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2014OUTLOOKREPORT
Display
(Neutral)
Key variables for 2014:Supply for LCD, demand for OLED
Jonathan Hwang
+822-768-4140
CONTENTS
2/77
[Summary] Differentiation is essential
[Introduction] Changes in the global IT mega-trend
I.
[LCD] Yet to hit bottom (★☆☆☆☆)
II.
[OLED] Tablet PCs and wearable devices (★★★★☆)
III.
[TSP] Crisis and change offer opportunities (★★★☆☆)
IV
.
[Investment strategy] OLED is still the best answer for differentiation strategy
V.
Top picks
SFA Engineering (056190 KQ/Buy/TP: W65,000)
Iljin
Display (020760 KS/Buy/TP: W26,000)
Silicon Works (108320 KQ/Buy/TP: W31,000)
......................................................................................................................... 3
⁄...............................................................................................4
............................................................................................................. 7
.................................................................................... 29
.............................................................................. 43
..................................................... 52
........................................................................................................................................................ 63
3/77
Investment
preferencefor the display sector: OLED > TSP > LCD
[Summary] Differentiation is essential
Panel makers in China are mounting an all-out expansion plan. Eight 8G LCD lines are expected to be online
in the country by 2015, up from two currently. With the LCD market now maturing, we are unlikely
to see any dramatic growth in demand, meaning competition will only get tougher. Chinese panel makers also have the full support of their countryÊs government, which plans to raise import tariffs on foreign LCD
panels to 8% in 2014 (from 5% currently). Domestic panel suppliers are increasingly losing their edges in costs and product differentiation, which have traditionally been major contributors to their valuation premiums. Unlike the semiconductor industry, in which domestic players enjoy clear cost advantages, the LCD industry is marred by a lack of technological innovation and supply chain commoditization, which have caused margin gaps between panel makers to narrow. Samsung Display (SDC) is the only industry player still enjoying high profits, largely because of its OLED technology. It is becoming more important for display players to endeavor to achieve differentiation.
[LCD] Chinese panel makersÊ
aggressive capacity expansion poses threat 2014 outlook: Supply and demand balance to improve slightly, but not enough to tackle overcapacity; Competition to intensify
Opportunities: 1) Sporting events, including the Winter Olympics and the World Cup, 2) TV replacement demand following the launches of ultra high definition TVs (UHD TV) and AppleÊs iTV, and 3) tablet market growth.
Risks: 1) Increased supply by Chinese manufacturers and 2) continued price cuts aimed at gaining market share
Investment merits:★☆☆☆☆.
Top pick: Silicon Works (108320 KQ/Buy/TP: W31,000)
[OLED] Capex
may slow, but overall direction remains intact 2014 outlook: Capacity ramp-ups to slow; New demand to emerge in 2014 for tablets and wearable devices
Opportunities: 1) Growth of OLED panels used in tablets and 2) the adoption of curved, flexible displays for use in wearable devices
Risks: 1) Stagnant growth of premium smartphones and 2) delays to OLED TV mass production
Investment merits:★★★★☆
Top Pick: SFA Engineering (056190 KQ/Buy/TP: W65,000)
[TSP] Poised to benefit from SECÊs tablet growth 2014 outlook: Once industry consolidation is over, the remaining survivors should reap the rewards; Domestic film-based TSP makers to gain market share.
