Disclosures & Disclaimer
This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
Issuer of report: The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch
View HSBC Global Research at:
https://www.research.hsbc.com
✔ Vote in Asiamoney Brokers Poll 20164 July - 12 August
If you value our service and insight, vote for HSBCClick here to vote
Despite the recent rally by electronics material stocks, we see
further upside driven by 3D NAND and OLED
3D NAND to boost materials growth and OLED transition still
at the nascent stage; valuation still below mid-cycle level
We prefer SKM and Soulbrain based on very strong market
positions, and Duksan as a pure OLED play; all rated Buy
Materials bull cycle still underway: We believe Korea’s electronic materials sector
has entered a boom period supported by multi-year secular tech trends (see Korea
Electronic Materials – Initiating coverage: Prolonged bull cycle has just begun, 8 June
2015). Korean electronic materials stocks have rallied recently, posting an average
return of 30% in the past three months (vs. Korea IT index up 17% and KOSPI up
3%). We attribute the sector’s outperformance to increasing visibility in electronic
materials demand growth on the back of the proliferation of 3D NAND and OLED.
Further upside: Despite the rally since 1Q16, we see further upside in the sector
driven by substantial earnings growth and multiple expansion supported by three
factors: 1) we think materials demand from 3D NAND and OLED capacity expansion
will be stronger than the market expects ; 2) we think valuations are still attractive at
a 12-month forward average PE of 12x, below the mid-cycle level of 15x; and 3) the
margin profile at major Korean electronic materials companies has improved significantly,
as evidenced by continuing sequential earnings growth, contrary to the Street’s
continued worries over demand. Our 2017e/18e OP estimates are 11%/9% ahead of
Bloomberg consensus on average.
We prefer SKM, Soulbrain, and Duksan Neolux: Although we are bullish on all
electronic materials companies under our coverage (all rated Buy) based on our
positive stance on a prolonged material bull cycle, we prefer SK Materials and
Soulbrain in light of their strong market positions and Duksan Neolux as a pure OLED
material play. We raise our TP for SK Materials by 31% to KRW200,000 on our
higher earnings and target multiple based on a solid NF3 price trend and better ROE
profile. We reiterate our Buy ratings on Wonik Materials, Hansol Chemical and DNF.
We raise our TP for Wonik to KRW88,000 on a better earnings outlook for 2017e and
cut our TP for DNF to KRW18,000 after lowering earnings. Key downside risks
include: 1) potential delays in 3D NAND and OLED expansion and 2) customer
concentration risk from a high reliance on Korean electronic giants.
4 August 2016
Will Cho*
Analyst, Hardware & Materials
The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch
+822 3706 8765
Kenneth Shim*
Research Associate, Tech/Semiconductor
The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch [email protected]
+822 3706 8779
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations
Korea Electronic Materials EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
Korea
Ratings, target prices and estimates summary Current ______ TP _______ Rating Upside/ Market cap. 60 day avg. ____ EPS changes ____ Company Ticker Currency price Old New downside (USDm) turnover (USDm) 2016e 2017e
SK Materials 036490 KS KRW 151,500 153,000 200,000 Buy 32% 1,439 8.3 0.4% 6.7%
Soulbrain 036830 KS KRW 67,300 80,000 80,000 Buy 19% 1,004 6.0 0.0% 0.0%
Duksan Neolux 213420 KS KRW 31,350 45,000 45,000 Buy 44% 339 2.5 -58.7% -28.1%
Wonik Materials 104830 KS KRW 72,300 84,000 88,000 Buy 22% 403 2.0 -25.9% 1.4%
Hansol Chemical 014680 KS KRW 83,500 100,000 100,000 Buy 20% 849 3.0 1.3% 0.7%
DNF 092070 KS KRW 14,600 21,000 18,000 Buy 23% 141 1.3 -56.5% -45.3%
Source: HSBC estimates. Priced as of close at 2 August 2016
A stronger bull cycle on 3D NAND and OLED
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
2
Materials bull cycle still underway
A year ago, we argued that the Korean electronic materials sector had entered a boom period
driven by multi-year secular trends (see Korea Electronic Materials – Initiating coverage:
Prolonged bull cycle has just begun, 8 June 2015). After experiencing a sharp share correction
since July 2015 up to 1Q16 due to weaker DRAM pricing, Korean electronic materials stocks
have rallied recently, showing an average return of 30% over the past three months (vs. Korea
IT index up 17% and KOSPI up 3%). We attribute the sector’s outperformance to the increasing
visibility in electronic materials demand growth, which has been driven by the proliferation of 3D
NAND and OLED.
Despite the recent share rally, we see further upside in the sector’s share prices, as earnings
growth becomes apparent and multiples expand. This continued rally would be supported by
1) stronger-than-expected materials demand driven by 3D NAND and OLED capacity expansion;
2) still-attractive valuations (the current 12-month forward PE of 12x is below the mid-cycle level
of 15x); and 3) the margin profile at major Korean electronic materials companies has improved
significantly, as evidenced by continuing sequential earnings growth despite the Street’s
continued demand worries.
Stronger bull cycle
Despite the recent sector rally, we see further upside driven by 3D
NAND and OLED; valuation still below mid-cycle level
3D NAND to boost materials growth and LCD to OLED transition still
at the nascent stage
We prefer SK Materials and Soulbrain based on their very strong
market positions, and Duksan Neolux as pure OLED play; all rated
Buy
The recent rally has been
driven by increasing visibility
in electronic materials
demand growth
Korean electronic materials companies have seen a share price rally since 1Q16
Source: Quantwise
0
50
100
150
200
250
300
350
400
450
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16
(1/1/2013=100)
SK Materials Hansol Chemical
Soulbrain Wonik Materials
DNF Dongjin Semichem
ENF Technology
Demand woes triggered by weaker DRAM pricing
Stronger demand from 3D NAND and OLED
3
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
Demand for electronic materials seems to be stronger than Street expectations due to the
faster-than-expected 3D NAND and OLED ramps. HSBC analyst Ricky Seo recently raised his
3D NAND capacity assumption for Samsung Electronics (005930KS, Buy, KRW1,548,000) to
140k/190k wpm by end-2016e/17e from 100k/150k wpm, respectively (see Samsung
Electronics (005930 KS) – Buy: Technology leadership improves fundamentals, 11 June 2016).
Since 1Q16, HSBC has also raised its global OLED adoption rate assumptions at smartphones
for 2017e/18e from 24%/28% to 34%/43%, respectively (see OLED – Faster OLED adoption at
China smartphone makers; price parity to stimulate the adoption further, 18 May 2016).
We can find evidence of the solid materials demand that is being driven by 3D NAND and OLED
through recent NF3 price trends. NF3 is a chamber cleaning gas used in both the 3D NAND and
OLED manufacturing processes. Despite NF3 manufacturers adding capacity in early 2Q16, a
period in which NF3 demand is seasonally weak, NF3 prices did not fall q-o-q in 2Q16 despite
slow seasonality, which implies that demand was strong enough to fully absorb the incremental
supply. In fact, NF3 prices (based on Korea trade data) rose by 4% m-o-m in May and 3% m-o-m in
June, respectively, after a 5% fall in April when new capacity came on line.
In addition, we believe 3D NAND and OLED expansion will drive a multi-year up-cycle in
materials for major Korean companies as: 1) Korean customers will likely continue both 3D
NAND and OLED capacity expansion in order to gain a first-mover advantage in the early stage;
2) we think the need for material localization will rise to save costs amid a strengthening JPY
and to prevent technology leakage; and 3) compared to LCD, 3D NAND and OLED are less
material-intensive and have less volatile utilization, which supports stable demand for materials.
Samsung 3D NAND capacity to reach 190K wpm by end-2017e
OLED penetration into smartphones to speed up driven by Apple and Chinese handset makers
Source: HSBC estimates Source: HSBC estimates
Solid NF3 price trend despite supply increase, suggesting stronger demand
Forex has been turning favourable for Korea electronic materials makers
Source: KITA Source: Quantwise
0
50
100
150
200
250
300
end-2014 end-2015 end-2016e end-2017e
New Samsung 3D NAND fab capacity
Previous Samsung 3D NAND fab capacity
(kwpm)
10%14%
21%
34%
43%
20%24%
28%
0%
20%
40%
60%
2014 2015 2016e 2017e 2018e
New global OLED smartphone adoption portion (18 May)
Previous OLED smartphone adoption portion (4 Jan)
20
25
30
35
40
45
50
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
(USD/kg)
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
2012 2013 2014 2015 2016
(KRW/100JPY)
Tailwind from JPY strengthening
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
4
We believe stronger earnings growth will be the catalyst for higher multiples in the sector.
Despite ongoing market concerns about weaker demand, major electronic materials companies
have shown significant earnings improvement since bottoming in 4Q13, which implies improved
fundamentals on cost reduction, a better product mix, and share gains.
In addition, contrary to market concerns about slowing demand for process materials, inventory
levels at major electronic material companies remain below the average for the past five years,
which implies solid demand is absorbing incremental supply growth. Healthy inventory levels
also reduce the need for significant capacity addition at electronic material makers, which
lowers the capex burden.
Strong fundamentals justify share rally, reducing valuation burden
Continuing earnings growth
Source: Company data, HSBC estimates
Note: Combined operating profit of SKM, Hansol Chemical, Soulbrain, Wonik Materials, DNF, ENF Technology, and Dongjin Semichem. Source: Company data, HSBC estimates
Despite concerns about earnings erosion, margin improvement has continued
Sales growth is also underway
Note: Combined sales and OP margin of SKM, Hansol Chemical, Soulbrain, Wonik Materials, DNF, ENF Technology, and Dongjin Semichem. Source: Company data, HSBC estimates
Note: Combined sales of SKM, Hansol Chemical, Soulbrain, Wonik Materials, DNF, ENF Technology, and Dongjin Semichem. Source: Company data, HSBC estimates
0x
5x
10x
15x
20x
25x
2008 2009 2010 2011 2012 2013 2014 2015 2016
(12-month forward PE)
2008-2014 average of materials = 15x
0
20
40
60
80
100
120
140
160
1Q12 1Q13 1Q14 1Q15 1Q16
(Operating profit, KRWbn)
Earnings rebounded sharply bottoming in 4Q13 on 1) market share gains and 2) product mix improvement amid 3) semiconductor/display market growth
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
400
450
500
550
600
650
700
750
1Q12 1Q13 1Q14 1Q15 1Q16
(KRWbn) Sales (LHS) OP Margin (RHS)
-5%
0%
5%
10%
15%
20%
25%
1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16
(%YoY)
Despite market concerns
about weaker demand, major
electronic materials makers’
earnings have improved
significantly since 4Q13
5
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
SK Materials’ days of inventory Soulbrain’s days of inventory
Source: Company data Source: Company data
3D NAND to boost materials growth
The transition to a 3D NAND process from a planar NAND process reduces the dependency on
lithography by using existing 4X nm or 3X nm node technology, but it increases the number of
deposition and etch processes from stacking memory cells. According to Applied Materials
(AMAT US, USD25.97, not rated), as incremental lithography investments migrate from 3X nm
to 1X, 1Ynm, and 3D continues to decline, requirements for deposition (CVD/ALD) and etch
processes increase significantly when migrating to 3D from 1Y nm. Applied Materials estimates
that the number of etch processes for 3D NAND is increasing by 30-40% compared with planar
NAND to address the high aspect ratio and staircase patterning, while the deposition
requirement is rising by 50-60% to address multi-layer stacks and thick films.
