Display - Mirae Asset

Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S.

2H12 Outlook Report June 29, 2012Industry Report

Display (Overweight)

Daewoo Securities Co., Ltd.

Jonathan Hwang +822-768-4140 [email protected]

Brian Oh +822-768-4135 [email protected]

2H Outlook: Value chain has begun to improve

In 2011, the display industryÊs value chain saw peak levels of imbalance. Last year, global

panel makersÊ combined operating losses hit a record high of W6.0tr (W6.8tr excl. Samsung

Mobile Display (SMD)). On the other hand, glass substrate producers (e.g., Samsung

Corning Precision Materials, Asahi Glass, NEG) posted combined operating profits of

W6.1tr, the second-highest in history (despite being down 28% YoY). Optical film makers

(e.g., Nitto Denko, LG Chem, 3M) also achieved strong operating profits (more than W1tr)

last year.

In a nutshell, once LCD TVs are sold, related profits go to glass substrate makers and

optical film makers. However, we believe that this industry structure is unsustainable and

have seen signs of change emerging in the value chain since 2H11. Due to significant

downward pricing pressures from loss-making panel makers, NEGÊs OP margin deteriorated

to 3% in 1Q (LCD-use glass substrate revenues account for 84% of the companyÊs overall

revenues). 3MÊs optical film revenues declined 28% YoY in the quarter.

Over the medium- to long-term, we project the aforementioned value chain imbalance to

gradually ease. In particular, the growth of the OLED segment could accelerate this

change, as OLED production consumes a much lower quantity of glass substrates and

optical films. Assuming that the overall margins of the value chain remain at current

levels, margin deterioration at upstream industries (i.e., glass substrates and optical films)

should present opportunities to downstream companies. While panel makers are likely to

find opportunities from the growth of the OLED market, set makers should see benefits

from the emergence of the smart TV market.

We maintain our Overweight rating on the display sector. We select Samsung SDI

(006400 KS/Buy) as our top pick. Although its ownership in SMD decreased following the

merger between Samsung Display and SMD, the company should continue to benefit

from OLED market growth. Among mid and small caps, we recommend SFA Engineering

(056190 KQ/Buy) in light of its expected rapid earnings improvements starting in 3Q. We

also recommend Silicon Works (108320 KQ/Buy), as the company should see positive

effects from the proliferation of high-resolution panels.

2

I. Investment points.........................................................................................................................3

1. LCD Value Chain: Rising risk for upstream vs. increasing opportunities for downstream.......3

2. OLED investments to accelerate after merger of Samsung Display and SMD........................8

3. Apple’s iTV to trigger a TV replacement cycle........................................................................12

II. Supply/demand and price outlooks ........................................................................................13

1. Supply outlook.........................................................................................................................13

2. Demand outlook ......................................................................................................................14

3. Price outlook............................................................................................................................15

III. Valuation ...................................................................................................................................16

Maintain Overweight; Top picks are Samsung SDI, SFA, and Silicon Works............................16

LG Display (034220 KS) ............................................................................................................... 20

Samsung SDI (006400 KS)........................................................................................................... 24

SFA Engineering (056190 KQ) .................................................................................................... 28

Silicon Works (108320 KQ).......................................................................................................... 32

MNtech (095500 KQ)..................................................................................................................... 35

DMS (068790 KQ).......................................................................................................................... 38

June 29, 2012 Display

3 KDB Daewoo Securities Research

I. Investment points

1. LCD Value Chain: Rising risk for upstream vs. increasing opportunities for downstream

In 2011, LCD panel and set makers posted massive losses, while glass substrate and optical

film makers posted high profit margins. First-tier LCD panel makers Samsung Electronics

(LCD unit) and LG Display (LGD) reported operating losses of W750bn and W924bn,

respectively, last year. Second-tier makers AUO and CMI posted record-high operating

losses of W2.2tr and W2.4tr each.

Meanwhile, glass substrate producers posted combined operating profits of W6.1tr (W2.7tr

at Samsung Corning Precision Materials, W2.3tr at Asahi Glass, and W1.1tr at NEG). Such

imbalance in the LCD value chain was witnessed in the past, but this phenomenon was

most acute last year. The average OP margin of glass substrate producers (Samsung

Corning Precision Materials, Asahi Glass, and NEG) since 2004 stood at 19~41%, while that

of optical film makers (3M, LG Chem, Sumitomo, and Nitto Denko) reached 9~17%. In

contrast, LCD panel makers (Samsung Electronics (SEC), LGD, AUO, CMI, and Sharp)

displayed an average OP margin of -8~10% during the same period, while LCD set makers

(SEC, LG Electronics (LGD), Sony, Panasonic, and Sharp) posted -11~4%. Interestingly, the

average OP margin of the overall LCD value chain has remained stable at 8~12% since 2004.

In a nutshell, once LCD TVs are sold, related profits go to glass substrate makers and optical

film makers. However, we believe that this industry structure is not sustainable. Indeed,

signs of changes to this value chain have been emerging since 2H11. Due to significant

downward pricing pressures from loss-making panel makers, 2011 operating profit fell by

27% for Samsung Corning Precision Materials, 24% for Asahi Glass, and 39% for NEG.

Glass substrate price cuts continued into 1Q. In particular, NEGÊs OP margin deteriorated to

the break-even level during the quarter (LCD-use glass substrate revenues account for 84%

of the companyÊs overall revenues). Furthermore, 3MÊs optical film sales declined 28% YoY

in the quarter. Moreover, sales of the companyÊs dual brightness enhancement film (DBEF)

used in LED TVs are forecast to drop by 35% YoY this year.

As we mentioned before, it should be noted that the profitability of the overall LCD value

chain has been stable since 2004. If this trend persists in the mid- to long-term, profitability

deterioration at glass substrate and optical film makers could lead to improvement in

profitability at LCD panel and set makers (downstream).

Figure 1. LCD value chain analysis

Source: DisplaySearch, KDB Daewoo Securities Research

LCD panel makers

posted massive losses

last year

Meanwhile, glass

substrate producers and

optical film makers

reported high profitability

Imbalance in the LCD

value chain is unlikely to

persist

In 1Q, NEGÊs OP margin

deteriorated to the

break-even level, while

3MÊs optical film sales

declined 28% YoY

-20

-10

0

10

20

30

40

50

Glass Optical film Parts/materials LCD panel LCD set Retailer Overall

2004 2005 2006 2007

2008 2009 2010 2011(%)

LCD indust ry prof itremains stable at 8~12%

Glass makersÊ risks1) OLED: Less glass2) Color-filter-on-TFT3) Flexible display4) LG ChemÊs entry

Panel makersÊ opportunities1) OLED: higher operating leverage2) Limited LCD capacity expansion

Set makersÊ opportunities1) Apple iTV: A new paradigm2) Software to play a greater role than hardware

Optical film makersÊ risks1) OLED: No need for BLU2) Slowing LED TV growth3) Improved aperture ratio


Daewoo Securities Research 4

1) Growth of glass substrate makers to continue to slow

We think that the growth of glass substrate makers has slowed since 2011. The combined

operating profits of global glass substrate makers slid 20% in 2011 and are likely to further

decline 22% YoY this year. We attribute this margin deterioration to: 1) growing demand for

low-priced glass substrates (resulting from the use of the color-filter-on-TFT (COT) process),

2) demand contraction due to the emergence of OLED and flexible displays, and 3) expected

market competition following LG ChemÊs entry into the market.

The COT process is to stack a color filter on the TFT deposited on the lower glass substrate –

previously, a color filter was stacked on the upper substrate, and TFT was deposited on the lower

substrate. The COT process can cut costs through lower assembly margin, improved aperture

ratio and higher productivity (shorter tact time). This technology, which had been studied since

2004, was not applied to mass production until recently due to the difficulty of its application.

Given that LGD has recently implemented the COT process in its 7G lines and achieved cost

reductions, the process is expected to be applied to other lines. The implementation of the COT

process is negative for glass substrate producers, as it does not require a lithography process on

the upper substrate, thus allowing LCD makers to use low-priced glass.

OLED panels currently require two glass substrates (TFT and encapsulation glass substrates)

as LCDs. Going forward, however, demand for glass substrates is expected to decline,

when film and metal encapsulations are applied to small- to mid-sized and large-sized panels,

respectively. Moreover, if PI (polyimide) substrates are applied to flexible display, glass

substrate demand should further decline.

Figure 2. CorningÊs revenue and OP margin trends Figure 3. Samsung Corning Precision MaterialsÊ revenue and OP margin trends

Source: Corning, KDB Daewoo Securities Research Source: SCP, KDB Daewoo Securities Research

Figure 4. Asahi GlassÊs revenue and OP margin trends Figure 5. NEGÊs revenue and OP margin trends

Source: Asahi Glass, KDB Daewoo Securities Research Source: NEG, KDB Daewoo Securities Research

The combined operating

profits of global glass

substrate makers slid

20% in 2011 and are

likely to further decline

22% YoY this year

Proliferation of the COT

process to increase

demand for low-priced

glass

Demand for glass

substrates to decline

with the application of

film and metal

encapsulations

0

2

4

6

8

10

06 07 08 09 10 11 12F

0

5

10

15

20

25Revenue (L)

OP margin (R)

(Wbn) (%)

S t rong demandfor spec ialt y material(G oril la cover glass)

0

1

2

3

4

5

6

06 07 08 09 10 11 12F

0

10

20

30

40

50

60

70Revenue (L)

OP margin (R)

(%)(Wbn) P eak

0

5

10

15

20

06 07 08 09 10 11 12F

0

4

8

12

16

20Revenue (L)

OP margin (R)

(%)(Wbn)

P eak

0

1

2

3

4

5

6

06 07 08 09 10 11 12F

0

10

20

30

40Revenue (L)

OP margin (R)

(%)(Wbn)

P eak



Figure 6. NEGÊs quarterly revenue and OP margin trends

Source: NEG, KDB Daewoo Securities Research

Figure 7. Global glass makersÊ market share trends


Figure 8. Global panel makersÊ glass supply (2011)


0.0

0.5

1.0

1.5

2.0

1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12

0

10

20

30

40

50Revenue (L)

OP margin (R)

(Wbn) (%)

LCD panel makers led price cut of glass subst ratesas they have maintained losses for 6 consecut ive quarters

0

3

6

9

12

15

SEC LGD AUO CMI Sharp Others

SCP Corning Asahi Glass NEG

(mn ㎡)

0

10

20

30

40

50

60

70

1Q08 1Q09 1Q10 1Q11 1Q12

Corning Asahi Glass NEG

(%)

M/S of Corning decrease

M/S of NE G expnaded due to aggressive price cut

59% 50%

25%

15%



Figure 9. CorningÊs operating profit trend and share performance Figure 10. CorningÊs revenue breakdown (2011)

Source: Corning, KDB Daewoo Securities Research Source: Corning, KDB Daewoo Securities Research

Figure 11. Asahi GlassÊ operating profit trend and share performance Figure 12. Asahi GlassÊs revenue breakdown (2011)

Source: Asahi Glass, KDB Daewoo Securities Research Source: Asahi Glass, KDB Daewoo Securities Research

Figure 13. NEGÊs operating profit trend and share performance Figure 14. NEGÊs revenue breakdown (2011)

Source: NEG, KDB Daewoo Securities Research Source: NEG, KDB Daewoo Securities Research

0

5

10

15

20

25

30

35

04 05 06 07 08 09 10 11 12

-200

-100

0

100

200

300

400

500

600

700Operating profit (R)

Share Price (L)

(US$) (US$mn)2012F

P /E 9.5x, P /B 0.9x

Environmental13%

Life Sciences 8%

Specialty Materials14%

Display36%

Telecom 28%

Others2%

Chemical 20%

Display32%

Automobile 19%

Architecture 27%

0

400

800

1,200

1,600

2,000

04 05 06 07 08 09 10 11 12

-10

0

10

20

30

40

50

60


Share Price (L)

(JPY) (JPYbn)

2012FP /E 9.2x, P /B 0.7x

0

500

1,000

1,500

2,000

2,500

05 06 07 08 09 10 11 12

0

5

10

15

20

25

30

35

40


Share price (L)

(JPY) (JPYbn)2012F

P /E 12.5x, P /B 0.5xOthers16%

Display84%



2) OLEDs are self luminescent and thus do not use optical films

Optical films can largely be divided into two categories: polarizers and functional films (the

latter of which is used for the purpose of brightness enhancement, diffusion, reflection, etc.).

In 2011, the global optical film market was estimated at US$11bn, 70% of which were

polarizer and the remaining 30% functional films. The marketÊs growth was driven mainly by

a surge in demand for DBEF (a 3M film that increases the brightness of screens) as a result

from stronger LED TV sales.

The operation of LCD panels requires two polarizers. Because LCDs cannot produce light

themselves, they need backlight units that are controlled by polarizers. Naturally, the

polarizer market moves in tandem with the LCD market. OLEDs, however, are self

luminescent and thus do not use polarizers, although polarizers and retardation films are

currently used in OLED panels to remove reflective ambient light which can affect the

picture quality of emissive displays.

The functional film market has undergone rapid growth ever since the launch of LED TVs in

2009. In particular, DBEF films have seen rapid growth despite their high prices due to their

effectiveness in addressing the low brightness in edge-type LED TVs. In 2011, the global

DBEF market grew 43% YoY to US$1.8bn. However, we have been seeing several changes

taking place in the market since 2H11, most notably: 1) aggressive cost controls due to the

margin contraction of LED TVs; 2) an increase in two-chip packages owing to weaker LED

chip prices; 3) enhanced brightness through the improvement of aperture ratio; and 4)

replacements by more affordable prisms and micro lens films. As such, we expect the DBEF

market to contract this year by 35% YoY to US$1.2bn.

Figure 15. Global optical film market peaked out Figure 16. 3MÊs display and graphics business unit earnings trend

Source: DisplaySearch, KDB Daewoo Securities Research Source: 3M, KDB Daewoo Securities Research

Figure 17. 3MÊs operating profit trend and share performance Figure 18. 3MÊs revenue breakdown (2011)

Source: 3M, KDB Daewoo Securities Research Source: 3M, KDB Daewoo Securities Research

Since OLED polarizers

are functional, they

could potentially go out

of use

3MÊs display and

graphics sales were

down 28% YoY in 1Q

0

1

2

3

4

07 08 09 10 11 12F 13F 14F

-40

-20

0

20

40

Prism Multi-Function PrismMicro Lens Reflective PolarizerYoY Growth (%)

(US$bn) (%)

'08~'11 growth ledby LED TV

Reflective Polarizer (DBEF)to decline 35%

0

200

400

600

800

1,000

1,200

1Q08 1Q09 1Q10 1Q11 1Q12

0

5

10

15

20

25

30

35Display & Graphics Revenue (L)

Display & Graphics OPM (R)

(US$mn) (%)

Opt ical f i lm revenuedown 28% Y oY

Display andGraphics

13%

Consumerand Office

15%

Health Care 18%

Industrial andTransportation

29%

Safety, Securitiy andProtection Services

14%

Electronics, Electricaland Communications

12%

0

20

40

60

80

100

120

04 05 06 07 08 09 10 11 12

0

300

600

900

1,200

1,500

1,800OP(R)

Share price (L)

(US$) (US$mn)



2. OLED investments to accelerate after merger of Samsung Display and SMD

1) The OLED market is supplier-driven

As we mentioned above, if the profitability of the overall LCD value chain remains intact, a

fall in profitability at glass substrate and optical film makers (upstream) could provide

opportunities to existing panel and set makers. OLED technologies will likely give a boost to

panel makers, while smart TVs should present new opportunities to set makers.

Both SEC and LGE have recently launched 55” OLED TVs at around US$8,000 (equivalent to

around W10mn), 2.7 times higher than the price of the most expensive 55” LED TV

(US$3,000). It is not surprising that OLED TVs are expensive in light of their early stage of

mass production. We believe that OLED TVs can secure price competitiveness against LCD

TVs, if economies of scale and higher yields are achieved.