Opportunities: 1) Growth of Samsung ElectronicsÊ (SEC) tablet shipments (+79% in 2014F), 2) increasing adoption of TSPs in notebooks and monitors, and 3) rising preference for film-based over glass-based technology
Risks: 1) Entries of large corporations and 2) increasing market presence of Chinese players
Investment merits:★★★☆☆
Top pick: Iljin Display (020760 KQ/Buy/TP: W26,000)
LCD (Liquid Crystal Display)
→ Current mainstream flat
panel display technology
OLED (Organic Light
Emitting Diode)
→ Self-emissive next
generation technology
TSP (Touch Screen Panel)
→ Input interface
technology for display
4/77
Korea IT hardware firms
Share performance of global IT firms:→US, China outperformed, while Korea, Taiwan underperformed
US IT hardware firms US IT software and internet services firms
Chinese/Taiwanese IT hardware firms
Source: Bloomberg, KDB Daewoo Securities Research
[Introduction] Changes in the global IT mega-trend
57
2211
-6 -7 -8 -11-23 -28-50
0
50
100
SSC
SK Hyn
ixSam
sung
SDI
SECSam
sung
Techwin
LG Innote
k
LGE
SEMCO
LGD
(%)
262
10879 66
44 41 40
0
100
200
300
Netflix
Groupo
n
Yahoo
Microso
ft
Amazon
(%)
101
18 632
-15 -21 -33 -37 -50-67-100
-50
0
50
100
150
O-Film
BOETCL C
orpora
tion
MediaTek
TPV Techno
logyFoxco
nn
AUO
Innolu
x
HTC
TPK
(%) China
Taiwan
4540
20 179
3
-2 -6
-20-40
-20
0
20
40
60
Infosys
Ingram M
icro
Cisco
Intel
Qualco
mm
Oracle
Apple
IBM
Broadc
om
(%) US corporate spending
5/77
Source: Bloomberg, KDB Daewoo Securities Research
Share performances of growth industries since the beginning of the year
Global investors are taking note of growth industries
Among global IT hardware firms, EV, LED, 3D printing, and solar PV companies have delivered solid share performances this year
Investors are paying attention to industries with high medium- to long-term growth potential
Corporate investment key words: 1) efficiency, 2) energy/environment, and 3) software services
Policy uncertainties, which have weighed on corporate investment, will likely dissipate gradually; Companies hold abundant cash
[Introduction] Changes in the global IT mega-trend
307
8966
48
98
467
321
0
100
200
300
400
500
Tesla Motors Panasonic Cree Stratasys 3D Systems SunPower SolarCity
(%) E V LE D 3D print ing S olar
6/77
Source: KDB Daewoo Securities Research
Shipments and shipment growth of major IT devices in 2013
TV and PC demand slowed; Demand for smartphones
and tablet PCs surged
Smartphone shipments (1.01bn units) to exceed feature phone shipments (850mn units) in 2013
Tablet PC shipments (215mn units) to surpass notebook shipments (179mn units)
IT demand remained robust thanks to rapid demand growth related to mobile devices
Demand growth has slowed over the years for high-end smart devices, including AppleÊs iPhone and iPad, and SECÊs Galaxy S and Galaxy Note series
In 2013, mobile device demand growth was driven by mid-
to low-
end products; Chinese white-box market grew rapidly
[Introduction] Changes in global IT demand in 2013
724
1,013 1,012
850
130
215 201 179148 136
203 202
0
200
400
600
800
1,000
1,200
12 13F 12 13F 12 13F 12 13F 12 13F 12 13F
S mart phone
(mn units)
Feature phone Tablet Notebook Desk-top TV
+40% -16%
+65%-11%
-8%-1%
7/77
Source: KDB Daewoo Securities Research
LCD panel shipment value in 2013FLCD panel shipment area in 2013F
Source: KDB Daewoo Securities Research
Proportion of large-sized panel shipments dropped due to sluggish PC-
and TV-use demand
LCD shipments to rise 6% YoY in terms of area, but fall 5% YoY in terms of value in 2013
Shipment breakdown (in terms of value): TV proportion to fall from 53% in 2012 to 50% in 2013; notebook/monitor proportion to drop from 24% in 2012 to 22%in 2013
