130304 jpm samsung supply chains-finding winning sub-sectors and companies

www.jpmorganmarkets.com

Asia Pacific Equity Research04 March 2013

Tech Supply Chain 101 (SEC)Samsung supply chains: Finding winning sub-sectors and companies

Technology - Semiconductors

JJ Park AC

(822) 758-5717

[email protected]

J.P. Morgan Securities (Far East) Ltd, Seoul Branch

Jay Kwon AC

(82-2) 758-5725

[email protected]


Masashi Itaya AC

(81-3) 6736 8633

[email protected]

JPMorgan Securities Japan Co., Ltd.

Helaine Kang AC

(82-2) 758- 5712

[email protected]


Yumi Tanaka AC

(81-3) 6736-8603

[email protected]

JPMorgan Securities Japan Co., Ltd.

See page 52 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Given Samsung Electronics’ Galaxy S4 launch on March 14th and a series of upcoming tablet PCs, we analyze SEC’s handset/tablet supply chains to illustrate: (1) supplier relationships between Samsung and major component makers across smartphones and tablets; (2) supply chains’ financial and stock performance over the years to find winning sectors and companies; (3) findingthe biggest beneficiaries from the upcoming flagship models; and (4) summary of meeting notes with key supply chain names.

Qualitative findings from Samsung supply chain: Given the fast movingproduct cycle and diversified product mix, SEC prefers local suppliers with prompt response while it is still heavily dependent on Japan component makers for high-end components. Hence, SEC tries to maintain long-term relationships with qualified component suppliers for the timely launch of new products in the market. These qualified names enjoy higher margins, more volumes and receive priority information.

Winners and losers in supply chain heat map: Touch panel, PCB, Electronic components have outperformed Electronic materials and SPE on strong revenue growth and margin expansion. Like the trend seen in big cap names, we find the trend of “bigger getting stronger” for even SMid names since downstream companies are also investing in R&D and capacity expansion to hold their ground in the marketplace. Hence, we recommend investors stay with tier 1 names in the respective components.

Component value change in Galaxy S4: We expect ASP for screens to increase and upgrades in camera modules along with increasing adoption of LTE to benefit related supply chains such as SEC, SEMCO, and Patron. We also recommend SDI and rechargeable battery related component names on increasing battery capacity.

Tablet opportunity for key vendors: Given the significant growth opportunity in SEC’s tablet PC, we expect touch panel, casing makers, and PCB makers to benefit from meaningful growth in tablets, assuming the same volume provides larger screen, bigger form-factor and substrate in the products. Casing players like Intops and KH Vatec and touch panel makers claim to enjoy higher ASP and margin upon size migration.

Implications for Japan component makers: Since Japanese component manufacturers have a high share in markets for high-frequency components, board connectors, and optical films, major Japanese component suppliers could benefit considerably from SEC's growing share in worldwide smartphone and tablet markets. Those names include Wacom (which has an exclusive deal to supply styli), Murata, Hirose Electric, and Nitto Denko.

Asia Pacific

Technology

Research

SEC supply chain YTD performanceYTD performance (%)

Source: Bloomberg

60%

30%

29%

26%

24%

20%

10%

-2%

-7%

-9%

-30% -10% 10% 30% 50% 70%

Wacom

Nitto

Partron

KH Vatec

Murata

Intops

Hirose

SEC

SEMCO

SSDI

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JJ Park(822) [email protected]

Table of ContentsExecutive Summary .................................................................3

Section I: Who does what?......................................................4

Mobile device (handset) ..........................................................................................4

Mobile device (Tablet) ............................................................................................6

Qualitative findings from Samsung supply chain......................................................8

Korea Tech – Small Cap DB constituents ................................................................9

Section II: Supply Chain Heat Map........................................10

Sub-sector performance comparison ......................................................................10

Section III: Finding winners within the sub-sectors ............15

Electronic components sector ................................................................................15

PCB sector ............................................................................................................17

Electronic Materials sector ....................................................................................18

SPE sector.............................................................................................................20

Touch Panel ..........................................................................................................21

Section IV: Where is the market heading? ...........................24

Samsung vs. Sub-sectors .......................................................................................25

Section V: Implication from potential component value changes in next Galaxy S-series...........................................28

Galaxy series shipment momentum vs. Market Cap analysis ..................................29

Section VI: Implications to Japan component makers........31

Section VII: Meeting Note Summary .....................................33

Duksan Hi-Metal (NC, 077360.KQ) ......................................................................34

Duksan Hi-Metal: Summary of Financials.........................................35

Interflex (NC, 051370.KQ)....................................................................................36

Interflex: Summary of Financials ....................................................37

Partron (NC, 091700.KQ)......................................................................................38

Partron: Summary of Financials .....................................................39

KH Vatec (NC, 060720.KQ) .................................................................................40

KH Vatec: Summary of Financials...................................................41

SFA Engineering (NC, 056190.KS).......................................................................42

SFA Engineering: Summary of Financials ........................................43

AP Systems (NC, 054620.KQ) ..............................................................................44

Asia Pacific Systems: Summary of Financials ..................................45

Iljin Display (NC, 020760.KS) ..............................................................................46

Iljin Display: Summary of Financials ...............................................47

S-MAC (NC, 097780.KQ).....................................................................................48

S-MAC: Summary of Financials ......................................................49

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Executive Summary

This is our first intensive report on “Tech supply chain 101 – Samsung supply chain” and herein we illustrate: (1) Supplier relationships between Samsung and supply chains across smartphones and tablets; (2) Supply chains’ financial and share performance over the years to analyze key winning sectors; (3) JPM’s view and implication on sub-sectors for upcoming new flagship series as well as a comparison between Samsung and supply chain sub-sectors; and (4) Meeting notes summary with supply chain companies. We expect this detailed handbook report to help investors capture key changes and upcoming key trends in Samsung’s supply chain. As some companies have not disclosed their 4Q12 performance yet, actual financial numbers may change from the one in the report.

Supply chain at a glance

We categorize SEC’s key supply chains in five sub-sectors: (1) Electronic materials, (2) PCB, (3) Electronic components, (4) Touch panels, and (5) SPE. We conduct an analysis of financial performance, share price performance, and their relative position in various matrix. Finally, we identify key growth drivers for each sub-sector to find relative performance to other sub-sectors. Accordingly, we try to provide implications from component value changes in the next Galaxy S-series (Galaxy S4 and Note3) to find winning sub-sectors.

Tablet PC opportunity

As most suppliers in tablet PC overlap and we expect SEC's tablet shipment momentum to accelerate, we believe touch panel, casing makers, and PCB makers will benefit more from strong growth in tablets, assuming the same volume provideslarger screen, bigger form-factor and substrate in the products in terms of top-line and earnings. In terms of SEC’s Galaxy-series shipment momentum vs. market cap trend, touch panel has stronger correlation with tablet PC shipment momentum.

Beneficiaries: Sectors and companies

Increasing value of display continues to benefit Samsung Display (SDC) and OLED related material players–Duksan Hi-Metal and potentially Cheil Industries. Casing players (KH Vatec and Intops) could benefit as larger device form-factor usually incurs higher ASP and better margin (especially for tablet PCs). PCB players (Interflex and Flexcom) will likely benefit as set makers require slimmer substrateand even flexible substrate.

With upgrades in camera modules, SEMCO could be the main supplier along with front camera suppliers such as Partron, Jawha and Power Logics. Also, emergence of diverse functional antenna would benefit Partron and Amotech. Finally, Samsung SDI remains the largest battery supplier for SEC's mobile devices.

In Japan, Wacom which has an exclusive deal to supply styli, and Murata, Hirose Electric and Nitto Denko for high frequency components, board connectors, and optical films. Also, Ibiden could benefit given SEC is using layer printed circuit boards for its Galaxy S4.

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Section I: Who does what?

Mobile device (handset)

Smartphone supply chain: Qualified suppliers with technology edge benefit

As Korea handset makers increase their presence in the smartphone market, key component suppliers from Samsung group (e.g. SEC, Samsung SDI, SEMCO), and non-Samsung suppliers—Patron (091700 KQ, NC; camera module), Iljin Display(035720 KQ, NC; Touch panel makers), Intops & KH Vatec (casing players), and other related supply chain would benefit. In this section, we lay out the supplier relationship for each component. Below is a teardown picture of SEC's key flagship smartphone–Galaxy Note II.

Figure 1: Smartphone Teardown Figure by components (Samsung Galaxy Note II)

Source: Company data, J.P. Morgan

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Major components are internally supplied across Samsung supply chain

As is well known in the market, key smartphone components (i.e. AP, OLED panel, mDRAM, MLCC, Camera, and Battery) are supplied by SEC or Samsung group affiliates. A large number of chipset components (i.e. baseband, model and network chipset, and sensor components) were supplied externally, however, Samsung has recently begun to adopt internally developed components (baseband and model chipset for new flagship smartphones). According to our BOM cost analysis, total BOM + manufacturing cost is slightly above $250, which accounts for ~45% of Galaxy S III's retailer price ($550 w/o lock-up discount).

Table 1: Smartphone supplier relationship table (Samsung smartphone)

Components Galaxy S III Detailed Components Supplier Rev. Exposure (FY12)Memory 30.0NAND Flash 17.4 NAND (Internal Memory) SEC SEC (6%)DRAM 12.6 mobile DRAM SEC SEC (4%)Display & Touch Screen 51.5 OLED panel SDC SDC small mobile (+60%)Display 37.5 OLED material SDC, Duksan hi-metal, Doosan, UDC Duksan (~85%), Doosan (<1%)

LCD panel SDC SDC small mobile (~40%)Mobile BLU SDC, E-litecom SDC small mobile (~40%), E-litecom (~50%)

Touch Screen 14.0 Touch Panel module Iljin Display, S-MAC, Melfas, ELK Iljin (95%), S-MAC (95%), Melfas (85%)Touch Panel sensor Melfas Melfas (85%)Driver IC SDC, Siliconworks Siliconworks (<5%)

Processor 25.3 Application Processor SEC, Qualcomm SEC (2%), Qualcomm (18%)MLCC SEMCO SEMCO (~20%)

Camera(s) 19.6 Camera module SEMCO, Partron SEMCO (~25%), Partron (~80%)Image sensor/components SEC / Sony / Jahwa Elec Jahwa Elec (100%)Camera lens SonyProximity Sensor SEC

Wireless section - 38.0 Baseband chip Qualcomm, Intel, SEC Intel (<1%), Qualcomm (18%)BB/RF/PA Radio Frequency chip Partron Partron (~80%)

Power Amplifier chip SkyworksLTE, HSPA, Modem Chip Qualcomm, SEC Qualcomm (18%)

User Interface & Sensors 6.9 Accelerometer ST Micro ST Micro (~10%)Gyroscope ST Micro ST Micro (~10%)Pressure sensor Partron Partron (~80%)Audio Interface Wolfson Micro Wolfson Micro (+30%)

WLAN/BT/FM/GPS 6.5 WLAN Broadcom Broadcom (17%)FM transceiver Infineon Infineon (low single %)Bluetooth Broadcom, Murata, Partron, Amotech Partron (~80%), Amotech (~45%)Wi-Fi Broadcom, Murata, Partron Partron (~80%)NFC chipset NXP, Partron, Amotech Partron (~80%), Amotech (~45%)

Power Management 10.0 Power management IC Maxim, TI, Silicon Mitus, Magna ChipBattery 4.5 Battery Pack Samsung SDI Samsung SDI (60%)

Battery Cell Samsung SDI Samsung SDI (60%)Battery Components material Power Logics, Iljin Materials Power Logics (65%), Iljin Materials (50%)

Mechanical 38.0 PCB / FPCB / FC-CSPDaeduck Electronics, Interflex, Flexcom, Simm Tech, BH

Daeduck (50%), Interflex (+40%), Flexcom (+90%)

/ Electro-mechanical Microphone BSE CM, Partron BSE CM (~70%), Partron (~80%)Speaker receiver BSE CM BSE CM (~70%)Casing Intops, KH Vatec, Shinyang Intops (~95%), KH Vatec (60%)LCD bracket KH Vatec, Innox KH Vatec (60%)SAW filter Wisol

Box Contents 7.0 Charger RF Tech RF Tech (+40%)BOM Cost 237.1Manufacturing Cost 16.0BOM Cost + Manufact. 253.1Smartphone ASP (US$) 550.0

Source: Gartner, Company data, J.P. Morgan estimates. *Supplier revenue exposure data based on company data. BOM cost based on Galaxy SIII, component supply status based on overall

Samsung smartphone line-ups. Supplier list includes companies above US$ 100mn market cap only. Revenue exposure (%) stands for total Samsung Electronics.

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Mobile device (Tablet)

Tablet supply chain: Similar to smartphone, but less profitable due to higher BOM

We expect 2013 would be the turning point for the tablet space as Android and Window-OS based set makers aggressively penetrate into Apple dominated market with various pricing points and product features. Although Tablets do not provide healthy margins to set makers compared to smartphones due to higher BOM cost burden, Samsung is generating a profit from supplying same components and benefits from cost spread effect upon economies of scale.

Samsung SDI (OW, 006400.KS) is our top preferable supply chain name under our coverage thanks to larger battery capacity. For non-Samsung supply chain names, touch panel makers (Iljin Display, NC; 035720.KS, S-MAC, NC; 097780.KQ, and ELK, NC; 094190.KQ) could benefit thanks to increasing ASP on larger screen size. Also, cost-driven suppliers like PCB/FPCB players (Interflex, NC; 051370.KQ and Flexcom, NC; 065270.KQ) could benefit from larger substrate components. Casing players (Intops, NC; 049070.KQ, KH Vatec, NC; 060720.KQ) also claim to enjoy higher ASP and margin from increasing tablet PC penetration given sophisticated manufacturing processes.

Figure 2: Smartphone Teardown Figure by components (Samsung Galaxy Note 10.1”)

Source: ifixit, Company data, J.P. Morgan

No major change from smartphone suppliers, qualified names continue to stay

A comparison of tablet PC supply chain names with smartphone suppliers indicates that they have lots of names in common. Although revenue and earnings contribution from tablets may be different from smartphones, we believe proliferation of Samsung tablets in the market should be beneficial for the relevant supply chain. Major components are internally supplied (i.e. AP, mDRAM, MLCC, and Battery). Unlike smartphones, camera exposure from SEMCO is much smaller given tablets usually

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adopt lower-spec camera module. Moreover, due to higher pricing points and tight supply, OLED panel adoption into tablet PC is at a premature stage. As battery consumption becomes a critical point, PMIC component becomes more important (but no domestic players have yet made a notable presence). S-Pen (pen-type input device for tablet PC) has been added to tablet PC recently in addition to Galaxy Note smartphone series (developed by Wacom and manufactured by SEC). According to our BOM cost analysis, total BOM + manufacturing cost is slightly below $280, which accounts for 56% of Galaxy Note 10.1's retailer price (~$499).