The OLED business should provide more value added to suppliers than to consumers. 1)

Suppliers should only be top-tier firms with ample investment capacity and solid customer

bases. A limited number of suppliers should lead to greater pricing power. 2) Since the

proportion of materials costs (out of OLED production costs) is low (relative to existing LCD

production), operating leverage should be significant. Generally speaking, companies with

high operating leverage tend to achieve economies of scale and thus maintain high margins.

3) If OLED makers use oxide substrates (instead of higher-cost LTPS substrates) in

producing small- to medium-sized OLEDs, they should significantly reduce costs.

Figure 19. SMDÊs earnings trend and forecast Figure 20. 55‰ OLED TV and LCD TV price forecast

Source: SMD, KDB Daewoo Securities Research Source: KDB Daewoo Securities Research

Figure 21. Cost breakdown of LCD panels Figure 22. Cost breakdown of OLED panels

Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research

It is not surprising that

OLED TVs are expensive

in light of their early

stage of mass

production

OLED to boost

profitability at top-tier

panel makers

0

1

2

3

4

1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12F

-10

-5

0

5

10

15

20Revenue (L)

OP margin (R)

(Wtr) (%)

Earnings have improved rapidlydue to mass product ion of 5.5G O LE D

0

2,000

4,000

6,000

8,000

10,000

1Q12 3Q12F 1Q13F 3Q13F 1Q14F 3Q14F 1Q15F 3Q15F

55" OLED TV 55" LED TV

(US$)

Color Filter13.5%

Polarizer6.5%

Liquid Crystal3.2%

Backlight15.0%

Driver IC3.8%

Inverter5.2%

PCB8.4%

Other Materials4.8%

Labor Cost9.7%

Depreciation16.6%

Yield Loss2.3%

Others4.6%

Glass6.5%

LCD

Glass5.8%

Organic Material22.7%

Others4.1%

Driver IC6.9%

PCB7.4%

Other Materials4.2%

Labor Cost8.6%

Yield Loss5.0%

Depreciation35.3%

LTPS

OLED



2) Behind Samsung Display-SMD merger lies OLED

Domestic OLED equipment and materials makers have benefited from the acceleration of OLED

investments in 5.5G (A2) lines. OLED investments slowed modestly in 1H, raising concerns about a

reduction in investments. However we believe that SMDÊs investment plans remain unchanged.

The current investment cycle appears somewhat stagnant, as: 1) orders have been delayed to 2H

due to accounting issues arising from the merger between Samsung Display and SMD, which is set

to take place in July; and 2) it has taken some time to validate a newly introduced process.

SEC spun off its LCD division to enhance the competitiveness of its display business on

April 1, establishing Samsung Display. SEC plans to merge Samsung Display and SMD,

combining the LCD and OLED businesses. The spin-off of the LCD division and the merger

of Samsung Display and SMD will likely 1) accelerate investments in the commercial

production of OLED TVs and 2) boost efficiency in making investments. This year, SECÊs

LCD division is forecast to post an EBITDA of W4.5tr, capex of W1.6tr, generating a free

cash flow (FCF) of W2.9tr, while SMD is projected to record an EBITDA of W3.0tr and capex

of W5.0tr, reporting a negative FCF of W2.0tr. Under the current financial structure, SMD

would need to conduct a rights offering or issue corporate bonds to make massive OLED

investments. However, the merged company will be able to execute investments only with

its operating cash flows, in our view.

Table 1. SMDÊs major investment and financing disclosures

Date Filings

Jun 3, 2010 Acquired tangible assets for A2 line

Jun 9, 2010 Submitted a prospectus for corporate bond issuance of W500bn

Mar 18, 2011 Filed Form S-1 for a W3.4tr rights offering Nov 9, 2011 Submitted a prospectus for corporate bond issuance of W700bn

Apr 27, 2012 Announced merger with Samsung Display

Source: SMD, KDB Daewoo Securities Research

Table 2. Rumors on SMDÊs OLED investment plan

Period Rumors

Apr. 2011 Downscaling and delay of 5.5G mass production line - Japanese equipment delivery delayed

- Uncertainty over OLED demand triggered concerns of oversupply

Mar. 2012 Delay in investment schedule of A3 and V1 lines - Investment delayed after the completion of merger with Samsung Display

- Low yields for new processes (e.g. LITI )

End of Apr. 2012 A3 Investment schedule confirmed

- Installment of equipments to begin in late 2012 - Equipment orders to be placed from the end of 2Q12

Source: KDB Daewoo Securities Research

Figure 23. Establishment of Samsung Display and its merger with SMD


The merger between

Samsung Display and

SMD to allow swift

decision making and

efficient use of

resources in the display

business

Ownership

SEC 85%, SDI 15%

Includes S-LCD and stake in SCP

LCD spin-off

(April 1, 2012)

Large-size LCD panels→ Notebook, monitor, TV

Small-size LCD/OLED panels→ Smartphones

Ownership

SEC 64%, SDI 36%

Merger (July 1, 2012)

Largest Samsung affiliate after Samsung Electronics

(Public listing undecided)

BV W90tr

BV W16tr

Samsung ElectronicsLCD business unit

BV W5tr

BV W22tr

Samsung Display

Rest of Samsung Electornics Samsung Mobile Display (SMD)



3) Full-scale capacity expansion likely in 2H

Key OLED technologies include 1) TFT-backplane, 2) organic materials deposition, and 3)

encapsulation. The phase-2 A2 line (5.5G), in which investments were made last year, used

the same process as A1 line (3.5G). However, the new process technologies have been

applied from the phase-3 of A2 line. As for TFT-backplane, a PI substrate will likely be used

to enable flexible display. For organic materials deposition, a laser induced thermal imaging

(LITI) technology should be applied to ensure high resolution. In addition, film encapsulation

is expected to be introduced.

70% of SMDÊs OLED investments will likely be concentrated in 2H. Investments in 1) A3

line (5.5G) for small- and mid-sized flexible OLED and 2) V1 line (8G) for TV-use large-sized

OLED are expected to be made in 2H. The OLED panel recently adopted in Galaxy S3 has

not changed notably, as it uses the existing Pentile matrix technology. As such, the need for

LITI technology, which enables high resolution, and thinner/lighter flexible OLED is expected

to increase.

Table 3. Equipment supply chain

Line TFT-backplane Organic deposition Encapsulation Other equipment vendor

Tech LTPS ELA (8-9 mask) 1/2 FMM Glass encap SEC: A1 (3.5G) Supplier JSW, AP System Tokki AP System

* Thermal: Tokyo Electron * Automation: Daifuku

* HDP etcher: Tokyo Electron

Tech LTPS ELA (7 mask) 1/4 FMM Glass encap SEC: A2 Phase 1,2

(5.5G) Supplier JSW, AP System Tokki AP System

Tech LTPS ELA (7 mask)

* Flexible (PI substrate)

* 1/4 FMM

* LITI (R,G + B FMM) Thin-film encap SEC: A2

Phase 3 (5.5G) Supplier AP System

* Tokki (or Hitachi High-Tech) * SFA, AP System

ULVAC, SNU Precision, AP System

Tech LTPS ELA (7 mask)

* Flexible (PI substrate)

* FMM

* LITI (R,G + B FMM) Thin-film encap

SEC: A3

(5.5G) Supplier

AP System, Tera Semicon,

ULVAC

* Tokki (or Hitachi High-Tech)

* SFA, AP System

* AP System, ULVAC, SNU

* Wonik IPS, AMAT

* Thermal: Tera Semicon * Curing: Tera Semicon

* Automation: SFA Engineering

* HDP etcher: ICD

Tech LTPS ELS or SGS Oxide TFT

* SMS * LITI (R,G + B FMM)

Metal sheet encap SEC: V1/V2 (8G)

Supplier AP System, Tera Semicon

ULVAC

* SFA (RGB), Wonik IPS(White)

* Tokki (or Hitachi High-Tech) AP System

* Thermal: Tera Semicon * Curing: Tera Semicon

* Automation: SFA Engineering

* HDP etcher: ICD, Wonik IPS

Tech Oxide TFT White OLED Metal sheet encap LGD: M1

(8G) Supplier ULVAC, Avaco * YAS Jusung Engineering, Avaco

* Wet station: KC Tech, DMS

* Automation: Top Engineering * PE-CVD: Jusung Engineering

* HDP etcher: LIG ADP


Figure 24. Share performances of OLED equipment makers

Source: SMD, KDB Daewoo Securities Research

Shares of OLED

equipment and materials

makers to fare well in

2H

0

20

40

60

80

100

120

140

160

1/10 4/10 7/10 10/10 1/11 4/11 7/11 10/11 1/12 4/12

SFA EngineeringAP SystemICDTera SemiconWonik IPS

(11/1/11=100)

Equipment ordersfor A 2 phase1

E quipment ordersfor A 2 phase3

Equipment ordersfor A 2 phase2

Announced an acquisitionof tangible assets for A2

Announced an issuanceof W500bn of bonds

Announced W3.4trrights offering

Announced W700bnbond issuance

Announced the mergerwith Samsung Display

Rumors on conf irmat ion ofinvestment schedule of A 3 l ine

Concerns on delay of investmentfor A 3 and V 1 l ine

Rumors on downscale and delayof 5.5G mass product ion l ine



Table 4. SMDÊs AMOLED capacity trend and forecast (Â000 units/month)

SMD Line 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F 1Q13F 2Q13F 3Q13F 4Q13F 1Q14F 2Q14F 3Q14F 4Q14F

A1 (4G, 730 x 920) Half 53 53 53 53 53 53 53 53 53 53 53 53 53 53 53 53

A2 (5.5G, 1300 x 1500) Quarter 8 24 50 56 72 80 88 96 96 96 96 96 96 96 96

Phase 1 (32k/month) 8 16 32 32 32 32 32 32 32 32 32 32 32 32 32

Phase 2 (32k/month) 8 18 24 32 32 32 32 32 32 32 32 32 32 32

Phase 3 (incl. flexible) (32k/month) 8 16 24 32 32 32 32 32 32 32 32

A3 (5.5G, 1300 x 1500) Half 16 40 64 104 136 144 144 144

Phase 1 (48k/month) 16 40 48 48 48 48 48 48

Phase 2 (48k/month) 16 40 48 48 48 48

Phase 2 (48k/month) 16 40 48 48 48

V1 (8G, 2200 x 2500) 6th 3 6 12 18 24 30 30 30 30 30 30

V2 (8G, 2200 x 2500) Half 16 32 48 64 64 64

Phase 1 (30k/month) 16 32 32 32 32 32

Phase 2 (30k/month) 16 32 32 32

Total input area (Km²/month) 107 154 247 399 434 577 674 820 1,059 1,298 1,802 2,300 2,751 3,062 3,062 3,062

YoY Growth (%) 120.8 162.9 161.0 281.1 306.8 276.0 172.6 105.3 143.8 124.8 167.4 180.6 159.8 135.8 69.9 33.1


Table 5. AMOLED panel shipment trend and forecast (mn units/quarter)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F 1Q13F 2Q13F 3Q13F 4Q13F 1Q14F 2Q14F 3Q14F 4Q14F

Equivalent Output (Yield=100%)

4" (Smartphone) 11.4 17.7 30.4 51.0 55.9 68.4 74.9 81.1 100.1 119.1 138.1 169.9 195.1 201.6 201.6 201.6

10" (Tablet PC) 1.3 2.4 4.9 8.7 9.7 12.1 13.3 14.4 18.1 21.7 25.3 31.3 36.1 37.3 37.3 37.3

55" (TV) 0.1 0.3 0.3 0.4 0.9 1.1 1.4 1.7 1.7 1.7


4" (Smartphone) 8.0 12.4 21.3 35.7 39.1 47.9 52.4 56.8 70.1 83.4 96.7 118.9 136.6 141.1 141.1 141.1

10" (Tablet PC) 0.9 1.7 3.4 6.1 6.8 8.5 9.3 10.1 12.7 15.2 17.7 21.9 25.3 26.1 26.1 26.1

55" (TV) 0.1 0.2 0.2 0.3 0.6 0.8 1.0 1.2 1.2 1.2


4" (Smartphone) 5.7 8.9 15.2 25.5 27.9 34.2 37.4 40.6 50.1 59.6 69.1 84.9 97.6 100.8 100.8 100.8

10" (Tablet PC) 0.6 1.2 2.4 4.4 4.9 6.1 6.6 7.2 9.1 10.9 12.6 15.6 18.1 18.6 18.6 18.6

55" (TV) 0.1 0.1 0.1 0.2 0.4 0.6 0.7 0.9 0.9 0.9


Figure 25. SMDÊs OLED capacity trend and forecast Figure 26. OLED market trend and forecast


0

500

1,000

1,500

2,000

2,500

3,000

3,500

1Q11 1Q12 1Q13 1Q14

0

50

100

150

200

250

300

350A1 (L) A2 (L)

A3 (L) V1 (L)

V2 (L) YoY growth (R)

(000㎡)

0

5

10

15

20

25

30

35

40

09 10 11 12F 13F 14F 15F

0

40

80

120

160

200

OLED revenues (L)

YoY growth (R)

(Wtr) (%)



3. Apple’s iTV to trigger a TV replacement cycle

Consumers in advanced countries began to purchase flat-panel (LCD and PDP) TVs full

swing in 2005~2008 and consumers in emerging countries (particularly China) in 2009~2011.

Assuming a TV replacement cycle of seven years based on the recent data released from

DisplaySearch, the replacement of first generation flat panel TVs appear imminent in

advanced countries.

However, in order for a TV replacement cycle to gain momentum, we believe it will require a

major trigger. Although TV prices have fallen below tablet PC prices, consumers do not

appear motivated to purchase new TVs. High picture quality or thin and light panels are no

longer enough to entice consumers. 3D TVs are also not drawing consumers to open their

wallets due to limited 3D content and dizziness. As such, we believe manufacturers must

bring consumers an entirely new viewing experience to spark a replacement cycle.

We have witnessed such major events take place in early 2000 with the launch of digital

broadcasting, and in 2007 with the launch of AppleÊs iPhone.

We expect the next TV innovation to focus on improvements to user interface and platform.

As such, we believe that software will play a greater role than hardware during this shift. As

such, Apple, Google, and Microsoft are working aggressively to develop: 1) interfaces using

voice and motion recognition technologies and 2) cloud-based streaming technologies.

At this juncture, it appears to us that Apple is ahead in terms of smart TV technology, as: 1)

the company has released new platforms (iOS 6 for mobile devices, and OSX Mountain Lion

for desktops and laptops); and 2) Siri, a voice recognition system on iPhone 4S, widely

viewed as the most advanced in the market. Furthermore, the company is reported to have

developed and filed a patent for a new cloud-based video clip transmission technology.

In a market driven by such focus on software innovation, we believe that downstream (set

makers) industries will provide more value added than upstream industries.

Figure 27. Apple iTVÊs interface and platform


TV replacement is

imminent

Software to play a

greater role than

hardware in the next TV

replacement cycle

“Tune in BBC”

“Show me sports

channels”

New streaming Technology

“Show me all the

channels with

Girl’s Generation”



II. Supply/demand and price outlooks

1. Supply outlook

In 2012, global LCD panel production capacity is expected to increase 7.4% YoY (in terms of

glass area input). Among domestic companies, LGDÊs capacity is projected to improve 9%

YoY on the mass production of the P98 Line. SEC, which does not construct new production

lines this year, is anticipated to see a just 4% growth in capacity. Taiwanese panel makers

also have no plan to build new lines due to financial difficulties. Their capacity is forecast to

increase just 1% YoY. Meanwhile, the capacity of Sharp is projected to decline 10% YoY as

it switched its 8G line from a-Si to IGZO (indium gallium zinc oxide) line.