Proportion of mobile panel shipments (in terms of value): handset proportion to rise from 14% in 2012 to 18% in 2013
TV-use still takes the lionÊs share of LCD shipments in terms of both area and value
[LCD] 2013
review: Drop in proportion of large panels
TV (69%)
Monitor (13%)
Notebook (8%)
Tablet PC
(3%) Smartphone
(4%)
Other (3%)
14,260m2 (equivalent to 1.4x the geographical area of Korea)
TV (50%)
Monitor
(13%)
Notebook (9%)
Other (7%)
Tablet PC
(7%)
Smartphone
(13%)
US$89.6bn (W95tr)
8/77
Source: KDB Daewoo Securities Research
LCD panel price trendsOP margins at SECÊs CE division and LGEÊs
HE division
Source: WitsView, KDB Daewoo Securities Research
Competition intensified in the TV panel market
TV OP margins at SEC and LG Electronics (LGE) stand at around 2%
LCD panel supply diversification and increased price-cutting pressure: Chinese TV makers increased purchases from local LCD panel makers
Chinese LCD TV sales to fall by 13% YoY in 2H
TV panel prices to decrease by more than 10% YoY on average in 2H; fall in TV panel prices to continue into 1H14
[LCD] 2013
review: Solid in 1H and sluggish in 2H
-4
-2
0
2
4
6
8
10
12
1Q08 1Q09 1Q10 1Q11 1Q12 1Q13
LGE's HE OP margin SEC's CE OP margin
(%)
Panel prices weighed down by decreased TV margins
LED TV margins improved
Slowdown inLCD TV growth
-12
-10
-8
-6
-4
-2
0
2
4Notebook Monitor TV TV (open-cell)
(%)
1Q13 2Q13 3Q13 4Q13F
TV panel price decline acclerates in 3Q4Q prices continue to fall despite utilization pull back
9/77
Source: KDB Daewoo Securities Research
Global LCD panel makersÊ
operating profit trends
Earnings entered a down cycle; Shares have already reflected the sluggishness
Demand for large-sized LCD panels slowed: PC and TV demand dropped
Chinese LCD makersÊ aggressive capacity ramp-ups and high utilization levels exacerbated oversupply
Protracted down cycle: Operating losses continued for more than six quarters during the previous down cycle
Because the LCD industry is entering maturity, the down cycle is likely to last longer than in the past
[LCD] 2013
review:
Industry has entered a down cycle
-1,500
-1,000
-500
0
500
1,000
1,500
1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14F
SDC LGD AUO Innolux
(Wbn)
Losses for six quarters
Beginning of down cycle
10/77
Source: Company data, KDB Daewoo Securities Research
Global LCD panel makersÊ
OP margin trends
OP margin gaps between panel makers are narrowing
The drivers of Korean panel makersÊ valuation premiums·cost competitiveness and product differentiation·are gradually dissipating
OP margin gaps between panel makers are narrowing due to technological stagnation and commoditization in the supply chain
Only SDC has delivered outstanding profitability (2013F OP margin of 14%) thanks to its OLED technology
For LCD panels, BOE is projected to show the highest 2013F OP margin at 10%
Key to earnings differentiation:1) cost leadership and 2) product differentiation
[LCD] 2013
review: Commoditization
-50
-40
-30
-20
-10
0
10
20
30
08 09 10 11 12 13
AUO BOE Innolux LGD SDC(%)
E arnings gaps to narrow;S DC to outperform thanks to OLE D
11/77
Source: KDB Daewoo Securities Research
Quarterly shipments of TVs and TV panels
Utilization cuts to clear inventory appear unavoidable
Heightened inventory risks in 2H13: 1) Excessive TV panel shipments in 1H and 2) end of Chinese governmentÊs subsidies
Panel suppliersÊ utilization increases further added to inventory risks.
Inventory cycle is becoming increasingly important in the LCD panel industry.
Historically, LG DisplayÊs (LGD) stock has risen during restocking cycles and has fallen during destocking
cycles.