Table 2: Tablet PC supplier relationship table (Samsung Tablet PC)

ComponentsGalaxy

Note 10.1”Detailed Components Supplier Rev. Exposure (FY12)

Memory 30.0NAND Flash 17.4 NAND (Internal Memory) SEC SEC (6%)DRAM 12.6 mobile DRAM SEC SEC (4%)Display & Touch Screen 100.0 LCD panel SDC SDC small mobile (+60%)Display 60.0 Mobile BLU SDC, E-litecom SDC small mobile (~40%), E-litecom (~50%)Touch Screen 40.0 Touch Panel module Iljin Display, S-MAC, Melfas, ELK Iljin (95%), S-MAC (95%), Melfas (85%)

Touch Panel sensor Melfas Melfas (85%)Driver IC / Controller IC SDC, Siliconworks, Melfas Siliconworks (<5%), Melfas (85%)

Processor 18.8 Application Processor SEC, Qualcomm SEC (2%), Qualcomm (18%)MLCC SEMCO SEMCO (~20%)

Camera(s) 15.0 Camera module Partron, SEMCO SEMCO (~25%), Partron (~80%)Image sensor/components SEC, Sony, Jahwa Elec Jahwa Elec (100%)Camera lens SonyProximity Sensor SEC

User Interface & Sensors 18.0 Accelerometer ST Micro ST Micro (~10%)Gyroscope ST Micro ST Micro (~10%)S-Pen input Wacom, SECPressure sensor Partron Partron (~80%)Audio Interface Wolfson Micro Wolfson Micro (+30%)

WLAN/BT/FM/GPS 15.0 WLAN Broadcom Broadcom (17%)FM transceiver Infineon Infineon (low single %)Bluetooth Broadcom, Murata, Partron, Amotech Partron (~80%), Amotech (~45%)Wi-Fi Broadcom, Murata, Partron Partron (~80%)

Power Management 12.0 Power management IC Maxim, TI, Silicon Mitus, Magna ChipBattery 18.0 Battery Pack Samsung SDI Samsung SDI (60%)

Battery Cell Samsung SDI Samsung SDI (60%)Battery Components material Power Logics, Iljin Materials Power Logics (65%), Iljin Materials (50%)

Mechanical 35.0 PCB / FPCB / FC-CSPDaeduck Electronics, Interflex, Flexcom, Simm Tech, BH

Daeduck (50%), Interflex (+40%), Flexcom(+90%)

/ Electro-mechanical Microphone BSE CM BSE CM (~70%)Speaker receiver BSE CM BSE CM (~70%)Casing Intops, KH Vatec, Shinyang Intops (~95%), KH Vatec (60%)LCD bracket KH Vatec, Innox KH Vatec (60%)SAW filter Wisol

Box Contents 6.0 Earphone, Charger RF Tech RF Tech (+40%)BOM cost 267.8Manufacturing Cost 10.0BOM + Manufacturing 277.8Tablet PC ASP (US$) 499.0

Source: Gartner, Company data, J.P. Morgan estimates. *Supplier revenue exposure data based on company data. BOM cost based on Galaxy Note 10.1”, component supply status based on

overall Samsung tablet PC line-ups. Supplier list includes companies above US$ 100mn market cap only. Revenue exposure (%) stands for total Samsung Electronics.

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Qualitative findings from Samsung supply chain

1. Which company continues as the top vendor is a major supply chain concern

Samsung did not disclose its supplier list officially to the public before Galaxy SIII. Although names were not provided, the company provided a hint to the market aboutits supplier guideline. Given the fast moving product life-cycle, it is extremely important for set makers to launch new products in the market in a timely fashion. For example, Galaxy SIII experienced casing yield issues at the beginning of its global launch and the company said it solved the issue within three days. This leads to a continuous relationship between SEC and qualified suppliers. Hence, qualifiednames (Top Vendors) enjoy higher margins, more volumes and receive priority information, which in turn generates positive feedback from SEC.

2. Localization trend continues. SEC prefers local suppliers with prompt response

There are many suppliers outside Korean (especially from Japan; material, chipset, and SPE makers). We believe SEC increased its Korean supplier portion from low-10% in early 2000 to high 20% or more in 2011 and this trend is likely to continue. Recently, as Samsung set up a production site outside Korea (i.e. handset production at Vietnam and China), many supply chain names have kicked in overseasproduction to actively deal with SEC. For instance, casing players (KH Vatec andIntops) have built majority of capacity overseas and this strategy has worked successfully.

3. Level of product differentiation does matter. Is the supplier dominant enough?

Although highly differentiated products are internally supplied, there are few products in which non-Samsung players maintain a dominant position. For OLED material (HIL/HTL materials), Duksan Hi-Metal (DSHM) has been the major supplier from the beginning. SEC has put OLED upfront to differentiate it from competitors, and this strategy has worked successfully. Samsung tried to internalize material supply from Cheil Industries, but progress is still at the premature stage. As a result, DSHM has been enjoying good OPM (~30%) for the last 2 years.

4. Are non-Samsung players ready to embrace in-Samsung supplier position?

Given the shortened product life-cycle, SEC and in-Samsung suppliers are efficiently restructuring the supply chain system. Key challenges to non-Samsung suppliers are whether they are ready to take the empty positions and step up to be a part of the inner-circle. SEC merged with Samsung Hainan Fiberoptics-Korea (SEHF) in Sept-2012 and the merger process was completed by end of Dec-2012. Partron took over SEHF's camera module business in the SEC supply chain and Power Logics / Jahwa Electronics stepped up to directly supply camera image sensor to SEC's handset division. This is a good example of opportunity pursuit from non-Samsung supply chains and we are likely to see more such cases going forward as SEC continues to try outsourcing less profitable components to external parties and focus on core components.

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Korea Tech – Small Cap DB constituents

Table 3: Korea SMid-cap Tech list

Company List with sub-sector Ticker Company List with sub-sector TickerSmall caps - Electronics Components Small caps - SPEPartron 091700 KQ SFA Engineering 056190 KSJahwa Electronics 033240 KS Nepes 033640 KQSekonix 053450 KQ ICD 040910 KQFoosung 093370 KS AP System 054620 KQIljin Materials 020150 KS Jusung Engineering 036930 KSIntops 049070 KQ SNU Precision 080000 KSKH Vatec 060720 KQ Soulbrain 036830 KQShinyang Engineering 086830 KQ Wonik IPS 030530 KQInnochip Technology 080420 KQ Small caps - Touch PanelWisol 122990 KQ Iljin Display 020760 KS RFSemi Technologies 096610 KQ S-MAC 097780 KQ E-litecom 041520 KQ Melfas 096640.KQBSE CM 045970 KQ ELK 094190 KQCrucial Tech 114120 KQ Small caps - OthersSmall caps - PCB Silicon Works 108320 KSDaeduck Electronics 008060 KS Anapass 123860 KQInterflex 051370 KQ Power Logics 047310 KQFlexcom 065270 KQ DnF solution 092070 KQSimmTech 036710 KQ Infraware 041020 KQ Korea Circuit 007810 KS Barun Electronics 064520 KQ BH 090460 KQ ABCO Electronics 036010 KQ Small caps - Electronics Material Sangsin EDP 091580 KQ Duksan Himetal 077360 KQ Lumens 038060 KSI-Component 059100 KQ Sapphire Technology 123260 KSSangbo 027580 KQ Od-Tech 080520 KQInnox 088390 KQ Kumho Electric 001210 KS

Source: J.P. Morgan

Table 4: Korea SMid-cap tech supply chain - Asia peer list

Ticker Company Taiwan peers Japan peers

056190 KS SFA Engineering Corp Acter/United Integrated Services Tokki (Canon), ULVAC091700 KQ Partron Co Ltd Foxconn/Chicony/Lite-on Sony/Sharp077360 KQ Duksan Hi-Metal Co Ltd Hodogaya, Idemitsu Kosan036830 KQ Soulbrain Co Ltd Sino-American Silicon SUMCO/Shin Etsu/Hitachi Chemical/JSR051370 KQ Interflex Co Ltd Unimicron/Compeq/Tripod Sumitomo batelite/Ibiden/Meiko020760 KS Iljin Display Co Ltd TPK/WintekYoungfast/Jtouch/Jtouch/CMI Alps Electric/Nissha Printing008060 KS Daeduck Electronics Co Unimicron/Compeq/Tripod Sumitomo batelite/Ibiden/Meiko007810 KS Korea Circuit Co Ltd Unimicron/Compeq/Tripod Sumitomo batelite/Ibiden/Meiko033640 KQ NEPES Corp Acter/United Integrated Services Tokki (Canon), ULVAC030530 KQ Wonik IPS Co Ltd Acter/United Integrated Services Tokki (Canon), ULVAC096640.KQ Melfas Inc TPK/WintekYoungfast/Jtouch/Jtouch/CMI Alps Electric/Nissha Printing033240 KS Jahwa Electronics Co Ltd Foxconn/Chicony/Lite-on Sony/Sharp108320 KS Silicon Works Co Ltd Novatek/Realtek/Himax/Orise/Sitronix/Itlitek Renesas

Source: J.P. Morgan

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Section II: Supply Chain Heat Map

Sub-sector performance comparison

Share price trend – snapshot of performance We note that the electronics material/PCB/electronic components sub-sectors have outperformed other sub-sectors in terms of share price performance (Jan 2012 -YTD). The PCB sub-sector's impressive performance can be attributed to increasing competitiveness of domestic FPCB makers such as Flexcom, Interflex and Korea Circuit. In addition, proactive capex investments have increased investor hopes for a better topline and bottomline growth in this sub-sector.

The touch panel sector has been riding the smartphone/tablet growth wave as demand for touch functionality percolates to feature phones. Moreover, with the launch of Windows 8 in October 2012, the touch functionality is now being increasingly adopted in notebooks. These factors have fueled the growth of domestic touch panel module makers and touch sensor chip providers (Melfas).

The electronics components sector thrived under high demand for ever-increasing image resolution specs and high pixel modules. SPE's poor run is mainly an indicator of negative investor sentiment on the AMOLED sector owing to delays in investment by SEC and technological glitches which affected yield. Further, high demand for Innox’s FCCL and EMI films and Duksan’s dominant position in OLED material supply has fueled growth in the electronics materials sector.

Figure 3: Sub-sector wise share price performance (Market-cap weighted); Jan 2012 – YTDJan 2012 = 100

Source: Bloomberg, J.P. Morgan

Figure 4: Sub-sector wise share price (Market-cap weighted) appreciation; Jan 2012 – YTD% change since Jan,2012


Financial performance – Supply chain heat-map

In terms of top-line growth, touch panel sectors presented the strongest growth over years especially during 2009-2012 followed by Electronic materials and Electronic components sectors. Margin-wise, the touch panel sector witnessed the highest margin expansion. PCB sectors' general performance (both in terms of top-line growth and margin expansion) was rather muted compared to top two sectors. We find that this is mainly due to Interflex whose share performance heavily appreciated upon serving Apple in addition to Samsung. While the SPE sector was the biggest revenue generating sub-sector at the beginning of 2007, now an electronic component has taken over its place.

60

80

100

120

140

160

180

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13

Electronics Components PCB Electronics Material

SPE Touch Panel Others

57% 53%

38%

26% 25%

-10%-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Touch Panel PCB Elec components Elec Materials Others (incl LED/Solar)

SPE

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Table 5: Korea Tech – Revenue and OP growth, margin trend with top two performing sub-sectors

Revenue/OP in US$ mn, Growth/Margin in %

2007 2008 2009 2010 2011 2012RevenueElectronic Components 1,236 1,348 1,559 1,972 2,620 3,174PCB 1,206 1,209 1,282 1,762 2,226 2,799Electronic Materials 156 143 189 323 428 512SPE 1,049 1,095 956 1,629 2,192 1,783Touch Panel 168 206 353 700 1,161 1,406Others (incl. LED/Solar) 793 862 1,096 1,568 1,821 1,623Total 4,608 4,862 5,435 7,955 10,447 11,296Revenue growth Y/YElectronic Components 25.1% 9.0% 15.7% 26.5% 32.8% 21.2%PCB 8.0% 0.3% 6.0% 37.4% 26.3% 25.8%Electronic Materials 27.1% -8.7% 32.9% 70.6% 32.4% 19.7%SPE -0.1% 4.4% -12.7% 70.4% 34.5% -18.7%Touch Panel 40.5% 22.3% 71.6% 98.6% 65.7% 21.1%Others (incl. LED/Solar) 9.0% 8.7% 27.1% 43.1% 16.1% -10.9%Total 11.7% 5.5% 11.8% 46.4% 31.3% 8.1%OPElectronic Components 70 40 160 176 197 215PCB 1 38 85 143 154 198Electronic Materials 23 16 18 32 61 72SPE 134 100 76 165 217 140Touch Panel 18 8 26 73 94 114Others (incl. LED/Solar) 67 74 91 168 93 108Total 319 305 483 813 799 781OP MarginElectronic Components 5.7% 2.9% 10.2% 8.9% 7.5% 6.8%PCB 0.1% 3.1% 6.6% 8.1% 6.9% 7.1%Electronic Materials 14.4% 11.5% 9.7% 9.9% 14.4% 14.0%SPE 12.8% 9.2% 7.9% 10.1% 9.9% 7.8%Touch Panel 10.7% 4.0% 7.4% 10.4% 8.1% 8.1%Others (incl. LED/Solar) 8.5% 8.6% 8.3% 10.7% 5.1% 6.7%Total 6.8% 5.7% 8.4% 9.5% 7.8% 7.5%OP growth Y/YElectronic Components -17.9% -43.7% 302.4% 10.3% 11.8% 9.5%PCB -96.0% 4908.6% 126.6% 68.1% 7.7% 28.9%Electronic Materials 43.0% -27.5% 13.0% 73.1% 92.3% 16.5%SPE -8.4% -25.4% -24.7% 118.8% 31.1% -35.6%Touch Panel 180.1% -54.8% 222.7% 178.7% 28.9% 20.6%Others (incl. LED/Solar) -16.7% 9.7% 23.8% 83.2% -44.2% 15.7%Total -11.5% -12.0% 65.4% 65.9% 7.9% 3.7%


Revenue growth

The touch panel sector outperformed other sub-sectors with a CAGR of 59% from 2009 - 2012. The success of Korean touch module makers hinges on stable production yields and increasing technological competitiveness. Also, increasing penetration of tablet-PCs has fueled the growth of this sector.

Electronic components, PCB and electronic materials have registered revenue CAGR of 27%/30%/39% respectively. PCB sub-sector revenue growth has been resilient from 2009 - 2012, reflecting the ever changing landscape of the smartphone and tablet-PC market.

SPE sector's revenue dipped in 2012 owing to yield issues while adopting the AMOLED technology for mid-large sized panels. Of note, Samsung's On cell AMOLED panels for its flagship smartphones is developed internally.

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Figure 5: Sub-sector wise revenue growth Y/Y growth (%)

Source: Bloomberg, J.P. Morgan.

Figure 6: Sub-sector wise revenue growth (CAGR): 2009 – 2012CAGR (%)


Operating Profit/Operating profit marginIn terms of OP CAGR, we find that touch panel, electronic materials, and PCB are the top three performing sub-sectors within the Korean Tech supply chain. We find commonalities across three sub-sectors; highly operating leverage as volume driven economies of scale provide margin improvement in longer-term. On the other hand, electronic components, SPE, and other sectors reported poor margin growth.

Figure 7: Sub-sector wise 3 yr OP CAGR (2009-2012)CAGR (%)


-40%

-20%

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011 2012

Electronic Components PCB Electronic Materials

SPE Touch Panel Others (incl. LED/Solar)

27% 30%39%

23%

59%

14%

0%

20%

40%

60%

80%

100%

Electronic Components

PCB Electronic Materials


3yr Revenue CAGR (2009-2012)

11%

33%

57%

23%

63%

6%

0%

20%

40%

60%

80%

100%

Electronic Components

PCB Electronic Materials


3yr OP CAGR (2009-2012)

13



On an annual OPM basis, FY12 margin remained flattish Y/Y while the electronic material sub-sector outperformed its peer sub-sectors. We find this is largely due to level of product differentiation as most electronic materials companies appear to have secured a dominant position in the niche-segment.