Chinese panel makers are expected to drive growth in global LCD panel production capacity

this year. BOE plans to expand its B4 (8G) Line capacity to 60,000 panels per month by end-

2012. The companyÊs entire production capacity is anticipated to increase 53% YoY. BOE is

considering investment in the Hefei B5 Line (its second 8G line) in 2H12. China Star (a

subsidiary of Chinese TV maker TCL) also plans to ramp up its 8G capacity to 90,000 panels

per month, but it should take time as it lacks mass production experience.

Meanwhile, leading panel makers are converting their excess capacity to next-generation

display production lines, including small- to mid-sized LTPS, oxide TFT, and OLED. In addition,

they are considering relocating LCD lines to China. Accordingly, a decrease in production

capacity for the next one~two years due to process conversion or relocation of production

lines could significantly reduce supply.

Table 6. LCD panel supply trend and forecast (unit: Â000, Km2, %)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F 2010 2011 2012F 2013F 2014F

Shipment unit 159,872 178,885 178,796 171,701 167,825 187,359 214,855 218,006 652,201 689,253 788,045 881,721 975,526

Notebook 60,999 75,365 77,684 68,074 70,734 83,412 98,792 100,708 232,388 282,122 353,646 417,237 485,304

Tablet PC 8,296 17,121 20,660 13,594 16,052 24,368 33,156 35,560 18,820 59,671 109,136 147,333 184,166

Monitor 49,443 50,968 48,369 48,119 46,034 46,978 54,655 54,176 198,980 196,899 201,843 209,838 217,121

TV 49,430 52,552 52,742 55,508 51,057 56,969 61,407 63,123 220,833 210,231 232,556 254,646 273,102

Shipment area 25,336 27,815 28,121 29,461 27,816 31,131 35,008 35,932 106,674 110,734 129,887 152,719 175,273

Notebook 3,179 3,694 3,813 3,533 3,605 4,094 4,718 4,749 12,568 14,219 17,166 20,862 24,265

Tablet PC 242 500 602 396 469 716 976 1,049 548 1,740 3,210 4,420 5,893

Monitor 5,715 5,956 5,738 5,770 5,568 5,719 6,739 6,672 22,746 23,180 24,699 27,279 29,311

TV 16,443 18,164 18,570 20,159 18,643 21,317 23,551 24,510 71,360 73,335 88,022 104,579 121,696

QoQ area growth -9.4 9.8 1.1 4.8 -5.6 11.9 12.5 2.6 30.4 3.8 17.3 17.6 14.8

Notebook -4.2 16.2 3.2 -7.4 2.0 13.6 15.2 0.7 28.7 13.1 20.7 21.5 16.3

Tablet PC -3.5 106.5 20.5 -34.3 18.5 52.6 36.4 7.4 217.4 84.5 37.7 33.3

Monitor -3.1 4.2 -3.7 0.6 -3.5 2.7 17.8 -1.0 3.3 1.9 6.6 10.4 7.5

TV -12.3 10.5 2.2 8.6 -7.5 14.3 10.5 4.1 42.7 2.8 20.0 18.8 16.4

Shipment area by suppliers

LGD 6,766 7,452 8,087 8,370 8,090 9,231 9,980 10,213 27,852 30,675 37,513 41,130 42,480

SEC 6,239 7,348 7,058 8,188 7,506 7,532 9,133 9,277 27,219 28,833 33,448 35,707 38,302

AUO 4,310 4,456 4,545 4,139 4,080 4,954 5,656 5,583 17,451 17,450 20,273 21,457 23,348

CMI 4,559 5,251 4,839 5,146 4,936 5,798 6,174 6,214 17,802 19,795 23,122 23,628 24,291

Sharp 1,656 1,418 1,819 1,832 1,427 1,387 1,484 1,640 8,677 6,725 5,938 6,603 7,297

BOE 276 527 590 781 911 1,057 1,179 1,363 915 2,174 4,510 6,341 9,258

CSOT 60 167 374 594 845 60 1,979 3,470 5,030

Utilization rate

LGD 84 80 66 77 81 85 92 85 91 76 86 90 92

SEC 82 83 72 85 86 86 90 85 91 80 87 91 93

AUO 86 78 66 69 73 80 88 82 88 75 81 88 90

CMI 82 85 71 67 81 84 88 82 81 77 84 90 92

Sharp 85 49 89 86 55 55 60 65 88 77 59 80 90


In 2012, global LCD

panel production

capacity to increase

7.4% YoY (in terms of

glass area input)

Chinese panel makersÊ

capacity to jump 75%



2. Demand outlook

In 2012, we expect global LCD panel demand to grow 14.4% YoY (in terms of glass area) –

laptops (including tablet PCs) by 16.5%, PC monitors by 4.1%, and TVs by 17.0%. In

particular, tablet PC shipments are projected to expand by 60% YoY from 59.3mn to 95.0mn

units, driving up panel demand growth.

We maintain our estimate for LCD TV sales volume in 2012 at 228mn units (up 12.2% YoY). By

region, LCD TV demand is expected to grow 6.3% in North America, 3.8% in Europe, -20.1%

in Japan, 11.7% in China, 49.0% in Asia (excluding Japan and China), 21.5% in South America,

and 23.2% in the Middle East and Africa. While LCD TV shipments in advanced economies are

projected to grow just 1.2% this year, emerging economies should continue to serve as a

growth driver for global LCD TV demand with an expected growth of 23.8% in 2012.

Meanwhile, ChinaÊs LCD TV demand remains sluggish with sales during the Chinese Lunar

New Year and Labor Day holidays in 1Q12 falling short of expectations, leading to less than

expected panel demand ahead of major sporting events. However, the governmentÊs new

subsidy plan that took effect in June is boosting LCD TV sales. The government allocated

RMB26.5bn (W4.8tr) to provide subsidies for the purchase of energy-saving home

appliances, including TVs, air conditioners, refrigerators, and washing machines. For TVs, the

government provides RMB100~400 (W18,100~72,400) in subsidies.

We expect IT panel demand to expand 8.9% YoY in 2012 (in terms of glass area) with the

shipments of traditional desktop PCs growing 1% to 150mn units and laptops expanding

10% to 220mn units. The shipments of tablet PCs should be on a sharp rise, expanding 60%

YoY to 100mn units.

In light of the expected growth in production capacity and demand this year, the supply and

demand balance is likely to improve moderately from 1Q12. However, the imbalance is

unlikely to improve enough to relieve the industryÊs structural overcapacity. At full capacity,

global panel makersÊ oversupply rate is estimated at 17% for 2012.

Table 7. LCD panel demand trend and forecast (unit: Â000, Km2, %)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F 2010 2011 2012F 2013F 2014F

Shipment unit 154,724 159,161 165,488 181,925 164,356 176,576 194,215 211,555 566,772 670,390 764,465 854,839 939,426

Notebook 60,991 71,443 77,684 68,074 72,742 86,854 90,389 90,767 198,561 278,192 340,752 402,047 461,165

Tablet PC 8,630 12,063 16,552 22,017 14,984 19,392 25,873 34,743 14,816 59,261 94,993 138,090 165,862

Monitor 49,479 43,249 48,369 48,119 45,425 49,634 51,270 49,562 179,867 189,216 195,891 203,650 210,718

TV 44,253 44,469 49,429 64,830 47,407 50,968 56,199 73,248 188,343 202,981 227,822 249,142 267,543

Shipment area 25,491 26,036 28,539 34,692 27,821 30,599 33,119 39,759 100,108 114,757 131,298 146,514 160,280

Notebook 3,174 3,768 3,813 3,533 3,527 4,257 4,445 4,422 10,722 14,288 16,651 19,332 22,050

Tablet PC 252 352 497 661 450 582 776 1,042 432 1,761 2,850 4,143 4,976

Monitor 5,720 5,516 5,738 5,770 5,432 5,972 6,215 6,063 21,405 22,744 23,682 25,402 26,665

TV 16,597 16,752 18,987 25,389 18,862 20,369 22,460 29,274 67,981 77,725 90,965 101,780 111,564

QoQ area growth -19.2 2.1 9.6 21.6 -19.8 10.0 8.2 20.0 38.2 14.6 14.4 11.6 9.4

Notebook -4.2 18.7 1.2 -7.4 -0.2 20.7 4.4 -0.5 31.4 33.3 16.5 16.1 14.1

Tablet PC 27.5 39.9 41.0 33.0 -31.9 29.4 33.4 34.3 308.0 61.8 45.4 20.1

Monitor -3.0 -3.6 4.0 0.6 -5.9 10.0 4.1 -2.4 11.6 6.3 4.1 7.3 5.0

TV -25.7 0.9 13.3 33.7 -25.7 8.0 10.3 30.3 50.7 14.3 17.0 11.9 9.6

Shipment area by region

North America 7,301 7,953 9,218 12,135 7,689 8,998 9,634 12,579 38,078 36,607 38,900 40,581 43,578

Europe 12,174 10,155 11,326 18,549 12,559 11,907 11,069 18,647 53,262 52,205 54,182 57,122 61,341

Japan 5,183 5,793 1,587 2,352 2,850 2,934 3,103 3,023 19,239 14,915 11,910 11,113 11,933

China 9,586 8,617 11,887 13,593 11,227 10,008 12,462 15,104 38,657 43,683 48,800 54,462 58,485

Asia (ex. Japan, China) 4,278 4,590 6,376 7,714 6,498 7,695 9,063 10,944 15,250 22,959 34,200 41,430 44,490

South America 3,321 4,617 5,805 6,999 3,877 5,987 6,845 8,490 15,654 20,742 25,200 27,990 30,057

Middel East/Africa 2,409 2,745 3,229 3,487 2,707 3,438 4,023 4,462 8,203 11,871 14,630 16,445 17,659

Sourc: DisplaySearch, KDB Daewoo Securities Research

Global LCD panel

demand to grow 14.4%

YoY in 2012 (in terms of

glass area)

ChinaÊs new subsidy

plan to boost LCD TV

sales in 2H



3. Price outlook

Panel prices are down 1.5% for laptops and 0.4% for TVs, but up 1.2% for PC monitors

year-to-date. We expect panel prices to stabilize in the short term. Thus, panel prices are

unlikely to turn downward with the start of 3Q, a traditionally strong season. The process

conversion or relocation of production lines of leading manufacturers might lead to a

temporary shortage of panel supply. If Chinese panel makersÊ 8G line yields improve faster

than expected, however, panel prices should face downward pressure.

As panel prices are not expected to increase sharply, LCD panel makers are attempting to

improve blended ASPs by expanding the portion of differentiated products in their product

mixes. If the yields of Chinese panel makers continue to improve, existing players are likely

to lose price competitiveness in the commodity panel segment.

If panel prices remain on the decline, the LCD industry is likely to undergo restructuring, as

some panel makers are facing severe liquidity squeeze. The debt-to-equity ratios of TaiwanÊs

AUO and CMI had soared from 90% and 62%, respectively, in 2008 to 192% and 253%,

respectively, in 1Q12. Some Taiwanese panel makers are reducing their working capital by

extending their settlement period for parts suppliers from 120 days to 150 days.

Figure 28. LCD panel price and growth rate trends Figure 29. LCD panel price trends by application

Source: WitsView, KDB Daewoo Securities Research Source: WitsView, KDB Daewoo Securities Research

Figure 30. Monthly change of LCD panel prices Figure 31. AUO and CMIÊs net debt and debt to equity ratio

Source: WitsView, KDB Daewoo Securities Research Source: AUO, CMI, KDB Daewoo Securities Research

Factors to affect panel

prices in 2H: 1) a decline

in production capacity

and 2) Chinese panel

makersÊ 8G yield

improvement

-12

-8

-4

0

4

8

12

05 06 07 08 09 10 11 12

NotebookMonitorTV

(%)

60

70

80

90

100

110

120

130

140

4/09 10/09 4/10 10/10 4/11 10/11 4/12

Notebook 15.6" Monitor 19"

Monitor 22" TV 32"

TV 42" TV 47"

(4/09=100)

-15

-10

-5

0

5

10

1 2 3 4 5 6 7 8 9 10 11 12

2006 2007 2008 2009

2010 2011 2012

(%)

(month) -2

0

2

4

6

8

10

12

1Q08 1Q09 1Q10 1Q11 1Q12

0

50

100

150

200

250

300AUO's net debt (L) CMI's net debt (L)

AUO's D/E ratio (R) CMI's D/E ratio (R)

(Wtr) (%)

1Q 10CMO -Innolux merger



III. Valuation

Maintain Overweight; Top picks are Samsung SDI, SFA, and Silicon Works

In 2011, the display industryÊs value chain saw peak levels of imbalance. Last year, global panel

makersÊ combined operating losses hit a record high of W6.0tr (W6.8tr excl. Samsung Mobile

Display (SMD)). On the other hand, glass substrate producers (e.g., Samsung Corning Precision

Materials, Asahi Glass, NEG) posted combined operating profits of W6.1tr, the second-highest

figure in history (although the figure was down 28% YoY). Optical film makers (e.g., Nitto Denko, LG

Chem, 3M) also achieved strong operating profits (more than W1tr) last year.

Over the medium- to long-term, we project the aforementioned value chain imbalance to gradually

ease. In particular, the growth of the OLED segment could accelerate this change, as OLED

production consumes a much lower quantity of glass substrates and optical films. Assuming that

the overall margins of the value chain remain at current levels, margin deterioration at upstream

industries (i.e., glass substrates and optical films) should present opportunities to downstream

companies. While panel makers are likely to find opportunities in the growth of the OLED market,

set makers should see benefits from the emergence of the smart TV market.

We maintain our Overweight rating on the display sector. We select Samsung SDI (006400

KS/Buy) as our top pick. Although its ownership in SMD decreased following the merger

between Samsung Display and SMD, the company should continue to benefit from OLED

market growth. Among mid and small caps, we recommend SFA Engineering (056190

KQ/Buy) in light of the rapid earnings improvement expected starting in 3Q. We also

recommend Silicon Works (108320 KQ/Buy), as the company should see positive effects

from the proliferation of high-resolution panels.