[LCD] Supply: Persistent overcapacity
0
10
20
30
40
50
60
70
1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13F
80
90
100
110
120
130Panel (L) Set (L) Panel/set (R)
(mn units) (%)
Peak during previouscycle
Highest panel/set ratiosince 3Q10
12/77
Source: KDB Daewoo Securities Research
Utilization of Taiwanese and Chinese panel makersUtilization of Korean and Japanese panel makers
Source: WitsView, KDB Daewoo Securities Research
Taiwanese and Chinese makers battle over market control
Panel makers are competitively raising utilization, playing a game of chicken
Panel makers seem determined to expand their market position at the expense of profitability
If overcapacity continues, the industry down cycle could last longer than expected
[LCD] Supply: Persistent overcapacity
0
20
40
60
80
100
1/10 7/10 1/11 7/11 1/12 7/12 1/13 7/13
LGD SDC Sharp(%)
0
20
40
60
80
100
1/10 7/10 1/11 7/11 1/12 7/12 1/13 7/13
AUO BOE China Star Innolux(%)
13/77
Source: KDB Daewoo Securities Research
Global LCD panel capacity (based on glass input)
Capacity to grow 3.5% in 2014 Capacity growth (based on area): +4.6% YoY in 2013F vs. +3.5% YoY in 2014F
Domestic panel suppliers: +2.1% YoY for SDC and -1.9% YoY for LGD in 2014F
Chinese panel suppliers: +30.1% YoY for BOE and +12.6% YoY for CSOT in 2014F
Increasing mix of high-end displays, like IPS and high-
resolution panels, is eroding productivity
[LCD] Supply: Medium-
to long-term capacity expansion plans
0
10
20
30
40
50
60
13 14F 15F 13 14F 15F 13 14F 15F 13 14F 15F 13 14F 15F 13 14F 15F
-20
0
20
40
60
804G and previous (L) 5G (L) 6G (L) 7G (L) 8G+ (L) YoY growth (R)
(mn ㎡) (%)
S E C LGD Innolux A UO B O E CS O T
14/77
Source: DisplaySearch, KDB Daewoo Securities Research
ChinaÊs LCD capacityLCD capacity by region
Source: DisplaySearch, KDB Daewoo Securities Research
ChinaÊs aggressive capacity ramp-up plans
Eight 8G lines to be online in China by 2015 (currently two lines).
2014F: BOE B5 (Hefei) and SDC Suzhou in 1Q; LGD Guangzhou in 3Q.
2015F: BOE B8 (Chongqing), CSOT Shenzhen 2, CEC Panda/Sharp.
ChinaÊs LCD capacity to overtake KoreaÊs in 2018.
[LCD] Supply: Medium-
to long-term capacity expansion plans
0
5
10
15
20
25
30
06 07 08 09 10 11 12 13 14F 15F 16F
Korea Taiwan China Japan
(mn m2)
0
2
4
6
8
10
12
14
16
18
06 07 08 09 10 11 12 13 14F 15F 16F
0
20
40
60
80
100
120
BOE (L) CSOT (L)
SDC (L) LGD (L)
Other (L) YoY growth (R)
(mn m2) (%)
15/77
Source: Company materials
[LCD] Supply: Medium-
to long-term capacity expansion plans
BOE has been most aggressive in increasing capacity
16/77
Source: DisplaySearch, KDB Daewoo Securities Research
Global display equipment investment
Equipment investment should recover in 2014, but still fall short of levels during previous cycles
77% of equipment spending in 2014 will go to production facilities in China
Chinese governmentÊs tariff hike on foreign-made panels (5%8%) is spurring capacity expansion within China
A recovery of the equipment market will require greater investments in new technologies (LTPS, OLED, etc.)
Equipment price declines due to the stalled development of LCD technologies are among the main culprits behind the sluggish equipment market.
[LCD] Supply: Medium-
to long-term capacity expansion plans
0
2
4
6
8
10
12
14
16
00 02 04 06 08 10 12 14F
-100
-80
-60
-40
-20
0
20
40
60
80
100
120Display equipment investment (L)
YoY growth (R)
(US$bn) (%)
Display equipment investment will recover next year,but remain low
17/77
Source: KDB Daewoo Securities Research
Global TV shipments and growth
If it werenÊt for China⁄ Global LCD TV shipments were resilient at 90.7mn units (+4% YoY) in 1H13.
But China accounted for 24.9mn units (+29% YoY) thanks to rush purchases ahead of the end of subsidies ⁄
⁄ overshadowing weak demand in developed countries, which contributed only 37.3mn units (-10% YoY) in 1H13.
