 14% 13% 20% 8% 19% 17% 23% 12% 14% 14% 19% 8% 13% 17% 13% Logistics 64% 65% 66% 63% 16% 56% 45% 58% 36% 70% 61% 62% 64% 47% 58%

New orders

Fine glass 34.3 31.4 13.4 97.0 23.4 21.4 9.2 66.1 17.5 16.0 6.9 49.6 176.0 120.0 90.0 Front-end 2.1 0.0 3.4 58.2 3.9 0.0 6.3 109.8 4.8 0.0 7.9 137.2 63.6 120.0 150.0 Modulation 22.8 35.9 21.3 12.9 35.2 55.2 32.8 19.9 23.7 37.3 22.1 13.4 92.9 143.1 96.6 Logistics 55.0 156.9 73.9 155.1 47.5 135.4 63.7 133.9 57.7 164.4 77.4 162.6 440.9 380.5 462.0

OP – IFRS 17.3 27.1 14.9 32.7 16.2 25.0 18.3 29.3 20.1 25.3 15.9 33.7 92.1 88.8 95.0

% YoY 282% 166% 39% -6% -8% 23% -10% 24% 1% -13% 15% 151% 0% 7% % OPM 13% 13% 10% 13% 11% 10% 11% 12% 11% 11% 12% 13% 12% 11% 12%


Fig 2 Earnings revision chart for SFA Eng

New Old Chg (%)


Net sales 787 817 859 949 -8.4 -13.9 Gross profit 152 159 172 190 -11.5 -16.5 Operating profit 89 95 101 117 -12.1 -18.7 Pre-tax profit 95 107 108 128 -11.3 -16.5 Net profit 71 79 80 95 -11.2 -16.4

Profitability (%)

Gross profit 19.3 19.4 20.0 20.0 Operating margin 11.3 11.6 11.8 12.3 Pre-tax margin 12.1 13.1 12.5 13.5 Net margin 9.0 9.7 9.3 10.0


Fig 3 Historical PER trend Fig 4 Historical PBR trend

Source: Macquarie Research, May 2012 Source: Macquarie Research, May 2012

0

20,000

40,000

60,000

80,000

100,000


SFA (Won) x2.0 x8.0

x13.9 x19.8 x25.8

0

20,000

40,000

60,000

80,000

100,000


SFA (Won) x0.5 x1.5

x2.4 x3.4 x4.3


9 May 2012 15

SFA Engineering (056190 KS, Neutral, Target Price: Won51,000) Quarterly Results 4Q/11A 1Q/12E 2Q/12E 3Q/12E Profit & Loss 2011A 2012E 2013E 2014E

Revenue m 258,066 146,489 239,751 164,006 Revenue m 753,374 786,501 817,192 877,718 Gross Profit m 52,291 27,817 45,706 32,350 Gross Profit m 142,997 151,966 158,609 170,539 Cost of Goods Sold m 205,775 118,672 194,045 131,657 Cost of Goods Sold m 610,377 634,535 658,584 707,179 EBITDA m 33,929 17,520 26,365 19,774 EBITDA m 96,701 94,858 103,277 119,179 Depreciation m 1,198 1,253 1,346 1,440 Depreciation m 4,551 5,683 7,685 7,685 Amortisation of Goodwill m 0 60 30 30 Amortisation of Goodwill m 0 336 543 543 Other Amortisation m 0 0 0 0 Other Amortisation m 0 0 0 0 EBIT m 32,731 16,206 24,989 18,304 EBIT m 92,150 88,839 95,050 110,951

Net Interest Income m 889 1,751 1,767 1,393 Net Interest Income m 3,136 6,519 11,717 14,034 Associates m 0 0 0 0 Associates m 0 0 0 0 Exceptionals m 0 0 0 0 Exceptionals m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Other Pre-Tax Income m -170 -0 0 0 Other Pre-Tax Income m 559 0 -0 0 Pre-Tax Profit m 33,449 17,957 26,755 19,697 Pre-Tax Profit m 95,845 95,358 106,767 124,985 Tax Expense m -8,601 -4,617 -6,880 -5,065 Tax Expense m -20,222 -24,519 -27,453 -32,137 Net Profit m 24,849 13,340 19,876 14,633 Net Profit m 75,623 70,839 79,314 92,848 Minority Interests m 0 0 0 0 Minority Interests m 0 0 0 0


EPS (rep) 1,384 743.0 1,107 815.0 EPS (rep) 4,212 3,945 4,418 5,171 EPS (adj) 1,384 746.3 1,109 816.7 EPS (adj) 4,212 3,964 4,448 5,202 EPS Growth yoy (adj) % 8.3 -7.0 -19.3 25.4 EPS Growth (adj) % 92.6 -5.9 12.2 16.9