Table 8. Ratings and target prices for key players in the display industry

Current price Target price P/E P/B EV/EBITDA Company Ticker Rating

(W) (W) (x) (x) (x)

LG Display 034220 Buy 22,100 30,000 27.9 0.8 2.3

Samsung SDI 006400 Buy 151,500 210,000 13.0 1.1 8.7 SFA Engineering 056190 Buy 55,900 70,000 11.4 2.6 6.6

Silicon Works 108320 Buy 28,200 40,000 10.5 1.8 6.0

MNtech 095500 Buy 6,580 10,000 8.6 0.9 4.5 Avaco 083930 Buy 7,600 9,000 12.2 1.5 9.0

KC Tech 029460 Buy 3,860 7,000 9.9 0.7 4.2

Top Engineering 065130 Trading Buy 5,100 6,000 10.2 0.6 6.8

DMS 068790 Trading Buy 3,310 5,700 - 0.6 18.6

Note: As of Jun 22, 2012. Source: KDB Daewoo Securities Research

Figure 32. LG DisplayÊs OP and 12mo-fwd P/B trend and forecasts Figure 33. LG DisplayÊs 12mo-fwd P/B band


In 2011, the display

industryÊs value chain

saw peak levels of

imbalance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

04 05 06 07 08 09 10 11 12

-600

-400

-200

0

200

400

600

800

1,000

Operating profit (R) P/B (L)(x) (Wbn)

Mid-cycle valuation fell continuously;Expect re-rating on product differentiation

10,000

20,000

30,000

40,000

50,000

60,000

04 05 06 07 08 09 10 11 12

(W)

0.7x

1.0x

1.3x

1.6x1.9x2.2x

Fell below P/B of 1.0x for the first time since the financial crisis



Table 9. Earnings and valuations of global display panel makers (Wbn, %, x)

Revenue OP NP ROE P/E P/B EV/EBITDA

12F 13F 12F 13F 12F 13F 12F 13F 12F 13F 12F 13F 12F 13F

LG Display 26,740 27,768 345 911 290 729 2.8 6.8 27.9 11.1 0.8 0.8 2.3 1.8

SEC 206,594 234,407 26,527 29,949 22,850 26,189 21.0 19.7 9.1 8.0 1.8 1.5 4.5 3.9

LGE 53,997 58,726 1,495 1,985 848 1,386 6.4 9.7 13.7 8.4 0.9 0.8 5.5 4.2

Samsung SDI 5,777 6,101 344 491 550 719 8.7 10.8 13.3 10.1 1.2 1.1 8.9 7.7

Sharp 37,156 40,287 128 1,152 -469 448 -5.8 5.2 - 16.8 0.7 0.7 6.2 5.2

Sony 101,585 102,678 2,289 3,457 283 1,301 1.8 4.6 60.0 13.0 0.5 0.5 2.5 2.2

Panasonic 118,124 120,503 3,605 4,404 990 1,611 3.4 6.8 22.5 11.6 0.7 0.7 4.7 4.1

Hitachi 132,993 137,052 7,228 8,100 3,315 3,890 12.2 12.9 9.8 8.3 1.2 1.0 5.4 4.9

AUO 15,134 16,335 -895 187 -1,000 49 -13.3 0.3 - 59.2 0.6 0.5 5.1 3.7

CMI 19,848 20,108 -873 159 -1,135 -167 -17.2 -4.4 - - 0.6 0.6 6.6 4.7

Avg 2.0 7.2 22.3 16.3 0.9 0.8 5.2 4.2

Source: Bloomberg, KDB Daewoo Securities Research

Figure 34. Share performances of major Korean IT companies Figure 35. Share performances of global display panel makers

Source: Thomson Reuters Source: Thomson Reuters

Figure 36. P/B-ROE comparison of global display peers (2012F) Figure 37. EBITDA margin trends of global LCD panel makers

Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research

0

40

80

120

160

200

1/10 4/10 7/10 10/10 1/11 4/11 7/11 10/11 1/12 4/12

LG Display

SEC

LGE

Samsung SDI

(1/3/10=100)

0

50

100

150

200

250

1/10 4/10 7/10 10/10 1/11 4/11 7/11 10/11 1/12 4/12

LG Display AUO

CMI Sharp

(1/3/10=100)

CMI AUO

Hitachi

Panasonic

SonySharp

S amsung S DI

LG E

S E C

LGD

0.0

0.4

0.8

1.2

1.6

2.0

-20 -15 -10 -5 0 5 10 15 20 25

(ROE, %)

(P/B, x)

-20

-10

0

10

20

30

40

50

1Q07 1Q08 1Q09 1Q10 1Q11 1Q12

LGD AUO CMI

(%)



Table 10. Earnings and valuations of global display equipment makers (Wbn, %, x)


12F 13F 12F 13F 12F 13F 12F 13F 12F 13F 12F 13F 12F 13F

SFA Engineering 791 1,010 107 129 88 105 23.4 23.4 11.4 9.6 2.6 2.2 6.6 4.3

KC Tech 190 254 15 23 13 19 6.9 9.5 9.9 6.7 0.7 0.6 4.2 2.7

Avaco 178 213 10 15 9 13 11.9 14.3 12.2 8.9 1.5 1.3 9.0 5.7

DMS 160 221 -2 20 -12 10 -7.7 6.7 - 6.3 0.6 0.6 18.6 6.5

Top Engineering 95 133 11 16 7 12 5.3 8.2 10.2 6.2 0.6 0.5 6.8 4.8

Canon 56,263 59,169 6,769 7,873 4,400 5,088 11.2 12.5 13.2 11.4 1.4 1.3 5.1 4.6

ULVAC 9,010 9,885 812 1,173 543 796 5.8 8.7 18.6 12.8 1.1 1.0 5.5 4.2

TEL 11,363 11,874 735 827 414 502 9.8 10.7 9.7 8.0 0.9 0.8 5.3 4.9

DNS 3,615 3,827 246 321 186 232 13.1 14.8 11.1 8.9 1.4 1.2 7.2 5.9

MJC 1,142 1,178 126 141 84 92 4.7 5.2 14.0 12.8 0.6 0.6 2.7 2.5

TOK 3,047 2,580 -108 47 -747 14 -82.2 5.1 - 38.7 1.0 1.0 47.8 10.9

NSK 353 387 -30 0 -37 -1 -10.6 -0.8 - - 0.4 0.4 - 3.0

Avg. -0.7 9.9 12.3 11.9 1.1 1.0 10.8 5.0


Figure 38. Share performances of global LCD equipment makers Figure 39. P/B-ROE comparison of global equipment makers (2012F)

Source: Thomson Reuters Source: Bloomberg, KDB Daewoo Securities Research

Figure 40. Market cap/new orders of Korean display equipment

makers (2012F) Figure 41. OP margin trends of global LCD equipment makers (2012F)

Source: KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research

0

50

100

150

200

250

300

350

400

450

1/10 7/10 1/11 7/11 1/12

SFA Engineering

KC Tech

Top Engineering

TEL

Ulvac

(1/3/10=100)

Lasertec

ESPEC

Topcon

Hitachi High

Shin-Etsu

Shibaura

Nikon

MJC

TOK

DNSTEL

Canon

TopE ngineering

DMS

A vaco

K C Tech

S FAE ngineering

0.0

0.5

1.0

1.5

2.0

2.5

3.0

-20 -10 0 10 20 30

(P/B, x)

(ROE, %)

-60

-40

-20

0

20

40

1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12

SFA Engineering KC Tech Top Engineering

Avaco DMS

(%)

0

200

400

600

800

1,000

1,200

SFA Engineering KC Tech Avaco Top Engineering DMS

0

20

40

60

80

100

120

140Market cap (L)

New orders (12F,L)

Market cap/New orders (R)

(Wbn) (%)



Table 11. Earnings and valuations of global display parts makers (fabless companies) (Wbn, %, x)


12F 13F 12F 13F 12F 13F 12F 13F 12F 13F 12F 13F 12F 13F

Silicon Works 405 465 42 54 44 55 18.3 19.0 10.5 8.5 1.8 1.5 6.0 4.1

Anapass 121 148 19 24 18 22 23.3 22.4 6.0 5.1 1.2 1.0 1.8 1.5

Telechips 90 106 6 7 8 9 8.4 9.1 6.2 5.7 0.6 0.6 3.4 2.7

Qualcomm 22,184 25,153 8,191 9,704 7,497 8,458 19.0 17.9 14.7 13.3 2.8 2.6 9.3 7.9

Broadcom 9,447 10,525 2,073 2,259 2,056 2,246 20.1 18.9 11.4 10.6 2.4 2.0 9.1 8.7

Nvidia 4,902 5,353 736 942 659 825 11.9 13.4 13.2 11.1 1.7 1.5 5.9 4.9

Marvell 4,129 4,514 817 1,005 840 1,011 13.4 14.8 9.4 7.8 1.3 1.2 5.4 4.4

Mediatek 3,678 4,156 491 685 550 698 12.7 14.8 22.0 17.4 2.6 2.5 14.4 11.4

Novatek 1,391 1,602 183 202 165 190 17.7 19.3 12.8 11.1 2.3 2.1 8.6 7.5

Realtek 955 1,021 136 144 90 85 - - 11.6 12.3 1.5 1.5 3.9 3.7

ARM Holdings 1,002 1,144 427 518 346 426 15.1 17.0 36.5 29.7 5.8 5.0 27.1 22.3

Avg. 16.0 16.7 14.0 12.1 2.2 1.9 8.6 7.2


Figure 42. Share performances of global fabless peers Figure 43. Share performances of Korean fabless peers

Source: Thomson Reuters Source: Thomson Reuters

Figure 44. P/B-ROE comparison of global fabless peers (2012F) Figure 45. P/E-EPSG comparison of global fabless peers (2012F)

Source: Bloomberg, KDB Daewoo Securities Research Source: Bloomberg, KDB Daewoo Securities Research

S ilicon Works

A napass

Qualcomm

Broadcom

Nvidia

Marvell

Mediatek

NovatekRealtek

ARM Holdings

0.0

10.0

20.0

30.0

40.0

0 20 40 60 80 100 120

(P/E, x)

(EPSG, %)

S ilicon Works A napass

Telechips

Qualcomm

Broadcom

NvidiaMarvell

MediatekNovatek

ARM Holdings

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

5 7 9 11 13 15 17 19 21 23 25

(P/B ,x)

(ROE, %)

20

40

60

80

100

120

140

160

1/10 4/10 7/10 10/10 1/11 4/11 7/11 10/11 1/12 4/12

Qualcomm

Broadcom

Marvell

NVDIA

(1/5/09=100)

0

20

40

60

80

100

120

140

160

180

6/10 9/10 12/10 3/11 6/11 9/11 12/11 3/12 6/12

Silicon Works TLI

Telechips Mtek Vision

Core Logic

(6/7/09=100)



LG Display (034220 KS)

Light at the end of the long tunnel

Global LCD TV demand remains depressed despite a series of sporting events

Additional provisioning for price-fixing charges to deepen operating loss

2Q Preview: Revenues of W6.7tr (up 11% YoY); Operating loss of W109.1bn

We maintain our Buy rating on LG Display (LGD), but lower our target price by

14%, to W30,000, in view of the following: 1) disappointing global LCD TV sales

despite EURO 2012 and London 2012 Olympics, and 2) unexpected provisioning

related to a class action over alleged price fixing. We revised down our 2012F and

2013F EPS by 23% and 8%, respectively. The stock is currently trading at a P/B of

0.8x based on our 12-month forward BPS of W28,700.

1) Global LCD TV sales remain sluggish: In 1Q, 43.1mn LCD TVs were sold globally,

down 3% YoY. The LCD TV market remained lackluster, with sales during ChinaÊs

Lunar New Year holidays and the Labor Day falling below expectations, leading to

less than expected panel demand ahead of major sporting events. In June,

however, LCD TV sales started to improve in China as the government introduced

a new subsidy program for energy-efficient home appliances. Under the new

program, the Chinese government plans to grant up to RMB26.5bn (or W4.8tr) in

subsidy for one year, encouraging the purchases of energy-efficient TVs, air

conditioners, refrigerators and washing machines. The government will pay

RMB100~400 (W18,100~W72,400) per energy-efficient TV.

2) 2Q Operating profit to remain in the red due to unexpected provisioning: The IT

panels (from March) and TV panels (from April) divisions are estimated to have

swung to operating profit. Even so, LGD is anticipated to report an operating loss

in 2Q, due to additional provisioning of W200bn related to a class action suit over

alleged price-fixing. In 3Q, the company should be able to report an operating

profit of W355bn.

3) 2Q Preview: In 2Q, we expect LGD to report consolidated revenues of W6.7tr

(up 8.5% QoQ; up 11.0% YoY) and an operating loss of W109.1bn, posting losses

for a seventh straight quarter. Shipment areas should increase 8%, and ASP will

likely edge up on product mix improvements. Excluding one-off expenses (lawsuit-

related provisions), LGD is estimated to have delivered an operating profit of

W100bn. The wonÊs depreciation against the dollar should result in foreign

currency translation losses on the companyÊs foreign currency advances from

customers.

Buy (Maintain)

Target Price (12M, W) 30,000

Share Price (06/22/12, W) 22,100

Expected Return (%) 35.7

EPS Growth (12F, %) TTB

Market EPS Growth (12F, %) 19.5

P/E (12F, x) 27.3

Market P/E (12F, x) 9.2

KOSPI 1,847.39

Market Cap (Wbn) 7,908

Shares Outstanding (mn) 358

Avg Trading Volume (60D, '000) 2,543

Avg Trading Value (60D, Wbn) 60

Dividend Yield (12F, %) 1.4

Free Float (%) 62.1

52-Week Low (W) 17,300

52-Week High (W) 31,650

Beta (12M, Daily Rate of Return) 1.38

Price Return Volatility (12M Daily, %, SD) 3.2

Foreign Ownership (%) 29.2

Major Shareholder(s)

LG Electornics et al. (37.9%)

National Pension Service (6.05%)

Price Performance

(%) 1M 6M 12M

Absolute 4.0 -4.1 -25.1

Relative 3.0 -4.1 -14.6

40

50

60

70

80

90

100

110

6/11 10/11 2/12 6/12

Share price

KOSPI

§ Earnings & Valuation Metrics FY Revenu OP OP Margin NP EPS EBITDA FCF ROE P/E P/B EV/EBITDA

(Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) (x) (x)

12/10 25,512 1,311 5.1 1,156 3,232 4,783 1,328 11.0 12.3 1.4 3.4

12/11 24,291 -924 -3.8 -771 -2,155 2,887 1,031 -7.3 - 0.9 4.0

12/12F 26,740 345 1.3 290 811 5,011 -980 2.8 27.3 0.8 2.2

12/13F 27,768 911 3.3 729 2,038 5,450 1,737 6.8 10.8 0.8 1.8

12/14F 29,663 1,185 4.0 949 2,651 5,506 1,230 8.2 8.3 0.7 1.6

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

Source: Company data, KDB Daewoo Securities Research estimates



LCD capacity likely to fall

Top-tier firms are increasingly diverting their excess capacity to produce next-generation

displays such as small- to mid-sized LTPS, Oxide-TFT and OLED. They are also considering

moving their LCD production lines to China. As a result, LCD production capacity will likely

decrease within the next one to two years, heavily impacting the supply/demand situation.

If the LCD industryÊs sustainable ROE falls below 10%, its fair P/B is likely to remain below

1.0x. Any improvements in the industryÊs valuation and ROE should depend on the

performance of OLED TVs.