Regional breakdown of TV shipments
(2013F)
- North America:
37.7mn units
(19%)
- Latin America: 22.85mn units
(11%)
- Europe: 45mn units
(22%)
- China: 50.7mn units
(25%)
- Japan: 5.8mn units
(3%)
- Asia: 25mn units
(13%)
- MENA:
13.78mn units
(7%)
[LCD] Demand: LCD TV growth engine losing steam
0
5
10
15
20
25
30
Japan North America Europe China Asia-Pacific Latin America Middle East andAfrica
-30
-20
-10
0
10
20
30
401H12 (L) 1H13 (L) YoY growth (R)
(mn units) (%)
1H13 global LCD TV shipments: 90.7mn units(+4% YoY)
18/77Source: KDB Daewoo Securities Research
Chinese government's subsidy program
ChinaÊs subsidiesChina ended its energy-efficient subsidy program in May 2013
Potential renewal in January 2014 likely to have smaller impact than previous program
1) Subsidies to be given to manufacturers instead of end-consumers.
2) New program estimated to be around RMB8-10bn, much smaller than previous program (RMB26.5bn)
3) Benefits likely to be applied only to large, high-end TVs due to stricter energy efficiency index (EEI) standards
China has implemented subsidy policies for major household appliances since 2008 to stimulate domestic consumption
[LCD] Demand: LCD TV growth engine losing steam
Rural home appliance subsidy Urban home appliance subsidy Energy-efficiency subsidy
OverviewSubsidies for rural residents and laborerswho purchase home appliances
Subsidies for urban residents in 28 citieswho replace old home appliances with new ones
Subsidies to promote the consumptionof energy-saving home appliances
Pilot period 12/07 11/08 6/09 5/10
Full-scale implementationperiod
12/08 11/12 6/10 2/11 6/12 5/13
Region
Three provinces during pilot period;14 provinces during full-scaleimplementationperiod
Nine provinces during pilot period;Expanded to 28 provinces in June,2009
Nationwide
Subsidy 13% of sales price 10% of sales price
Subsidy capby product(RMB
TV: 455Desktop PC : 390Laptop: 585Handset: 130Air conditioner: 455
TV: 400Desktop PC : 400Air conditioner: 350
TV: 100-400Air conditioner: 180~400
Budget (RMBbn) 66.2 30 26.5Sales volume (mn units) 240 92.48Sales value (RMBbn) 567.49 342
19/77
Source: KDB Daewoo Securities Research
ChinaÊs LCD TV shipmentsJapanÊs LCD TV shipments
Source: WitsView, KDB Daewoo Securities Research
Subsidies do not generate demand, they merely pull in demand
LCD TV sales in developed markets have continued to decline after peaking in 2010
Based on demographic trends, JapanÊs quarterly TV sales should be around 2.5mn unitsdemand was pulled forward in 2010-2011.
ChinaÊs LCD TV growth engine is also running out of steam50.7mn units (+3% YoY) in 2013F.
[LCD] Demand: LCD TV growth engine losing steam
0
1
2
3
4
5
6
7
8
1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13
-100
-50
0
50
100
150LCD TV sales (L) YoY growth (R)
(mn units) (%)
LCD TV demand declinedsignificantly after end of eco-
point program
0
2
4
6
8
10
12
14
16
18
1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13
-50
0
50
100
150LCD TV sales (L) YoY growth (R)
(mn) (%)
End of energysubsidies
First YoY decline
20/77
Source: KDB Daewoo Securities Research
Global LCD TV shipment trend
Lack of catalysts for TV replacement demand
In developed markets, LCD TV consumption sharply increased during 2006-08 (average usage of 5-7 years)
In emerging markets, LCD TV consumption grew full swing during 2009-10
The average TV replacement cycle is 7 years, suggesting a new cycle is imminent in developed marketshowever, there are no catalysts.
CRT LCD (2006), LCDLED (2009), LED? (3D, Smart, UHD, OLED).