Such increases in deposition and etching raise demand for related materials, such as CVD
gases, ALD precursors, etchants, and cleaning solutions. We believe 3D NAND capacity
expansion, coupled with stack upgrades, will drive not only shipment growth (on larger capacity),
but also ASP hikes (on a rising portion of high-performance materials) for electronic materials.
We believe the beneficiaries of deposition-related materials will be SK Materials (NF3, SiH4,
WF6) and Wonik Materials (CVD gas, HCDS). In the etch space, we think the beneficiaries will
be Soulbrain, the sole supplier of nitride layer etchant to Samsung’s 3D NAND fab, and Hansol
Chemical, the only provider of hydrogen peroxide to Samsung’s Xian 3D NAND fab, which is a
key base material for wafer cleaning solutions.
Incremental cost of node-to-node transition: 3D NAND shifts spending from lithography to materials deposition (CVD/ALD) and removal (etch)
Stack upgrades within Samsung Electronics also underway
Source: Applied Materials, HSBC estimates Source: HSBC estimates
60
70
80
90
100
110
120
1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16
(Days of inventory)
Average since 1Q10
0
10
20
30
40
50
60
1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16
(Days of inventory)
Average since 1Q10
0
50
100
150
200
Lithography Deposition Etch
3X nm 1X nm 1Y nm 3D
Requirements increase(vs. 2D NAND)
Deposition+50~60%
Etch+30~40%
0
50
100
150
200
2014 2015e 2016e 2017e 2018e
(Stacks)
24 MLC32 TLC
48 TLC64 TLC
96 TLC
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
6
Global 3D NAND capacity Soulbrain etchant ASP hike on 3D NAND expansion
Source: HSBC estimates Source: Company data, HSBC estimates
Beneficiaries of 3D NAND expansion
Process Material Function Manufacturer
CVD/ALD Monosilane (SiH4) SiO/SiN gate spacer SKM, REC, Mitsui Chemicals (deposition) Disilane (Si2H6) +NH3 -> Si3N4 (nitride film) SKM, Wonik Materials HCDS (Si2Cl6) +N2O -> SiO2 (tunnel oxide film) DNF, UMT, Hansol Chemical NH3 +SiH4/Si2H6 -> Si3N4 (nitride film) Wonik Materials N2O +SiH4/Si2H6 -> SiO2 (tunnel oxide film) Wonik Materials NO +SiH4/Si2H6 -> SiON (for NAND) Wonik Materials WF6 +H2 -> tungsten (W) metal gate SKM
Wet Etch HF/NH4F/BOE Etching oxide layers (SiO) Soulbrain, ENF Technology HSN (H3PO4) Etching nitride layers (SiN) with high selectivity Soulbrain
Dry Etch CF4/C4F8 Etching oxide layers (SiO) Wonik Materials
Cleaning H2O2 Wafer cleaning solution Hansol Chemical HF Soulbrain
Source: Company data, HSBC estimates
OLED transition still at an early stage
Contrary to some conservative views on OLED on the Street that the sector has peaked, we
think the OLED industry has just entered the second round of an upcycle driven by a wider
customer base (including Chinese smartphone makers and Apple (AAPL, USD104.48, not rated)
and bigger applications (TVs). We expect global OLED panel shipments to increase by 87%/63%
in 2017e/18e, driven by a rising OLED adoption rate in smartphones, which should lead to key
materials market growth of 63% and 27% in 2017e and 2018e, respectively.
Global OLED panel shipment trends OLED materials demand forecasts
Source: IHS, HSBC estimates Source: HSBC estimates
0
200
400
600
800
end-2014 end-2015 end-2016e end-2017e
Global 3D NAND fab capacity
Samsung 3D NAND fab capacity
(kwpm)
2,000
2,500
3,000
3,500
4,000
4,500
0
40
80
120
160
200
2013 2014 2015 2016e 2017e
(KRW/kg)(Kwpm)
SEC's 3D NAND capacity (LHS)
Soulbrain's etchant ASP (RHS)
0
3,000
6,000
9,000
12,000
15,000
2009 2011 2013 2015 2017e
(Ksqm)
0
200
400
600
800
1,000
2010 2011 2012 2013 2014 2015 2016e 2017e 2018e
(USDmn) EML ETL HTL
7
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
Considering the iPhone’s significant global smartphone volume market share and users’ strong
loyalty to Apple products, we conducted a scenario analysis on the impact of Apple’s potential
adoption of OLED panels in its iPhone on demand for major organic materials, such as EML
(emission layer), HTL (hole transport layer), and ETL (electron transport layer). Our scenario analysis
indicates that if Apple adopts OLED panels in 50mn/100mn/200mn units of its iPhone, this could
increase global OLED material demand by 12%/23%/47%, respectively, from the 2015 global OLED
material demand (estimated at USD344m). We believe Apple’s potential adoption of OLED displays
could prompt other smartphone brands to follow suit.
Scenario analysis: Impact of OLED iPhone on global OLED material demand
Assumption Scenario # 1 Scenario # 2 Scenario # 3
OLED iPhone shipment (m unit/year) 50 100 200 OLED iPhone shipment (m unit/month) 4 8 17 Panelization of 6G glass for 5.5" panel (unit/sheet) 266 266 266 Production yield (75%) 75% 75% 75%
Required 6G fab capacity (K sheet/month) 21 42 84 Required 6G fab area capacity (K sqm/year) 695 1,391 2,782 OLED material consumption (USD/sqm) 58 58 58
OLED material demand from iPhone (USDm/year) 40 80 161 2015 OLED material demand (USDm) 344 344 344
Incremental material demand from OLED iPhone 12% 23% 47%
Source: HSBC estimates
We think Duksan Neolux, a supplier of OLED core materials with a 100% sales contribution
from its OLED business, will benefit from LCD to OLED transition. Although OLED TV
investment seems to have been pushed out to 2H17e, we believe faster adoption of OLED
displays by smartphone makers will drive Duksan’s earnings growth based on significant
volume expansion.
Supply chain of key OLED materials at Samsung Display
Source: HSBC estimates
Beneficiaries of OLED proliferation
Company OLED-related material Sales portion (2015)
Duksan Neolux Hole transport layer (HTL), red host material 100% Soulbrain Thin glass (glass slimming for OLED panels) 21% Wonik Materials Laser mix (annealing gas), N2O (forming SiO2 film) 10% SK Materials NF3, SiH4 7%
Source: Company data, HSBC estimates
Substrate
TFT TFT TFT
Hole-transport layer (HTL)
Red Green Blue
Electron-transport layer (ETL)
Cathode
OLED layer structure
Anode
Material supply chain
ETL/EIL: Dow Chem, Samsung SDI, LG Chem
Red (phosphorescent)
Host: Duksan Neolux, Dow Chem,
Emitter: UDC
Green (phosphorescent)
Host: UDC, NSC, Samsung SDI
Emitter: UDC
Blue (fluorescent)
Host: Idemitsu Kosan, Dow Chem, Hodogaya (SFC)
Emitter: Idemitsu Kosan
HTL/HIL: Duksan Neolux, Doosan
Hole-transport layer (HIL)
Electron-injection layer (EIL)
EML
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
8
We prefer SK Materials and Soulbrain based on dominant market position, and Duksan Neolux as pure OLED play; all rated Buy
Despite the recent share price rally, we see the valuation of the Korean electronic materials
sector as still attractive at an average 12-month forward PE of 12x versus a mid-cycle level of
15x. Furthermore, although Korean electronic materials makers have substantially better growth
prospects (2017e EPS growth estimated at 48% on average) than their global peers (16% on
consensus estimates), they are trading at a discount to their global peers on a PE basis (at a
12.3x 2017e vs 13.7x for global peers). We see no real justification for this discount.
Although we are bullish on all the Korean electronic materials companies under our coverage
(all are rated Buy) based on our positive stance on a prolonged material bull cycle, we prefer SK
Materials and Soulbrain in light of their dominant market positions in NF3 and etchant,
respectively, and Duksan Neolux as a pure OLED material play. We raise our target price for SK
Materials by 31% to KRW200,000 from KRW153,000 on our higher earnings estimates and
higher target multiple based on the solid NF3 price trend and better ROE profile. We reiterate
our Buy ratings on Wonik Materials, Hansol Chemical and DNF. We raise our target price for
Wonik to KRW88,000 from KRW84,000 on a better earnings outlook in 2017e based on 3D
NAND and OLED expansion, while we cut our target price for DNF to KRW18,000 from
KRW21,000 after lowering our earnings estimates.
Valuation comparison of global electronic materials companies based on 2017e PE
Source: Bloomberg consensus, HSBC estimates
Valuation comparison of global electronic materials companies based on 2017e PB
Source: Bloomberg, HSBC estimates
0x
5x
10x
15x
20x
25x
(2017e PE)
13.7x12.3x
Duksan Neolux
Hansol Chemical
SK Materials
DNF
Wonik Materials
Soulbrain
0x
1x
2x
3x
4x
5x
6x
0% 5% 10% 15% 20% 25% 30% 35% 40%
(2017e PB)
(ROE)
9
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
Summary of HSBC coverage estimates vs consensus
_________ HSBC __________ _______ Consensus ________ _______ Difference ________ 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e
Electronic Materials SK Materials Sales 458 546 613 473 557 609 -3% -2% 1% OP 155 195 229 160 188 212 -3% 4% 8% OPM 33.8% 35.7% 37.4% 33.8% 33.7% 34.9% 0.0%pt 2.0%pt 2.5%pt
Soulbrain Sales 717 828 929 710 755 866 1% 10% 7% OP 132 158 166 127 141 152 4% 12% 9% OPM 18.5% 19.1% 17.9% 18.0% 18.7% 17.6% 0.5%pt 0.5%pt 0.3%pt
Duksan Neolux Sales 50 97 129 57 94 117 -11% 3% 11% OP 6 25 37 5 15 22 18% 71% 68% OPM 12.5% 25.8% 28.4% 9.4% 15.5% 18.8% 3.1%pt 10.2%pt 9.6%pt
Wonik Materials Sales 194 245 292 204 244 280 -5% 0% 4% OP 26 46 52 33 42 50 -19% 9% 4% OPM 13.6% 18.9% 17.8% 16.0% 17.4% 17.9% -2.4%pt 1.5%pt -0.1%pt
Hansol Chemical Sales 447 515 563 467 555 612 -4% -7% -8% OP 71 87 94 85 100 110 -17% -13% -15% OPM 15.8% 16.9% 16.6% 18.2% 18.0% 18.0% -2.4%pt -1.1%pt -1.3%pt
DNF Sales 60 83 97 63 81 100 -5% 2% -3% OP 10 18 26 11 14 16 -10% 30% 57% OPM 17.2% 21.4% 26.3% 18.2% 16.8% 16.4% -1.0%pt 4.6%pt 10.0%pt
Source: HSBC estimates, Bloomberg consensus
The key downside risks to the sector, in our view, are: 1) a potential demand slowdown due
to delays in 3D NAND and OLED expansion; 2) a slower-than-anticipated technology transition
by semiconductor makers lowering the demand for process materials; and 3) concentration risk
from a high dependence on Korean electronics giants.