Figure 8: Sub-sector wise Annual OPM trendOPM (%)


Big fishes becoming even bigger

We note that the market cap of the top 5 companies in the Korean supply chain as a % of the total market cap of all the companies has steadily grown from 2009 to 2012. This theory especially holds true in case of touch panel makers where the degree of vertical integration is crucial. Also, in an environment of changing technological landscape, it is important for downstream tech companies to invest in R&D and capacity expansions in order to hold their ground in the marketplace. We note that the total contribution of the top 5 companies has steadily increased both in terms of topline and bottomline from 2009 onwards. Like the trend in large cap Asian Tech names, we find the trend of big fishes becoming even bigger even among Small Cap tech names (Asia-Pacific Tech Database: Finding winning sector and country, published in Sep. 2012).

Figure 9: Top 5 market cap trendPortion (%)

Source: Bloomberg, J.P. Morgan. *Note: Top 5 Market Cap companies refer to SFA, Partron, DSHM, Soulbrain and Interflex

Figure 10: Korean tech: Top-5 revenue and OP contributionPortion (%)

Source: Bloomberg, J.P. Morgan. *Note: Top 5 Market Cap companies refer to SFA, Partron, DSHM, Soulbrain and Interflex

3%

10%9%

8% 7%

3%

7%8%

7% 7%

11%10% 10%

14% 14%

9%8%

10% 10%8%

4%

7%

10%8% 8%9% 8%

11%

5%7%

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012Electronic Components PCB Electronic MaterialsSPE Touch Panel Others (incl. LED/Solar)Average

17%15%

21%

25%22%

19%

25% 26%28%

0%

5%

10%

15%

20%

25%

30%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Major Top 5 Market Capitalization % over total Korea Tech small cap

10%

15%

20%

25%

30%

35%

40%

2007 2008 2009 2010 2011 2012

Top 5 revenue contribution (%) Top 5 OP contribution (%)

https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-943481-0.pdf

14



The following table presents the market cap, revenue, OP and OPM for small cap companies in the Korean tech supply chain, ranked in decreasing order of market cap.

Table 6: Korean tech supply chain (small cap)Market cap, Revenue and OP in USD millions, OPM (%)

Name Market Cap 2012 Rev 2012 OP 2012 OPM

SFA Engineering Corp 975 429 51 12%Partron Co Ltd 843 707 76 11%Duksan Hi-Metal Co Ltd 694 132 38 29%Soulbrain Co Ltd 627 525 88 17%Interflex Co Ltd 581 685 41 6%Iljin Display Co Ltd 555 527 58 11%Daeduck Electronics Co 506 657 49 7%Korea Circuit Co Ltd 373 393 31 8%Foosung Co Ltd 368 199 8 4%NEPES Corp 362 254 35 14%Melfas Inc 341 317 24 8%Wonik IPS Co Ltd 339 225 15 7%Iljin Materials Co Ltd 333 310 (3) -1%Jahwa Electronics Co Ltd 329 268 28 10%Silicon Works Co Ltd 319 420 42 10%Lumens Co Ltd 312 400 24 6%CrucialTec Co Ltd 271 122 (8) -7%Simm Tech Co Ltd 265 559 40 7%ELK Corp/Korea 264 163 4 2%KH Vatec Co Ltd 264 215 16 7%S-MAC Co Ltd/Korea 260 399 27 7%Flexcom Inc 256 304 21 7%INTOPS Co Ltd 254 494 21 4%Innox Corp 219 126 19 15%Kumho Electric Co Ltd 214 54 5 10%Jusung Engineering Co Ltd 203 68 (52) -77%Infraware Inc 201 39 9 22%Sapphire Technology Co Ltd 198 28 (7) -27%ICD Co Ltd 195 47 2 4%Sangbo Corp 189 225 15 7%e-LITECOM Co Ltd 183 448 30 7%BH Co Ltd 183 201 16 8%Innochips Technology Inc 174 68 12 18%Asia Pacific Systems Inc 174 197 9 4%Sekonix Co Ltd 157 131 14 11%Power Logics Co Ltd 148 227 5 2%WiSoL Co Ltd 141 76 13 17%ShinYang Engineering Co Ltd 136 97 2 2%Anapass Inc 124 99 11 11%Opto Device Technology Co Ltd 124 83 7 8%SNU Precision Co Ltd 119 39 (8) -20%RFsemi Technologies Inc 95 38 7 18%DNF Co Ltd 82 24 2 9%BSE Holdings Co Ltd 82 2 -0 3%i-Components Co Ltd 64 29 (0) -1%Barun Electronics Co Ltd 52 139 7 5%ABco Electronics Co Ltd 49 30 1 3%Sangsin Energy Display Precisi 40 82 4 4%Total 13,235 11,301 849 8%Source: Bloomberg; J.P. Morgan; Note: The aggregate OPM is calculated on a market-cap weighted basis

15



Section III: Finding winners within the sub-sectors

In the below section, we categorize five sub-sectors, (1) Electronic components; (2) PCB; (3) Electronic materials; (4) SPE; and (5) Touch panel and analyze share price trend, financial performance, and key growth drivers of each sub sector.

Electronic components sector

Share performance

Recent share price trend (Jan 2012 – YTD) clearly shows the impressive share price performance of camera module maker Partron and camera component makers such as Jahwa Electronics and Sekonix. Sekonix has been chosen as a supplier of 13MP camera lenses for SEC’s flagship smartphone, Galaxy S IV. In addition, Sekonix has been enjoying healthy production yield on its high-end lens business. Partron maintains a dominant position in the 3-MP segment and this has translated to higher margins compared to its peers. Casing makers such as Shinyang and Intops also delivered a healthy share price appreciation thanks to SEC’s robust smartphone growth. Iljin Materials’ share price slump can be attributed to the delayed recovery of profits in its PCB-elec foil business.

Figure 11: Electronic Components: Share price appreciation: Jan 2012 – YTD% change since Jan, 2012


Figure 12: Electronic Components: Share price trend: Jan 2012 – YTDJan 2012 = 100


256%193%

112% 109% 103% 78% 65% 41% 38%9%

-17% -18% -41% -47%-100%-50%

0%50%

100%150%200%250%300%

Shi

nYan

g

Sek

onix

Jahw

a E

lec

Par

tron

KH

Vat

ec

BS

E H

oldi

ngs

INT

OP

S

RF

sem

i Tec

h

Inno

chip

s

e-LI

TE

CO

M

Cru

cial

Tec

h

WiS

oL C

o

Foo

sung

Iljin

Mat

eria

ls

Electronic components index

50

100

150

200

250

300

350

400


Partron Co Ltd Jahwa Electronics Co Ltd ShinYang Engineering Co Ltd

Innochips Technology Inc Sekonix Co Ltd

16



Financial performanceAs highlighted above, Partron’s dominant position in the 3MP segment has translated to higher margins compared to its peers. Also, the migration to higher pixels has led to increase in OP for camera module makers. Iljin materials recorded a slump in its OP in 2012 on account of its PCB-electric foil business.

Figure 13: Electronic components: Revenue trend 2008 - 2012USD, millions


Figure 14: Electronic components: OP trend 2008 – 2012USD, millions


Figure 15: Electronic components: Financial snapshot 2007 - 2012Revenue and OP in USD millions; OPM (%)


Key growth driversAs smartphone makers are increasingly looking towards adopting hardware differentiation strategies, demand for high pixel modules (8+MP) and enhanced resolution will gain momentum on the back of high-end smartphone launches slated for 2Q13. Camera module makers should also benefit from the technology shift from standalone cameras to handset cameras. In addition, video calling and other enhanced features such as "motion recognition" should boost the specs for front cameras.

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2008 2009 2010 2011 2012

Partron Jahwa Electronics Sekonix

Iljin Materials Intops E-litecom

-10.0

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2008 2009 2010 2011 2012

Partron Jahwa Electronics Sekonix

Intops Iljin Materials E-litecom

0%

2%

4%

6%

8%

10%

12%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2007 2008 2009 2010 2011 2012

Revenue OP OPM (RHS)

17



PCB sector

Share performanceFlexcom, an established supplier of FPCB products to SEC, has been riding the success of SEC's Galaxy Note 10.1 and Galaxy Note 2 after it began supplying its digitizer products, for use in these models, in 3Q12. Of note, Korea Circuit owns 32% stake in Interflex, which is Korea's top FPCB maker. BH's share price rallied during Jan 2012-YTD owing to its capacity expansion in 2012 which is expected to boost its bottomline.

Figure 16: PCB: Share price appreciation: Jan 2012 – YTDChange since Jan, 2012 (%)


Figure 17: PCB: Share price Trend: 2008 - 2012Jan 2012 = 100


Financial performance

The PCB sector enjoyed a healthy growth during 2009 - 2010, both in terms of OPM and revenue. However, the growth appears to have slowed down during 2010 – 2012. Korea Circuit has enjoyed higher operating margins, thanks to stable production yields for PCB, and it is gaining increasing competitiveness in the PCB domain. Of note, Simm Tech’s revenue and OP both declined in 2012.

Figure 18: PCB: Financial snapshot: 2007 – 2012Revenue and OP in USD millions; OPM (%)


179%158%

104%

20%

-6%-27%-50%

0%

50%

100%

150%

200%

Flexcom Korea Circuit BH Co Ltd Interflex Daeduck Simm Tech

PCB sector index

50

100

150

200

250

300


Daeduck Electronics Co Interflex Co Ltd Flexcom Inc

Simm Tech Co Ltd Korea Circuit Co Ltd BH Co Ltd

0%1%2%3%4%5%6%7%8%9%

0

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011 2012


18



Figure 19: PCB: Revenue trend: 2008 – 2012USD millions


Figure 20: PCB: OP trend: 2008 – 2012USD millions


Key growth driversMigration towards slimmer and lighter mobile devices will continue to boost the PCB sector (high-density wiring). We expect demand for FPCB will grow in line with the smartphone and tablet-market growth as FPCB links the smartphone/tablet components to the main substrate. On an average, around five FPCBs are used per handset and around 10 FPCBs are used per tablet-PC. FPCB sector is largely impacted by economies of scale and yield. Higher economies of scale and high yield translate to higher margins. Increase in capacity expansion spending is also a key driver for this sector.

Electronic Materials sector

Share performance

The tepid performance of Duksan Hi-Metal is primarily due to negative investor sentiment owing to delays in AMOLED TV launches, uncertainties in facility investment and doubts regarding marketability of AMOLED panels. As panel makers focus on producing large sized panels, the demand for multi-functional sheets (protection + prism) developed by Sangbo is gaining momentum, which has translated to positive share price movement. Further, high demand for Innox’s EMI films and flexible copper clad laminate (FCCL) films has fueled its growth.

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2008 2009 2010 2011 2012

Daeduck Electronics Interflex Flexcom

SimmTech Korea Circuit BH

-20.0

-

20.0

40.0

60.0

80.0

2008 2009 2010 2011 2012

Daeduck Electronics Interflex

Flexcom SimmTech

Korea Circuit BH

19



Figure 21: Electronic Materials: Share price appreciation: Jan 2012 –YTD% change since, Jan 2012


Figure 22: Electronic Materials: Share price trend: Jan 2012 – YTDJan 2012 = 100



We note that revenue growth of this sector has slowed in recent years. Primary reason for Duksan’s muted response in 2011-12 was the delay in OLED investment by SEC. However, both Innox and Sangbo have posted increasing revenue and OP in recent years.

Figure 23: Electronic Materials: Revenue trend: 2008 – 2012USD millions


Figure 24: Electronic Materials: OP trend: 2008 – 2012USD millions


Figure 25: Electronic Materials: Financial performance: 2007-2012Revenue and OP in USD millions, OPM (%)


49%40%

-5%

-23%-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Innox Sangbo Duksan Hi Metal i-Component

Electronic materials index

40

60

80

100

120

140

160


Duksan Hi-Metal Co Ltd i-Components Co Ltd

Sangbo Corp Innox Corp

-

50.0

100.0

150.0

200.0

250.0

2008 2009 2010 2011 2012

Duksan Himetal I-Component Sangbo Innox

-5.0

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2008 2009 2010 2011 2012

Duksan Himetal I-Component Sangbo Innox

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

100

200

300

400

500

600

2007 2008 2009 2010 2011 2012


20



Key growth driversStronger AMOLED panel demand fueled by strong sales of SEC's AMOLED smartphones and technological development to enable economical shift to AMOLED panels in tablet-PCs, monitors and TVs should be key growth drivers for companies such as Duksan Hi-Metal and SFA Engineering. Continued focus on lighter, smaller and multi-functional mobile devices should be a key driver for Innox'ssmartflex division. Success of Sangbo's CNT (carbon nanotube) transparent electrode film could be a key swing factor.

SPE sector

Share performanceNEPES share prices tumbled starting in 3Q12 on account of negative investor sentiment based on speculation that Apple will diversify its AP chips procurement from SEC to include TSMC. Overhang concerns dragged on Soulbrain’s share price performance in 2012. Share price performances of SFA, AP Systems, SNU and ICD were all impacted due to negative investor outlook on the AMOLED sector.

Figure 26: SPE: Share price appreciation: Jan 2012 – YTD% change since Jan 2012


Figure 27: SPE: Share price trend: Jan 2012 – YTDJan 2012 = 100

Source: Bloomberg; J.P. Morgan


We note a decline in the revenue and OP, primarily on account of delay in OLED investment by SEC. Further, yield issues with adopting OLED technology to mid-large sized panels has led to a further squeeze in OPM. Of note, NEPES has posted an increase in revenue and OP on the back of growth in smartphone shipments from customers using SEC foundries.

9%0%

-6%

-36%-42%

-49% -50% -50%-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

NEPES Soulbrain SFA Engg AP System SNU Precision

ICD Co Ltd Jusung Engg

Wonik IPS

SPE sector index

20

40

60

80

100

120

140


SFA Engineering Corp NEPES CorpICD Co Ltd Asia Pacific Systems IncSNU Precision Co Ltd Soulbrain Co Ltd

21



Figure 28: SPE: Financial performance: 2007 – 2012Revenue and OP in USD millions, OPM (%)


Figure 29: SPE: Revenue trend: 2008 – 2012USD millions


Figure 30: SPE: OP Trend: 2008 – 2012USD millions


Key growth drivers:SPE sector should benefit from technological development that will enable usage of AMOLED panels in tablet PCs, monitors and TVs in an economical way. Order momentum from panel makers should boost the topline for this sector. In addition, rapid growth of the tablet PC market should help packaging firms such as NEPES.

Touch Panel

Share performance

The leading names in the Korean touch panel sector, except Melfas, have all performed well as can be seen from the share price appreciation from Jan 2012 –YTD.

0%

2%

4%

6%

8%

10%

12%

14%

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011 2012


-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2008 2009 2010 2011 2012

SFA Engineering Nepes ICD

AP System SNU Precision Soulbrain

-20.0

-

20.0

40.0

60.0

80.0

100.0

2008 2009 2010 2011 2012

SFA Engineering Nepes ICD

AP System SNU Precision Soulbrain

22



Figure 31: Touch panel: Share price appreciation: Jan 2012 – YTDChange since Jan, 2012 (%)


Figure 32: Touch panel: Share price trend: Jan 2012 – YTDJan 2012 = 100



The touch panel sector has posted solid top line and bottom line growth on increasing smartphone and tablet shipments. Key beneficiaries of SEC's growth in handset and tablet PC markets have been Iljin Display, S-MAC and Melfas. Note that, Iljin Display, whose production yield is stable and high, has outperformed others in this sector.