Table 12. Earnings trends and forecasts (consolidated K-IFRS) (Wbn, %)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F 2011 2012F 2013F

Avg. US$/W rate 1119.6 1083.1 1085.2 1145.0 1131.0 1095.0 1080.0 1060.0 1108.2 1091.5 1090.0

Shipment area (Km2) 6,766 7,442 8,099 8,414 8,089 8,812 9,389 9,035 31,091 35,325 36,877

ASP (US$/m2) 758 743 704 684 669 696 710 694 734 694 692

Revenues 5,366 6,047 6,269 6,610 6,184 6,712 7,199 6,646 24,292 26,740 27,768

Notebook 966 847 878 859 928 954 1,036 1,025 3,550 3,943 4,506

Monitor 1,288 1,209 1,191 1,322 1,299 1,312 1,304 1,146 5,010 5,060 4,998

TV 2,576 2,903 2,946 3,107 2,906 3,109 3,345 3,125 11,532 12,485 12,582

Small- to mid-sized 537 1,089 1,254 1,322 1,051 1,338 1,513 1,350 4,202 5,252 5,682

COGS 5,133 5,596 6,088 6,265 5,856 6,170 6,307 5,815 23,082 24,148 24,475

Raw material costs 3,800 4,349 4,795 4,915 4,499 4,650 4,692 4,254 17,860 18,095 18,444

Depreciation 816 894 948 994 990 1,141 1,225 1,159 3,652 4,515 4,295

SG&A 472 499 672 490 506 651 537 553 2,134 2,247 2,383

Operating profit -239 -48 -492 -145 -178 -109 355 278 -924 345 911

OP margin -4.5 -0.8 -7.8 -2.2 -2.9 -1.6 4.9 4.2 -3.8 1.3 3.3

EBITDA 561 815 671 840 779 1,090 1,643 1,499 2,887 5,011 5,450

EBITDA margin 10.5 13.5 10.7 12.7 12.6 16.2 22.8 22.6 11.9 18.7 19.6

Gorwth (QoQ/YoY)

Shipment area -14.3 10.0 8.8 3.9 -3.9 8.9 6.6 -3.8 12.2 13.6 4.4

ASP 9.0 -2.0 -5.2 -2.8 -2.2 4.0 2.1 -2.3 13.5 11.7 5.7

Revenues -17.2 12.7 3.7 5.4 -6.4 8.5 7.3 -7.7 -4.8 10.1 3.8

Notebook -1.7 -12.3 3.7 -2.2 8.0 2.8 8.7 -1.1 -13.8 11.1 14.3

Monitor 2.0 -6.1 -1.5 11.0 -1.7 1.0 -0.6 -12.1 -13.4 1.0 -1.2

TV -35.1 12.7 1.5 5.5 -6.5 7.0 7.6 -6.6 -24.4 8.3 0.8

Small- to mid-sized 99.9 102.9 15.2 5.4 -20.5 27.3 13.1 -10.8 1,135.0 25.0 8.2

COGS -15.7 9.0 8.8 2.9 -6.5 5.4 2.2 -7.8 6.0 4.6 1.4

Raw material costs -22.1 14.5 10.2 2.5 -8.5 3.4 0.9 -9.3 1.6 1.3 1.9

Depreciation 4.2 9.6 6.0 4.9 -0.4 15.2 7.4 -5.4 24.8 23.6 -4.9

SG&A -39.6 5.7 34.7 -27.1 3.2 28.7 -17.6 3.0 -11.9 5.3 6.0

Operating profit -38.2 -79.9 924.6 -70.5 22.6 -38.7 -425.2 -21.8 -170.6 -137.4 163.8

OP margin %p 1.5 3.7 -7.1 5.6 -0.7 1.3 6.6 -0.8 -8.9 5.1 2.0

EBITDA 41.6 45.4 -17.7 25.1 -7.3 40.0 50.7 -8.8 -31.8 73.6 8.8

EBITDA margin %p 4.3 3.0 -2.8 2.0 -0.1 3.7 6.6 -0.3 -4.7 6.9 0.9

Source: Company data, KDB Daewoo Securities Research

Table 13. Earnings forecast revisions (consolidated K-IFRS) (Wbn, %, %p)

Previous Revised % Change

2011 2012F 2013F 2011 2012F 2013F 2011 2012F 2013F

Revenues 24,292 26,673 27,328 24,292 26,740 27,768 0.0 0.2 1.6

Operating profit -924 453 992 -924 345 911 0.0 -23.8 -8.2

Net profit -771 376 794 -771 290 729 0.0 -22.8 -8.1

EPS -2,155 1,051 2,218 -2,155 811 2,038 0.0 -22.8 -8.1

OP margin -3.8 1.7 3.6 -3.8 1.3 3.3 0.0 -0.4 -0.4

Net margin -3.2 1.4 2.9 -3.2 1.1 2.6 0.0 -0.3 -0.3

Avg. US$/W rate 1,108 1,092 1,090 1,108 1,092 1,090 0.0 0.0 0.0


Top-tier firms switch/

move overseas their

LCD production lines



Table 14. LG DisplayÊs major lawsuits

Suspicion Nation Plaintiff Details Status

Patent infringement

USA AUO CMI

- Filed countercharges on both sides against patent infringement regarding LCD manufacturing

- Sep 2011, compromised with AUO

- Lawsuits with CMI is still pending in court

Settled partially

USA Anvik Corp. - Feb 2007, Nikon filed a lawsuit against patent infringement regarding

photomasking equipment Ongoing

Anti-trust USA Anti-trust authority - Dec 2008, made an agreement with US Department of Justice to pay

US$400mn in fines Settled

USA European Commission

- Oct 2012, imposed EUR215mn in fines - Feb 2011, LGD lodged an appeal with intent of partial invalidation and

reduction in fines

- Nov 2011, EC required additional information

Ongoing

Taiwan Anti-trust authority - Settled without fine Settled

Canada Anti-trust authority - Settled without fine Settled

South Korea

Anti-trust authority

- Aug 2011, anti-trust authority published a report on collusion - Oct 2011, held committee regarding collusion

- Dec 2011, fined W33.4bn on LGD

- Dec 2011, LGD lodged an appeal to High Court

Ongoing

USA Group of buyers

- Mar 2010, approved class action lawsuit - Jun 2011, made an agreement with group of direct buyers

- Dec 2011, court approved the agreement

- Apr 2012, expired report excluding members of group of indirect buyers. LGD stood trial by jury

Settled partially

USA ATS Claim, LLC et al. - 2009, sued each LCD panel makers against collusion

- Nov 2010, withdrew the suit as agreement was made with LGD Settled

USA TracFone Wireless et al. - 2010, sued each LCD panel markers against collusion

- Now transferred to federal court of northern district of California Ongoing

USA Office Depot et al. - 2011, sued each LCD panel markers against collusion - Now transferred to federal court of northern district of California

Ongoing

USA ViewSonic Corp. - 2012, sued each LCD panel markers against collusion

- Now transferred to federal court of northern district of California Ongoing

USA Arkansas et al. - 2010~now, sued each LCD panel markers and their holding companies

against collusion Ongoing

Canada Group of buyers (Ontario) - May 2011, approved group of buyers - Now lodged an appeal against the approval

Ongoing

Canada Group of buyers (Quebec, British) - Ongoing Ongoing

USA Shareholders

- Feb 2007, filed a class action lawsuit against violation of the US Securities and Exchange Act

- May 2010, made an agreement in principle with plaintiff

- Mar 2011, court approved the agreement

Settled




LG Display (034220 KS/Buy/TP: W30,000)

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

(Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F

Revenues 24,291 26,740 27,768 29,663 Current Assets 7,858 8,038 9,856 11,264

Cost of Sales 23,081 24,147 24,475 25,857 Cash and Cash Equivalents 1,518 1,670 3,272 4,283

Gross Profit 1,210 2,592 3,293 3,806 AR & Other Receivables 2,937 2,677 2,780 2,969

SG&A Expenses 1,974 2,281 2,383 2,621 Inventories 2,317 2,376 2,467 2,636

Operating Profit (Adj) -764 312 911 1,185 Other Current Assets 270 554 575 614

Operating Profit -924 345 911 1,185 Non-Current Assets 17,305 16,818 16,067 16,087

Non-Operating Profit -157 -19 0 0 Investments in Associates 385 412 446 480

Net Financial Income 87 118 95 40 Property, Plant and Equipment 14,697 13,908 13,014 12,933

Net Gain from Inv in Associates 2 34 34 34 Intangible Assets 535 510 505 502

Pretax Profit -1,081 326 911 1,185 Total Assets 25,163 24,856 25,923 27,351

Income Tax -293 37 182 237 Current Liabilities 9,911 8,357 8,648 9,184

Profit from Continuing Operations -788 289 729 948 AP & Other Payables 7,775 6,779 7,040 7,521

Profit from Discontinued Operations 0 0 0 0 Short-Term Financial Liabilities 895 787 787 787

Net Profit -788 289 729 948 Other Current Liabilities 1,241 790 820 876

Controlling Interests -771 290 729 949 Non-Current Liabilities 5,121 6,036 6,147 6,227

Non-Controlling Interests -17 -1 -1 -1 Long-Term Financial Liabilities 3,722 4,467 4,467 4,467

Total Comprehensive Profit -757 333 772 991 Other Non-Current Liabilities 1,252 1,355 1,398 1,478

Controlling Interests -741 332 771 990 Total Liabilities 15,032 14,392 14,794 15,411

Non-Controlling Interests -15 1 1 1 Controlling Interests 10,116 10,448 11,111 11,923

EBITDA 2,887 5,011 5,450 5,506 Capital Stock 1,789 1,789 1,789 1,789

FCF (Free Cash Flow) 1,031 -980 1,737 1,230 Capital Surplus 2,251 2,251 2,251 2,251

EBITDA Margin (%) 11.9 18.7 19.6 18.6 Retained Earnings 6,063 6,353 6,975 7,745

Operating Profit Margin (%) -3.8 1.3 3.3 4.0 Non-Controlling Interests 15 16 17 18

Net Profit Margin (%) -3.2 1.1 2.6 3.2 Stockholders' Equity 10,131 10,464 11,129 11,941

Cash Flows (Summarized) Forecasts/Valuations (Summarized)

(Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F

Cash Flows from Op Activities 3,752 3,736 5,444 5,469 P/E (x) - 27.3 10.8 8.3

Net Profit -788 289 729 948 P/CF (x) 3.0 1.6 1.5 1.5

Non-Cash Income and Expense 3,883 4,770 4,722 4,558 P/B (x) 0.9 0.8 0.8 0.7

Depreciation 3,414 4,452 4,295 4,080 EV/EBITDA (x) 4.0 2.2 1.8 1.6

Amortization 238 247 245 241 EPS (W) -2,155 811 2,038 2,651

Others -495 126 61 6 CFPS (W) 8,050 13,945 14,724 14,728

Chg in Working Capital 819 -1,189 176 200 BPS (W) 26,842 27,772 29,643 31,918

Chg in AR & Other Receivables 206 -494 -103 -190 DPS (W) 0 300 500 0

Chg in Inventories -102 -58 -91 -168 Payout ratio (%) 0.0 37.0 24.5 0.0

Chg in AP & Other Payables 890 -469 261 480 Dividend Yield (%) 0.0 1.4 2.3 0.0

Income Tax Paid -162 -135 -182 -237 Revenue Growth (%) -4.8 10.1 3.9 6.8

Cash Flows from Inv Activities -3,429 -4,312 -3,555 -4,099 EBITDA Growth (%) -39.6 73.6 8.8 1.0

Chg in PP&E -4,062 -4,197 -3,400 -4,000 Operating Profit Growth (%) TTR TTB 163.9 30.1

Chg in Intangible Assets -215 -239 -239 -239 EPS Growth (%) TTR TTB 151.4 30.1

Chg in Financial Assets 803 64 0 0 Accounts Receivable Turnover (x) 8.5 10.3 11.1 11.2

Others 46 60 84 140 Inventory Turnover (x) 10.7 11.4 11.5 11.6

Cash Flows from Fin Activities -430 723 -287 -359 Accounts Payable Turnover (x) 7.2 6.7 6.6 6.6

Chg in Financial Liabilities -105 677 0 0 ROA (%) -3.2 1.2 2.9 3.6

Chg in Equity 0 0 0 0 ROE (%) -7.3 2.8 6.8 8.2

Dividends Paid -179 0 -107 -179 ROIC (%) -6.8 1.8 6.6 9.1

Others -146 46 -180 -180 Liability to Equity Ratio (%) 148.4 137.5 132.9 129.1

Increase (Decrease) in Cash -113 152 1,602 1,011 Current Ratio (%) 79.3 96.2 114.0 122.7

Beginning Balance 1,631 1,518 1,670 3,272 Net Debt to Equity Ratio (%) 22.6 27.0 11.0 1.8

Ending Balance 1,518 1,670 3,272 4,283 Interest Coverage Ratio (x) -6.4 2.0 5.1 6.6




Samsung SDI (006400 KS)

OLED boosts profits

Global rechargeable battery market share to gain 4%p to 27% in 2012

Equity method gains to jump 42% in 2012 (thanks to OLED sales)

3Q Preview: Operating profit of W112bn, which includes revaluation gains on stake in SMD (W1.3tr)

We reiterate our Buy call on Samsung SDI with a target price of W210,000. The

stock is moving sideways after correcting due to uncertainty over BoschÊs sale of

its stake in Samsung Bosch LiMotive (SBL). However, we advise investors to

accumulate the shares, as the uncertainty should lift in 3Q when Bosch completes

the sale.

1) Small- to mid-sized rechargeable battery sales rise, driven by SEC and Apple: In

1Q, Samusng SDIÊs rechargeable battery shipments increased 6% QoQ, while its

global peers all suffered a decline (the market contracted 6% QoQ). We expect

the companyÊs global market share to increase 4%p to 27% this year on the back

of its strong customer base (SEC and Apple).

In 2Q, small- to mid-sized rechargeable battery shipments are forecast to jump

15% QoQ. Shipments of prismatic rechargeable batteries should increase by more

than 20% QoQ thanks to the mass production of the Galaxy S III, and polymer

battery shipments are projected to jump at least 15% driven by new iPad sales.

Cylindrical battery shipments are also anticipated to rise, by more than 10% QoQ.

The small- to mid-sized rechargeable battery market should pick up further from

3Q, given the scheduled releases of MicrosoftÊs Windows 8, IntelÊs Ivy Bridge

chipset, second-generation ultrabooks, and AppleÊs new Macbook and iPad Mini.

Smartphone demand should rise steadily thanks to the robust sale of SECÊs Galaxy

S III, and as the mass production of AppleÊs iPhone 5 starts, allowing Samsung

SDI to become the biggest beneficiary of smartphone market growth.

2) Equity-method gains to soar YoY: In 2012, we project Samsung SDIÊs equity-

method gains to surge 42% YoY to W407bn (W499bn from SMD; -W92bn from

SBL), from W287bn (W346bn from SMD; -W59bn from SBL). Although losses are

forecast to expand due to capacity expansion at SBL and the purchase of BoschÊs

stake in SBL, such losses should be offset by far stronger-than-expected earnings

at SMD. As such, Samsung SDIÊs operating profit is anticipated to contract 11%

YoY in 2Q, while pretax profit should surge 36% YoY. Following the merger

between Samsung Display and SMD, equity method gains from Samsung Display

Buy (Maintain)


Share Price (06/22/12, W) 151,500


EPS Growth (12F, %) 71.8


P/E (12F, x) 13.0


KOSPI 1,847.39



Avg Trading Volume (60D, '000) 366



Free Float (%) 74.4

52-Week Low (W) 99,900

52-Week High (W) 177,000





Samsung Electronics et al.(20.67%)

National Pension Service(9.14%)

Korea Investment Trust Management

(8.03%)

Price Performance

(%) 1M 6M 12M

Absolute -3.2 12.2 -6.8

Relative -4.2 12.2 3.7

40

50

60

70

80

90

100

110

120

6/11 10/11 2/12 6/12

Share price

KOSPI



12/10 5,124 287 5.6 356 7,548 610 48 6.5 22.3 1.3 11.8

12/11 5,444 204 3.7 320 6,785 549 -130 5.3 19.7 1.1 11.6

12/12F 5,777 344 6.0 550 11,660 812 244 8.7 13.0 1.1 8.7

12/13F 6,101 491 8.1 719 15,242 937 188 10.8 9.9 1.1 7.6

12/14F 6,372 539 8.5 749 15,866 977 17 10.5 9.6 1.0 7.5

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




will be recognized from 3Q .

3) 2Q Preview: We expect Samsung SDI to report consolidated 2Q revenues of

W1.4tr (up 4.0% QoQ; up 6.1% YoY), and an operating profit of W79bn. Net profit

should surge to W196.8bn (up 19.2% QoQ; up 36.2% YoY) on greater equity-

method gains from SMD. The rechargeable battery unit should continue to post

robust earnings, while the operating results of other businesses will likely flatten

QoQ.



3Q OP consensus is inflated due to gains from SMD stake revaluation

3Q Consensus operating profit forecast (FnGuide) for Samsung SDI is W137.5bn. However, this

number can be misleading, as it includes revaluation gains on its stake in SMD (W1.3tr in total, partially

recognized by Samsung SDI following the merger between SMD and Samsung Display). Excluding

the revaluation gains, consensus operating profit falls to W98bn (vs. our forecast of W112bn).