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
10
Earnings, valuation and risks
SK Materials, 036490 KS, KRW151,500, Buy, TP KRW200,000 (previously KRW153,000)
Potential NF3 shortage due to accident: On 3 August, an NF3 gas leakage occurred at
Hyosung’s (004800 KS, Buy, KRW137,000) new NF3 plant (1,250 tonne capacity) in Ulsan,
Korea, incurring seven casualties, according to the local press. Although it should not take long
for the production lines to resume operations (perhaps a couple of weeks), an investigation into
the accident and strict safety verification will need to take place. We think this accident will likely
result in 1) NF3 shortage in the near term and 2) a stricter approval process for building new
plants. This also shows the difficulties of handling NF3 production lines even for major players.
Better NF3 price outlook: We raise our NF3 price assumptions for 2017e and 2018e by 2% and 3%,
respectively, based on stronger demand and slower-than-expected supply growth. We now expect a
milder NF3 price decline of 3% in 2017e and a price hike of 6% in 2018e. We foresee faster demand
growth driven by 1) 3D NAND capacity expansion coupled with stack upgrades and 2) OLED
proliferation, while we expect supply growth to be slower than expected due to 1) delays in capacity
addition at Chinese makers and 2) stringent procedures for environmental verification for new
capacities, especially in China. Thus, the Street’s concern over customer concentration risk after the
company was brought under SK Group and a potential supply glut due to aggressive capacity
expansion by competitors seems overdone to us.
Raise TP to KRW200,000 from KRW153,000: We maintain our Buy rating and raise our target
price by 31% to KRW200,000 from KRW153,000 on the increase in our 2017e/18e NP estimate
of 7%/10% and higher target PB of 3.6x (from 3.1x). We also change our base to 2017e BPS
from 2016e/17e average BPS estimate to reflect solid NF3 price kicking in from 2017e. We raise
our 2017e/18e estimates to factor in our higher NF3 price assumption and new WF6 capacity
ramp-up from 4Q16e. We change our target multiple to the company’s upcycle average PB from
a lower-end PB of the upcycle period (2007-2011), to reflect 1) a solid NF3 price trend driven by
strong demand coupled with limited supply growth and 2) a more stable and higher margin profile
than the previous upcycle on the back of NF3 price hikes and business diversification into
industrial gases (thus a higher ROE profile of 24-25% from 22-23%).
Valuation: Our new rounded fair value target price of KRW200,000 is based on a higher target
PB of 3.6x (the company’s upcycle average multiple with corresponding ROE of 24%), applied
to our 2017e average BVPS estimate of KRW56,316. With 32% upside to our target price, we
reiterate our Buy rating.
Key downside risks: 1) a demand slowdown due to a delay in semiconductor/LCD expansion
investment; 2) aggressive expansion of Chinese NF3 makers supported by China’s government; 3)
profit deterioration due to a KRW/USD exchange rate decline; and 4) customer concentration risk
as a result of a stake acquisition by a customer.
11
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
NF3 supply will be tight again SKM: NF3 price trend
Source: Company data, IHS, HSBC estimates Source: HSBC estimates
NF3 capacity addition schedule: Capacity growth will slow down
(tonne/year) 1H15 2H15 1H16 2H16e 1H17e 2H17e 1H18e 2H18e
New NF3 capacity SK Materials 1,000 1,000 500 Hyosung 1,250 600 650 Chinese makers 800 1,000 500
Industry total capacity 18,425 20,225 21,475 23,475 24,475 25,075 25,075 25,725 h-o-h growth 10% 6% 9% 4% 2% 0% 3%
Source: Company data, HSBC estimates
SKM: Earnings change and comparison against consensus
(KRWbn) ______ Old _______ ______ New ________ ____ %change _____ ___ Consensus ____ ______ %diff ______ 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e
Sales 459 525 575 458 546 613 -0.2% 4.0% 6.5% 473 557 609 -3.3% -1.9% 0.7% OP 155 185 211 155 195 229 -0.1% 5.2% 8.3% 160 188 212 -3.2% 3.9% 7.8% Net profit 104 128 150 105 136 164 0.7% 6.7% 9.7% 113 134 155 -7.1% 1.7% 5.7% OPM 33.8% 35.3% 36.8% 33.8% 35.7% 37.4% 0.0%pt 0.4%pt 0.6%pt 33.8% 33.7% 34.9% 0.0%pt 2.0%pt 2.5%pt NPM 22.7% 24.3% 26.0% 22.9% 24.9% 26.8% 0.2%pt 0.6%pt 0.8%pt 23.8% 24.1% 25.5% -0.9%pt 0.9%pt 1.3%pt
Source: Bloomberg consensus, HSBC estimates
SKM: Quarterly earnings outlook
(KRWbn) 1Q16 2Q16 3Q16e 4Q16e 1Q17e 2Q17e 3Q17e 4Q17e 2015 2016e 2017e 2018e
Sales 97.3 116.5 120.5 123.5 129.8 135.4 139.2 141.8 338.0 457.8 546.2 612.9 NF3 77.6 77.1 79.0 81.1 84.4 88.5 90.7 91.8 264.6 314.8 355.4 397.3 SiH4 (incl. Si2H6) 11.3 10.7 11.7 12.0 12.0 12.5 12.8 13.0 43.1 45.8 50.3 54.7 WF6 8.3 8.5 9.6 10.1 11.1 12.2 13.4 14.8 30.2 36.5 51.6 63.2 SK Airgas 0.0 20.2 20.2 20.2 22.2 22.2 22.2 22.2 0.0 60.6 88.9 97.8
Gross profit 42.8 48.0 47.6 48.7 54.3 57.4 58.9 60.0 139.1 187.1 230.6 269.0 GPM 44% 41% 39% 39% 42% 42% 42% 42% 41% 41% 42% 44%
Operating profit 34.4 38.8 38.9 42.7 45.1 47.3 49.3 53.5 112.8 154.8 195.1 230.0 OPM 35% 33% 32% 35% 35% 35% 35% 38% 33% 34% 36% 38%
Net profit 24.5 26.0 26.0 28.2 31.4 32.8 34.3 37.7 66.1 104.6 136.2 164.9 NPM 25% 22% 22% 23% 24% 24% 25% 27% 20% 23% 25% 27%
Depreciation 14.7 15.8 17.0 17.4 17.1 17.3 17.3 17.2 54.2 64.9 69.0 69.2 EBITDA 49.1 54.6 55.9 60.1 62.1 64.6 66.6 70.7 167.0 219.7 264.1 299.2
EBITDA margin 50% 47% 46% 49% 48% 48% 48% 50% 49% 48% 48% 49%
Source: Company data, HSBC estimates
-10
0
10
20
30
40
0
4,000
8,000
12,000
16,000
20,000
24,000
28,000
00 02 04 06 08 10 12 14 16e 18e
Utilization-adjusted supply (LHS)
Demand (LHS)
Oversupply ratio (RHS)
(%)(tonne)
22
24
26
28
30
32
34
36
38
1Q13 1Q15 1Q17e
(USD/kg) New forecast
Previous (July 2016)
Previous (March 2016)
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
12
SKM: 12-month forward PB and ROE
Note: Red line refers to PB and dotted line refers to ROE Source: Company data, HSBC estimates
Soulbrain, 036830 KS, KRW67,300, Buy, TP KRW80,000 (unchanged)
Faster 3D NAND expansion to boost material demand: We expect Samsung’s aggressive
3D NAND capacity expansion coupled with stack upgrades to drive substantial demand growth
in Soulbrain’s semiconductor materials business. Soulbrain has an over 90% share of the
semiconductor etchant orders (80% of semiconductor division sales) from Samsung Electronics
(005930 KS, KRW1,502,000, Buy) and 100% of the orders from Samsung for high-performance
etchant used in 3D NAND manufacturing (see Soulbrain – Buy: Strong 3D NAND momentum,
26 July 2016).
Maintain Buy rating with an unchanged TP of KRW80,000: We maintain our estimates and
Buy rating with an unchanged target price of KRW80,000. The company has delivered better-
than-expected results for three consecutive quarters since 3Q15, which we think confirms its
strong margin profile. However, we think the Street is still underestimating both the product
improvement effect based on 3D NAND expansion and the margin profile of the company. Our
2016e and 2017e OP estimates are 4% and 12% ahead of consensus. In addition, valuation
seems compelling, in our view, at a 1.6x 2017e PB and 9.3x PE with ROE at 18.7%, lower than
even the historical 10-year average of 1.8x PB and 12x PE. Given its ROE expansion, we
believe there is upside to the shares driven by a valuation re-rating.
Valuation: Our rounded fair value target price of KRW80,000 is based on a target PB of 2.1x
(the company’s upcycle average multiple), applied to our 2016e/17e average BVPS estimate of
KRW38,657. Our target price implies 19% upside. We retain our Buy rating because we see
upside on back of multiple expansion driven by significant earnings growth. Samsung’s
aggressive 3D NAND capacity expansion coupled with stack upgrades should drive substantial
demand growth for Soulbrain’s semiconductor materials.
Key downside risks: 1) concerns over higher competition in semiconductor etchants at SK
Hynix; 2) weaker-than-expected earnings in the thin glass business due to the proliferation of
flexible OLED; and 3) intensifying pricing pressure on electrolyte for lithium-ion batteries and a
delay in the application expansion into large-sized batteries.