Figure 33: Touch panel sector: Financial performance (2007-2012)Revenue and OP in millions, OPM (%)

Source: Bloomberg

Figure 34: Touch panel: Revenue trend: 2008 - 2012USD millions

Source: Bloomberg

Figure 35: Touch panel: OP trend: 2008 – 2012USD millions

Source: Bloomberg

80% 80%

49%

-22%-40%

-20%

0%

20%

40%

60%

80%

100%

S-MAC Iljin Display Elk Corp Melfas

Touch panel sector index

50

70

90

110

130

150

170

190

210


Iljin Display Co Ltd S-MAC Co Ltd/Korea

Melfas Inc ELK Corp/Korea

0%

2%

4%

6%

8%

10%

12%

0

200

400

600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011 2012


-

100.0

200.0

300.0

400.0

500.0

600.0

2008 2009 2010 2011 2012

Iljin Display S-MAC Melfas ELK

-10.0

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2008 2009 2010 2011 2012

Iljin Display S-MAC Melfas ELK

23



Key growth driversRising smartphone/tablet shipments and increased touch screen adoption in feature phones remains the top growth driver. In addition, with the launch of Windows 8, touch screen notebooks are likely to become an attractive option for consumers, though the market for touch screen notebooks is still in its infancy. The key growth factors for companies in this sector are the ability to adapt to new technologies, stable (high) yield and the degree of vertical integration. Given the tight supply of ITO film, established players, with stable production yields, such Iljin Display, Melfas and S-Mac should continue to bag more orders from SEC as SEC seeks to diversify its touch panel suppliers to prepare for potential demand increases in 2013.

24



Section IV: Where is the market heading?

To identify opportunities and challenges in sub-sectors, we conducted a comparison analysis vs. SEC from the past and project which respective sectors will benefit based on our current estimate. Also, we provide which data points to follow in near-term to identify direction of share performance.

Smartphone continues to post strong growth into 2013

According to JPM Tech team’s estimates, global smartphone market is expected to reach 922M units in 2013 posting 37% Y/Y growth followed by another ample growth of 17% Y/Y to 1.8 billion units in 2014. We expect SEC’s penetration into smartphone in terms of unit shipment would be faster than market penetration. SEC's smartphone business is projected to post 40% Y/Y growth in 2013 to 301M followed by 27% Y/Y growth in 2014.

Figure 36: Global handset shipment breakdown and penetration trendUnit millions, %

Source: IDC, Company data, J.P. Morgan estimates

Figure 37: SEC – Handset shipment breakdown and penetration trendUnit millions, %

Source: Company data, J.P. Morgan estimates

Robust earnings driven by strong smartphone business upon flagship models

SEC’s handset business earnings have improved significantly in 2012 achieving 21% operating margin vs 15% in 2011. We maintain a positive stance on SEC’s handset business thanks to its momentum in high-end flagship models and full line-up strategy serving low-to-mid segment as well.

Figure 38: Samsung Electronics – Handset revenue and margin trendWon billions, OPM (%)


763 949 1,086 1,201 1,177 1,318 1,309

1,066 834 720

54 80

123 155 172

299 473 671

922 1,079

7% 8% 10% 11% 13%18%

27%

39%

52%60%

0%

10%

20%

30%

40%

50%

60%

70%

0200400600800

1,0001,2001,4001,6001,8002,000

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Global - Feature phone Global - Smartphone Smartphone penetration

103 118 161 197 222 256 234 186

130 42

- --

-6

24 98 214 301 382

0% 0% 0% 0% 2%9%

30%

54%

70%

90%

0%10%20%30%40%50%60%70%80%90%100%

050

100150200250300350400450500

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

SEC - Feature phone SEC - Smartphone Smartphone penetration

13%

10%11%

9%11% 11%

15%

21% 21% 20%

0%

5%

10%

15%

20%

25%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Revenue OPM

25



Tablet: The growth driver for SEC’s handset division onward

As highlighted in our SEC tablet report (“New growth engine for SEC and key supply chains on 01 November, 2013"), we expect its shipment momentum to accelerate this year to 43M (+143% Y/Y growth, Y% M/S of global tablet market demand) followed by another growth into 2014E (64M, 50+% Y/Y growth). During 2012, tablet revenue only contributed 9% of total handset revenue, but we expect its portion to increase up to 16% by 2014. In terms of margin, we estimate tablet to generate high-single digit margin in 2013.

Figure 39: SEC tablet revenue and tablet shipment trendWon billions, Unit millions


Figure 40: SEC tablet revenue and % of total handset sales trendWon billions, % of total revenue


Samsung vs. Sub-sectors

We note an inverse correlation between SEC’s handset division’s OPM and Korean tech's top 5 companies' OPM. This is expected, since the top 5 companies have a healthy revenue exposure to SEC. Another key point to note here is that the average OPM (total OP/total sales) for the top 5 companies in the Korean SMid-cap tech supply chain outperforms the average OPM for the entire supply chain.

Figure 41: SEC handset OPM v/s Korean SMid-cap tech OPMOPM (%)

Source: Bloomberg

2 6

17

43

64

-

10

20

30

40

50

60

70

0

5,000

10,000

15,000

20,000

25,000

2010 2011 2012 2013E 2014E

SEC tablet revenue SEC tablet shipment [RHS]

3%

6%

9%

14%16%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0

5,000

10,000

15,000

20,000

25,000

2010 2011 2012 2013E 2014E

SEC tablet revenue Tablet revenue % of total handset [RHS]

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010 2011 2012SEC Handset OPM Top 5 OPM Korean Tech OPM



26



Margin trendTouch panel and PCB sub-sectors usually incur high fixed costs and hence their operating margins are more sensitive to sales compared to other sub-sectors. Again, we note here that the operating margins of the SPE sub-sector dipped in the last two years as the companies within the sector faced increasing cost pressure to come up with a viable AM-OLED solution amid fluctuating yields.

Figure 42: SEC handset operating margin vs. margin by sub-sectorsOPM (%)

Source: Company data, Bloomberg actual data for sub-sectors. *Note: Actual FY12 sub-sector number may be different as some

companies have yet introduced their annual performance.

Figure 43: SEC handset OPM vs. Electronic materials OPMWon billions, Sales growth Y/Y (%)

Source: Company data, Bloomberg actual data for sub-sectors. *Note: Actual FY12 sub-sector

number may be different as some companies have yet introduced their annual performance

Figure 14: SEC handset OPM vs. PCB OPMWon billions, Sales growth Y/Y (%)



Figure 45: SEC handset OPM vs. Touch panel OPMWon billions, Sales growth Y/Y (%)



Figure 46: SEC handset OPM vs. Electronic components OPMWon billions, Sales growth Y/Y (%)



0%

5%

10%

15%

20%

25%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Electronic components OPM PCB OPM Electronic materials OPMTouch Panel OPM SPE OPM SEC handset OPM [RHS]

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

SEC handset OPM [RHS] Electronic materials OPM

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

SEC handset OPM [RHS] PCB OPM

-10%

-5%

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

SEC handset OPM [RHS] Touch Panel OPM

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

SEC handset OPM [RHS] Electronic components OPM

27



Quick Snapshot of sub-sector tone toward Samsung

According to our research and discussion with sub-sector companies, ~60% of companies guided their revenue exposure to Samsung would go up Y/Y and ~30%pointed out that their exposure will remain flat. While margin guidance is not disclosed at this stage, given strengthened supplier-set maker confidential policy, we expect qualified non-Samsung suppliers will continue to achieve margin expansion on strong customers' order momentum.

Table 7: Revenue exposure guidance for FY12 and FY13 by sub-sector companies

Revenue Exposure to Samsung (%)

Detailed Components Rev. Exposure (FY12) Rev. Exposure (FY13)

NAND (Internal Memory) SEC (6%) YoY slight downmobile DRAM SEC (4%) YoY slight downOLED panel SDC small mobile (+60%) YoY upOLED material Duksan (~85%), Doosan (<1%) Duksan (YoY up)LCD panel SDC small mobile (~40%) YoY upMobile BLU SDC small mobile (~40%), E-litecom (~50%) YoY flatTouch Panel module Iljin (95%), S-MAC (50%), Melfas (85%), ELK Iljin (YoY flat), S-MAC (YoY flat), Melfas (YoY flat)Touch Panel sensor Melfas (85%) YoY flatDriver IC Siliconworks (<5%) YoY downApplication Processor SEC (2%) YoY upMLCC SEMCO (~20%) YoY upCamera module SEMCO (~25%), Partron (~80%) SEMCO (YoY up), Partron (YoY up)Image sensor/components Jahwa Elec (100%) YoY flatCamera lens SonyProximity Sensor SECBaseband chip Intel (<1%), Qualcomm (18%) Qualcomm (YoY up)Radio Frequency chip Partron (~80%) YoY upPower Amplifer chip SkyworksLTE, HSPA+ 21Mbps Modem Chip Qualcomm (18%) YoY upAccelerometer ST Micro (~10%) YoY downGyroscope ST Micro (~10%) YoY downPressure sensor Partron (~80%) YoY upAudio Interface Wolfson Micro (+30%) YoY up (50%)WLAN Broadcom (17%) YoY upFM transceiver Infineon (low single %) YoY flatBluetooth Partron (~80%), Amotech (~45%) Partron (YoY up), Amotech (YoY up)Wi-Fi Partron (~80%) YoY upNFC chipset Partron (~80%), Amotech (~45%) Partron (YoY up), Amotech (YoY up)Power management IC Maxim, Texas Instruments, othersBattery Pack Samsung SDI (60%) YoY upBattery Cell Samsung SDI (60%) YoY upBattery Components material Power Logics (65%), Iljin Materials (50%) Power Logics (YoY up), Iljin Materials (YoY slightly up)PCB / FPCB / FC-CSP Daeduck (50%), Interflex (+40%), Flexcom (+90%) Daeduk (YoY slight up), Interflex (YoY up), Flexcom (YoY flat)Microphone BSE CM (~70%), Partron (~80%) BSE (YoY up), Partron (YoY up)Speaker receiver BSE CM (~70%) BSE (YoY up)Casing Intops (~95%), KH Vatec (60%) Intops (YoY flat), KH Vatec (YoY up)LCD bracket KH Vatec (60%), Innox KH Vatec (YoY up)SAW filter WisolCharger RF Tech (+40%) RF Tech (YoY slightly up)

Source: Company data, Gartner, Company data, J.P. Morgan estimates. *Supplier revenue exposure data based on company data. BOM cost based on Galaxy SIII, component supply status

based on overall Samsung smartphone line-ups. Supplier list includes companies above US$ 100mn market cap only. Revenue exposure (%) stands for total Samsung Electronics.

As most suppliers in tablet PC overlap, we have not included the list of names for tablet PC supply chain separately. However, we expect touch panel, casing makers, and PCB makers to benefit more from tablets assuming same volume provided larger screen, bigger form-factor and substrate in the products in terms of top-line and earnings.

28



Section V: Implication from potential component value changes in next Galaxy S-series

What are we hearing about Galaxy S IV?

As we move through mid-1Q13, we have begun to hear about potential product specification and component changes in SEC's next flagship handset, Galaxy S IV(Source: Bloomberg). Herein, we lay out plausible product changes and identify which company and sub-sector could benefit from the change. Of note, we estimate Galaxy S IV to post ~100M unit shipment on cumulative basis since its launch.

Table 8: Potential BOM cost change comparison (Galaxy S III; previous version vs. Galaxy S IV)

US$

Components Galaxy S III Galaxy S IV BOM + Manufacturing 253.1 Slight upManufacturing Cost 16.0 FlattishBOM Cost 237.1 Slight upMemory 30.0 DownNAND Flash 17.4 DownDRAM 12.6 DownDisplay & Touch Screen 51.5 Slight upDisplay 37.5 Slight upTouch Screen 14.0 Slight upProcessor 25.3 Flattish or slight upCamera(s) 19.6 Slight upWireless section - BB/RF/PA 38.0 Flattish or slight upUser Interface & Sensors 6.9 Flattish or slight upWLAN/BT/FM/GPS 6.5 Flattish or slight upPower Management 10.0 UpBattery 4.5 UpMechanical / Electro-mechanical 38.0 FlattishBox Contents 7.0 Flattish

Source: Gartner, iSuppli, Company data, J.P. Morgan estimates

1. No major change in form-factor except for Display side

The market is expecting form-factor of next Galaxy S/Note-series to be similar to the previous versions. We agree with this view and expect a larger screen. However, given the tight supply at OLED capacity and yield issues, we will likely see the first form of flexible (unbreakable) display adoption from the next Note-series (to be launched during 3Q13 time-line). Accordingly, ASP for panel screen is expected to increase and the relevant supply chain will likely benefit (mostly SDC and OLED related material players; Duksan Hi-Metal and potentially Cheil industries). For casing players (KH Vatec, Intops, and others), companies claim size mix migration could benefit them as larger device form-factor usually incurs higher ASP and better margin (especially for tablet PCs). PCB players (Interflex and Flexcom) will likely benefit as set makers require slimmer substrate, even flexible substrate to come up with fully-flexible handset in the future.

2. Higher camera pixel; 13MPx is high likely be online

We have already witnessed 13MPx camera module adoption into new smartphones disclosed at beginning of the year (over 9 models from different handset makers). We believe 13MPx is likely to be adopted for SEC’s next flagship smartphone and SEMCO would be the main supplier, in our view. Accordingly, we will likely see increasing higher camera module adoption (8MPx) especially for back-end from low-

29



mid end cameras. Partron, Jawha Electronics, and Power Logics could be the key suppliers.

3. Increasing adoption of LTE and emergence of diverse functional antenna

JPM analyst, Rod Hall, forecasts 2013 LTE smartphone to be 243M (up 180% Y/Y) and 2014 LTE smartphone to be 487M (up 100% Y/Y). This implies LTE penetration within smartphone of 26%/45% in 2013/2014. SEC guided LTE handset to drive its high-end line-up growth this year and we estimate SEC's LTE handset shipment to top over 75M in 2013. Currently, a large portion of LTE components is supplied by Qualcomm, but we could likely see SEC coming up with its own LTE solution this year given its product roadmap while absolute amount will have a big impact hit in 2014. Partron and Amotech are the major Korean suppliers for antenna components (i.e. DMB, NFC, Bluetooth, GPS, Wi-Fi, and others).

4. Battery, all about increasing capacity and power efficiency

Due to increasing complexity of handset functions and ongoing power consumption from OLED panel, it is inevitable that battery capacity will be increased over model development. Galaxy SIII's battery capacity has increased from 1,500 mAh (4”screen) to 2,100 mAh (4.8” screen). Samsung SDI is the sole vendor for SEC's flagship smartphone line-ups and the largest battery supplier for SEC's mobile devices (incl. tablet PC). Power Logics is currently supplying rechargeable battery PCM (Power Circuit Module) for smartphones' BMS (Battery Management System).

5. Further potential changes; new functionality like S-Pen?

Based on various newsflow recently (Bloomberg), we have yet to discover any surprising functionality in next Galaxy S IV. However, if anything comes up, we view it should come from different hardware features from user interface or sensors (e.g. S-Pen from first Galaxy Note version).