Table 15. Earnings trends and forecasts (consolidated K-IFRS) (Wbn, %)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F 2011 2012F 2013F

Shipments (mn units)

CRT 3.0 2.8 3.0 2.9 2.7 2.5 2.7 2.6 11.7 10.6 8.6

PDP 1.6 1.6 1.7 1.8 1.7 1.7 1.8 1.7 6.8 6.9 6.6

Rechargeable batteries 216 275 283 240 254 293 336 329 1,014 1,213 1,683

ASP (US$)

CRT 28 27 28 27 26 26 26 26 27 26 24

PDP 285 296 292 295 275 271 267 263 292 269 241

Rechargeable batteries 2.4 2.4 2.5 2.5 2.6 2.5 2.5 2.4 2.4 2.5 2.3

Revenues (Wbn) 1,209 1,349 1,448 1,438 1,377 1,431 1,538 1,431 5,444 5,777 6,101

CRT 94 83 90 90 81 72 76 71 357 301 257

PDP 525 527 539 622 520 512 517 460 2,213 2,009 1,912

Rechargeable batteries 570 718 768 688 743 811 901 849 2,745 3,304 3,699

Others/PV 20 21 51 38 32 37 44 51 129 163 233

Operating profit (Wbn) 60 89 43 11 67 79 112 86 204 344 491

CRT 1 1 1 0 1 1 1 1 4 3 3

PDP -4 5 1 7 0 0 11 7 9 18 31

Rechargeable batteries 58 83 76 44 68 93 116 93 261 370 458 Others/PV -30 -28 -2 -15 -15 -15 -58 -47 0

OP margin (%) 5.0 6.6 3.0 0.8 4.9 5.5 7.3 6.0 3.7 6.0 8.1

CRT 1.2 1.2 1.5 0.5 1.0 1.0 1.0 1.0 1.1 1.0 1.0

PDP -0.7 1.0 0.1 1.1 0.0 0.1 2.1 1.5 0.4 0.9 1.6

Rechargeable batteries 10.2 11.6 9.9 6.3 9.2 11.5 12.8 11.0 9.5 11.2 12.4

Net prorfit (Wbn) 79 101 100 55 112 148 157 133 320 550 719

Equity-method gains 68 45 90 84 103 118 95 91 287 407 462

Net margin (%) 6.5 7.4 6.9 3.8 8.1 10.4 10.2 9.3 5.9 9.5 11.8

EBITDA (Wbn) 106 160 145 138 192 205 218 196 549 812 937

EBITDA margin (%) 8.7 11.8 10.0 9.6 14.0 14.3 14.2 13.7 10.1 14.0 15.4

Growth (QoQ/YoY)

Shipments (%)

CRT 16.0 -7.9 7.0 -3.7 -5.2 -7.9 7.0 -3.7 -15.4 -10.0 -19.0

PDP -2.3 -0.1 3.4 8.3 -9.1 3.1 4.0 -7.9 4.8 0.3 -3.0

Rechargeable batteries -1.2 27.6 2.8 -15.2 6.0 15.0 15.0 -2.1 27.1 19.6 38.8

ASP (%)

CRT -3.8 -0.6 0.3 -1.9 -2.9 -0.6 0.3 -1.9 -7.5 -5.0 -9.8

PDP 0.8 3.8 -1.3 1.0 -6.9 -1.5 -1.5 -1.5 -3.2 -8.0 -10.4

Rechargeable batteries -0.2 2.2 3.8 0.2 3.1 -2.0 -2.0 -2.0 -1.8 2.6 -7.8

Revenues (%) -2.9 11.6 7.3 -0.7 -4.3 4.0 7.5 -7.0 6.2 6.1 5.6

CRT 10.4 -11.5 7.6 -0.3 -9.1 -11.4 5.9 -7.2 -24.9 -15.7 -14.6

PDP -2.6 0.3 2.3 15.4 -16.4 -1.7 1.0 -11.0 -2.4 -9.2 -4.8

Rechargeable batteries -2.5 26.1 6.9 -10.4 8.0 9.1 11.2 -5.8 20.3 20.4 12.0

Others/PV -45.8 5.0 147.6 -25.8 -16.2 16.2 18.4 17.8 30.6 26.7 42.4

Operating profit (%) 308.9 48.2 -51.6 -74.3 502.2 18.2 42.3 -24.0 -29.0 68.8 42.9

CRT TTB -11.8 30.6 -66.2 81.9 -11.4 5.9 -7.2 790.1 -23.5 -14.6

PDP RIR TTB -88.8 1,070.7 TTR TTB 2,336.8 -38.5 9,417.0 103.7 68.6

Rechargeable batteries 42.3 43.4 -9.2 -42.5 56.5 36.1 24.5 -19.6 -6.0 41.6 23.9

Others/PV RIR RIR RIR RIR RIR RIR RIR RIR TTB

Net profit (%) -3.3 27.8 -0.3 -45.2 103.6 32.7 5.6 -15.2 -10.1 71.7 30.7

Equity-method gains 21.1 -32.8 98.5 -6.9 22.1 14.9 -19.0 -4.8 103.9 41.6 13.6

EBITDA (%) -14.9 51.1 -9.0 -5.3 39.6 6.7 6.5 -10.3 -10.0 47.9 15.5

Note: RIR, TTR and TTB refer to Âremain in redÊ, Âturn to redÊ, and Âturn to blackÊ, respectively / Source: Company data, KDB Daewoo Securities Research



Samsung SDI (006400 KS/Buy/TP: W210,000)


(Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F

Revenues 5,444 5,777 6,101 6,372 Current Assets 2,364 2,977 3,813 3,699

Cost of Sales 4,761 4,954 5,069 5,240 Cash and Cash Equivalents 758 1,378 2,151 1,965

Gross Profit 683 823 1,031 1,132 AR & Other Receivables 844 840 874 913

SG&A Expenses 573 479 540 594 Inventories 584 581 604 631

Operating Profit (Adj) 110 344 491 539 Other Current Assets 150 149 155 162

Operating Profit 204 344 491 539 Non-Current Assets 6,163 6,594 7,235 8,076

Non-Operating Profit 274 402 462 454 Investments in Associates 1,899 2,306 2,768 3,221

Net Financial Income 0 5 10 16 Property, Plant and Equipment 1,827 1,868 2,054 2,444


Pretax Profit 478 746 954 993 Total Assets 8,527 9,571 11,048 11,775

Income Tax 127 163 191 199 Current Liabilities 1,750 1,745 1,785 1,830

Profit from Continuing Operations 351 584 763 794 AP & Other Payables 524 521 542 566


Net Profit 351 584 763 794 Other Current Liabilities 465 463 481 503

Controlling Interests 320 550 719 749 Non-Current Liabilities 463 1,122 2,078 2,257

Non-Controlling Interests 31 33 44 46 Long-Term Financial Liabilities 0 460 1,223 1,223

Total Comprehensive Profit 157 389 569 600 Other Non-Current Liabilities 431 624 809 988

Controlling Interests 125 355 524 553 Total Liabilities 2,213 2,867 3,862 4,087

Non-Controlling Interests 32 35 45 47 Controlling Interests 6,118 6,473 6,910 7,365

EBITDA 549 812 937 977 Capital Stock 241 241 241 241

FCF (Free Cash Flow) -130 244 188 17 Capital Surplus 1,258 1,258 1,258 1,258

EBITDA Margin (%) 10.1 14.1 15.4 15.3 Retained Earnings 3,611 4,161 4,793 5,444

Operating Profit Margin (%) 3.7 6.0 8.1 8.5 Non-Controlling Interests 196 231 276 323

Net Profit Margin (%) 5.9 9.5 11.8 11.8 Stockholders' Equity 6,315 6,704 7,186 7,688


(Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F

Cash Flows from Op Activities 279 659 725 750 P/E (x) 19.7 13.0 9.9 9.6

Net Profit 351 584 763 794 P/CF (x) 8.3 7.0 6.1 6.0

Non-Cash Income and Expense 221 228 174 183 P/B (x) 1.1 1.1 1.1 1.0

Depreciation 417 433 414 410 EV/EBITDA (x) 11.6 8.7 7.6 7.5

Amortization 22 35 32 29 EPS (W) 6,785 11,660 15,242 15,866

Others -94 1 10 16 CFPS (W) 16,083 21,574 24,690 25,164

Chg in Working Capital -275 10 -21 -29 BPS (W) 126,713 134,473 143,923 153,707

Chg in AR & Other Receivables -72 4 -34 -39 DPS (W) 1,500 2,000 2,250 0

Chg in Inventories 0 3 -23 -27 Payout ratio (%) 21.0 15.8 13.6 0.0

Chg in AP & Other Payables -51 -3 21 24 Dividend Yield (%) 1.1 1.3 1.5 0.0

Income Tax Paid -18 -163 -191 -199 Revenue Growth (%) 6.2 6.1 5.6 4.5

Cash Flows from Inv Activities -840 -494 -623 -829 EBITDA Growth (%) -10.0 47.9 15.5 4.3

Chg in PP&E -407 -474 -600 -800 Operating Profit Growth (%) -29.0 68.8 42.9 9.6

Chg in Intangible Assets -23 -23 -23 -23 EPS Growth (%) -10.1 71.8 30.7 4.1


Others -411 2 0 -6 Inventory Turnover (x) 10.2 9.9 10.3 10.3

Cash Flows from Fin Activities 251 456 671 -107 Accounts Payable Turnover (x) 14.2 15.3 15.8 15.9

Chg in Financial Liabilities 355 400 400 0 ROA (%) 4.3 6.5 7.4 7.0

Chg in Equity 6 0 0 0 ROE (%) 5.3 8.7 10.8 10.5

Dividends Paid -77 0 -87 -98 ROIC (%) 3.3 10.1 14.1 13.9

Others -34 -4 -6 -10 Liability to Equity Ratio (%) 35.0 42.8 53.8 53.2

Increase (Decrease) in Cash -309 620 773 -187 Current Ratio (%) 135.1 170.6 213.7 202.1

Beginning Balance 1,066 758 1,378 2,151 Net Debt to Equity Ratio (%) -0.4 -2.8 -2.7 -0.1

Ending Balance 758 1,378 2,151 1,965 Interest Coverage Ratio (x) 92.2 84.5 57.0




SFA Engineering (056190 KQ)

Poor 1H earnings expected; High expectation for 2H

New orders to rise sharply from 3Q on full-scale OLED investments in 2H

Profitability to continue to improve thanks to higher sales contribution of value-added equipments, including OLED front-end process equipment

To secure stable revenue sources through product diversification

We maintain our Buy call on SFA Engineering with a target price of W70,000. The

companyÊs shares have been range-bound due to a delay in investment at its

customer Samsung Mobile Display (SMD) since the beginning of the year.

However, SFA will likely benefit from a pickup in from OLED investments in 3Q,

as SMD is set to be merged with Samsung Display on July 1. We believe that

expectation of earnings improvement arising from a recovery in order momentum

has not yet been fully priced in. The shares are currently trading at a 2012F P/E of

11.4x and P/B of 2.6x.

1) Increased expectation of front-end process equipment supply: Although Galaxy

S III has been well received in the market, its PenTile-based display leaves

something to be desired. As such, we believe that the need for the production of

RGB-based OLED panels has increased within SEC. SFA has already developed a

donor film evaporator and will likely supply it to the A3 line to which the LITI

technology should be applied.

In addition, SEC is expected to make investments for OLED TV panel production

amid intensifying competition in the OLED TV market. SFA is expected to mass

produce 8G PE-CVD equipments based on its customerÊs positive reviews on a

demonstration equipment. In addition, the development of an encapsulation

equipment is progressing smoothly. As such, the company will likely take a leap

forward as a front-end process equipment maker, going forward.

2) Sales contribution from semiconductor logistics systems: SFA, which started to

supply semiconductor assembly logistics automation systems last year, is

expected to benefit from SECÊs system LSI and NAND investments. Sales of the

semiconductor assembly logistics automation systems are forecast to double YoY

to W70bn in 2012. The company will be able to expand its revenue sources by

bolstering relationship with its customers not only for display equipment but also

semiconductor assembly logistics automation systems.

Buy (Maintain)


Share Price (06/22/12, W) 55,900


EPS Growth (12F, %) -0.7


P/E (12F, x) 11.4


KOSDAQ 485.19






Free Float (%) 51.7

52-Week Low (W) 45,200

52-Week High (W) 67,600





DY Asset et al.(46.8%)

Korea Investment Trust Management (10.01%)

Price Performance

(%) 1M 6M 12M

Absolute -0.9 -7.6 2.8

Relative -1.9 -7.6 13.3

40

60

80

100

120

140

6/11 10/11 2/12 6/12

Share price

KOSDAQ



12/10 632 71 11.1 56 3,138 71 67 22.2 15.6 3.2 9.9

12/11 753 92 12.2 76 4,212 101 86 24.2 14.5 3.3 8.4

12/12F 791 107 13.5 88 4,909 100 75 23.4 11.4 2.6 6.6

12/13F 1,010 129 12.8 105 5,835 135 91 23.4 9.6 2.2 4.3

12/14F 1,092 144 13.2 116 6,475 150 110 22.1 8.6 1.9 3.2

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

interests / Source: Company data, KDB Daewoo Securities Research estimates



3) 2Q Earnings forecasts: In 2Q, SFA is forecast to report revenues of W96.4bn

(down 3.9% QoQ, down 53.9% YoY) and operating profit of W19.6bn (down

47.1% QoQ, down 61.5 YoY) under non-consolidated K-IFRS. Stripping away gains

on the sale of a plant in Changwon in 1Q (W8.5bn), profitability will likely remain

flat QoQ.

New orders are forecast to rise by 11% QoQ to W125.6bn in 2Q. In 2H, quarterly

new orders are projected at as high as W300bn on a marked pickup in OLED

investments, leading to a sharp rise in earnings. Improvement in profitability

arising from higher sales contribution of valued-added equipment will continue, in

our view.



Table 16. Earnings trend and forecast (non-consolidated K-IFRS) (Wbn, %)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F 2011 2012F 2013F

New orders 114 224 112 323 113 126 292 304 773 835 1,034

Revenues 134 209 152 258 100 96 274 320 753 790 1,010

Process & Precision 24 31 32 49 17 15 54 67 136 153 248

Material handling

systems 110 179 120 209 83 81 220 253 617 637 762

Proportion of revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Process & Precision 18.0 14.6 21.3 19.0 17.0 15.8 19.8 20.8 18.1 19.4 24.6

Material handling

systems 82.0 85.4 78.7 81.0 83.0 84.2 80.2 79.2 81.9 80.6 75.4

Operating profit 17.3 27.1 14.9 32.7 19.7 10.4 35.3 41.3 92.2 106.8 129.1

OP margin 12.9 13.0 9.8 12.7 19.7 10.8 12.9 12.9 12.2 13.5 12.8

Net profit 14.4 24.7 11.7 24.8 17.2 9.1 28.5 33.3 75.6 88.1 104.8

Net margin 10.7 11.8 7.7 9.6 17.1 9.5 10.4 10.4 10.0 11.1 10.4


Table 17. Earnings forecast revisions (non-consolidated K-IFRS) (Wbn,%,%p)


2011 2012F 2013F 2011 2012F 2013F 2011 2012F 2013F

Revenues 753 819 1,002 773 835 1,034 2.7 2.0 3.3

Operating profit 92 114 127 92 107 129 0.0 -6.5 1.7

Net profit 76 94 103 76 88 105 0.0 -6.2 1.7

EPS 4,212 5,231 5,739 4,212 4,909 5,835 0.0 -6.2 1.7

OP margin 12.2 14.0 12.7 11.9 12.8 12.5 -0.3 -1.2 -0.2

Net margin 10.0 11.5 10.3 9.8 10.6 10.1 -0.3 -0.9 -0.2

Avg. US$/W rate 1,108 1,092 1,092 1,108 1,092 1,092 0.0 0.0 0.0


Figure 46. Quarterly earnings and OP margin trends and forecasts Figure 47. Annual earnings and OP margin trends and forecasts

Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research

0

50

100

150

200

250

300

350

1Q07 1Q08 1Q09 1Q10 1Q11 1Q12

-5

0

5

10

15

20

25

Material handling systems (L)Process & precision (L)OP margin (R)

(Wbn) (%)

2010 K -GA A P (completed-cont ract bas is)2011~12 K -IFRS (percentage of complet ion basis)

0

200

400

600

800

1,000

1,200

2004 2006 2008 2010 2012F

0

4

8

12

16

20Material handling systems (L)

Process & precision (L)

OP margin (R)

(Wbn) (%)