0%
5%
10%
15%
20%
25%
30%
35%
40%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2001 2003 2005 2007 2009 2011 2013 2015 2017
(ROE)(PB, x)
New target PB: 3.6x
Previous target PB: 3.1x
13
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
Soulbrain: Earnings change and comparison against consensus
(KRWbn) ______ Old _______ ______ New ________ ____ %change _____ ___ Consensus ____ ______ %diff ______ 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e
Sales 717 828 929 717 828 929 0.0% 0.0% 0.0% 710 755 866 1.1% 9.7% 7.4% OP 132 158 166 132 158 166 0.0% 0.0% 0.0% 127 141 152 3.9% 12.4% 9.4% Net profit 84 117 125 84 117 125 0.0% 0.0% 0.0% 96 103 122 -12.7% 13.0% 2.5% OPM 18.5% 19.1% 17.9% 18.5% 19.1% 17.9% 0.0%pt 0.0%pt 0.0%pt 18.0% 18.7% 17.6% 0.5%pt 0.5%pt 0.3%pt NPM 11.6% 14.1% 13.5% 11.6% 14.1% 13.5% 0.0%pt 0.0%pt 0.0%pt 13.5% 13.7% 14.1% -1.8%pt 0.4%pt -0.6%pt
Source: Bloomberg, HSBC estimates
Soulbrain: Quarterly earnings outlook
(KRWbn) 1Q16a 2Q16e 3Q16e 4Q16e 1Q17e 2Q17e 3Q17e 4Q17e 2015a 2016e 2017e 2018e
Sales 172.4 171.6 182.4 191.0 194.4 200.4 214.8 218.8 627.9 717.4 828.4 929.4 Display 70.1 69.6 70.6 69.1 64.3 65.3 69.3 68.8 253.0 279.5 267.7 264.9
Chemicals 30.4 33.1 34.6 34.8 31.7 32.9 34.6 34.8 124.1 133.0 134.1 135.3 Thin Glass 39.8 36.5 36.0 34.2 32.6 32.4 34.7 33.9 129.0 146.5 133.6 129.6
Semiconductor 85.5 82.2 90.8 103.2 109.6 112.5 123.4 129.3 310.8 361.7 474.8 572.7 Etchant 68.5 64.1 71.9 84.3 89.9 91.4 101.6 107.3 244.8 288.8 390.3 477.6 Precursors 6.9 7.1 7.3 7.2 7.6 8.0 8.3 8.1 25.9 28.5 32.0 35.2 CMP Slurry 10.0 11.0 11.5 11.8 12.1 13.0 13.5 13.9 40.1 44.4 52.5 59.9
LIB 10.2 12.0 14.4 13.0 13.4 14.1 15.0 14.7 39.5 49.6 57.2 60.9 Others 6.6 7.8 6.6 5.7 7.1 8.4 7.1 6.1 24.6 26.7 28.7 30.9
Gross profit 46.6 45.8 49.0 53.9 52.9 53.8 60.4 63.9 155.8 195.4 230.9 247.8 GPM 27% 27% 27% 28% 27% 27% 28% 29% 25% 27% 28% 27%
Operating profit 31.5 31.7 32.4 36.9 35.8 37.4 40.7 44.4 101.1 132.4 158.3 166.3 OPM 18% 18% 18% 19% 18% 19% 19% 20% 16% 18% 19% 18%
Net profit* 22.9 26.2 35.4 -1.0 26.9 28.8 30.5 30.6 80.7 83.5 116.7 125.4 NPM 13% 15% 19% -1% 14% 14% 14% 14% 13% 12% 14% 13%
Source: Company data, HSBC estimates. * Net income (controlling interest)
Soulbrain: 12-month forward PB and ROE
Note: Red line refers to PB and dotted line refers to ROE Source: Company data, HSBC estimates
Duksan Neolux, 213420 KS, KRW31,350, Buy, TP KRW45,000 (unchanged)
Lowering forecasts: We lower our 2016e and 2017e OP estimates by 59% and 28%,
respectively, as 1) we reduce our assumptions for Samsung’s OLED output for 2016e and
2017e by 4% and 8% to factor in delays in OLED TV investment; and 2) we also lower our
assumption of the company’s share of orders from Samsung for 2016e due to a delay in the
sale of red host material from 2H16e to 1H17e. As the new red host material commands a much
higher margin than that of existing product (HTL), the pushing out of red host sales to a later
time would have a negative impact on the product mix.
0%
5%
10%
15%
20%
25%
30%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2006 2008 2010 2012 2014 2016
(ROE)(PB, x)
2006-2015 average
Downcycle average
Upcycle average
LCD proliferationOLED smartphone take-off
3D NAND expansion
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
14
But high visibility on sharp earnings growth: However, we believe these negatives are
already well-flagged after the sharp share price correction of 42% from mid-March to mid-June.
We think the Street will focus more now on the high visibility on earnings growth on the back of
fully-fledged OLED market growth heading into 2017e. Amid OLED market growth, we expect
Duksan to benefit from 1) margin expansion driven by red host sales, 2) dominant market share,
and 3) customer base expansion to Chinese makers.
We believe its new red host is highly likely to be adopted in Samsung’s next flagship models
from 1Q17e. As Samsung has unusually maintained its current material structure for premium
models for two years, we expect Samsung to adopt new material structure (Duksan’s red host is
involved in this) from 1Q17e to differentiate its smartphone display amid competitors’ aggressive
adoption of OLED display starting from 2017e.
We also expect Duksan to maintain its dominant position in the OLED material food chain on its
strong cost competitiveness. Despite the harsh price cut of 20-25% annually since 2010, the
company has survived, even making a profit, whereas some competitors have exited the
business. This confirms the company’s superior cost structure compared to peers.
In addition, based on its reliable track record of supplying materials to Samsung, we forecast
Duksan will supply materials to Chinese panel makers which will likely gradually start production
of OLED panels from 2017e backed by the government. Despite still insignificant demand from
China, much better pricing will have a meaningful earnings impact going forward.
Maintain Buy with an unchanged TP of KRW45,000: Although we cut our estimates, we
maintain our PB-based target price of KRW45,000 (still based on 4.1x PB), as we now roll over
our base to 2017e BPS estimate from an average of our 2016/17e BPS estimates. We argue
the 2017e earnings base is more reasonable now, as high-margin red host sales should kick in
from 1Q17e and new OLED capacity ramps by Samsung will be in full swing from 2017e.
Weaker earnings in 2H16e due to a delay in red host material sales also seems already to be
well recognized. Our 2017e and 2018e NP estimates are still ahead of consensus by 17% and
33%, respectively.
Duksan Neolux: Key assumption changes
(KRWbn) _________ Old __________ ________ New __________ ______ % Change _______ 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e
SDC OLED capacity (K sqm) 4,463 7,291 11,950 4,463 6,631 11,450 0% -9% -4% Utilization rate 91% 91% 89% 87% 92% 89% -4%pt 1%pt 0%pt SDC OLED output (K sqm) 4,051 6,633 10,644 3,886 6,128 10,244 -4% -8% -4% % QoQ/YoY 44% 64% 67% 38% 58% 67% -6%pt -6%pt 0%pt Duksan M/S within SDC 92% 88% 82% 84% 88% 82% -8%pt 0%pt 0%pt
Source: HSBC estimates
Duksan Neolux: Earnings changes and comparison against consensus
(KRWbn) ______ Old _______ ______ New ________ ____ %change _____ ___ Consensus ____ ______ %diff ______ 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e
Sales 66 113 135 50 97 129 -24% -14% -4% 57 94 117 -11.2% 3.3% 10.9% OP 15 35 41 6 25 37 -59% -28% -10% 5 15 22 17.9% 71.3% 67.7% Net profit 14 32 36 6 23 32 -59% -28% -11% 9 20 24 -35.8% 17.3% 32.7% OPM 23% 31% 30% 13% 26% 28% -11%pt -5%pt -2%pt 9% 16% 19% 3%pt 10%pt 10%pt NPM 22% 28% 27% 12% 24% 25% -10%pt -4%pt -2%pt 16% 21% 21% -5%pt 3%pt 4%pt
Source: Bloomberg consensus, HSBC estimates
15
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
Duksan Neolux: Quarterly earnings outlook
(KRWbn) 1Q16e 2Q16e 3Q16e 4Q16e 1Q17e 2Q17e 3Q17e 4Q17e 2015a 2016e 2017e 2018e
Sales 13.2 10.4 12.3 14.5 16.9 23.1 27.7 29.0 40.3 50.4 96.7 129.4 OLED materials 13.2 10.4 12.3 14.5 16.9 23.1 27.7 29.0 40.3 50.4 96.7 129.4 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Gross profit 3.6 2.3 3.2 4.2 5.3 8.0 10.7 11.6 8.2 13.2 35.6 51.0 GPM 28% 22% 26% 29% 31% 35% 39% 40% 20% 26% 37% 39%
Operating profit 1.7 0.8 1.6 2.3 3.4 5.4 7.7 8.4 2.4 6.3 24.9 36.7 OPM 13% 7% 13% 16% 20% 24% 28% 29% 6% 13% 26% 28%
Net profit 1.4 0.8 1.5 2.2 3.2 5.0 7.0 7.7 2.2 6.0 22.9 32.1 NPM 11% 8% 13% 15% 19% 22% 25% 26% 5% 12% 24% 25%
Source: Company data, HSBC estimates
Valuation: Our unchanged rounded KRW45,000 target price is based on a PB multiple of 4.1x,
an upcycle average during 2010-2012 when ROE expanded to above 20% from 9% driven by
OLED material sales expansion, applied to our 2017e BVPS estimate of KRW11,090
(previously KRW10,137). Our target price implies 44% upside, hence we retain our Buy rating.
Key downside risks: 1) further delay in launch of high-margin new product to affect our margin
assumption; 2) concentration risk due to a high dependence on a single product (OLED), and a
single customer (SDC); 3) concerns over a delay in earnings improvement due to key
customers delaying OLED investment; and 4) intensifying pressure on OLED material prices.
Wonik Materials, 104830 KS, KRW72,300, Buy, TP KRW88,000 (previously KRW84,000)
Lowering forecasts: We lower our 2016e earnings forecasts for Wonik Materials by 26% to
reflect 1) a slower-than-expected new DRAM capacity ramp-up and 2) higher pricing pressure
on overall products due to weaker pricing of DRAM and NAND. We also lower our margin
assumptions due to: 1) a higher portion of merchandise sales and 2) an increase in fixed costs,
such as depreciation and labour costs.
Key beneficiary of materials localisation trend: However, we believe earnings will bottom in
2Q16e, and we expect a strong recovery from 3Q16e, given: 1) 3D NAND stack upgrades could
accelerate; 2) ongoing DRAM node migration could increase process material demand; 3)
Samsung Display’s OLED capacity expansion; and 4) Wonik’s market share recovery in OLED
process gases. We also expect product mix improvements on the localisation of high-margin
materials, such as precursors and OLED process gases, from 2017e. In August 2015, the company
announced an investment of KRW27.9bn to expand production capacity and develop new materials
in response to a technology transition and capacity additions at a key customer. Based on volume
increases and product mix improvements, we expect the company to see fully-fledged growth in
2017e with sales and OP growing at 27% and 75%, respectively.
Reiterate Buy and raise TP to KRW88,000 (from KRW84,000): Despite cutting our 2016e
earnings estimate, we raise our target price to KRW88,000 as we roll over our base to
2016e/17e average BPS from our 2016e BPS estimate (still based on 2.3x PB). This is because:
1) we expect earnings will bottom in 2Q16e; 2) the company’s large-scale investments will likely
bear fruit from 2017e; and 3) we expect Wonik’s share gain for OLED gases in 2017e. We also
raise our 2017e and 2018e NP estimates slightly based on a better product mix. We maintain
our Buy rating, as we believe Wonik Materials is best positioned in 3D NAND and OLED
proliferation. In addition, the company has earnings stability based on its diversified small-
quantity production structure. Our 2017e and 2018e NP estimates are ahead of consensus by
12% and 6%, respectively.