Galaxy series shipment momentum vs. Market Cap analysis

In this part, we compared SEC's Galaxy-series shipment momentum vs. Market Cap of Korean Small Tech market cap and by individual sub-sectors. In conclusion, overall market cap trend was largely in-line with flagship models’ shipment volume changes. By sub-sector comparison, Electronic components, Electronic materials and PCB sub-sector market cap performance were generally in-line with shipment while magnitude of momentum varied. Touch panel sub-sector had stronger correlation with tablet PC shipment momentum. Overall touch panel market cap began to increase since late 2Q12 as the market captured visibility on SEC’s tablet PC momentum. However, SPE sector market performance was not highly correlated since the key indicator to SPE sector was negative investment sentimental due to delay in OLED investment and limited LCD capacity supply growth.

30



Figure 47: Flagship smartphone shipment volume vs. Small Cap Tech Market Cap performanceUnit millions, US$ million [RHS]

Source: Bloomberg, Company data, J.P. Morgan estimates. Market Cap as of Feb 25 closes.

Figure 48: Flagship smartphone shipment volume vs. Electronic Components Market Cap performanceUnit millions, US$ million [RHS]


Figure 49: Flagship smartphone shipment volume vs. PCB Market Cap performanceUnit millions, US$ million [RHS]


Figure 50: Flagship smartphone shipment volume vs. Electronic materials Market Cap performanceUnit millions, US$ million [RHS]


Figure 51: SEC’s tablet PC shipment volume vs. Touch Panel Market Cap performanceUnit millions, US$ million [RHS]


3 7 10 8 12 24

17 16 20

35 26

1 5 4

3 10 11 8

8 16

0

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4,000

6,000

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05

101520253035404550

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13A 2Q13E 3Q13E 4Q13E

Galaxy S-series Galaxy Note-series KR Total Market Cap [RHS]

3 7 10 8 12 24

17 16 20

35 26

1 5 4

3 10 11 8

8 16

05001,0001,5002,0002,5003,0003,5004,0004,500

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101520253035404550


Galaxy S-series Galaxy Note-series Electronic Components Market Cap [RHS]

- 3 7 10 8 12 24

17 16 20

35 26

--

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500

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Galaxy S-series Galaxy Note-series PCB Market Cap [RHS]

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101520253035404550


Galaxy S-series Galaxy Note-series Electronic Materials market cap [RHS]

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02004006008001,0001,2001,4001,6001,800

0

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Samsung Tablet Touch Panel market cap [RHS]

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Section VI: Implications to Japan component makers

With application growth differences becoming clear, Samsung's share gains in the growing smartphone and tablet markets are substantially affecting Japanese electronic component manufacturers because these companies often compete against South Korean companies to supply components to Samsung. The situation is unlike the case involving Apple, which likes to use cutting-edge components, whereas Samsung tends to use components based on cost considerations. The result is that component suppliers need to deal with these two companies differently. Samsung's growing demand for components, though, presents major business opportunities for Japanese component manufacturers, which not only have outstanding products but also can stay with evolving technology trends. Major Japanese component suppliers that we think will benefit considerably from Samsung's growing share of the worldwide smartphone and tablet markets include Wacom (which has exclusive deals to supply styli), Murata Manufacturing, Hirose Electric, and Nitto Denko.

High-frequency components

In this product market, Wisol (South Korea) is gaining share as a supplier of SAW devices. However, Japanese suppliers have a solid advantage in terms of module adaptations stemming from the growing complexity of high-frequency components. Taiyo Yuden supplies a high proportion of the duplexer banks that Samsung uses in its Galaxy S3 phones. However, FEMiDs, which feature a duplexer and an antenna switch module in one unit, are likely to be the main front-end design for the Galaxy S4. Thus Murata Manufacturing, a leading supplier of these modules, could have a high share of the business. Also, with Wi-Fi module designs to become more complex as a result of a switch to a fifth-generation standard, 802.11ac, featuring speeds in excess of 1Gbps, Murata Manufacturing is likely to gain share at the expense of competitor SEMCO.

Mechanisms

Panasonic, Kyocera, and Hirose Electric are competing Japanese suppliers of board connectors to Samsung. Hirose Electric had been developing a joint venture with a local company and made the joint venture, Hirose Korea, a subsidiary in November 2010. The move bolstered Hirose Electric's market share gain. The company's largest buyer of cell phone connectors is Samsung; this business has been driving its sales growth.

Passive components

SEMCO supplies a majority of Samsung's MLCCs. However, Murata Manufacturing still supplies a majority of high-frequency inductors; the number of these components per end product is rising with the transition to multiband. Meanwhile, there is currently a clear shift from ferrite power inductors to metallic ones because of demands for low power consumption relative to AP performance. Toko, which has a leading share in metallic conductors (Murata Manufacturing has already announced a tender offer to acquire the company and make it a subsidiary), could likely benefit.

Substrates

SEMCO has a high share of the market for flip-chip chip scale packages for printed circuit boards and APs. However, Ibiden and SEMCO share the market for flip-chip

32



chip scale packages, the value-add of which continues to rise as APs become more powerful. Samsung is likely to use any-layer printed circuit boards for its Galaxy S4. Thus Ibiden, which has a leading share of this product market, could benefit.

Optical films

Smartphones and tablets need thin polarizing films to help reduce power consumption. Nitto Denko, which has a high share of this product market, has been getting more and more business from Samsung as the latter's global market share grow. Also, Nitto Denko's supplies of ITO film for tablets have been growing sharply thanks to Apple's use of film sensors for the iPad Mini. With glass-film-film touchscreen technology likely to become the dominant one in Samsung's tablets, the company's supplies of optical film to Samsung are also likely to grow.

33



Section VII: Meeting Note Summary

In section VII, we have enclosed meeting note summaries with Samsung supply chain companies based on our latest discussion via company visit, conference call, and JPM 2013 conference. JPM does not hold any coverage of below companies and all write-ups are based on our discussion with companies and guidance. Additionally, we have included brief financials at the back of each meeting note for your reference. As a majority of Korean companies have yet to disclose their full-year 2012 financials, we have included data for last 4 years from 2008-2011 only.

List of companies

1. Duksan Hi-Metal

2. Interflex

3. Partron

4. KH Vatec

5. SFA Engineering

6. AP Systems

7. Iljin Display

8. S-MAC

34



Duksan Hi-Metal (NC, 077360.KQ)

Company description

DSHM (Duksan Hi-Metal) supplies BGA/CSP solder-ball products for semiconductor package substrate and produces OLED materials (HIL, HTL) to Samsung Display. DSHM's major customers include Samsung Electronics and SK Hynix. The company was established in 1999 and merged with Ludis in 2009. DSHM was listed on KOSPI in 2005.

FY12 results

DSHM reported 2012 total revenue of W145bn with OP of W42bn (operating margin of 29%). Semiconductor material division reported W65bn of top-line (+9% Y/Y) and OLED material related revenue marked W80bn (+14% Y/Y). For 4Q12, DSHM shipped total OLED material amount of 700kg/month.

FY13 guidance

Heading into 2013, DSHM guided its top line to increase 15-20% while margin to show slight decline in the range from 27-28%. Company expects its shipment volume to increase 40% Y/Y, but pricing to come down 20-25% level. DSHM guided its FY13 capex to remain flattish YoY (FY12 capex: W7bn).

Update on SDC’s OLED line ramp-up

Company plans to supply additional 100kg/month to A2-Phase 3 line (16K/month) starting from March this year. From July-2013, DSHM expects another 32K/month capacity ramping up at A2-Phase extension line which will provide additional 200kg/month OLED material supply opportunity. Company expects its dominant position in HTL is likely to remain solid.

Valuation

Duksan shares are currently trading at 15.5x/12.1x FY13E/FY14E on Bloomberg consensus EPS estimates at 3.3x/2.6x FY13E/FY14E on Bloomberg consensus P/B estimates. There are currently 19 Buys, 1 Hold, and 1 Sell recommendations as per Bloomberg. The shares underperformed KOSPI by 3% for last 1 year.

Key datapoint to watch

Company hinted that faster-than-expected ramp up at 8G TV line from Samsung would benefit Duksan both in terms of share price and fundamental earnings. Although the company expects 8G line to start ramp-up at the earliest in 2014, earlier-than-expected mass volume roll-out should benefit Duksan given larger material consumption.

NOTE: THIS DOCUMENT IS

BASED SOLELY ON PUBLICLY

AVAILABLE INFORMATION. THIS REPORT IS INTENDED AS

INFORMATION ONLY AND NOT

AS RECOMMENDATION FOR ANY STOCK. J.P. MORGAN

EQUITY RESEARCH DOES NOT

PROVIDE RESEARCH COVERAGE OR RATING FOR

THIS COMPANY.

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Duksan Hi-Metal: Summary of Financials

Profit and loss statement

Won in billions, year-end December

FY08 FY09 FY10 FY11

Revenues 23 32 72 129COGS -14 -20 -43 -76Depreciation -1 -1 -2 -3Gross Profit 9 12 30 53EBIT 5 5 13 39EBITDA 6 6 15 42Net Interest Income 1 2 1 1Pre-tax Profit -2 6 13 35Tax Credit/(Expense) 0 -1 -2 -1Net Income -2 5 10 35Shares outstanding (MM) 17 18 21 21EPS (Won) -112 194 351 1,176Sequential GrowthRevenues 24% 42% 125% 79%Gross Profit -8% 37% 139% 79%EBIT -10% -4% 179% 200%Pre-tax Profit -118% NM 120% 180%EPS -110% NM 81% 235%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11Cash and Cash Equivalents 14 15 5 21Accounts receivable 2 4 7 9Inventories 2 4 7 13Others current assets 2 4 2 4Current assets 20 26 22 46LT investments 34 19 18 12Net fixed assets 6 15 44 58Other long term assets 3 31 28 35Total Assets 63 92 112 152ST Debt and CPLTD 15 6 2 0Account Payables 1 1 3 5Other current liabilities 6 8 7 7Total current liabilities 22 16 11 11Long term debt 3 5 7 0Other Long term liabilities 0 0 1 2Total liabilities 25 21 18 13Shareholder's equity 38 71 93 139Total Liabilities and Equity 63 92 112 152BVPS (Won) 1,961 2,882 3,228 4,713

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11Net Income -2 5 10 35Depreciation & amort. 1 1 2 3Other non-cash items 0 0 0 0Change in working capital -3 4 -12 -7Cash flow from operations 3 10 10 36Purchase of PP&E -24 -18 -8 -8Disposal/ (purchase) 2 8 -21 -7Cash flow from investing -21 -10 -28 -15Free Cash Flows -20 -8 3 28Equity raised/(repaid) -3 -2 -1 0Debt raised/(repaid) 18 -6 -3 -8Other charges -1 33 16 12Cash dividends -6 -4 -2 0Cash flow from Financing 18 0 9 -6Net Effect of F/X changes 0 0 0 0Net Changes in Cash 0 0 -9 15Beginning cash 14 14 15 5Ending cash 14 15 5 21DPS (Won) 154 82 35 0

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11Gross Margin (%) 40.1% 38.7% 41.0% 41.1%EBIT Margin (%) 21.7% 14.6% 18.1% 30.4%EBITDA Margin (%) 26% 19% 21% 33%Net profit margin (%) -10% 15% 14% 27%COGS/sales (%) -59.9% -61.3% -59.0% -58.9%SG&A/sales (%) -7.6% -6.0% -4.3% -3.8%Sales per share growth (%) -50.4% 12.8% 90.9% 75.5%Sales growth (%) 24.1% 41.8% 125.5% 78.6%EBIT growth (%) -9.9% -4.5% 179.1% 199.8%Net profit growth (%) -123.8% 317.4% 113.9% 240.9%EPS growth (%) -109.5% 273.1% 81.1% 235.1%Inventory Turnover (x) 6.6x 5.4x 6.4x 6.0xNet Debt to total Capital (%) 6% -4% 3% -15%Net debt to equity (%) 9% -5% 3% -15%Sales/Assets (%) 36% 35% 65% 85%Assets/Equity (%) 166% 130% 120% 110%ROE (%) -11% 5% 11% 30%

Source: Company.

36



Interflex (NC, 051370.KQ)

Company description

Interflex designs, manufacturers, and markets flexible printed circuit boards (FPCB) for electronic parts used in a variety of products such as cellular phones, notebook computers, and other digital products. The company markets its products to the domestic and international markets. Key customers include Samsung Electronics and Apple, Motorola, and others.

FY12 review

Interflex reported 2012 total revenue of W765bn with OP of W47bn (operating margin of 6.1%). Double side revenue continued to increase in 2012 to 64% while Multi and R/F portion declined to 14% in 2012 from 25% in 2011 (vs. R/F portion up from 18% in 2011 to 21% in 2012). Company said it spent W130bn of capex for FY12 (W80+bn to FPCB and W50bn to TSP). Total capacity in terms of square meter has increased from 135,000 m2 in 2011 to 185,000 m2 in 2012 (+37% Y/Y).

FY13 outlook

Heading into 2013, Interfelx guided its FPCB revenue to be W900bn and Touch solution revenue to be ~W200bn, summing total revenue guidance of W1.2 trn with blended margin at mid-single digit. Company hinted revenue from touch solution to be in a wide range given uncertainties of order amount. Interflex is planning to supply touch sensor to SDC’s next Unbreakable Display touch panel. New technology (sputter + exposure type patterning.) is claimed to present narrower bezel and higher penetration ratio vs. existing print type, according to the company. Interflex believes touch solution business to be the kicker for 2H13 accordingly.

On customer breakdown-wise, the company roughly guided Samsung and Apple portion to be almost similar while exact number may change on a quarterly base. For FPCB capacity, designed capacity at full ramp-up will reach 200,000 m2, however, company does not consider expansion plan in the near term. Accordingly, FY13 capital expenditure will decline significantly on Y/Y base to W30bn mainly for maintenance related capex.

Valuation

Interflex shares are currently trading at 9.0x/6.9x FY13E/FY14E on Bloomberg consensus EPS estimates at 1.7x/1.3x FY13E/FY14E on Bloomberg consensus P/B estimates. There are currently 16 Buys, 1 Holds, and 1 Sell recommendations as per Bloomberg. The shares underperformed KOSPI by 6% for last 1 year.


Company views sell-through numbers from SEC and Apple’s smartphones and tablet PC to be a positive key driver for the share price. JPM views total SEC’s smartphone to be 301M in 2013 (+40% Y/Y) and tablet to be 43M in 2013 (+146% Y/Y). ForApple, covering analyst Mark Moskowitz expects 2013 smartphone shipment to be 165M (+22% Y/Y) and tablet to be 91M (+39% Y/Y).








THIS COMPANY.