Smartphones
have a replacement cycle of 1-2 years, much shorter than the 7-8 years for TVs
Without any new breakthroughs in viewer experience, the TV market is likely to remain weak for a prolonged period
[LCD] Demand: LCD TV growth engine losing steam
0
20
40
60
80
06 07 08 09 10 11 12 13 14F
-20
0
20
40
60
80
100
120
LCD TV shipments (L) YoY growth (R)
Developed markets: Replacement cycle
Emerging markets:Replacement cycle
TV market s tagnat ion cont inues
(mn units) (%)
21/77
Source: Business Insider
NBA Finals TV viewers (Michael Jordan
vs. LeBron
James)TV ratings for the opening game of the World Series
Source: Business Insider
Younger generation is increasingly breaking away from the traditional TV platform
US cable TV subscribers: 45mn (2009)40mn (2013F)
Time Warner Cable saw its subscribers decrease by 310,000 in 3Q alone
Fixed-line internet subscribers are also on the decline (cord-cutting)
[LCD] Demand: Breaking away from the traditional TV platform
9.4
10.9
13.7
9.5
8.0
10.5
9.2
11.9
8.7
5.06.0
8.0
4.63.6
5.84.8
6.37.6
8.9
3.6
4.24.7
0
2
4
6
8
10
12
14
16
18
02 03 04 05 06 07 08 09 10 11 12
Overall ratings Ratings among 18-49 year olds
(%)
24
21
2725 26
29
9
18 1716
0
5
10
15
20
25
30
35
1991 v
s. Lak
ers
1992 v
s. Trail B
lazers
1993 v
s. Sun
s
1996 v
s. Sup
erSonic
s199
7 vs.
Jazz
1998 v
s. Ja
zz
2007 v
s. Spu
rs
2011 v
s. Mave
ricks
2012 v
s. Thun
der
2013 v
s. Spu
rs
(mn)
22/77
Source: KDB Daewoo Securities Research
US media consumption Percentage of population that watches regular broadcast channels
is on the decline
Source: eMarketer, Business Insider
Access to broadcast content via internet-connected devices is increasing
Proportion of the population accessing broadcast content via internet-connected devices (excluding TV) is rising
Percentage watching VODs (time-shifting) and broadcast content via mobile devices (space-shifting) is on the rise
Rising speed of wireless broadband: Download time for a movie 30 min (2G)6 min (3G)1 min (4G LTE)
[LCD] Demand:
Breaking away from the traditional TV platform
0
10
20
30
40
50
TV Online Radio Print Other Mobile
2009 2010 2011 2012 2013
(%)(%)
15.6
19.5 19.8
0
10
20
30
40
50
2011 2012 2013
Watch first-run programming Regularly watch Do not watch
23/77Source: Ministry of Science, ICT and Future Planning, KDB Daewoo
Securities Research
Next-generation broadcast technology road map
Proliferation of UHDTVs
is unlikely until 2016
HDTV: It took seven years to: 1) set standards, 2)transmit pilot broadcasts, and 3) sell HDTVs
Official HDTV broadcasting began in 1998 under Advanced Television Systems Committee (ATSC) standards
UHDTV sales forecasts: 2mn units (1%, 2013F)11mn units (5%, 2014F)
Proliferation of UHDTVs is unlikely to occur until UHD broadcast content is available (2016)
UHDTVs
boast resolution four times higher than that of existing
HDTVs
[LCD] Demand: UHD TV
2013 2014 2015 2016 2017 2018
Broadcast environment analysis
Establishment of pilot studio
Transmission/encoding research
4K
pilot transmissionComparison
of transmission standards