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
16
Wonik Materials: Earnings changes and comparison against consensus
(KRWbn) ______ Old _______ ______ New ________ ____ %change _____ ___ Consensus ____ ______ %diff ______ 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e
Sales 205 245 288 194 245 292 -5.4% 0.1% 1.5% 204 244 280 -5.2% 0.5% 4.3% OP 35 46 51 26 46 52 -25.0% 0.8% 2.4% 33 42 50 -19.2% 9.0% 3.7% Net profit 31 39 43 23 39 44 -25.9% 1.4% 3.0% 28 35 42 -16.3% 12.3% 6.2% OPM 17.2% 18.7% 17.7% 13.6% 18.9% 17.8% -3.6%pt 0.1%pt 0.2%pt 16.0% 17.4% 17.9% -2.4%pt 1.5%pt -0.1%pt NPM 15.3% 15.9% 14.9% 12.0% 16.1% 15.1% -3.3%pt 0.2%pt 0.2%pt 13.6% 14.4% 14.8% -1.6%pt 1.7%pt 0.3%pt
Source: Bloomberg consensus, HSBC estimates
Wonik Materials: Quarterly earnings outlook
(KRWbn) 1Q16a 2Q16e 3Q16e 4Q16e 1Q17e 2Q17e 3Q17e 4Q17e 2015a 2016e 2017e 2018e
Sales 46.1 45.1 49.0 53.3 51.5 58.6 63.9 71.0 192.5 193.5 245.0 292.2 Semiconductor 36.3 35.6 37.9 41.9 40.9 43.5 46.7 52.0 158.8 151.6 183.2 204.2 Display 8.9 8.3 10.1 10.2 9.8 12.9 16.1 17.9 29.4 37.5 56.8 83.5
OLED 6.8 6.0 7.9 8.1 7.6 10.7 13.9 15.7 20.8 28.8 48.0 74.7 LED 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 1.3 1.2 1.2 1.2 Others 0.6 1.0 0.7 0.9 0.4 1.9 0.8 0.9 2.9 3.2 3.9 3.3
Gross profit 12.5 11.9 12.9 13.8 14.3 17.5 20.2 22.5 57.6 51.1 74.6 87.1 GPM 27% 26% 26% 26% 28% 30% 32% 32% 30% 26% 30% 30%
Operating profit 6.3 5.1 7.3 7.7 7.9 10.5 13.2 14.7 33.3 26.4 46.3 52.1 OPM 14% 11% 15% 14% 15% 18% 21% 21% 17% 14% 19% 18%
Net profit* 5.5 4.7 6.3 6.8 6.8 9.0 11.2 12.4 21.8 23.2 39.4 44.2 NPM 12% 10% 13% 13% 13% 15% 17% 18% 11% 12% 16% 15%
Source: Company data, HSBC estimates. *Net income (controlling interest)
Wonik Materials: 12-month forward PB and ROE
Note: Red line refers to PB and dotted line refers to ROE Source: Company data, HSBC estimates
Valuation: Our new rounded target price of KRW88,000 is based on a target PB multiple of
2.3x applied to our 2016e/17e average BVPS estimate of KRW39,167 (previously KRW37,486).
Our target multiple is in line with the average 12-month forward PB of SK Materials, the closest
comparable company, in 2005-07, when: 1) the company’s earnings started to grow significantly
on downstream capacity expansion; and 2) the company’s average ROE stood at 17%, at a
similar level to Wonik Materials’ 2017e ROE estimates. Our target price implies upside of 22%,
therefore we reiterate our Buy rating.
Key downside risks: 1) concerns about fierce competition within the high-margin processing
gas industry; 2) a high dependence on a single customer, with Samsung Electronics accounting
for around 60% of sales (concentration risk); and 3) delays in earnings improvement at its
subsidiary Nova-Kem.
10%
12%
14%
16%
18%
20%
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2012 2013 2014 2015 2016 2017
(ROE)(PB, x)
17
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
Hansol Chemical, 014680 KS, KRW83,500, Buy, TP KRW100,000 (unchanged)
Positive catalyst from 3D NAND and QD TV: Hansol Chemical supplies hydrogen peroxide,
which is a raw material of semiconductor wafer cleaning solutions, with a domestic market share
of 70%. The company exclusively supplies Samsung’s 3D NAND fab in Xian and Line 17 in Korea.
We expect hydrogen peroxide shipments to continue to increase, driven by a faster-than-expected
ramp-up of Samsung’s 3D NAND fab with stack upgrades. We also anticipate strong earnings
momentum from 3Q16e on restocking demand for quantum dot (QD) materials for SUHD TV.
Contrary to the Street’s concern that the current QD technology for TVs (film base) is likely to be
replaced by OLED in the near future, we believe QD material will potentially be adopted in a
colour filter for white OLED TV, as a differentiating factor for OLED TV to provide better colour
quality. If Samsung sticks to QD instead of OLED for its flagship TV technology, it should also
benefit Hansol Chem as a major QD material supplier.
Maintain Buy with an unchanged TP of KRW100,000: We mostly maintain our estimates and
retain our Buy rating and target price of KRW100,000. We believe the company will benefit from its
key customers increasing investment in 3D NAND. Furthermore, by expanding its product portfolio to
include semiconductor precursors and QD, we expect profitability to improve significantly.
Hansol Chemical: Earnings changes and comparison against consensus
(KRWbn) ______ Old _______ ______ New ________ ____ %change _____ ___ Consensus ____ ______ %diff ______ 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e
Sales 442 516 563 447 515 563 1% 0% 0% 467 555 612 -4% -7% -8% OP 71 88 94 71 87 94 -1% -2% 0% 85 100 110 -17% -13% -15% Net profit 51 70 79 51 69 79 0% 0% 0% 65 75 87 -21% -8% -9% OPM 16% 17% 17% 16% 17% 17% 0%pt 0%pt 0%pt 18% 18% 18% -2%pt -1%pt -1%pt NPM 12% 13% 14% 11% 13% 14% 0%pt 0%pt 0%pt 14% 14% 14% -2%pt 0%pt 0%pt
Source: Bloomberg consensus, HSBC estimates
Hansol Chem: Quarterly earnings outlook
(KRWbn) 1Q16a 2Q16e 3Q16e 4Q16e 1Q17e 2Q17e 3Q17e 4Q17e 2015a 2016e 2017e 2018e
Sales 100.0 105.0 121.8 120.3 121.3 124.3 134.1 134.9 368.0 447.1 514.6 563.2 Hansol Chem 77.5 87.7 94.8 89.2 94.2 102.8 104.3 104.7 290.2 349.1 405.9 444.8 Hansol CNP 16.3 15.7 25.9 29.2 23.6 18.9 27.5 27.7 81.5 87.1 97.7 109.2 Hansol EM 7.0 7.0 7.0 6.9 8.1 8.1 8.1 8.1 22.1 27.8 32.5 33.0
COGS 68.5 75.1 90.4 97.6 88.3 90.4 97.6 104.4 276.1 331.7 380.7 419.9
Gross profit 31.5 29.9 31.3 22.7 33.1 33.9 36.5 30.5 91.9 115.4 133.9 143.4 GPM 31% 28% 26% 19% 27% 27% 27% 23% 25% 26% 26% 25%
SG&A 11.6 9.8 11.0 12.3 11.4 10.5 11.8 13.3 42.9 44.7 47.1 49.7
Operating profit 19.8 20.0 20.3 10.4 21.7 23.4 24.7 17.1 49.0 70.7 86.8 93.7 OPM 20% 19% 17% 9% 18% 19% 18% 13% 13% 16% 17% 17%
Non-OP gain/loss 5.8 -3.3 -3.3 -3.4 0.0 0.2 0.4 -0.2 -6.4 -4.2 0.4 5.4
Pre-tax profit 25.7 16.7 17.1 7.0 21.6 23.6 25.1 17.0 42.6 66.4 87.2 99.1
Net profit 20.4 12.6 12.9 5.3 17.1 18.7 19.9 13.5 34.1 51.3 69.3 78.7 NPM 20% 12% 11% 4% 14% 15% 15% 10% 9% 11% 13% 14%
Source: Company data, HSBC estimates. *Net profit (controlling interest)
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
18
Hansol Chemical: 12-month forward PB and ROE
Note: Red line refers to PB and dotted line refers to ROE Source: Company data, HSBC estimates
Valuation: Our unchanged rounded target price of KRW100,000 is based on a PE multiple of 23x
applied to our 2016e EPS of KRW4,623. Our target multiple is the average 12-month forward PE of
JSR in 2003-07 based on Bloomberg, when the JSR’s earnings grew dramatically on the back of an
increase in electronic materials contribution. This valuation is intended to capture Hansol’s
transformation from a highly cyclical chemical company into an electronic materials maker, which
has secular growth potential and is now clearly in an earnings growth phase. Our target price
implies 20% upside and we retain our Buy rating.
Key downside risks: 1) a delay in profitability improvement from the delay of sales of new
products (semiconductor precursors); 2) slower-than-expected semiconductor and display panel
capacity ramp-up; and 3) potential raw material cost increases due to an increase in the oil price.
DNF, 092070 KS, KRW14,600, Buy, TP KRW18,000 (previously KRW21,000)
Headwinds from weaker DRAM: We reduce our 2016e/17e earnings forecasts for DNF by
57%/45%, respectively, as we cut our assumptions on shipment (by 13-14%) and ASP (by 14-17%)
to reflect 1) slower-than-expected DRAM capacity ramp-up and tech migration to 18nm at a key
customer; 2) higher pricing pressure on overall products due to weaker DRAM price; and 3) slower
HCDS demand due to improving material efficiency for 3D NAND on higher yield.
…but cycle bottoming: However, we think all the negatives are already in the price after the recent
share correction of 40% from early April to late June. We believe the positive impact from DRAM
cycle bottoming (evidenced by the recent DRAM price recovery) will trickle down to DNF’s material
business. We expect downward pricing pressure on materials to become milder, and tech migration
and capacity ramps to pick up steam on the back of solid DRAM price trend. Accordingly, we
anticipate DNF’s materials ASP to increase by 31% for 2017e, leading to 73% OP growth based on a
better product mix with higher portion of lucrative DRAM-related materials.
Reiterate Buy, but cut TP to KRW18,000 (from KRW21,000). We lower our PB-based TP by 14%
to KRW18,000 (from KRW21,000) on 2016e earnings cut by 57% (still based on 2.7x PB).
However, we maintain our Buy rating as the company’s valuation (11.4x 2017e PE and 1.9x PB)
has already come down to a sub-downcycle level, and we believe sequential earnings growth on
DRAM tech migration and 3D NAND expansion will drive the share price to rebound.