PE (rep) x 14.0 14.9 13.3 11.4 PE (adj) x 14.0 14.9 13.2 11.3

EBITDA Margin % 13.1 12.0 11.0 12.1 Total DPS 1,280 1,200 1,400 1,600 EBIT Margin % 12.7 11.1 10.4 11.2 Total Div Yield % 2.2 2.0 2.4 2.7 Earnings Split % 32.9 18.8 28.0 20.6 Weighted Average Shares m 18 18 18 18 Revenue Growth % 40.6 9.2 14.6 7.9 Period End Shares m 18 18 18 18 EBIT Growth % 38.6 -6.5 -8.0 22.5


Revenue Growth % 78.1 4.4 3.9 7.4 EBITDA m 96,701 94,858 103,277 119,179 EBITDA Growth % 128.2 -1.9 8.9 15.4 Tax Paid m -20,222 -24,519 -27,453 -32,137 EBIT Growth % 144.0 -3.6 7.0 16.7 Chgs in Working Cap m 165,648 -9,748 -7,716 -860 Gross Profit Margin % 19.0 19.3 19.4 19.4 Net Interest Paid m 3,136 6,519 11,717 14,034 EBITDA Margin % 12.8 12.1 12.6 13.6 Other m -132,894 -10,087 -19,091 -8,620 EBIT Margin % 12.2 11.3 11.6 12.6 Operating Cashflow m 112,370 57,022 60,734 91,596 Net Profit Margin % 10.0 9.0 9.7 10.6 Acquisitions m -59,135 -14,462 -15,647 -16,930 Payout Ratio % 30.4 30.3 31.5 30.8 Capex m -23,661 -24,607 -25,591 -26,615 EV/EBITDA x 10.2 10.4 9.5 8.2 Asset Sales m 0 0 0 0 EV/EBIT x 10.7 11.1 10.3 8.8 Other m -13,529 7,992 10,084 10,746

Investing Cashflow m -96,324 -31,077 -31,154 -32,799 Balance Sheet Ratios Dividend (Ordinary) m -8,844 -21,227 -21,227 -24,764 ROE % 24.8 19.4 19.0 19.4 Equity Raised m 0 0 0 0 ROA % 15.5 15.3 15.0 15.6 Debt Movements m 0 0 0 0 ROIC % 37.0 24.5 23.3 24.1 Other m 0 6,519 11,717 -5,966 Net Debt/Equity % -21.9 -22.2 -23.8 -26.4 Financing Cashflow m -8,844 -14,708 -9,510 -30,730 Interest Cover x nmf nmf nmf nmf Price/Book x 3.1 2.7 2.4 2.1 Net Chg in Cash/Debt m 7,202 11,237 20,070 28,067

Book Value per Share 19,196.5 21,742.6 25,029.5 28,499.7 Free Cashflow m 88,709 32,415 35,143 64,981

Balance Sheet 2011A 2012E 2013E 2014E Cash m 75,614 86,851 106,921 134,989 Receivables m 141,786 107,463 117,716 134,275 Inventories m 7,059 47,540 52,356 60,114 Investments m 180,446 194,957 210,655 227,636 Fixed Assets m 107,073 123,454 138,720 154,341 Intangibles m 0 0 0 0 Other Assets m 46,715 39,946 40,808 42,209 Total Assets m 558,694 600,211 667,176 753,564

Payables m 120,970 116,014 123,177 146,437 Short Term Debt m 0 0 0 0 Long Term Debt m 0 0 0 0 Provisions m 0 0 0 0 Other Liabilities m 93,063 93,821 94,611 95,432 Total Liabilities m 214,033 209,836 217,788 241,870 Shareholders' Funds m 361,568 411,181 465,730 530,277 Minority Interests m 0 0 0 0 Other m -16,908 -20,805 -16,342 -18,582 Total S/H Equity m 344,661 390,376 449,389 511,695


All figures in Won unless noted. Source: Company data, Macquarie Research, May 2012


9 May 2012 16

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada

Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be

expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 March 2012

AU/NZ Asia RSA USA CA EUR Outperform 53.90% 60.60% 57.50% 43.59% 66.67% 46.89% (for US coverage by MCUSA, 10.86% of stocks covered are investment banking clients)

Neutral 31.56% 23.00% 32.50% 51.09% 30.00% 32.60% (for US coverage by MCUSA, 9.50% of stocks covered are investment banking clients)

Underperform 14.54% 16.40% 10.00% 5.32% 3.33% 20.51% (for US coverage by MCUSA, 1.36% of stocks covered are investment banking clients)

Company Specific Disclosures: Macquarie Securities Korea Limited is an issuer of ELW/ELNs and a liquidity provider in Cheil Industries Inc (001300.KS). Up to date information of our warrant position can be found here: http://kind.krx.co.kr/disclosure/disclosurebystocktype.do?method=searchDisclosureByStockTypeMain Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