2010 K -G A AP(completed-cont ract bas is)2011~12 K -IFRS(percentage of complet ion basis)



SFA Engineering (056190 KQ/Buy/TP: W70,000)


(Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F

Revenues 753 791 1,010 1,092 Current Assets 400 722 815 925

Cost of Sales 610 632 814 878 Cash and Cash Equivalents 75 302 381 476

Gross Profit 143 159 196 214 AR & Other Receivables 134 166 179 193



Operating Profit 92 107 129 144 Non-Current Assets 159 145 159 176

Non-Operating Profit 4 6 5 5 Investments in Associates 22 0 0 0

Net Financial Income -4 -8 -14 -16 Property, Plant and Equipment 107 110 115 118


Pretax Profit 96 113 134 149 Total Assets 559 867 974 1,101

Income Tax 20 24 30 33 Current Liabilities 194 238 256 276




Controlling Interests 76 88 105 116 Non-Current Liabilities 20 220 233 256

Non-Controlling Interests 0 0 0 0 Long-Term Financial Liabilities 0 192 192 192


Controlling Interests 74 87 103 115 Total Liabilities 214 458 488 533

Non-Controlling Interests 0 0 0 0 Controlling Interests 345 409 486 568


FCF (Free Cash Flow) 86 75 91 110 Capital Surplus 20 20 20 20

EBITDA Margin (%) 13.4 12.7 13.3 13.8 Retained Earnings 332 398 476 561


Net Profit Margin (%) 10.0 11.2 10.4 10.6 Stockholders' Equity 345 409 486 568


(Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F


Net Profit 76 88 105 116 P/CF (x) 13.4 10.7 9.1 8.2




Others -22 7 -9 -11 CFPS (W) 4,566 5,228 6,140 6,836

Chg in Working Capital -1 -9 6 12 BPS (W) 18,654 21,665 25,375 29,430

Chg in AR & Other Receivables 46 -31 -12 -14 DPS (W) 1,280 1,500 1,800 0


Chg in AP & Other Payables -9 25 10 11 Dividend Yield (%) 2.1 2.7 3.2 0.0


Cash Flows from Inv Activities -90 -39 -5 -3 EBITDA Growth (%) 42.4 -0.6 34.0 11.7

Chg in PP&E -24 -8 -10 -10 Operating Profit Growth (%) 30.8 15.9 20.8 11.4

Chg in Intangible Assets -9 -10 -10 -10 EPS Growth (%) 34.2 16.5 18.9 11.0

Chg in Financial Assets -60 -63 0 0 Accounts Receivable Turnover (x) 4.8 5.3 5.9 5.9

Others 3 42 15 17 Inventory Turnover (x) 117.5 100.0 111.4 111.7



Chg in Equity 0 0 0 0 ROE (%) 24.2 23.4 23.4 22.1

Dividends Paid -9 -23 -27 -32 ROIC (%) 105.8 121.0 153.1 157.0

Others 0 0 0 0 Liability to Equity Ratio (%) 62.1 112.0 100.6 93.7

Increase (Decrease) in Cash 7 227 79 94 Current Ratio (%) 206.1 303.1 318.4 334.5

Beginning Balance 68 75 302 381 Net Debt to Equity Ratio (%) -71.5 -84.8 -87.7 -91.5

Ending Balance 75 302 381 476 Interest Coverage Ratio (x) 4,561.0




Silicon Works (108320 KQ)

Earnings befitting the largest fabless company in Korea

Earnings to improve on the full-scale supply of new iPad parts

LGD’s acquisition of stake in Silicon Works to increase likelihood of OLED TV parts supply

Historic-high earnings likely in 2Q, with revenues of W101bn and an OP of W11bn

We maintain our Buy call on Silicon Works with a target price of W40,000. Shares

of Silicon Works have recently rebounded sharply on 1) the normalization of LG

DisplayÊs (LGD) new iPad-use panel production and 2) LGDÊs acquisition of a stake

in the company. Going forward, the companyÊs product portfolio is anticipated to

be diversified on the back of higher sales contribution of non-display products. The

shares are trading at a 2012F P/E of 10.3x and P/B of 1.8x.

1) Materializing new iPad effect: With the normalization of new iPad panel

production at LGD in April, Silicon Works is expected to benefit full swing from

new iPad parts shipments from 2Q. Given that a transfer of new iPad parts

production to a tablet-PC-only line is progressing smoothly, the company will be

able to supply a monthly average of 2mn units of new iPad parts in 2Q, in our view.

New iPad-use parts, the ASP of which is 60% higher than that of iPad 2-use parts,

will likely boost the companyÊs earnings and profitability. In addition, since Apple is

expected to expand the adoption of Retina Display in its laptops starting with its

Macbook Pro, profits from Macbook-use parts will likely continue to pick up.

2) Bolstering partnership with LGD: LGD acquired a 13% stake in Silicon Works

from Comment Network on June 7, becoming the second largest shareholder.

This has raised concerns that the expansion of sales to SEC will be limited.

However, given that Silicon Works mainly supplies low-margin COF driver-IC to

SEC, we believe that LGDÊs acquisition of a stake in the company will do more

good than harm. In particular, Silicon Works will likely be able to enhance alliance

with LGD in its TV-use T-Con and driver-IC businesses, increasing the likelihood

that the company will supply OLED TV-use driver-IC (already supplied for a

prototype model) and T-Con (currently under development).

3) 2Q Earnings forecast: We forecast the company to deliver historic-high results

in 2Q, with revenues of W101.1bn (up 18% QoQ; up 31% YoY) and an operating

profit of W10.9bn (up 40% QoQ; up 146% YoY). OP margin is expected to

improve to 10.8% on full-scale shipments of new iPad parts. In 2H, the company

is anticipated to supply new products, including OLED TV-use parts and LED

driver-IC and flyback converter for lighting, diversifying its revenue sources.

Buy (Maintain)


Share Price (06/22/12, W) 28,200




P/E (12F, x) 10.3


KOSDAQ 485.19

Market Cap (Wbn) 459





Free Float (%) 72.8

52-Week Low (W) 13,850

52-Week High (W) 36,550





Comet Network et al.(23.26%)

LG Display(13%)

TMK(8.22%)

Price Performance

(%) 1M 6M 12M

Absolute 13.5 -12.0 10.8

Relative 12.5 -12.0 21.3

40

60

80

100

120

140

6/11 10/11 2/12 6/12

Share price

KOSDAQ



12/10 257 37 14.4 40 2,656 38 18 27.3 12.6 2.7 9.8

12/11 301 25 8.4 33 2,047 27 23 15.7 15.2 2.3 12.3

12/12F 405 42 10.4 44 2,731 44 35 18.3 10.3 1.8 5.8

12/13F 465 54 11.5 55 3,364 55 47 19.0 8.4 1.5 4.0

12/14F 527 63 11.9 63 3,894 64 55 18.9 7.2 1.3 2.8





Table 18. Earnings trends and forecasts (non-consolidated K-IFRS) (Wbn,%)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F 2011 2012F 2013F

Revenues 67 77 80 77 86 101 121 97 301 405 465

COF D-IC 15 15 11 18 23 26 31 26 60 106 113

COG D-IC 26 32 38 30 37 47 59 45 126 188 214

T-Con 15 18 20 17 14 15 18 15 70 62 71

PMIC 5 7 7 7 7 7 8 7 26 29 41

Others 5 5 5 5 5 5 5 5 19 21 26

Proportion of revenues 100 100 100 100 100 100 100 100 100 100 100

COF D-IC 23 20 14 24 27 26 26 26 20 26 24

COG D-IC 39 41 47 39 43 47 49 46 42 46 46

T-Con 23 23 25 22 17 15 15 15 23 15 15

PMIC 7 10 9 9 8 7 7 7 9 7 9

Others 8 6 6 6 6 5 4 5 6 5 6


OP margin 10.6 5.7 6.5 11.4 9.1 10.8 11.2 10.4 8.4 10.4 11.5

Net profit 8.5 5.3 8.6 11.0 9.2 10.9 15.0 9.2 33.2 44.4 54.7

Net margin 12.7 6.8 10.8 14.2 10.8 10.8 12.4 9.5 11.0 11.0 11.8




Figure 50. P/E band Figure 51. P/B band


0

100

200

300

400

500

2009 2010 2011 2012F 2013F

0

5

10

15

20

COF D-IC (L) COG D-IC (L)T-Con (L) PMIC (L)

Others (L) OP margin (R)

(Wbn) (%)

0

20

40

60

80

100

120

140

1Q09 1Q10 1Q11 1Q12

0

5

10

15

20

25

COF D-IC (L) COG D-IC (L)T-Con (L) PMIC (L)Others (L) OP margin (R)

(Wbn) (%)

Record-high revenuesexpected in 2Q

100

300

500

700

900

7/10 1/11 7/11 1/12 7/12 1/13 7/13

(Mkt cap, Wbn) 19.0x

10.0x

16.0x

13.0x

7.0x

7/12F 1/13F 7/13F

100

300

500

700

900

7/10 1/11 7/11 1/12 7/12 1/13 7/13

(Mkt cap, Wbn) 3.0x

1.5x

2.5x

2.0x

1.0x

7/12F 1/13F 7/13F



Silicon Works (108320 KQ/Buy/TP: W40,000)


(Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F

Revenues 301 405 465 527 Current Assets 236 284 330 384






Non-Operating Profit 8 6 6 6 Investments in Associates 0 0 0 0

Net Financial Income -6 -7 -8 -9 Property, Plant and Equipment 14 13 12 11


Pretax Profit 33 48 60 69 Total Assets 269 326 383 446
















(Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F


Net Profit 33 44 55 63 P/CF (x) 14.4 10.0 8.2 7.1

Non-Cash Income and Expense 3 -1 0 1 P/B (x) 2.3 1.8 1.5 1.3



Others -7 -1 -2 -3 CFPS (W) 2,170 2,818 3,447 3,972

Chg in Working Capital -5 -4 -3 -3 BPS (W) 13,414 16,120 18,883 21,983

Chg in AR & Other Receivables 1 -8 -6 -6 DPS (W) 400 600 800 0


Chg in AP & Other Payables 4 11 8 8 Dividend Yield (%) 1.3 2.1 2.8 0.0


Cash Flows from Inv Activities 1 -4 -3 -1 EBITDA Growth (%) -28.7 60.3 25.5 17.0

Chg in PP&E -3 0 0 0 Operating Profit Growth (%) -31.5 66.3 26.5 17.5

Chg in Intangible Assets -1 -1 -1 -1 EPS Growth (%) -22.9 33.4 23.2 15.8


Others -2 -3 -2 -1 Inventory Turnover (x) 13.4 12.6 12.1 12.0



Chg in Equity -11 0 0 0 ROE (%) 15.7 18.3 19.0 18.9

Dividends Paid -10 0 -9 -13 ROIC (%) 76.7 109.1 126.9 140.1

Others 0 0 0 0 Liability to Equity Ratio (%) 21.5 23.0 23.3 23.6

Increase (Decrease) in Cash 11 32 35 42 Current Ratio (%) 504.8 483.7 490.4 503.1

Beginning Balance 105 115 147 182 Net Debt to Equity Ratio (%) -78.2 -77.2 -77.3 -78.0

Ending Balance 115 147 182 224 Interest Coverage Ratio (x) 45,313.4




MNtech (095500 KQ)

Faster-than-expected earnings improvement

Prism and micro lens film demand is expanding on customers’ aggressive cost cuts

Expanding sales of high-margin micro lens films are improving product mix

Earnings contribution of new businesses, including window and retroreflective films, is expected to increase steadily

We reiterate our Buy call on MNtech with a target price of W10,000. The company

is expected to maintain meaningful earnings growth for three straight quarters in

2Q12 on the back of the market recovery and product mix improvement. However,

we believe that these improvements have not yet been reflected into the

companyÊs shares, which remain deeply undervalued (trading at a 2012 P/E of 7.8x

and a P/B of 0.9x).

1) Steady growth in prism and micro lens film demand: We anticipate demand for

relatively low-priced prism and micro lens films to grow steadily, in light of: 1) LED

TV makersÊ aggressive cost cuts (due to margin deterioration), 2) increased

adoption of 2-chip LED packages (amid LED chip price drops), and 3) the improved

luminance of prism and micro lens films (thanks to aperture ratio improvement). In

addition, high-margin micro lens films are replacing prism films, which should

improve the companyÊs product mix.

2) Increasing revenue contribution of new businesses: Revenues from MNtechÊs

long-prepared new businesses are expanding steadily this year. Window film sales

are growing in the Middle East, Southeast Asia, and China, and the sales of

retroreflective films used for traffic signs are anticipated to increase as well. The

company is expected to expand its market share in a W2tr global retroreflective

film market that is currently dominated by 3M. In addition, touch screen sensors

for all-in-one PCs are also projected to generate sales starting end-2012.

3) 2Q Earnings outlook: In 2Q12, MNtech is projected to record revenues of

W72.3bn (up 10% QoQ; up 22% YoY) and operating profit of W7.9bn (up 14%

QoQ; up 63% YoY) on a non-consolidated K-IFRS basis. The company is expected

to maintain a double-digit OP margin for two consecutive quarters, despite

continued price cut pressures from customers, thanks to product mix

improvement and raw material price declines. In addition, won depreciation should

also boost the companyÊs earnings. The earnings uptrend is forecast to continue

through 2H on the back of strong seasonality from 3Q.

Buy (Maintain)


Share Price (06/22/12, W) 6,580




P/E (12F, x) 7.8


KOSDAQ 485.19

Market Cap (Wbn) 153





Free Float (%) 72.2

52-Week Low (W) 4,165

52-Week High (W) 7,910





Cheol-young, Kim et al.(25.53%)

Chang Wah Electromaterials(5.06%)

Price Performance

(%) 1M 6M 12M

Absolute 15.6 19.0 4.4

Relative 14.6 19.0 14.9

40

60

80

100

120

140

6/11 10/11 2/12 6/12

Share price

KOSDAQ



12/10 279 31 11.0 24 1,058 27 -24 15.0 8.6 1.3 8.1

12/11 258 15 5.8 10 428 24 10 6.0 12.7 0.8 5.5

12/12F 285 26 9.2 20 843 37 9 11.1 7.8 0.9 4.1

12/13F 302 27 8.9 24 986 46 13 11.7 6.7 0.8 3.5

12/14F 315 28 8.9 25 1,016 49 16 10.9 6.5 0.7 3.4





Table 19. Earnings trends and forecast (non-consolidated K-IFRS) (Wbn,%)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F 2011 2012F 2013F

Avg. US$/W rate 1,120 1,083 1,085 1,145 1,125 1,095 1,080 1,060 1,108 1,090 1,090

Shipment area (Km2) 8,768 8,869 9,725 9,797 10,088 11,959 12,892 12,506 37,159 47,445 51,662

ASP (USD/ m2) 6.1 6.3 6.4 6.5 5.8 5.6 5.4 5.3 5.5 4.9 4.6

Revenues 69.2 59.2 61.4 67.7 65.6 72.3 75.5 71.4 257.5 284.9 301.7

Optical film 56.9 53.6 57.4 59.7 57.2 65.2 68.3 63.7 227.6 254.5 258.7

Micro lens 27.0 25.9 27.4 28.5 27.5 30.1 31.2 31.2 108.8 120.1 122.6

Prism 29.9 27.8 30.0 31.1 29.7 35.1 37.1 32.5 118.8 134.4 136.2

New businesses 0.2 0.3 0.3 1.5 1.5 1.5 1.5 1.5 2.3 6.0 17.0


OP margin 5.1 5.1 5.0 7.6 10.6 10.9 9.5 5.8 5.8 9.2 8.9

Net profit 1.5 2.2 6.2 0.5 4.2 6.6 6.0 3.6 10.4 20.4 23.9

Net margin 2.1 3.7 10.0 0.8 6.4 9.1 8.0 5.0 4.0 7.2 7.9


Table 20. Earnings forecast revisions (non-consolidated K-IFRS) (Wbn, %, %p)