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Interflex: Summary of Financials



FY08 FY09 FY10 FY11Revenues 254 279 419 518COGS -243 -255 -380 -465Depreciation -16 -11 -13 -18Gross Profit 11 24 39 53EBIT 2 16 31 40EBITDA 18 27 44 59Net Interest Income 4 3 3 7Pre-tax Profit 1 25 36 39Tax Credit/(Expense) 0 -3 -4 -8Net Income 1 22 32 31Shares outstanding (MM) 12 12 12 14EPS (Won) 41 915 1,096 1,057Sequential GrowthRevenues 32% 10% 50% 24%Gross Profit NM 125% 62% 34%EBIT NM 718% 92% 30%Pre-tax Profit NM 2350% 45% 8%EPS NM 2126% 20% -3%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11Cash and Cash Equivalents 4 4 6 24Accounts receivable 46 61 55 130Inventories 23 24 43 58Others current assets 44 44 62 72Current assets 116 132 167 285LT investments 102 115 120 105Net fixed assets -31 -38 8 100Other long term assets 1 1 1 2Total Assets 189 211 295 492ST Debt and CPLTD 31 19 27 91Account Payables 43 52 89 101Other current liabilities 11 12 22 42Total current liabilities 84 83 137 233Long term debt 0 0 0 0Other Long term liabilities 3 4 4 8Total liabilities 88 87 142 242Shareholder's equity 101 124 154 250Total Liabilities and Equity 189 211 295 492BVPS (Won) 5,188 5,056 5,322 8,518

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11Net Income 1 22 32 31Depreciation & amort. 16 11 13 18Other non-cash items 0 0 0 0Change in working capital -28 -6 13 -6Cash flow from operations -9 27 53 48Purchase of PP&E -24 -1 -14 -14Disposal/ (purchase) 10 -14 -42 -69Cash flow from investing -14 -16 -56 -83Free Cash Flows -33 26 38 34Equity raised/(repaid) 0 0 0 1Debt raised/(repaid) 25 -12 8 64Other charges 3 0 -2 67Cash dividends 0 2 0 2Cash flow from Financing 24 -11 6 52Net Effect of F/X changes 0 0 0 0Net Changes in Cash 2 0 3 18Beginning cash 2 4 4 6Ending cash 4 4 6 24DPS (Won) 0 -76 0 -71

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11Gross Margin (%) 4.2% 8.7% 9.4% 10.2%EBIT Margin (%) 0.8% 5.8% 7.4% 7.8%EBITDA Margin (%) 7% 10% 10% 11%Net profit margin (%) 0% 8% 8% 6%COGS/sales (%) -95.8% -91.3% -90.6% -89.8%SG&A/sales (%) -0.9% -0.9% -0.7% -0.8%Sales per share growth (%) -47.1% -12.4% 27.0% 21.4%Sales growth (%) 32.2% 10.1% 50.0% 23.5%EBIT growth (%) 109.9% 718.3% 92.4% 30.2%Net profit growth (%) 105.0% 2696.3% 41.5% -1.8%EPS growth (%) 102.0% 2125.7% 19.8% -3.5%Inventory Turnover (x) 10.5x 10.6x 8.7x 8.0xNet Debt to total Capital (%) 21% 11% 11% 20%Net debt to equity (%) 27% 12% 13% 27%Sales/Assets (%) 135% 133% 142% 105%Assets/Equity (%) 187% 170% 192% 196%ROE (%) 1% 20% 23% 15%

Source: Company.

38



Partron (NC, 091700.KQ)

Company description

Partron (Partron Co., Ltd.) is an electronic component supplier of Semiconductor / RF / Sensor business. Key products include Antenna, Dielectric Filter, Isolator, Camera module, Optical Finger Mouse, Various Sensors, Vibration Motor, and others. The company was established in 2003 and listed on KOSDAQ in 2006. Major customers are Samsung Electronics, Motorola, Pantech, and other handset makers.

FY12 business review

Partron reported their 2012 total revenue of W781bn with OP of W87bn (operating margin of 11%). Camera module division reported W593bn of top-line (+168% Y/Y) and Antenna related revenue marked W120bn (+43% Y/Y). Two core businessesaccounted over 90% of total revenue. The antenna business and Isolator/Dielectric Filter presented ~20% operating margins while camera module marked 9-10%.

Takeaways from J.P. Morgan conference

Most investors’ questions were focused on earnings outlook on its camera module business. Partron guided its 1Q13 camera module margin to be in the range of 10-11% as (vs. 9-10% in FY12). For full-year 2013, Partron guided rather conservative guidance of total revenue; W1.24 trillion (camera module ~W900bn, Antenna ~W220bn, new business +W60bn). Another area which investors focused on was its new business potential. Provided sensor could be used in several new applications (i.e. appliance, automobile accessories) beyond smartphones, Partron expects this new business to be another growth driver in next 3 years (contributing +30% of total revenue by 2015-2016).

Changes in camera module competition dynamics

According to the company, SEC mainly sources higher specification modules (13MPx or above) from SEMCO and Samsung Fiberoptics while lower specification modules (mainly 5MPx) from Partron. The company began supplying back-end camera module since end-2012 and expects its shipment volume portion to increase from 3% in FY12 (150M total shipments) to ~25% in FY13 (230-250M total shipments), leading to resolution migration as Partron only supplied relatively front-end cameras (mostly 2MPx or 1.3MPx).

Valuation

Partron shares are currently trading at 10.1x/8.2x FY13E/FY14E on Bloomberg consensus EPS estimates at 3.1x/2.3x FY13E/FY14E on Bloomberg consensus P/B estimates. There are currently 15 Buys and 1 Sell recommendations as per Bloomberg. The shares outperformed KOSPI by 127% for last 1 year.


Company views sell-through numbers from SEC and Apple’s smartphones and tablet PC to be a positive key driver for the share price. JPM views total Galaxy SIV shipment for 2013 to be over 60M with its peak expected to be in 3Q13.








THIS COMPANY.

39



Partron: Summary of Financials



FY08 FY09 FY10 FY11Revenues 117 192 233 360COGS -76 -134 -171 -291Depreciation -4 -4 -2 -3Gross Profit 41 58 62 69EBIT 20 33 36 37EBITDA 24 37 39 40Net Interest Income 1 1 1 1Pre-tax Profit 21 29 30 37Tax Credit/(Expense) -4 -4 -6 -5Net Income 17 24 24 32Shares outstanding (MM) 0 0 0 0EPS (Won) 1,067 1,206 1,183 1,081Sequential GrowthRevenues 70% 64% 21% 55%Gross Profit 52% 41% 6% 11%EBIT 65% 64% 9% 3%Pre-tax Profit 75% 39% 5% 25%EPS 15% 13% -2% -9%

Source: Company.

Balance sheet



Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11Net Income 17 24 24 32Depreciation & amort. 4 4 2 3Other non-cash items 0 0 0 0Change in working capital 4 -6 -11 -9Cash flow from operations 28 30 24 26Purchase of PP&E -16 -24 -46 -38Disposal/ (purchase) 0 3 15 -16Cash flow from investing -16 -21 -31 -54Free Cash Flows 12 6 -22 -12Equity raised/(repaid) -3 -2 -1 0Debt raised/(repaid) -4 2 5 26Other charges 11 2 7 7Cash dividends -6 -4 -2 0Cash flow from Financing -9 -2 8 20Net Effect of F/X changes 0 0 0 0Net Changes in Cash 2 7 1 -8Beginning cash 1 4 11 12Ending cash 4 11 12 3DPS (Won) 193 100 50 0

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11Gross Margin (%) 35.1% 30.2% 26.6% 19.1%EBIT Margin (%) 17.3% 17.3% 15.6% 10.3%EBITDA Margin (%) 21% 19% 17% 11%Net profit margin (%) 14% 13% 10% 9%COGS/sales (%) -64.9% -69.8% -73.4% -80.9%SG&A/sales (%) -3.0% -2.0% -1.7% -1.3%Sales per share growth (%) 13.7% 27.3% 21.1% 3.6%Sales growth (%) 69.7% 63.7% 21.1% 54.7%EBIT growth (%) 65.2% 64.2% 8.8% 2.7%Net profit growth (%) 71.2% 45.3% -1.9% 36.5%EPS growth (%) 14.7% 13.1% -1.9% -8.6%Inventory Turnover (x) 5.2x 10.4x 8.1x 8.9xNet Debt to total Capital (%) -2% -7% -2% 17%Net debt to equity (%) -2% -7% -2% 21%Sales/Assets (%) 126% 162% 142% 136%Assets/Equity (%) 135% 132% 142% 172%ROE (%) 24% 30% 22% 24%

Source: Company.

40



KH Vatec (NC, 060720.KQ)

Company description

KH Vatec designs, manufacturers, and sells electronic components. The companyspecializes in dies casting of zinc-based components for application in telecommunication parts. KH Vatec’s products include casing frame for mobile handsets, electro magnetic interference (EMI) shields, antenna brackets, and notebook hinges. The company was established in 1999 and listed on KOSDAQ in 2002. Key customer is Samsung Electronics.


KH Vatec reported 2012 total revenue of W241bn with OP of W14bn (operating margin of 6%). Decline in margin on Y/Y base is mainly due to poor result from overseas subsidiary. Moreover, decline in Nokia order volume has negatively impacted (increasing fixed cost burden) Tianjin subsidiary's performance. However, according to the company, the worst has passed since 3Q12 and they expect operations to normalize going forward. Of note, KH Vatec accounted for 60% of smartphone and 50% of tablet in LCD bracket supply to Samsung.

FY13 guidance

For 2013, KH Vatec is guiding its top-line to be at low W500bn with operating margin around 7%. The company expects 60% of its revenue to come from Samsung and rest of the business from overseas customers. Especially, KH Vatec expects upside could come from growing tablet PC opportunity given the company is the main supplier for Samsung and Amazon tablet PC. Regarding the competition dynamics in relation to other casing makers (i.e. Intops, Shinyang, and others), most casing makers are in client relationship with KH Vatec as the company supplies part of their products and has little exposure directly to the emission business.

Valuation

KH Vatec shares are currently trading at 10.3x/8.0x FY13E/FY14E on Bloomberg consensus EPS estimates at 1.2x/1.1x FY13E/FY14E on Bloomberg consensus P/B estimates. There are currently 4 Buys recommendations as per Bloomberg. The shares outperformed KOSPI by 89% for last 1 year.


Company views sell-through numbers from SEC and Apple’s smartphones and tablet PC to be a positive key driver for the share price. JPM views total Galaxy SIV shipment for 2013 to be over 60M with its peak expected to be in 3Q13. For tabletPC, stronger-than-expected tablet PC shipment momentum at SEC should provide uptick in casing demand for KH Vatec.








THIS COMPANY.

41



KH Vatec: Summary of Financials



FY08 FY09 FY10 FY11Revenues 242 519 351 316COGS -199 -411 -307 -279Depreciation -11 -11 -9 -11Gross Profit 44 108 45 37EBIT 26 82 23 10EBITDA 37 93 33 21Net Interest Income 4 4 5 5Pre-tax Profit 39 76 18 16Tax Credit/(Expense) -9 -18 -5 -6Net Income 30 58 13 10Shares outstanding (MM) 8 8 16 16EPS (Won) 1,540 2,383 450 340Sequential GrowthRevenues 59% 114% -32% -10%Gross Profit 305% 147% -59% -17%EBIT NM 218% -71% -57%Pre-tax Profit NM 93% -76% -12%EPS NM 55% -81% -24%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11Cash and Cash Equivalents 14 11 13 28Accounts receivable 38 118 39 63Inventories 30 38 32 43Others current assets 21 47 79 67Current assets 104 215 163 200LT investments 36 49 72 -40Net fixed assets 42 24 36 199Other long term assets 3 3 3 8Total Assets 185 290 275 366ST Debt and CPLTD 24 23 31 0Account Payables 23 63 44 44Other current liabilities 20 35 17 95Total current liabilities 67 121 92 139Long term debt 19 6 5 28Other Long term liabilities 1 1 0 3Total liabilities 86 127 98 171Shareholder's equity 99 163 176 196Total Liabilities and Equity 185 290 275 366BVPS (Won) 5,088 6,660 6,105 6,655

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11Net Income 30 58 13 10Depreciation & amort. 11 11 9 11Other non-cash items 0 0 0 0Change in working capital -14 -43 45 19Cash flow from operations 30 34 71 44Purchase of PP&E -4 -87 -253 -301Disposal/ (purchase) -8 55 168 240Cash flow from investing -12 -33 -85 -61Free Cash Flows 26 -54 -183 -257Equity raised/(repaid) 0 0 4 0Debt raised/(repaid) 3 -14 7 -8Other charges 0 5 -4 12Cash dividends 0 0 0 0Cash flow from Financing 3 -8 15 30Net Effect of F/X changes 0 0 0 0Net Changes in Cash 22 -7 0 14Beginning cash 2 14 11 13Ending cash 24 7 11 26DPS (Won) 0 0 0 0

Source: Company

Ratio analysis


FY08 FY09 FY10 FY11Gross Margin (%) 18.1% 20.8% 12.7% 11.7%EBIT Margin (%) 10.6% 15.7% 6.7% 3.2%EBITDA Margin (%) 15% 18% 9% 7%Net profit margin (%) 12% 11% 4% 3%COGS/sales (%) -81.9% -79.2% -87.3% -88.3%SG&A/sales (%) -1.5% -1.2% -1.3% -2.4%Sales per share growth (%) -36.5% 70.5% -42.7% -11.6%Sales growth (%) 58.7% 114.2% -32.3% -10.0%EBIT growth (%) 1330.1% 217.8% -71.3% -57.0%Net profit growth (%) 928.2% 94.4% -77.7% -23.0%EPS growth (%) 431.2% 54.8% -81.1% -24.3%Inventory Turnover (x) 6.6x 10.8x 9.6x 6.5xNet Debt to total Capital (%) 20% 10% 11% 0%Net debt to equity (%) 29% 11% 14% 0%Sales/Assets (%) 131% 179% 128% 86%Assets/Equity (%) 187% 178% 156% 187%ROE (%) 36% 46% 8% 5%

Source: Company.

42



SFA Engineering (NC, 056190.KS)

Company description

SFA Engineering Corp. manufactures factory automation and logistics systems. The company's products include manufacturing system used for producing a picture tube. SFA Engineering also produces stacker cranes, sorter, conveyor, and loader system for automated distribution center.


Company reported 2012 total revenue of W481bn with OP of W64bn on parent base (operating margin of 13%). Especially in 4Q12, margin came above market estimates mainly due to reduction in production cost after streamlining its production line with module base (i.e. infra restructuring) and cost saving from cheaper-than-expected raw material cost.

FY13 guidance and order outlook

SFA provided wide range of top-line guidance in the range of high-W500bn to low-700bn for 2013 with its margin around 12-13% level.

In terms of order outlook, the company provided order book value guidance in the range from low-W600bn to mid-W700bn depending on 8G SMS deposition order (likely be over W100bn worth). While capacity is expected to be in range of W20-30K, SFA expects to benefit from 8G mass production and additional mobile AM-OLED equipment orders. However, actual orders may differ from the company's current guidance given Samsung is likely to decide its investment plan by end of 1Q13. Management expects 1H13 will be slow, but 2H13 should be better Y/Y.

Valuation

SFA Engineering shares are currently trading at 12.2x/9.7x FY13E/FY14E on Bloomberg consensus EPS estimates and at 2.3x/1.9x FY13E/FY14E on Bloomberg consensus P/B estimates. There are currently 18 Buys, 4 Holds, and 1 Sellrecommendations as per Bloomberg. The shares underperformed KOSPI by 4% for last 1 year.


Company hinted at faster-than-expected ramp up at 8G TV line from Samsung would benefit AP Systems. Company views order momentum to be visible once SDC’s strategic decision toward TV line-ups becomes clear.








THIS COMPANY.

43



SFA Engineering: Summary of Financials



FY08 FY09 FY10 FY11Revenues 431 307 423 753COGS -355 -270 -353 -610Depreciation -4 -5 -5 -6Gross Profit 76 37 70 143EBIT 54 15 38 95EBITDA 58 20 42 101Net Interest Income 8 5 5 4Pre-tax Profit 69 25 50 96Tax Credit/(Expense) -19 -7 -11 -20Net Income 50 18 39 76Shares outstanding (MM) 9 9 18 18EPS (Won) 2,557 737 1,362 2,573Sequential GrowthRevenues 40% -29% 38% 78%Gross Profit 21% -52% 91% 104%EBIT 21% -72% 149% 151%Pre-tax Profit 19% -63% 100% 92%EPS -53% -71% 85% 89%

Source: Company.