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Recommendations contained in one type of research product may differ from recommendations contained in other types of research, whether as a result of differing time horizons, methodologies, or otherwise. Before making an investment decision on the basis of this research, you need to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of your particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. 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Asia Research Head of Equity Research

John O’Connell (Global Co – Head) (612) 8232 7544 David Rickards (Global Co – Head) (612) 8237 1159

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Amit Mishra (India) (9122) 6720 4084

Clive Wiggins (Japan) (813) 3512 7856

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Banks and Non-Bank Financials

Ismael Pili (Asia, Hong Kong) (852) 3922 4774

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Conglomerates

Alex Pomento (Philippines) (632) 857 0899 Somesh Agarwal (Singapore) (65) 6601 0840

Consumer and Gaming

Gary Pinge (Asia) (852) 3922 3557

Linda Huang (China, Hong Kong) (852) 3922 4068

Amit Mishra (India) (9122) 6720 4084

Lyall Taylor (Indonesia) (6221) 2598 8489

Toby Williams (Japan) (813) 3512 7392

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Alex Pomento (Philippines) (632) 857 0899 Somesh Agarwal (Singapore) (65) 6601 0840

Best Waiyanont (Thailand) (662) 694 7993

Emerging Leaders

Jake Lynch (China, Asia) (8621) 2412 9007

Makoto Egami (Japan) (813) 3512 7879

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Janet Lewis (Asia) (852) 3922 5417

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Saiyi He (China) (852) 3922 3585

Inderjeetsingh Bhatia (India) (9122) 6720 4087 Alex Kong (Korea) (822) 3705 8551 Juwon Lee (Korea) (822) 3705 8661

Sunaina Dhanuka (Malaysia) (603) 2059 8993

David Gambrill (Thailand) (662) 694 7753

Insurance

Scott Russell (Asia, China) (852) 3922 3567

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Media and Internet

Jiong Shao (China, Hong Kong) (852) 3922 3566

Steve Zhang (China, Hong Kong) (852) 3922 3578

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Tuck Yin Soong (Singapore) (65) 6601 0838 Corinne Jian (Taiwan) (8862) 2734 7522

Patti Tomaitrichitr (Thailand) (662) 694 7727

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Andrew Dale (Asia) (852) 3922 3587 Graeme Train (China) (8621) 2412 9035

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Pelen Ji (China, Hong Kong) (852) 3922 4741 Christina Lee (Hong Kong) (852) 3922 3571

Rakesh Arora (India) (9122) 6720 4093

Adam Worthington (Indonesia) (852) 3922 4626 Polina Diyachkina (Japan) (813) 3512 7886

Chak Reungsinpinya (Thailand) (662) 694 7982

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Adam Worthington (Asia) (852) 3922 4626 Inderjeetsingh Bhatia (India) (9122) 6720 4087

Prem Jearajasingam (Malaysia) (603) 2059 8989


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Jim Lennon (4420) 3037 4271

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Josh Holcroft (852) 3922 1279

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Peter Eadon-Clarke (Asia, Japan) (813) 3512 7850

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Burke Lau (Asia) (852) 3922 5494 Simon Rigney (Asia) (852) 3922 4719

Eric Yeung (Asia) (852) 3922 4077

Patrick Hansen (Japan) (813) 3512 7876 Ayumu Kuroda (Japan) (813) 3512 7569

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Emil Wolter (Asia) (65) 6601 0538

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Jiong Shao (China) (852) 3922 3566

Rakesh Arora (India) (9122) 6720 4093 Nicolaos Oentung (Indonesia) (6121) 2598 8366

Michael Newman (Japan) (813) 3512 7920

Chan Hwang (Korea) (822) 3705 8643 Yeonzon Yeow (Malaysia) (603) 2059 8982


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Angus Kent (Thailand) (662) 694 7601

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Adam Zaki (Asia) (852) 3922 2002 Phil Sellaroli (Japan) (813) 3512 7837

Grace Lee (Korea) (822) 3705 8601

Jonathan Seymour (Singapore) (65) 6601 0202

Sales Trading cont’d

Mike Keen (Europe) (44) 20 3037 4905 Chris Reale (New York) (1 212) 231 2555

Marc Rosa (New York) (1 212) 231 2555

Stanley Dunda (Indonesia) (6221) 515 1555 Kenneth Cheung (Malaysia) (603) 2059 8888

Michael Santos (Philippines) (632) 857 0813

Isaac Huang (Taiwan) (8862) 2734 7582 Dominic Shore (Thailand) (662) 694 7707

Documents

AMOLED sector - jrj.com.cnpg.jrj.com.cn/acc/Res/CN_RES/INVEST/2012/5/9/d58ab60b-468f-46a1-… · A1 4G 730*920 50 53 53 53 53 52 53 53 53 53 53 53 53 53 53 53 53 A2 P1/P2 5.5G 1300