2011 2012F 2013F 2011 2012F 2013F 2011 2012F 2013F

Revenues 257 279 296 257 285 302 0.0 2.0 1.8

Operating profit 15 24 26 15 26 27 0.0 9.8 3.8

Net profit 10 19 22 10 20 24 0.0 10.1 8.6

EPS 428 765 908 428 843 986 0.0 10.1 8.6

OP margin 5.8 8.5 8.7 5.8 9.2 8.9 0.0 0.7 0.2

Net margin 4.0 6.6 7.4 4.0 7.2 7.9 0.0 0.5 0.5

Avg. US$/W rate 1,108 1,090 1,090 1,108 1,090 1,090 0.0 0.0 0.0




0

20

40

60

80

100

1Q08 1Q09 1Q10 1Q11 1Q12

0

5

10

15

20Prism (L) Micro lens (L)

New businesses (L) Others (L)

OP margin (R)

(Wbn) (%)

0

50

100

150

200

250

300

350

2008 2009 2010 2011 2012F 2013F 2014F

0

5

10

15

Prism (L) Micro lens (L) New businesses (L)

Others (L) OP margin (R)

(Wbn) (%)



MNtech (095500 KQ/Buy/TP: W10,000)


(Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F







Non-Operating Profit -1 0 2 2 Investments in Associates 31 10 10 10

Net Financial Income 2 2 1 1 Property, Plant and Equipment 74 81 87 92


Pretax Profit 14 26 29 30 Total Assets 271 274 298 322
















(Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F


Net Profit 14 22 24 25 P/CF (x) 6.0 4.9 3.7 3.5



Amortization 0 0 0 0 EPS (W) 428 843 986 1,016

Others -9 2 3 3 CFPS (W) 916 1,334 1,787 1,870

Chg in Working Capital -1 -15 -3 -3 BPS (W) 7,011 7,726 8,643 9,589

Chg in AR & Other Receivables -7 -3 -3 -2 DPS (W) 60 0 0 0

Chg in Inventories 10 -1 -1 -1 Payout ratio (%) 13.7 0.0 0.0 0.0

Chg in AP & Other Payables -2 -5 1 1 Dividend Yield (%) 1.1 0.0 0.0 0.0

Income Tax Paid -1 -6 -5 -5 Revenue Growth (%) -7.6 10.6 5.9 4.3

Cash Flows from Inv Activities -36 -16 -45 -45 EBITDA Growth (%) -10.2 53.0 26.2 5.1

Chg in PP&E -20 -19 -25 -25 Operating Profit Growth (%) -51.4 76.4 2.4 4.0

Chg in Intangible Assets -1 0 0 0 EPS Growth (%) -59.5 96.7 17.1 3.0

Chg in Financial Assets -14 1 0 0 Accounts Receivable Turnover (x) 5.9 5.8 5.8 5.8

Others -1 2 -20 -20 Inventory Turnover (x) 9.4 13.8 13.8 13.7

Cash Flows from Fin Activities -10 -9 -2 -2 Accounts Payable Turnover (x) 13.8 15.2 15.2 15.1

Chg in Financial Liabilities -5 -6 0 0 ROA (%) 3.8 7.5 8.3 7.9

Chg in Equity 0 0 0 0 ROE (%) 6.0 11.1 11.7 10.9

Dividends Paid -2 -1 0 0 ROIC (%) 6.5 13.8 14.8 14.6


Increase (Decrease) in Cash -11 -9 -10 -7 Current Ratio (%) 187.5 224.7 211.5 202.6

Beginning Balance 71 60 51 41 Net Debt to Equity Ratio (%) 2.1 -2.1 2.6 5.3

Ending Balance 60 51 41 34 Interest Coverage Ratio (x) 4.2 8.6 11.4 11.8




DMS (068790 KQ)

Fundamentals are improving

Received robust orders despite unfavorable market environment in 2Q

Restructuring efforts to improve profitability

Earnings to increase in 2H on investments in OLED and Chinese LCD operations

We maintain our Trading Buy rating on DMS, but lower our target price by 19% to

W5,700. We revised down our earnings forecasts in light of a decline in new

orders and one-off expenses for restructuring. However, we believe that the

companyÊs performance will improve going forward as orders are growing and the

company has completed restructuring. In addition, robust orders despite the

unfavorable market environment in 1H and investments in OLED and Chinese LCD

operations in 2H are anticipated to boost earnings steadily.

1) Steady improvement in business environment: DMS had received orders worth

W52bn, including LOIs, until May. The amount of orders is considered robust,

given the market environment had deteriorated on a plunge in investments by

customers. In addition, the company has received orders for three dry etchers, for

which supplies were uncertain due to delayed development, since end-2011,

raising expectations for additional orders in 2H.

In 2H, DMS plans to resume investments in the OLED business and LCD plants in

China. The company received 5.5G LCD equipment orders worth W21bn from

ChinaÊs Tinama in 1H. As the companyÊs experience is proven in the Chinese

market, orders are expected to increase further in 2H.

2) Restructuring: In an effort to reduce costs, DMS scaled down its workforce in

2Q. In addition, the company is disposing of investment assets that are not closely

related to its businesses. As the company plans to continue its cost control efforts,

profitability is expected to improve going forward.

3) 2Q Earnings outlook: We project DMS will record revenues of W35bn (up 132%

QoQ; down 51% YoY) and operating loss of W800mn (remain in red QoQ; swing

to red YoY) in 2Q12. However, the amount of losses is expected to decline sharply

QoQ in 2Q as orders are growing and most losses related to invested assets and

account receivables were recorded in 1Q. New orders are forecast to improve

sharply QoQ from W19.3bn to W50.6bn in 2Q. We believe DMSÊ earnings will

swing to positive territory in 3Q on the back of solid order increases and cost

control efforts.

Trading Buy (Maintain)


Share Price (06/22/12, W) 3,310


EPS Growth (12F, %) RR


P/E (12F, x) -


KOSDAQ 485.19

Market Cap (Wbn) 66





Free Float (%) 75.0

52-Week Low (W) 2,815

52-Week High (W) 7,640





Yong-seok, Park et al.(24.89%)

Price Performance

(%) 1M 6M 12M

Absolute 5.6 -32.6 -48.6

Relative 4.6 -32.6 -38.1

40

60

80

100

120

140

6/11 10/11 2/12 6/12

Share price

KOSDAQ



12/10 263 21 8.2 10 516 37 -12 7.4 20.3 1.5 7.0

12/11 227 20 9.0 5 234 27 -90 2.9 23.6 0.8 9.5

12/12F 160 -2 -1.5 -12 -603 12 4 -7.7 - 0.6 18.6

12/13F 221 20 9.1 10 523 31 25 6.7 6.3 0.6 6.5

12/14F 246 28 11.3 11 542 42 8 6.5 6.1 0.6 4.8





Table 21. Earnings trends and forecasts (non-consolidated K-IFRS) (Wbn,%)

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12F 3Q12F 4Q12F 2011 2012F 2013F

New orders 22 87 6 14 19 51 74 46 129 189 224

Revenues 75 72 46 35 15 35 65 45 227 160 221

HDC (High Density Cleaner) 26 26 15 12 5 12 22 16 79 55 72

Wet Stripper/Etcher 37 33 17 12 4 12 24 18 100 59 89

Semiconductor Dry Etcher 0 0 0 0 2 5 8 3 0 18 23

Coater/Developer/Others 12 13 14 10 4 7 10 7 48 29 37

Proportion of revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

HDC (High Density Cleaner) 34.9 36.2 32.1 36.0 30.1 32.8 34.4 36.7 34.9 34.3 32.5

Wet Stripper/Etcher 49.4 45.8 37.9 35.7 29.2 35.3 37.5 39.4 43.9 36.8 40.1

Semiconductor Dry Etcher 0.0 0.0 0.0 0.0 12.2 13.2 12.2 7.4 0.0 11.1 10.6

Coater/Developer/Others 15.7 18.0 30.0 28.3 28.5 18.6 15.9 16.6 21.2 17.9 16.9

Operating profit 12 9 1 -2 -16 -1 10 4 20 -2 20

OP margin 15.8 12.6 3.2 -5.5 -105.3 -2.4 15.2 10.0 9.0 -1.5 9.1

Net profit 1 5 3 -5 -15 -5 6 2 5 -12 10

Net margin 1.0 7.6 6.8 -13.5 -98.3 -15.0 9.6 4.2 2.0 -6.3 4.7


Table 22. Earnings forecast revisions (non-consolidated K-IFRS) (Wbn, %, %p)


2011 2012F 2013F 2011 2012F 2013F 2011 2012F 2013F

Revenues 227 164 194 227 160 221 0.0 -2.2 13.8

Operating profit 20 17 24 20 (2) 20 0.0 적전 -16.9

Net profit 5 13 15 5 (12) 10 0.0 적전 -31.9

EPS 234 644 768 234 (603) 523 0.0 적전 -31.9

OP margin 9.0 10.7 12.5 9.0 -1.5 9.1 0.0 -12.2 -3.4

Net margin 2.0 7.8 7.9 2.0 -7.5 4.7 0.0 -15.3 -3.2

Avg. US$/W rate 1,108 1,108 1,108 1,108 1,092 1,092 0.0 -1.4 -1.4




0

50

100

150

200

250

300

2008 2009 2010 2011 2012F 2013F 2014F

-5

0

5

10

15

20

25

30

HDC (High Density Cleaner) Wet Stripper/EtcherSemiconductor Dry Etcher Coater/Developer/Others

OPM

(Wbn) (%)

0

20

40

60

80

100

1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13F

-20

-10

0

10

20

30

40

HDC (High Density Cleaner) Wet Stripper/Etcher

Semiconductor Dry Etcher Coater/Developer/Others

OPM

(Wbn) (%)



DMS (068790 KQ/Trading Buy/TP: W5,700)


(Wbn) 12/11 12/12F 12/13F 12/14F (Wbn) 12/11 12/12F 12/13F 12/14F






Operating Profit 20 -2 20 28 Non-Current Assets 187 203 214 221

Non-Operating Profit -15 -14 -8 -15 Investments in Associates 13 13 13 13

Net Financial Income 12 10 11 10 Property, Plant and Equipment 76 75 74 73


Pretax Profit 5 -16 12 13 Total Assets 379 368 390 413

Income Tax 1 -4 2 2 Current Liabilities 152 152 165 172

Profit from Continuing Operations 5 -12 10 11 AP & Other Payables 18 23 30 33


Net Profit 5 -12 10 11 Other Current Liabilities 19 25 31 35

Controlling Interests 5 -12 10 11 Non-Current Liabilities 65 67 65 71


Total Comprehensive Profit 4 -12 10 10 Other Non-Current Liabilities 1 4 2 8

Controlling Interests 4 -12 10 10 Total Liabilities 217 219 230 243



FCF (Free Cash Flow) -90 4 25 8 Capital Surplus 44 44 44 44


Operating Profit Margin (%) 9.0 -1.5 9.1 11.3 Non-Controlling Interests 0 0 0 0

Net Profit Margin (%) 2.1 -7.5 4.7 4.4 Stockholders' Equity 162 150 160 170


(Wbn) 12/11 12/12F 12/13F 12/14F 12/11 12/12F 12/13F 12/14F

Cash Flows from Op Activities -40 21 46 30 P/E (x) 23.6 - 6.3 6.1

Net Profit 5 -12 10 11 P/CF (x) 9.4 -17.6 3.1 2.7



Amortization 5 7 10 13 EPS (W) 234 -603 523 542

Others -11 -6 7 -1 CFPS (W) 587 -188 1,065 1,249

Chg in Working Capital -79 2 17 -10 BPS (W) 6,982 5,752 5,770 5,973

Chg in AR & Other Receivables 16 4 10 -13 DPS (W) 0 0 0 0

Chg in Inventories 3 -3 -3 -2 Payout ratio (%) 0.0 0.0 0.0 0.0

Chg in AP & Other Payables -95 5 7 3 Dividend Yield (%) 0.0 0.0 0.0 0.0

Income Tax Paid 2 -1 -2 -2 Revenue Growth (%) -13.6 -29.5 38.3 11.2

Cash Flows from Inv Activities -24 -22 -18 -17 EBITDA Growth (%) -27.4 -56.3 165.3 35.3

Chg in PP&E -13 -1 0 0 Operating Profit Growth (%) -4.6 TTR TTB 38.0

Chg in Intangible Assets -19 -19 -19 -19 EPS Growth (%) -54.8 TTR TTB 3.6


Others 1 -2 1 2 Inventory Turnover (x) 20.6 15.4 16.5 15.5

Cash Flows from Fin Activities 60 -19 -12 -12 Accounts Payable Turnover (x) 8.4 13.4 14.4 13.5

Chg in Financial Liabilities 80 -11 0 0 ROA (%) 1.2 -3.2 2.7 2.7

Chg in Equity 0 0 0 0 ROE (%) 2.9 -7.7 6.7 6.5

Dividends Paid 0 0 0 0 ROIC (%) 10.1 0.7 8.2 11.1


Increase (Decrease) in Cash -3 -20 16 1 Current Ratio (%) 126.7 109.5 106.4 111.5

Beginning Balance 28 25 5 21 Net Debt to Equity Ratio (%) 87.5 100.6 84.6 78.9

Ending Balance 25 5 21 22 Interest Coverage Ratio (x) 1.5 -0.2 1.7 2.4




Disclosures

As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Samsung SDI and LG Display as an

underlying asset, and other than this, Daewoo Securities has no other special interests in the covered companies.

As of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for the shares of LG Display, and other than this, Daewoo Securities has no other

special interests in the covered companies.

As of the publication date, Daewoo Securities Co., Ltd. has been acting as a financial advisor to SFA Engineering for its treasury stock trust, and other than this, Daewoo

Securities has no other special interests in the companies covered in this report.

As of the publication date, Daewoo Securities Co., Ltd. issued equity-linked warrants with Samsung SDI and LG Display as an underlying asset, and other than this, Daewoo

Securities has no other special interests in the covered companies.

Stock Ratings Industry Ratings

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

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

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

Sell Relative performance of -10%

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

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

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

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

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

Analyst Certification

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

regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions expressed in this publication

about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co., Ltd. policy

prohibits its Analysts and members of their households from owning securities of any company in the AnalystÊs area of coverage, and the Analysts do not serve as an officer,

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

from the subject companies in the past 12 months and have not been promised the same in connection with this report. No part of the compensation of the Analysts was, is,

or will be directly or indirectly related to the specific recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive

compensation that is impacted by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking,

proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of

interest of the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.

Important Disclosures & Disclaimers

LG Display

0

10,000

20,000

30,000

40,000

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60,000

70,000

6/10 12/10 6/11 12/11 6/12

(W) Samsung SDI

0

50,000

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6/10 12/10 6/11 12/11 6/12

(W) SFA Engineering

0

20,000

40,000

60,000

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100,000

6/10 12/10 6/11 12/11 6/12

(W) Silicon Works

0

20,000

40,000

60,000

80,000

100,000

6/10 12/10 6/11 12/11 6/12

(W)

MNtech

0

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6/10 12/10 6/11 12/11 6/12

(W) DMS

0

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20,000

6/10 12/10 6/11 12/11 6/12

(W)



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Chaoyang District, Beijing 100022

China

Tel: 44-20-7982-8016 Tel: 81-3- 3211-5511 Tel: 86-10-6567-9699

Shanghai Representative Office Ho Chi Minh Representative Office

Unit 13, 28th Floor, Hang Seng Bank Tower 1000 Lujiazui Ring Road

Pudong New Area, Shanghai 200120

China

Centec Tower 72-74 Nguyen Thi Minh Khai Street

Ward 6, District 3, Ho Chi Minh City

Vietnam

Tel: 86-21-5013-6392 Tel: 84-8-3910-6000

KDB Daewoo Securities International Network

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