Setting of domesticstandards
4K
pilot broadcasts
Commercialization
Commercial production Of set-top boxes
Terrestrial
4K
pilot broadcasts
4K UHDcommercialization
Cable
4K
pilot broadcasts
4K UHDcommercialization
4K UHD
pilot broadcasts for settingstandards
SatelliteChollian(KA-band)
Olleh
1(KU-band)
8K UHD
pilot broadcasts for setting standards
4K UHD
pilot broadcasts for setting
standards
4K UHD
pilot broadcasts for setting
standards
24/77
Source: KDB Daewoo Securities Research
[LCD] Demand: Apple iTV
Apple iTV (expected to be launched in 2H14) could trigger TV replacement demand; But uncertainties remain high
=
Chasm“A deep separation between visionaries (early adopters, values technology, and performance) and pragmatists (mass majorities, values solution and convenience). Disruptive or discontinuous innovation creates a bandwagon effect in which enough momentum builds, then the product becomes a de facto standard.” — Geoffrey A. Moore, Crossing the Chasm
25/77
Source: KDB Daewoo Securities Research
Tablet PC shipments and M/S of Apple and SECGlobal tablet PC shipments and average display size
Source: WitsView, KDB Daewoo Securities Research
Tablet PCs to expand to the B2B market
Global tablet PC shipment forecasts: 215mn units (+79% YoY) in 2013F297mn units (+38% YoY) in 2014F
It took three years for Android smartphones to catch up with the iPhonetablet PCs to follow a similar trajectory
Tablet PCs to expand from the B2C market to the B2B market, including the public services, education, and healthcare sectors
In terms of shipment area, however, tablet PCs account for only 5-6% of the overall LCD market
[LCD] Demand:
Second growth story for tablet PCs
0
5
10
15
20
25
30
1Q10 1Q11 1Q12 1Q13 1Q14F
0
20
40
60
80
100Apple (L) SEC (L) Apple M/S (R) SEC M/S (R)
(mn units) (%)
0
20
40
60
80
100
1Q10 1Q11 1Q12 1Q13 1Q14F
0
2
4
6
8
10
12Shipments (L) Avg. display size (R)
(mn units) (inches)
iP ad mini ef fect
26/77
Global desktop PC shipments
Entered a long-term low growth phase without sales volume growth
Global tablet PC shipmentsGlobal notebook shipments
Global LCD TV shipments
Source: IDC, DisplaySearch, KDB Daewoo Securities Research
[LCD] Demand
by application
0
50
100
150
200
250
07 08 09 10 11 12 13F 14F 15F
-20
-10
0
10
20
30
40Shipments (L) YoY growth (R)
(mm units) (%)179mn(-11%) 164mn
(-8%)
0
100
200
300
400
07 08 09 10 11 12 13F 14F 15F
0
50
100
150
200
250
300Shipments (L) YoY growth (R)
(mn units) (%)
215mn(+79%)
297mn(+38%)
0
40
80
120
160
200
07 08 09 10 11 12 13F 14F 15F
-20
-10
0
10
20
30Shipments (L) YoY growth (R)
(mn units) (%)
136mn(-8%)
128mn(-6%)
0
40
80
120
160
200
240
07 08 09 10 11 12 13F 14F 15F
-20
0
20
40
60
80Shipments (L) YoY growth (R)(mn units) (%)202mn
(-1%)206mn(+2%)
27/77
Source: KDB Daewoo Securities Research
[LCD] Supply/demand to improve only modestly
(supply +3.5% < demand
+5.5%)
▶ Supply 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13F 1Q14F 2Q14F 3Q14F 4Q14F 2011 2012 2013F 2014F 2015FGlass input capacity (km2) 50,164 52,255 53,966 55,070 54,946 54,904 55,440 55,905 56,092 56,633 57,558 58,649 197,345 211,455 221,194 228,932 243,177