0%
5%
10%
15%
20%
25%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
(ROE)(PB, x)
19
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
DNF: Earnings estimate changes and comparison against consensus
(KRWbn) ______ Old ______ _____ New ______ ___ Change _____ ___ Consensus ___ ___ Difference ____ 2016e 2017e 2016e 2017e 2016e 2017e 2016e 2017e 2016e 2017e
Sales 84 111 60 83 -28.9% -25.5% 63 81 -4.8% 2.1% OP 24 31 10 18 -58.0% -43.5% 11 14 -10.2% 29.9% Net profit 19 25 8 14 -56.5% -45.3% 10 13 -19.1% 6.9% OP margin 29.1% 28.3% 17.2% 21.4% -11.9%pt -6.9%pt 18.2% 16.8% -1.0%pt 4.6%pt NP margin 23.1% 22.6% 14.2% 16.6% -9.0%pt -6.0%pt 16.7% 15.8% -2.5%pt 0.7%pt
Source: Bloomberg consensus, HSBC estimates
DNF: Key assumption changes
__________ OLD ___________ __________NEW ___________ ________ % change _________ 2016e 2017e 2018e 2016e 2017e 2018e 2016e 2017e 2018e
Capacity (MT) 878 878 877 877 877 877 0% 0% 0% Utilization rate 40% 42% 38% 34% 36% 38% -6%p -6%p 0%p
Shipment (MT) 349 367 335 300 318 335 -14% -13% 0% qoq/yoy 12% 5% 6% -5% 6% 6% -17%p 1%p 0%p
ASP (KRW '000/kg) 240 303 290 199 260 290 -17% -14% 0% qoq/yoy 5% 26% 11% -12% 31% 11% -17%p 5%p 0%p
Source: Company data, HSBC estimates
DNF: Quarterly earnings outlook
(KRWbn) 1Q16a 2Q16e 3Q16e 4Q16e 1Q17e 2Q17e 3Q17e 4Q17e 2015 2016e 2017e 2018e
Sales 14.2 13.9 14.8 16.7 17.4 20.4 22.7 22.2 71.5 59.6 82.7 97.1 DPT 7.0 6.7 6.9 8.2 7.8 9.2 10.2 10.9 31.1 28.8 38.1 44.7 High-k 2.6 2.5 3.3 3.8 3.6 4.1 4.5 4.2 18.4 12.2 16.5 19.4 HCDS 2.6 2.9 3.1 3.7 3.3 3.9 4.1 4.0 13.2 12.3 15.3 17.9 SOC 0.0 0.0 0.0 0.5 1.4 1.6 2.3 2.4 0.0 0.5 7.7 9.1 Others 2.0 1.8 1.5 0.5 1.2 1.6 1.6 0.7 8.8 5.8 5.1 6.0
Gross profit 5.1 5.1 5.6 6.4 5.8 8.0 8.6 8.5 31.7 22.2 30.9 40.0 GPM 36% 37% 38% 38% 33% 39% 38% 38% 44% 37% 37% 41%
Operating profit 2.2 2.3 2.4 3.4 2.5 4.9 5.2 5.1 19.6 10.3 17.7 25.6 OPM 15% 17% 16% 20% 14% 24% 23% 23% 27% 17% 21% 26%
Net profit 2.2 1.8 1.9 2.6 2.0 3.8 4.0 4.0 17.3 8.4 13.7 19.8 NPM 16% 13% 13% 15% 11% 19% 18% 18% 24% 14% 17% 20%
Source: Company data, HSBC estimates
DNF: 12-month forward PB and ROE
Note: Red line refers to PB and dotted line refers to ROE Source: Company data, HSBC estimates
0%
5%
10%
15%
20%
25%
30%
35%
40%
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
(ROE)(PB, x)
2012-15 average
-1 STDV (= down-cycle average of 2.7x)
+1 STDV
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
20
Valuation: Our new rounded target price of KRW18,000 is based on the stock’s down-cycle PB
multiple of 2.7x applied to our 2016e BVPS estimate of KRW6,485. PB is the most appropriate
valuation methodology, in our view, given DNF’s relatively volatile earnings profile in the past,
and higher correlation between PB and ROE. With 23% upside to our target price, we reiterate
our Buy rating.
Key downside risks: 1) slower DRAM tech migration at a key customer; 2) intensifying
competition in the domestic precursor market from an increase in entrants into the market; 3) a
delay in customer expansion; and 4) a decrease in DPT adoption from the EUV introduction.
21
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
Financial statements
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Profit & loss summary (KRWb)
Revenue 338 458 546 613
EBITDA 169 213 257 290
Depreciation & amortisation -56 -58 -62 -61
Operating profit/EBIT 113 155 195 229
Net interest -22 -22 -19 -16
PBT 88 142 187 225
HSBC PBT 88 142 187 225
Taxation -22 -35 -45 -54
Net profit 66 105 136 164
HSBC net profit 66 105 136 164
Cash flow summary (KRWb)
Cash flow from operations 145 157 202 234
Capex -87 -92 -50 -50
Cash flow from investment -83 -175 -58 -51
Dividends -27 -11 -21 -21
Change in net debt -43 37 -115 -154
FCF equity 27 39 125 155
Balance sheet summary (KRWb)
Intangible fixed assets 3 3 3 3
Tangible fixed assets 480 515 503 493
Current assets 165 136 248 392
Cash & others 41 -31 48 169
Total assets 665 752 859 993
Operating liabilities 88 114 136 154
Gross debt 200 165 129 95
Net debt 159 195 81 -73
Shareholders' funds 376 473 594 744
Invested capital 519 571 570 567
Ratio, growth and per share analysis
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Y-o-y % change
Revenue 59.7 35.4 19.3 12.2
EBITDA 120.8 26.3 20.9 12.6
Operating profit 327.5 37.2 26.0 17.4
PBT 404.8 61.8 31.1 20.7
HSBC EPS 386.3 58.2 30.2 20.5
Ratios (%)
Revenue/IC (x) 0.7 0.8 1.0 1.1
ROIC 16.7 21.6 26.1 30.7
ROE 18.9 24.6 25.5 24.5
ROA 13.2 17.6 19.5 19.9
EBITDA margin 49.9 46.5 47.1 47.3
Operating profit margin 33.4 33.8 35.7 37.4
EBITDA/net interest (x) 7.7 9.8 13.4 17.7
Net debt/equity 42.2 41.3 13.6 -9.8
Net debt/EBITDA (x) 0.9 0.9 0.3 -0.3
CF from operations/net debt 91.4 80.3 250.4
Per share data (KRW)
EPS Rep (diluted) 6269.95 9918.87 12916.36 15569.30
HSBC EPS (diluted) 6269.95 9918.87 12916.36 15569.30
DPS 2560.00 1000.00 2000.00 2000.00
Book value 35670.05 44877.99 56316.35 70529.81
Valuation data
Year to 12/2015a 12/2016e 12/2017e 12/2018e
EV/sales 5.2 3.7 2.9 2.3
EV/EBITDA 10.4 8.0 6.2 5.0
EV/IC 3.4 3.0 2.8 2.5
PE* 24.2 15.3 11.7 9.7
PB 4.2 3.4 2.7 2.1
FCF yield (%) 1.7 2.6 8.3 10.3
Dividend yield (%) 1.7 0.7 1.3 1.3
* Based on HSBC EPS (diluted)
Issuer information
Share price (KRW) 151500.00 Free float 46%
Target price (KRW) 200000.00 Sector Electronic Equipment
Reuters (Equity) 036490.KQ Country Korea
Bloomberg (Equity) 036490 KS Analyst Will Cho
Market cap (USDm) 1,439 Contact +822 3706 8765
Price relative
Source: HSBC Note: Priced at close of 02 Aug 2016
13000.00
33000.00
53000.00
73000.00
93000.00
113000.00
133000.00
153000.00
13000.00
33000.00
53000.00
73000.00
93000.00
113000.00
133000.00
153000.00
2014 2015 2016 2017
SK Materials Rel to KOSPI INDEX
Financials & valuation: SK Materials Buy
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
22
Financial statements
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Profit & loss summary (KRWb)
Revenue 628 717 828 929
EBITDA 143 175 200 208
Depreciation & amortisation -42 -42 -42 -42
Operating profit/EBIT 101 132 158 166
Net interest -3 -6 -5 -3
PBT 110 113 157 169
HSBC PBT 110 113 157 169
Taxation -30 -29 -39 -42
Net profit 81 84 117 125
HSBC net profit 81 84 117 125
Cash flow summary (KRWb)
Cash flow from operations 122 130 162 172
Capex -61 -36 -40 -40
Cash flow from investment -171 -46 -51 -51
Dividends -8 -8 -8 -8
Change in net debt 60 -69 -97 -106
FCF equity 28 96 106 115
Balance sheet summary (KRWb)
Intangible fixed assets 13 13 13 13
Tangible fixed assets 321 315 313 311
Current assets 209 296 415 540
Cash & others 86 156 252 358
Total assets 732 821 946 1,079
Operating liabilities 75 88 103 118
Gross debt 161 161 161 161
Net debt 75 6 -91 -197
Shareholders' funds 495 571 681 799
Invested capital 382 380 384 387
Ratio, growth and per share analysis
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Y-o-y % change
Revenue 16.6 14.2 15.5 12.2
EBITDA 64.3 21.7 14.8 4.0
Operating profit 110.4 31.1 19.5 5.1
PBT 107.1 2.7 38.9 7.5
HSBC EPS 112.4 3.5 39.8 7.4
Ratios (%)
Revenue/IC (x) 1.7 1.9 2.2 2.4
ROIC 20.3 26.1 31.3 32.6
ROE 17.6 15.7 18.7 16.9
ROA 13.0 11.7 14.0 12.9
EBITDA margin 22.8 24.3 24.2 22.4
Operating profit margin 16.1 18.5 19.1 17.9
EBITDA/net interest (x) 44.1 30.0 36.7 64.3
Net debt/equity 15.2 1.0 -13.4 -24.7
Net debt/EBITDA (x) 0.5 0.0 -0.5 -0.9
CF from operations/net debt 162.3 2325.0
Per share data (KRW)
EPS Rep (diluted) 5003.35 5175.99 7235.21 7772.52
HSBC EPS (diluted) 5003.35 5175.99 7235.21 7772.52
DPS 500.00 500.00 500.00 500.00
Book value 30662.23 35376.77 42182.89 49533.56
Valuation data
Year to 12/2015a 12/2016e 12/2017e 12/2018e
EV/sales 1.6 1.3 1.0 0.8
EV/EBITDA 7.1 5.4 4.2 3.5
EV/IC 2.7 2.5 2.2 1.9
PE* 13.5 13.0 9.3 8.7
PB 2.2 1.9 1.6 1.4
FCF yield (%) 3.0 10.3 11.5 12.5
Dividend yield (%) 0.7 0.7 0.7 0.7
* Based on HSBC EPS (diluted)
Issuer information
Share price (KRW) 67300.00 Free float 50%
Target price (KRW) 80000.00 Sector Electronic Equipment
Reuters (Equity) 036830.KQ Country Korea
Bloomberg (Equity) 036830 KS Analyst Will Cho
Market cap (USDm) 1,004 Contact +822 3706 8765
Price relative
Source: HSBC Note: Priced at close of 02 Aug 2016
17000.00
27000.00
37000.00
47000.00
57000.00
67000.00
17000.00
27000.00
37000.00
47000.00
57000.00
67000.00
2014 2015 2016 2017
Soulbrain Rel to KOSPI INDEX
Financials & valuation: Soulbrain Buy
23
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
Financial statements
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Profit & loss summary (KRWb)
Revenue 40 50 97 129
EBITDA 6 10 28 40
Depreciation & amortisation -3 -3 -3 -3
Operating profit/EBIT 2 6 25 37
Net interest 1 1 1 1
PBT 3 7 26 38
HSBC PBT 3 7 26 38
Taxation -1 -1 -3 -6
Net profit 2 6 23 32
HSBC net profit 2 6 23 32
Cash flow summary (KRWb)
Cash flow from operations 6 8 19 30
Capex -3 -3 -3 -3
Cash flow from investment -13 -6 -20 -11
Dividends 0 0 0 0
Change in net debt -23 -2 1 -19
FCF equity 2 5 15 27
Balance sheet summary (KRWb)
Intangible fixed assets 29 29 29 29
Tangible fixed assets 38 38 37 36
Current assets 46 53 79 117
Cash & others 23 24 23 42
Total assets 114 123 156 193
Operating liabilities 7 10 20 25
Gross debt 0 0 0 0
Net debt -23 -24 -23 -42
Shareholders' funds 104 110 133 165
Invested capital 83 86 102 115
Ratio, growth and per share analysis
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Y-o-y % change
Revenue -0.9 25.0 91.8 33.8
EBITDA 121.0 66.0 196.5 42.2
Operating profit -6.3 159.0 295.1 47.4
PBT 4.8 145.6 284.4 46.9
HSBC EPS -16.6 174.7 284.4 40.3
Ratios (%)
Revenue/IC (x) 0.4 0.6 1.0 1.2
ROIC 2.1 6.7 23.7 28.9
ROE 2.1 5.6 18.8 21.5
ROA 2.0 5.0 16.4 18.4
EBITDA margin 14.3 18.9 29.2 31.1
Operating profit margin 6.0 12.5 25.8 28.4
EBITDA/net interest (x)
Net debt/equity -21.9 -22.1 -17.3 -25.6
Net debt/EBITDA (x) -4.0 -2.6 -0.8 -1.0
CF from operations/net debt
Per share data (KRW)
EPS Rep (diluted) 180.59 496.09 1907.09 2676.51
HSBC EPS (diluted) 180.59 496.09 1907.09 2676.51
DPS 0.00 0.00 0.00 0.00
Book value 8686.89 9182.99 11090.07 13766.58
Valuation data
Year to 12/2015a 12/2016e 12/2017e 12/2018e
EV/sales 8.8 7.0 3.6 2.5
EV/EBITDA 61.5 36.8 12.3 8.2
EV/IC 4.3 4.1 3.4 2.9
PE* 173.6 63.2 16.4 11.7
PB 3.6 3.4 2.8 2.3
FCF yield (%) 0.5 1.2 4.1 7.2