Balance sheet



Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11Net Income 50 18 39 76Depreciation & amort. 4 5 5 6Other non-cash items 0 0 0 0Change in working capital -25 -26 33 -3Cash flow from operations 31 -3 85 112Purchase of PP&E -86 -121 -274 -378Disposal/ (purchase) 112 127 229 282Cash flow from investing 27 6 -46 -96Free Cash Flows -55 -125 -189 -266Equity raised/(repaid) 0 0 4 0Debt raised/(repaid) 0 0 0 0Other charges -45 -20 -11 -7Cash dividends 12 4 0 23Cash flow from Financing -30 -12 1 -9Net Effect of F/X changes 0 0 0 0Net Changes in Cash 28 -10 40 7Beginning cash 10 37 28 68Ending cash 37 28 68 75DPS (Won) -636 -145 0 -770

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11Gross Margin (%) 17.6% 12.0% 16.6% 19.0%EBIT Margin (%) 12.4% 4.9% 8.9% 12.6%EBITDA Margin (%) 13% 6% 10% 13%Net profit margin (%) 12% 6% 9% 10%COGS/sales (%) -82.4% -88.0% -83.4% -81.0%SG&A/sales (%) -3.0% -3.7% -4.1% -2.5%Sales per share growth (%) -43.8% -43.3% 16.6% 75.1%Sales growth (%) 40.4% -28.7% 37.7% 78.1%EBIT growth (%) 21.4% -71.6% 148.5% 150.8%Net profit growth (%) 18.5% -63.8% 118.2% 92.2%EPS growth (%) -52.6% -71.2% 84.7% 88.9%Inventory Turnover (x) 3.2x 10.1x 1.6x 86.5xNet Debt to total Capital (%) -17% -12% -26% -22%Net debt to equity (%) -17% -12% -26% -22%Sales/Assets (%) 103% 99% 67% 135%Assets/Equity (%) 187% 136% 238% 162%ROE (%) 23% 8% 16% 25%

Source: Company.

44



AP Systems (NC, 054620.KQ)

Company description

AP Systems (Asia Pacific Systems) is concentrating on the related manufacture industry based on semiconductor and LCD manufacturing equipment business. The company was established in 1994 (spin-off from ETRI, Electronics and Telecommunications Research Institute). Key customer is Samsung Electronics.


AP System reported 2012 total revenue of W229bn with OP of W19bn (operating margin of 8%). OLED equipment sales marked W208bn of top-line (+25% Y/Y) contributing over 90% of total revenue while rest of top-line came from TFT-LCD and Semiconductor equipment. ELA and Encapsulation equipment each contributed 50-60%/20-30% of total revenue.

FY13 guidance and technology outlook

For 2013, the company provided wide range of top-line outlook; sales of W240-320bn (OLED equipment 90+% of total revenue) with OP margin reaching ~11%. Such a big variance is mainly due to uncertainties surrounding A3-line and order amount from overseas customers (China panel makers) as well as flexible display investment. Regarding recent LGD's OLED investment, the company believes Oxide backplane + W-RGB type OLED TV could target more mass-market segment while SDC's LTPS backplane + RGB type OLED TV will be more appealing to the premium segment.

Pricing and margin comparison across equipments

Company disclosed its equipment pricing to be in the range of W6-7bn/unit during 2010-2012 for A2-line and pricing in order as follows: LLO > ELA > LITI > Encapsulation. On margin-wise, LLO has the highest margin (~15%) while ELA has the least margin (~10%) and rest of LITI and Encapsulation's profitability comes in the middle range of two equipment.

Valuation

AP Systems shares are currently trading at 7.4x/5.8x FY13E/FY14E on Bloomberg consensus EPS estimates and at 1.4x/1.1x FY13E/FY14E on Bloomberg consensus P/B estimates. There are currently 7 Buys and 4 Holds recommendations as per Bloomberg. The shares underperformed KOSPI by 38% for last 1 year.


Company hinted that faster-than-expected ramp up at 8G TV line from Samsung would benefit AP Systems. Company views order momentum to be visible once SDC’s strategic decision toward TV line-ups becomes clear.








THIS COMPANY.

45



Asia Pacific Systems: Summary of Financials



FY08 FY09 FY10 FY11Revenues 20 92 154 222COGS -13 -74 -141 -178Depreciation -1 -5 -8 -4Gross Profit 7 18 13 45EBIT 1 4 -1 26EBITDA 2 8 7 31Net Interest Income 1 2 1 4Pre-tax Profit 3 0 -16 17Tax Credit/(Expense) 2 2 -1 -3Net Income 4 2 -17 12Shares outstanding (MM) 17 18 21 21EPS (Won) 390 115 -904 625Sequential GrowthRevenues -52% 353% 68% 44%Gross Profit 3157% 167% -27% 236%EBIT NM 287% -137% NMPre-tax Profit NM -84% -3812% NMEPS NM -71% -888% NM

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11Cash and Cash Equivalents 9 13 16 55Accounts receivable 27 41 39 57Inventories 20 21 16 14Others current assets -2 5 4 89Current assets 53 79 73 214LT investments 5 4 8 22Net fixed assets 40 27 23 32Other long term assets 29 23 11 5Total Assets 126 134 116 273ST Debt and CPLTD 36 18 21 40Account Payables 10 21 14 23Other current liabilities 5 24 20 100Total current liabilities 52 62 55 163Long term debt 11 0 0 26Other Long term liabilities 3 4 2 2Total liabilities 66 66 57 191Shareholder's equity 61 68 59 82Total Liabilities and Equity 126 134 116 273BVPS (Won) 5,681 3,816 3,140 4,354

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11Net Income 4 2 -17 12Depreciation & amort. 1 5 8 4Other non-cash items 0 0 0 -3Change in working capital -9 12 -19 -13Cash flow from operations -1 26 -6 26Purchase of PP&E 0 7 -6 -18Disposal/ (purchase) -12 -6 4 -19Cash flow from investing -12 1 -2 -37Free Cash Flows -1 33 -12 8Equity raised/(repaid) 0 0 0 0Debt raised/(repaid) 19 -29 3 45Other charges 30 6 6 9Cash dividends 0 0 0 0Cash flow from Financing 13 -24 11 49Net Effect of F/X changes 0 0 0 0Net Changes in Cash 1 4 3 39Beginning cash 1 9 13 16Ending cash 2 13 16 55DPS (Won) 0 0 0 0

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11Gross Margin (%) 33.7% 19.9% 8.6% 20.1%EBIT Margin (%) 4.5% 3.9% -0.9% 11.9%EBITDA Margin (%) 10% 9% 4% 14%Net profit margin (%) 20% 2% -11% 7%COGS/sales (%) -66.3% -80.1% -91.4% -79.9%SG&A/sales (%) -8.7% -3.5% -2.3% -2.3%Sales per share growth (%) -54.6% 170.7% 59.7% 44.1%Sales growth (%) -52.2% 353.2% 67.8% 44.1%EBIT growth (%) 113.2% 287.0% -137.4% 2085.0%Net profit growth (%) 148.7% -50.7% -928.3% 185.4%EPS growth (%) 146.3% -70.6% -888.2% 169.1%Inventory Turnover (x) 0.7x 3.6x 9.1x 13.1xNet Debt to total Capital (%) 35% 6% 7% 8%Net debt to equity (%) 63% 8% 9% 14%Sales/Assets (%) 16% 68% 133% 81%Assets/Equity (%) 208% 197% 196% 334%ROE (%) 9% 3% -27% 17%

Source: Company.

46



Iljin Display (NC, 020760.KS)

Company description

Iljin Display develops and manufactures touch screen modules for mobile phones, navigators, security information terminals, tablet PC, and monitors. The company also produces substrate for surface acoustic wave (SAW) filter and substrate for substrate for light emitting diode (LED). Company was established in 1994 and listed to KOSDAQ in 2002. Key customer is Samsung Electronics.

4Q12 and FY12 business review

Iljin Display reported 2012 total revenue of ~W597bn with OP of W64bn (operating margin of 11%). Company reported to have shipped 2.6M of tablet touch panel module shipment and 3.35M in 4Q12 adding total touch panel module shipment of 27.4M in 2012 (tablet 8.6M and smartphone 18.8M). On 4Q12 sales breakdown wise, tablet accounted 76% of total revenue while smartphone contributed 24% of total touch panel revenue. Iljin’s market share within Samsung is around 50% as of 4Q12-end and the company guided 2013 market share to decline YoY to 40+% level while absolute volumes to increase.

FY13 guidance

Due to macro uncertainties, the company did not provide full-year guidance for FY13. For 1Q13, Iljin Display expects to record slightly above W170bn revenue with flattish margin on Q/Q base (100% UTR). Despite seasonal slow demand, company guided its top-line and earnings to remain healthy thanks to strong demand from Samsung Electronics. Company views education B2B market to be the most important segment for tablet PC players and their upside at Touch panel business depends on which extent Samsung penetrates into B2B education tablet PC segment onward.

Capacity expansion plan

Iljin’s touch panel business model is to provide one-stop solution from sensor to module. Company’s printing type sensor capacity is 10M/month (3.5” base) and photo capacity is 2.5M/month (3.5”) as of 2012-end. Iljin plans to increase its photo capacity to 6M/month by 1H13 and its design capacity at full ramp-up is expected to be 10M/month. Reasons for moving into photo-type are; 1) superior visual as photo-type does not incur blur spreading; 2) narrow-bezel form factor; and 3) better throughput.

Valuation

Iljin Display shares are currently trading at 8.6x/7.7x FY13E/FY14E on Bloomberg consensus EPS estimates and at 2.7x/2.0x FY13E/FY14E on Bloomberg consensus P/B estimates. There are currently 13 Buys, 1 Holds, and 1 Sell recommendations as per Bloomberg. The shares outperformed KOSPI by 52% for last 1 year.


Company views sell-through numbers from SEC's mass-tier smartphones and tablet PC to be a positive key drive for the share price. JPM views total SEC’s smartphoneto be 301M in 2013 (+40% Y/Y) and tablet to be 43M in 2013 (+146% Y/Y).








THIS COMPANY.

47



Iljin Display: Summary of Financials



FY08 FY09 FY10 FY11Revenues 10 34 114 324COGS -11 -28 -93 -275Depreciation -1 -2 -4 -7Gross Profit -1 6 21 50EBIT -4 1 13 36EBITDA -3 3 17 44Net Interest Income 1 2 3 3Pre-tax Profit -32 1 10 31Tax Credit/(Expense) 0 0 0 0Net Income -32 1 10 31Shares outstanding (MM) 5 26 26 27EPS (Won) -1,623 21 351 1,043Sequential GrowthRevenues 83% 241% 238% 185%Gross Profit NM NM 251% 139%EBIT NM NM 2238% 178%Pre-tax Profit NM NM 1823% 201%EPS NM NM 1549% 198%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11Cash and Cash Equivalents 1 5 10 21Accounts receivable 3 8 21 34Inventories 2 7 28 28Others current assets 2 12 10 13Current assets 8 32 69 96LT investments 10 7 12 0Net fixed assets 3 12 45 64Other long term assets 20 19 18 21Total Assets 41 70 144 181ST Debt and CPLTD 8 12 16 46Account Payables 2 11 33 20Other current liabilities 11 6 38 13Total current liabilities 22 28 88 79Long term debt 3 2 3 10Other Long term liabilities 0 1 1 2Total liabilities 25 31 92 91Shareholder's equity 15 38 51 90Total Liabilities and Equity 41 70 144 181BVPS (Won) 786 1,565 1,778 3,055

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11Net Income -32 1 10 31Depreciation & amort. 1 2 4 7Other non-cash items 0 0 0 0Change in working capital 2 0 -12 -29Cash flow from operations -1 3 7 17Purchase of PP&E -6 -12 -28 -13Disposal/ (purchase) 6 -4 -8 -5Cash flow from investing 0 -16 -36 -19Free Cash Flows -7 -9 -21 4Equity raised/(repaid) 10 -14 0 1Debt raised/(repaid) 1 2 6 36Other charges 20 37 3 5Cash dividends 0 0 0 3Cash flow from Financing 1 17 33 14Net Effect of F/X changes 0 0 0 0Net Changes in Cash 1 4 4 12Beginning cash 0 1 5 10Ending cash 1 5 10 21DPS (Won) 0 0 0 -92

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11Gross Margin (%) -12.2% 17.5% 18.2% 15.3%EBIT Margin (%) -41.2% 1.7% 11.5% 11.2%EBITDA Margin (%) -30% 7% 15% 13%Net profit margin (%) -319% 2% 9% 9%COGS/sales (%) -112.2% -82.5% -81.8% -84.7%SG&A/sales (%) -6.2% -4.6% -1.8% -0.8%Sales per share growth (%) -26.8% 171.4% 185.8% 179.9%Sales growth (%) 83.0% 241.0% 237.5% 184.8%EBIT growth (%) 13.0% 113.7% 2237.5% 177.8%Net profit growth (%) -39.3% 101.6% 1848.1% 202.8%EPS growth (%) 44.3% 101.3% 1549.5% 197.6%Inventory Turnover (x) 4.9x 4.0x 3.3x 9.9xNet Debt to total Capital (%) 40% 16% 14% 24%Net debt to equity (%) 69% 22% 19% 38%Sales/Assets (%) 24% 49% 79% 179%Assets/Equity (%) 265% 182% 280% 202%ROE (%) -191% 2% 23% 43%

Source: Company.

48



S-MAC (NC, 097780.KQ)

Company description

S-MAC Co designs, manufactures, and supplies touch screen module for mobile handsets / tablet PC, ITO sensors / and other key modules. S-MAC also has oversea subsidiaries located at Tianjin and Dongguan in China in addition to its production facilities in Pyungtaek and Cheonan. Company was established in 2004 and listed to KOSDAQ in 2008. Key customers include Samsung Electronics, Sharp, Sony Ericsson, and others.


S-MAC reported 2012 total revenue of ~W450bn with OP of W28bn (operating margin of 6.4%). For C-type (GFF touch functionality) embedded devices, S-MAC took 28% within SEC’s shares out of total +130M unit shipments. On sales breakdown-wise, smartphone contributed 74% and tablet accounted for 26%.

FY13 outlook

For 2013, the company provided top-line revenue of W600bn with margins around 6-7% level as their guidance. Smartphone will continue to be major portion of revenue (~62% of total revenue) while Tablet portion will increase to 38% from 26% in 2012.Revenue exposure to Samsung will likely remain ~95% (flat YoY base) in 2013. For capex, the company is guiding for annual capex of W10bn (down from W20bn from last year as FY12 capex was spent to buy land-related utilities).

Margin expansion upon sensor internalization

To improve the overall margin and mitigate risks from ITO sensor shortage, S-MAC has introduced ITO sensor internalization. As of 4Q12, the company internalized 40% of ITO sensor for smartphone touch panel (4” base, 4M unit/month) and 20% of tablet touch panel (10” base, 1.2M unit/month). Moving into 2013, the company plans to increase sensor capacity to 100% comparable to module capacity for smartphones and 70% for tablet capacity. Once the company fully internalizes the sensor capacity, margin is likely to improve 1~2% from current level thanks to increase in throughput.

Valuation

S-MAC shares are currently trading at 7.4x/6.2x FY13E/FY14E on Bloomberg consensus EPS estimates and at 1.6x/1.0x FY13E/FY14E on Bloomberg consensus P/B estimates. There are currently 7 Buys recommendations as per Bloomberg. The shares outperformed KOSPI by 30% for last 1 year.