Dividend yield (%) 0.0 0.0 0.0 0.0
* Based on HSBC EPS (diluted)
Issuer information
Share price (KRW) 31350.00 Free float 50%
Target price (KRW) 45000.00 Sector Electronic Equipment
Reuters (Equity) 213420.KQ Country Korea
Bloomberg (Equity) 213420 KS Analyst Will Cho
Market cap (USDm) 339 Contact +822 3706 8765
Price relative
Source: HSBC Note: Priced at close of 02 Aug 2016
11000.00
16000.00
21000.00
26000.00
31000.00
36000.00
11000.00
16000.00
21000.00
26000.00
31000.00
36000.00
2014 2015 2016 2017
Duksan Neolux Rel to KOSPI INDEX
Financials & valuation: Duksan Neolux Buy
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
24
Financial statements
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Profit & loss summary (KRWb)
Revenue 192 194 245 292
EBITDA 44 40 63 72
Depreciation & amortisation -11 -13 -17 -20
Operating profit/EBIT 33 26 46 52
Net interest 0 -1 -1 -1
PBT 28 28 48 54
HSBC PBT 28 28 48 54
Taxation -7 -7 -12 -13
Net profit 22 23 39 44
HSBC net profit 22 23 39 44
Cash flow summary (KRWb)
Cash flow from operations 26 35 48 56
Capex -35 -50 -20 -12
Cash flow from investment -33 -52 -25 -17
Dividends 0 0 0 0
Change in net debt 7 17 -24 -39
FCF equity -12 -18 25 41
Balance sheet summary (KRWb)
Intangible fixed assets 13 13 13 13
Tangible fixed assets 116 138 172 172
Current assets 70 53 89 139
Cash & others 24 7 31 71
Total assets 234 243 315 370
Operating liabilities 26 12 48 63
Gross debt 5 5 5 5
Net debt -19 -2 -26 -65
Shareholders' funds 196 218 255 296
Invested capital 149 184 194 192
Ratio, growth and per share analysis
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Y-o-y % change
Revenue 32.6 0.6 26.6 19.2
EBITDA 21.4 -10.1 58.5 13.7
Operating profit 21.9 -20.8 75.2 12.5
PBT 3.6 1.2 69.4 12.1
HSBC EPS 4.6 6.7 69.9 12.1
Ratios (%)
Revenue/IC (x) 1.4 1.2 1.3 1.5
ROIC 18.9 12.3 18.8 20.8
ROE 11.8 11.2 16.7 16.1
ROA 10.0 9.7 13.7 12.4
EBITDA margin 23.0 20.5 25.7 24.5
Operating profit margin 17.3 13.6 18.9 17.8
EBITDA/net interest (x) 199.9 60.2 90.2 101.3
Net debt/equity -9.3 -0.9 -9.8 -21.6
Net debt/EBITDA (x) -0.4 -0.1 -0.4 -0.9
CF from operations/net debt
Per share data (KRW)
EPS Rep (diluted) 3514.70 3749.89 6370.19 7138.88
HSBC EPS (diluted) 3514.70 3749.89 6370.19 7138.88
DPS 0.00 0.00 0.00 0.00
Book value 32706.53 36208.13 42126.57 48758.18
Valuation data
Year to 12/2015a 12/2016e 12/2017e 12/2018e
EV/sales 2.0 2.1 1.6 1.2
EV/EBITDA 8.9 10.2 6.0 4.7
EV/IC 2.6 2.2 2.0 1.8
PE* 20.6 19.3 11.3 10.1
PB 2.2 2.0 1.7 1.5
FCF yield (%) -2.8 -4.4 6.2 10.3
Dividend yield (%) 0.0 0.0 0.0 0.0
* Based on HSBC EPS (diluted)
Issuer information
Share price (KRW) 72300.00 Free float 50%
Target price (KRW) 88000.00 Sector Electronic Equipment
Reuters (Equity) 104830.KQ Country Korea
Bloomberg (Equity) 104830 KS Analyst Will Cho
Market cap (USDm) 403 Contact +822 3706 8765
Price relative
Source: HSBC Note: Priced at close of 02 Aug 2016
31000.00
41000.00
51000.00
61000.00
71000.00
81000.00
31000.00
41000.00
51000.00
61000.00
71000.00
81000.00
2014 2015 2016 2017
Wonik Materials Rel to KOSPI INDEX
Financials & valuation: Wonik Materials Buy
25
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
Financial statements
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Profit & loss summary (KRWb)
Revenue 368 447 515 563
EBITDA 71 94 111 119
Depreciation & amortisation -22 -24 -25 -26
Operating profit/EBIT 49 71 87 94
Net interest -11 -12 -6 -3
PBT 43 66 87 99
HSBC PBT 43 66 87 99
Taxation -8 -14 -17 -20
Net profit 34 51 69 79
HSBC net profit 34 51 69 79
Cash flow summary (KRWb)
Cash flow from operations 42 87 107 119
Capex -59 -30 -35 -38
Cash flow from investment -62 -46 -52 -56
Dividends -9 -9 -9 -9
Change in net debt 25 -25 -39 -48
FCF equity -23 32 48 55
Balance sheet summary (KRWb)
Intangible fixed assets 18 18 18 18
Tangible fixed assets 342 381 391 405
Current assets 110 157 214 278
Cash & others 8 33 72 122
Total assets 521 614 690 778
Operating liabilities 70 120 135 150
Gross debt 198 198 198 201
Net debt 190 165 126 79
Shareholders' funds 242 285 346 417
Invested capital 392 403 416 429
Ratio, growth and per share analysis
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Y-o-y % change
Revenue 9.5 21.5 15.1 9.4
EBITDA 49.9 32.3 18.1 7.1
Operating profit 73.8 44.2 22.9 7.9
PBT 71.2 55.8 31.3 13.6
HSBC EPS 59.4 50.1 35.1 13.7
Ratios (%)
Revenue/IC (x) 1.0 1.1 1.3 1.3
ROIC 11.5 14.6 17.6 18.3
ROE 15.0 19.4 21.9 20.6
ROA 8.8 10.8 11.5 11.1
EBITDA margin 19.4 21.1 21.7 21.2
Operating profit margin 13.3 15.8 16.9 16.6
EBITDA/net interest (x) 6.4 8.1 19.3 46.9
Net debt/equity 76.9 56.9 36.0 18.7
Net debt/EBITDA (x) 2.7 1.7 1.1 0.7
CF from operations/net debt 22.0 52.9 84.6 151.4
Per share data (KRW)
EPS Rep (diluted) 3079.39 4622.51 6245.95 7100.47
HSBC EPS (diluted) 3079.39 4622.51 6245.95 7100.47
DPS 800.00 800.00 800.00 800.00
Book value 21827.26 25724.28 31218.73 37570.10
Valuation data
Year to 12/2015a 12/2016e 12/2017e 12/2018e
EV/sales 2.9 2.3 1.9 1.7
EV/EBITDA 15.2 11.1 9.0 7.9
EV/IC 2.8 2.6 2.4 2.2
PE* 27.1 18.1 13.4 11.8
PB 3.8 3.2 2.7 2.2
FCF yield (%) -2.6 3.6 5.4 6.3
Dividend yield (%) 1.0 1.0 1.0 1.0
* Based on HSBC EPS (diluted)
Issuer information
Share price (KRW) 83500.00 Free float 50%
Target price (KRW) 100000.00 Sector Chemicals
Reuters (Equity) 014680.KS Country Korea
Bloomberg (Equity) 014680 KS Analyst Will Cho
Market cap (USDm) 849 Contact +822 3706 8765
Price relative
Source: HSBC Note: Priced at close of 02 Aug 2016
15000.00
35000.00
55000.00
75000.00
95000.00
115000.00
15000.00
35000.00
55000.00
75000.00
95000.00
115000.00
2014 2015 2016 2017
Hansol Chemical Rel to KOSPI INDEX
Financials & valuation: Hansol Chemical Buy
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
26
Financial statements
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Profit & loss summary (KRWb)
Revenue 71 60 83 97
EBITDA 24 15 23 31
Depreciation & amortisation -5 -5 -5 -5
Operating profit/EBIT 20 10 18 26
Net interest -1 0 0 0
PBT 22 11 18 26
HSBC PBT 22 11 18 26
Taxation -5 -3 -4 -6
Net profit 17 8 14 20
HSBC net profit 17 8 14 20
Cash flow summary (KRWb)
Cash flow from operations 17 16 15 23
Capex -10 -18 -6 -7
Cash flow from investment -12 -19 -9 -10
Dividends 0 0 0 0
Change in net debt -7 3 -6 -14
FCF equity 3 -4 7 14
Balance sheet summary (KRWb)
Intangible fixed assets 2 2 2 2
Tangible fixed assets 47 52 65 67
Current assets 28 21 33 54
Cash & others 8 5 11 27
Total assets 79 79 107 132
Operating liabilities 8 -1 13 15
Gross debt 11 11 11 14
Net debt 3 6 0 -13
Shareholders' funds 61 69 83 103
Invested capital 61 71 77 81
Ratio, growth and per share analysis
Year to 12/2015a 12/2016e 12/2017e 12/2018e
Y-o-y % change
Revenue 16.0 -16.6 38.7 17.4
EBITDA 26.3 -37.5 49.1 34.6
Operating profit 30.4 -47.5 72.7 44.3
PBT 70.6 -49.1 62.2 44.7
HSBC EPS 69.8 -51.2 62.5 44.7
Ratios (%)
Revenue/IC (x) 1.3 0.9 1.1 1.2
ROIC 28.3 12.1 18.5 24.9
ROE 33.4 13.0 18.0 21.4
ROA 24.3 11.2 15.1 16.9
EBITDA margin 34.0 25.5 27.4 31.4
Operating profit margin 27.3 17.2 21.4 26.3
EBITDA/net interest (x) 38.7 32.1 55.4 90.7
Net debt/equity 4.9 8.9 0.3 -13.0
Net debt/EBITDA (x) 0.1 0.4 0.0 -0.4
CF from operations/net debt 573.5 268.5 6964.3
Per share data (KRW)
EPS Rep (diluted) 1620.29 791.47 1286.30 1860.66
HSBC EPS (diluted) 1620.29 791.47 1286.30 1860.66
DPS 0.00 0.00 0.00 0.00
Book value 5693.48 6484.95 7771.25 9631.92
Valuation data
Year to 12/2015a 12/2016e 12/2017e 12/2018e
EV/sales 2.2 2.7 1.8 1.4
EV/EBITDA 6.5 10.5 6.7 4.4
EV/IC 2.6 2.2 2.0 1.7
PE* 9.0 18.4 11.4 7.8
PB 2.6 2.3 1.9 1.5
FCF yield (%) 1.7 -2.5 4.8 9.6
Dividend yield (%) 0.0 0.0 0.0 0.0
* Based on HSBC EPS (diluted)
Issuer information
Share price (KRW) 14600.00 Free float 50%
Target price (KRW) 18000.00 Sector Electronic Equipment
Reuters (Equity) 092070.KQ Country Korea
Bloomberg (Equity) 092070 KS Analyst Will Cho
Market cap (USDm) 141 Contact +822 3706 8765
Price relative
Source: HSBC Note: Priced at close of 02 Aug 2016
6500.00
11500.00
16500.00
21500.00
26500.00
31500.00
6500.00
11500.00
16500.00
21500.00
26500.00
31500.00
2014 2015 2016 2017
DNF Rel to KOSPI INDEX
Financials & valuation: DNF Buy
27
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Will Cho and Kenneth Shim
Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's
existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons
when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different
securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and
therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should
carefully read the entire research report and not infer its contents from the rating because research reports contain more
complete information concerning the analysts' views and the basis for the rating.
From 23rd March 2015 HSBC has assigned ratings on the following basis:
The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12
months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will
be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a
Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is
between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more
than 20% below the current share price, the stock will be classified as a Reduce.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage,
change in target price or estimates).
Upside/Downside is the percentage difference between the target price and the share price.
Prior to this date, HSBC’s rating structure was applied on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropria te,
regional market established by our strategy team. The target price for a stock represented the value the analyst expected the
stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as
Overweight, the potential return, which equals the percentage difference between the current share price and the target price,
including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the
succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight,
the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or
10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.
*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12
months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However,
stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the
past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating,
however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
28
Rating distribution for long-term investment opportunities
As of 03 August 2016, the distribution of all independent ratings published by HSBC is as follows:
Buy 44% (25% of these provided with Investment Banking Services)
Hold 42% (25% of these provided with Investment Banking Services)
Sell 14% (18% of these provided with Investment Banking Services)
For the purposes of the distribution above the following mapping structure is used during the transition from the previous to
current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current
model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis
for financial analysis” above.
For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at
http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.
Information regarding company share price performance and history of HSBC ratings and target prices in respect of long-term
investment opportunities for the companies that are the subject of this report is available from www.hsbcnet.com/research.
To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please
see the disclosure page available at www.research.hsbc.com/A/Disclosures.
HSBC & Analyst disclosures
Disclosure checklist
Company Ticker Recent price Price date Disclosure
HANSOL CHEMICAL 014680.KS 83500.00 02-Aug-2016 7
Source: HSBC
1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months.
2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3
months.
3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company.
4 As of 30 June 2016 HSBC beneficially owned 1% or more of a class of common equity securities of this company.
5 As of 30 June 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services.
6 As of 30 June 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-investment banking securities-related services.
7 As of 30 June 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-securities services.
8 A covering analyst/s has received compensation from this company in the past 12 months.
9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below.
10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below.
11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company
12 As of 29 July 2016, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued share
capital, calculated according to the SSR methodology.
13 As of 29 July 2016, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued share
capital, calculated according to the SSR methodology.
29
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt
(including derivatives) of companies covered in HSBC Research on a principal or agency basis.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment
banking, sales & trading, and principal trading revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities.
This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as
such, this report should not be construed as an inducement to transact in any sanctioned securities.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
company available at www.hsbcnet.com/research. In order to find out more about the proprietary models used to produce this
report, please contact the authoring analyst.
Additional disclosures
1 This report is dated as at 04 August 2016.
2 All market data included in this report are dated as at close 02 August 2016, unless a different date and/or a specific time of
day is indicated in the report.
3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research
operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier
procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any
confidential and/or price sensitive information is handled in an appropriate manner.
4 You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest
payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the
price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument,
and/or (iii) measuring the performance of a financial instrument.
Production & distribution disclosures
1 This report was produced and signed off by the author on 03 Aug 2016 15:14 GMT.
2 In order to see when this report was first disseminated please see the disclosure page available at
https://www.research.hsbc.com/R/34/JxjmPXx
EQUITIES MATERIALS, CHEMICALS & TECHNOLOGY
4 August 2016
30
Disclaimer
Legal entities as at 1 July 2016
‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong
Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch;
HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and
Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt
SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai
Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul
Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South
Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA)
Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo
Financiero HSBC; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong
and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR; The Hongkong and
Shanghai Banking Corporation Limited, Bangkok Branch
Issuer of report
The Hongkong and Shanghai Banking Corporation
Limited, Seoul Securities Branch
7th Floor, HSBC Building
25, 1-ka, Bongrae-dong
Chung-ku, Seoul 100-161, Korea
Telephone: +822 3706 8700/3
Fax: +822 3706 8797
Website: www.research.hsbc.com
This document has been issued by The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HSBC") for the information of its institutional and professional
customers; it is not intended for and should not be distributed to retail customers. If it is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of
business in place between the recipient and such affiliate. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any
investment. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee,
representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Division of HSBC only and are subject to
change without notice. From time to time research analysts conduct site visits of covered issuers. HSBC policies prohibit research analysts from accepting payment or reimbursement for travel
expenses from the issuer for such visits. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this document (or in any related
investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may act as market maker or have assumed an underwriting commitment
in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform
investment banking or underwriting services for or relating to those companies.
HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. persons receiving and/or accessing this report and
wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report.
In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. The protections
afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in the UK. In Singapore, this publication is distributed by The Hongkong and
Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures
Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as
defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the
Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters
arising from, or in connection with this report. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL
301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank
Australia Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are
necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular
needs of any recipient. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR.
In Japan, this publication has been distributed by HSBC Securities (Japan) Limited. In Korea, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Seoul
Securities Branch ("HBAP SLS") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This
publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. HBAP SLS is regulated by the Financial Services Commission and
the Financial Supervisory Service of Korea. In Hong Kong, this document has been distributed by The Hongkong and Shanghai Banking Corporation Limited in the conduct of its Hong Kong
regulated business for the information of its institutional and professional customers; it is not intended for and should not be distributed to retail customers in Hong Kong. The Hongkong and
Shanghai Banking Corporation Limited makes no representations that the products or services mentioned in this document are available to persons in Hong Kong or are necessarily suitable for
any particular person or appropriate in accordance with local law. All inquiries by such recipients must be directed to The Hongkong and Shanghai Banking Corporation Limited. It may not be
further distributed in whole or in part for any purpose.
In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed
“Commentary” in Canada although other affiliate jurisdictions may term “Commentary” as either “macro-research” or “research”), the Commentary is not an offer to sell, or a solicitation of an offer
to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments).
© Copyright 2016, The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of The Hongkong and Shanghai
Banking Corporation Limited, Seoul Securities Branch. MCI (P) 094/06/2016, MCI (P) 085/06/2016 and MICA (P) 021/01/2016
[521322]
Head of Research, Korea Brian Cho +822 3706 8750 [email protected]
Banks
Analyst Sinyoung Park +822 3706 8770 [email protected]
Consumer, Brands and Retail
Analyst Karen Choi +822 3706 8781 [email protected]
Associate Jenny Chae +822 3706 8774 [email protected]
Equity Strategy
Head of Research, Korea Brian Cho +822 3706 8750 [email protected]
Industrials
Head of Research, Korea Brian Cho +822 3706 8750 [email protected]
Analyst Paul Choi +822 3706 8758 [email protected]
Analyst Yeon Lee +822 3706 8778 [email protected]
Insurance
Analyst Sinyoung Park +822 3706 8770 [email protected]
Metals & Mining
Head of Research, Korea Brian Cho +822 3706 8750 [email protected]
TMT
Analyst Ricky Seo +822 3706 8777 [email protected]
Analyst Jena Han +822 3706 8772 [email protected]
Analyst Will Cho +822 3706 8765 [email protected]
Associate Kenneth Shim +822 3706 8779 [email protected]
Korea Research Team