Company views sell-through numbers from SEC's mass-tier smartphones and tablet PC to be a positive key drive for the share price. JPM views total SEC’s smartphone to be 301M in 2013 (+40% Y/Y) and tablet to be 43M in 2013 (+146% Y/Y).








THIS COMPANY.

49



S-MAC: Summary of Financials



FY08 FY09 FY10 FY11Revenues 142 143 205 470COGS -130 -140 -189 -427Depreciation -1 -2 -3 -3Gross Profit 12 3 16 43EBIT 8 -2 9 33EBITDA 9 0 12 36Net Interest Income 0 1 1 1Pre-tax Profit 8 -1 12 38Tax Credit/(Expense) -2 0 0 -5Net Income 6 -1 12 34Shares outstanding (MM) 6 6 7 8EPS (Won) 311 -58 403 1,144Sequential GrowthRevenues 85% 1% 43% 129%Gross Profit 51% -74% 398% 169%EBIT 59% -122% NM 259%Pre-tax Profit 49% -119% NM 231%EPS -44% -119% NM 184%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11Cash and Cash Equivalents 8 2 26 7Accounts receivable 10 12 31 99Inventories 4 10 16 11Others current assets 2 3 6 4Current assets 24 27 78 122LT investments -2 6 9 10Net fixed assets 19 19 18 22Other long term assets 1 0 0 1Total Assets 42 52 106 155ST Debt and CPLTD 1 3 6 7Account Payables 7 10 45 49Other current liabilities 3 11 5 15Total current liabilities 12 24 56 71Long term debt 3 3 6 2Other Long term liabilities 1 0 1 1Total liabilities 15 27 63 74Shareholder's equity 26 25 43 80Total Liabilities and Equity 42 52 106 155BVPS (Won) 1,352 1,019 1,476 2,736

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11Net Income 6 -1 12 34Depreciation & amort. 1 2 3 3Other non-cash items 0 0 0 0Change in working capital -4 -10 6 -55Cash flow from operations 5 -8 25 -14Purchase of PP&E -7 0 -1 -1Disposal/ (purchase) -2 -9 -5 -5Cash flow from investing -10 -10 -5 -6Free Cash Flows -2 -8 24 -16Equity raised/(repaid) 1 0 1 0Debt raised/(repaid) 4 2 6 -3Other charges 4 0 5 2Cash dividends 1 0 1 2Cash flow from Financing 8 12 4 2Net Effect of F/X changes 0 0 0 0Net Changes in Cash 4 -5 23 -18Beginning cash 4 8 2 26Ending cash 8 2 26 7DPS (Won) -31 0 -38 -83

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11Gross Margin (%) 8.6% 2.2% 7.8% 9.1%EBIT Margin (%) 5.8% -1.3% 4.5% 7.1%EBITDA Margin (%) 6% 0% 6% 8%Net profit margin (%) 4% -1% 6% 7%COGS/sales (%) -91.4% -97.8% -92.2% -90.9%SG&A/sales (%) -0.8% -0.8% -1.0% -0.5%Sales per share growth (%) -26.0% -19.8% 21.4% 125.0%Sales growth (%) 85.0% 0.8% 43.4% 128.9%EBIT growth (%) 58.9% -122.0% 613.9% 259.5%Net profit growth (%) 40.0% -123.6% 913.3% 189.2%EPS growth (%) -44.0% -118.8% 788.6% 184.2%Inventory Turnover (x) 29.8x 14.6x 12.2x 39.2xNet Debt to total Capital (%) -13% 12% -24% 2%Net debt to equity (%) -15% 15% -32% 2%Sales/Assets (%) 342% 275% 194% 304%Assets/Equity (%) 158% 209% 248% 192%ROE (%) 30% -6% 34% 55%

Source: Company.

50



Appendix I: Korea Tech – Turnover tracker

Table 9: Korea Tech – Turnover Tracker (1)

Local currencies (Won) for share price, Chg (%), Market Cap (Won billions), T.Value = Trading Value (Won bn)

No Company Ticker Price RatingChg (1D)

Chg (5D)

Chg (3M)

Chg (6M)

Chg (1YR)

Chg YTD

Market Cap

T.Value (5D)

T.Value (20D)

T.Value (3M)

T.Value (6M)

Tech Upstream1 Samsung Electronics 005930 KS 1,546,000 OW 0.1 1.0 8.1 26.9 30.8 1.6 227,725 330 316 403 379 2 SK Hynix 000660 KS 26,400 N -0.4 0.0 8.0 22.8 -13.3 2.5 18,326 86 92 112 114 3 LG Display 034220 KS 30,000 OW -1.8 -2.6 -13.2 12.8 1.5 -3.4 10,734 56 59 76 76 4 LG Electronics 066570 KS 78,400 OW 0.1 1.8 3.4 15.0 -8.0 6.5 12,830 76 73 82 98

Tech Downstream5 Samsung Elto. Mech 009150 KS 94,300 OW -1.3 -1.2 -11.9 -1.0 0.5 -4.9 7,044 24 30 47 53 6 Samsung SDI 006400 KS 140,000 OW 0.7 -1.4 -10.3 -5.1 -0.7 -7.3 6,378 22 18 23 29 7 LG Innotek 011070 KS 73,600 OW -2.8 -3.7 -12.4 -18.6 -22.5 -10.6 1,485 8 9 9 10 8 Cheil Industries 001300 KS 88,400 OW 0.2 -1.6 -7.1 -17.8 -9.4 -6.2 4,635 19 19 21 27 9 OCI 010060 KS 170,500 UW -1.7 -0.9 14.0 -11.0 -36.4 3.0 4,066 24 27 41 37

10 Seoul Semiconductor 046890 KS 29,750 OW 2.9 1.9 29.6 44.4 14.2 22.9 1,735 19 23 20 17 Small caps - Electronics Components

11 Partron 091700 KQ 24,900 NC 5.5 1.2 27.7 116.5 136.3 27.4 965 10.7 12.2 12.0 10.8 12 Jahwa Electronics 033240 KS 20,400 NC 2.0 2.3 7.4 61.9 92.5 12.1 364 4.2 3.7 4.1 4.6 13 Sekonix 053450 KQ 23,950 NC 2.8 3.5 7.3 94.2 114.5 13.0 175 5.1 4.3 3.8 4.1 14 Foosung 093370 KS 4,650 NC -1.2 -2.6 -10.4 -29.7 -34.5 -4.4 394 1.6 2.1 2.8 6.0 15 Iljin Materials 020150 KS 9,390 NC 1.8 1.3 14.5 -13.9 -42.0 4.3 368 1.5 1.4 1.3 1.9 16 Intops 049070 KQ 33,400 NC 4.4 0.1 18.7 84.5 77.2 19.5 287 2.9 2.6 2.0 1.8 17 KH Vatec 060720 KQ 18,350 NC 2.5 6.4 19.2 151.0 101.9 27.0 294 6.5 5.2 4.4 4.4 18 Shinyang Engineering 086830 KQ 20,700 NC -1.4 -1.0 -6.5 191.5 274.3 -3.3 145 0.7 0.5 0.6 1.1 19 Innochip Technology 080420 KQ 12,650 NC 0.0 -3.1 -15.7 18.2 15.5 -5.9 189 4.2 2.9 2.3 2.1 20 Wisol 122990 KQ 13,550 NC 0.0 -0.4 14.7 22.1 -9.1 7.5 153 1.5 1.4 1.7 2.8 21 RFSemi Technologies 096610 KQ 12,550 NC -0.8 -0.8 6.8 17.8 19.5 4.6 102 1.8 1.5 1.3 1.4 22 E-litecom 041520 KQ 16,250 NC 0.0 9.8 -12.6 -1.5 -10.0 -2.1 198 3.4 2.3 2.5 3.1 23 BSE CM 045970 KQ 6,400 NC -4.5 -3.9 -21.0 -12.8 27.2 -17.9 85 0.0 0.0 0.0 0.0 24 Crucial Tech 114120 KQ 12,400 NC -0.8 0.8 30.5 18.1 -16.5 21.6 292 25.4 12.0 6.2 6.3

Small caps - PCB25 Daeduck Electronics 008060 KS 11,250 NC 0.0 8.2 0.4 8.2 -5.1 5.1 549 5.8 3.7 4.1 4.3 26 Interflex 051370 KQ 45,750 NC 1.4 10.2 -33.1 -34.4 -4.8 -15.0 640 18.6 14.7 13.6 11.9 27 Flexcom 065270 KQ 22,600 NC 0.9 0.0 5.4 151.4 107.3 2.0 280 16.3 14.0 15.2 13.7 28 SimmTech 036710 KQ 8,800 NC -1.3 0.3 -14.1 -17.0 -39.7 -14.6 283 2.6 3.5 3.7 4.5 29 Korea Circuit 007810 KS 21,850 NC 1.2 -1.4 -9.1 32.8 98.6 1.2 409 2.8 2.2 2.8 3.0 30 BH 090460 KQ 13,400 NC 1.9 0.0 11.2 103.3 83.8 11.7 202 4.7 5.5 6.0 5.2

Source: Bloomberg, J.P. Morgan, All data as of March 4, 2013 close.

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Table 10: Korea Tech – Turnover Tracker (2)

Local currencies (Won) for share price, Chg (%), Market Cap (Won billions), T.Value = Trading Value (Won bn)

No Company Ticker Price RatingChg (1D)

Chg (5D)

Chg (3M)

Chg (6M)

Chg (1YR)

Chg YTD

Market Cap

T.Value (5D)

T.Value (20D)

T.Value (3M)

T.Value (6M)

Small caps - Electronics Material31 Duksan Himetal 077360 KQ 26,950 NC 5.3 3.7 29.6 21.4 0.2 26.5 792 7.5 8.8 6.8 6.6 32 I-Component 059100 KQ 11,250 NC -2.6 -3.0 2.7 1.4 -18.2 0.0 68 3.0 3.0 3.8 3.1 33 Sangbo 027580 KQ 14,450 NC -0.3 7.0 14.2 16.5 7.8 20.4 204 4.7 2.7 1.6 2.1 34 Innox 088390 KQ 26,850 NC 3.7 2.9 19.1 29.4 21.2 38.4 246 3.0 3.9 4.5 4.0

Small caps - SPE35 SFA Engineering 056190 KS 59,400 NC 0.8 2.6 32.0 26.9 -1.2 25.8 1,066 2.5 5.6 4.1 3.6 36 Nepes 033640 KQ 18,300 NC 1.7 4.6 25.8 9.6 -1.1 31.2 399 9.7 7.5 6.3 6.4 37 ICD 040910 KQ 13,700 NC 0.4 5.4 5.4 -10.2 -54.8 24.5 213 11.0 5.3 5.6 5.2 38 AP System 054620 KQ 8,720 NC 0.0 2.5 24.6 -16.2 na 19.8 189 6.2 4.5 5.4 7.4 39 Jusung Engineering 036930 KS 5,340 NC -0.2 2.5 21.6 -17.9 -51.3 17.4 220 1.4 1.6 2.7 2.2 40 SNU Precision 080000 KS 6,560 NC 3.5 -4.2 57.5 -3.5 -43.9 36.1 134 1.9 1.6 1.7 1.3 41 Soulbrain 036830 KQ 41,650 NC -0.8 0.0 -15.0 6.7 7.5 -10.9 675 3.4 2.9 3.1 3.4 42 Wonik IPS 030530 KQ 4,960 NC -1.4 -2.7 9.6 -12.5 -48.4 6.3 363 4.4 3.3 4.6 4.5

Small caps - Touch Panel43 Iljin Display 020760 KS 21,150 NC -0.5 5.0 -7.4 28.6 56.7 -4.3 599 7.8 8.0 7.8 8.6 44 S-MAC 097780 KQ 16,350 NC -0.3 1.2 0.4 46.7 23.5 -2.7 282 3.4 3.8 5.7 7.5 45 Melfas 096640.KQ 20,750 NC 1.0 4.0 -28.3 7.5 -21.8 -23.3 373 12.1 11.7 15.8 14.8 46 ELK 094190 KQ 21,100 NC 2.4 5.0 -3.0 33.1 31.9 5.5 294 19.8 11.4 7.6 8.0

Small caps - Others47 Silicon Works 108320 KS 21,350 NC 0.2 3.9 -19.3 -29.2 -40.0 -4.5 347 4.6 3.7 4.9 6.1 48 Anapass 123860 KQ 13,450 NC 1.1 1.1 4.3 11.2 12.6 11.6 136 3.5 1.8 2.3 1.7 49 Power Logics 047310 KQ 5,680 NC 0.5 0.9 48.1 26.2 3.8 41.1 161 3.2 3.4 1.8 1.5 50 DnF solution 092070 KQ 9,390 NC -0.8 -1.7 -32.4 7.3 14.5 -27.8 89 0.7 0.9 1.7 1.8 51 Infraware 041020 KQ 12,450 NC 4.6 6.4 32.9 54.3 -12.6 31.7 228 9.6 7.4 7.8 8.3 52 Barun Electronics 064520 KQ 1,590 NC -0.3 -0.6 6.7 50.7 4.3 16.1 57 1.1 1.5 2.8 3.0 53 ABCO Electronics 036010 KQ 4,455 NC -2.7 -7.4 1.3 6.2 -13.5 1.9 52 1.1 0.7 0.5 0.4 54 Sangsin EDP 091580 KQ 3,800 NC -1.0 -1.7 7.2 -3.8 -12.0 3.0 43 0.1 0.1 0.1 0.2 55 Lumens 038060 KS 8,580 NC 3.5 2.6 11.1 27.7 13.8 22.2 351 11.2 12.8 11.7 10.1 56 Sapphire Technology 123260 KS 27,900 NC 5.1 5.1 -22.5 -45.3 -54.5 1.5 225 1.6 1.9 2.9 2.6 57 Od-Tech 080520 KQ 14,850 NC 0.0 3.5 25.8 31.4 74.7 17.4 135 1.2 0.8 0.8 1.1 58 Kumho Electric 001210 KS 34,150 NC 1.9 -4.1 46.3 81.6 21.5 59.2 236 3.3 4.1 2.4 1.6

Source: Bloomberg, J.P. Morgan, All data as of March 4, 2013 close.

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Coverage Universe: Park, JJ: LG Display (034220.KS), LG Electronics (066570.KS), SK Hynix (000660.KS), Samsung Electronics (005930.KS)

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Itaya, Masashi: Alps Electric (6770) (6770.T), Anritsu (6754) (6754.T), Hirose Electric (6806) (6806.T), Ibiden (4062) (4062.T), Kyocera (6971) (6971.T), Mabuchi Motor (6592) (6592.T), Minebea (6479) (6479.T), Murata Manufacturing (6981) (6981.OS), NGK Spark Plug (5334) (5334.T), NHK Spring (5991) (5991.T), NOK (7240) (7240.T), Nidec (6594) (6594.OS), Nitto Denko (6988) (6988.T), Rohm (6963) (6963.OS), Sanken Electric (6707) (6707.T), Shinko Electric Industries (6967) (6967.T), TDK (6762) (6762.T), Taiyo Yuden (6976) (6976.T)

Kang, Helaine: Cheil Industries (001300.KS), KT Corp. (030200.KS), LG Innotek Co., Ltd (011070.KS), LG Uplus (032640.KS), OCI (010060.KS), SK Telecom (017670.KS), Samsung Electro-Mechanics (009150.KS), Samsung SDI (006400.KS), Seoul Semiconductor (046890.KQ)

J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2013

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 44% 44% 12%IB clients* 53% 46% 34%

JPMS Equity Research Coverage 42% 49% 9%IB clients* 71% 62% 51%

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