SDC 12,428 12,441 12,356 12,316 12,151 12,026 11,923 11,894 11,876 12,216 12,403 12,518 48,529 49,541 47,993 49,013 50,733LGD 10,968 12,020 12,810 13,005 12,871 12,485 12,469 12,552 12,357 12,107 12,272 12,684 45,308 48,803 50,377 49,421 53,115Innolux 8,279 8,296 8,342 8,406 8,406 8,713 8,907 9,092 9,082 9,082 9,082 9,082 32,162 33,323 35,117 36,326 36,306AUO 7,225 7,330 7,207 7,433 7,475 7,475 7,606 7,606 7,676 7,758 7,758 7,751 28,224 29,195 30,161 30,944 30,911Sharp 3,735 3,769 3,833 3,824 3,819 3,819 3,764 3,762 3,761 3,761 3,862 3,853 14,781 15,161 15,163 15,237 15,412BOE 1,786 2,116 2,693 2,907 2,918 3,026 3,191 3,356 3,672 3,878 4,173 4,533 5,305 9,501 12,491 16,256 20,358CSOT 495 990 1,403 1,865 1,984 1,988 1,990 1,990 1,990 2,155 2,320 2,485 248 4,752 7,952 8,951 11,838Other 5,248 5,294 5,322 5,316 5,323 5,373 5,591 5,653 5,678 5,675 5,688 5,742 22,788 21,180 21,939 22,784 24,505
Panel shipment area (km2) 28,250 31,034 34,497 36,584 31,376 34,183 34,912 36,103 31,752 33,869 37,701 38,705 112,566 130,365 136,574 142,027 151,694Notebook 3,136 3,440 3,548 3,242 2,539 2,909 2,728 2,580 2,411 2,514 2,673 2,749 12,479 13,366 10,756 10,348 10,036Tablet PC 469 711 837 1,347 677 957 1,421 1,582 1,330 1,665 1,894 2,453 1,740 3,364 4,637 7,342 8,405PC monitor 5,568 5,437 5,464 5,649 4,840 5,203 5,051 5,080 5,093 5,191 5,013 5,422 23,180 22,119 20,174 20,718 21,019LCD TV 18,643 20,968 24,085 25,862 22,756 24,542 25,072 26,219 22,335 23,861 27,397 27,388 73,335 89,558 98,590 100,981 109,333Other 433 479 564 483 564 571 641 642 582 639 724 693 1,832 1,959 2,418 2,638 2,901
Capacity conversion ratio (%) 65.9% 69.0% 73.8% 76.4% 65.7% 71.7% 72.6% 74.4% 65.0% 68.5% 74.9% 75.3% 67.8% 71.4% 71.1% 71.0% 71.3%Utilization (%) 76% 78% 83% 82% 80% 88% 90% 85% 79% 83% 91% 91% 76% 80% 86% 86% 88%Yield efficiency (%) 86% 88% 89% 93% 82% 82% 81% 87% 82% 82% 82% 83% 89% 89% 83% 83% 81%
YoY capacity growth (%) 5.7 6.6 7.0 9.1 9.5 5.1 2.7 1.5 2.1 3.1 3.8 4.9 14.6 7.1 4.6 3.5 6.2SDC 6.4 2.9 0.1 -0.8 -2.2 -3.3 -3.5 -3.4 -2.3 1.6 4.0 5.3 17.7 2.1 -3.1 2.1 3.5LGD 2.3 7.7 9.1 11.3 17.4 3.9 -2.7 -3.5 -4.0 -3.0 -1.6 1.1 18.8 7.7 3.2 -1.9 7.5Innolux 8.0 3.8 1.5 1.5 1.5 5.0 6.8 8.2 8.0 4.2 2.0 -0.1 11.7 3.6 5.4 3.4 -0.1AUO 5.6 3.5 0.5 4.2 3.5 2.0 5.5 2.3 2.7 3.8 2.0 1.9 7.1 3.4 3.3 2.6 -0.1Sharp 0.0 0.9 2.6 6.9 2.2 1.3 -1.8 -1.6 -1.5 -1.5 2.6 2.4 -0.2 2.6 0.0 0.5 1.1BOE 86.5 72.2 93.1 68.6 63.4 43.0 18.5 15.5 25.8 28.2 30.8 35.1 146.2 79.1 31.5 30.1 25.2CSOT 653.3 300.8 100.8 41.9 6.7 0.3 8.4 16.6 24.9 0.0 1,820.0 67.3 12.6 32.3Other -5.5 -4.7 -4.8 -2.6 1.4 1.5 5.1 6.3 6.7 5.6 1.7 1.6 20.7 -7.1 3.6 3.8 7.6
▶ Demand
Set units ('000 units) 148,848 153,096 166,366 204,122 170,056 168,774 177,398 215,438 177,686 185,931 196,617 234,912 629,194 672,432 731,666 795,145 836,884Notebook 49,942 48,786 51,802 50,439 42,878 42,514 45,396 48,573 39,265 38,562 41,503 44,757 209,201 200,969 179,361 164,087 158,344Tablet PC 17,100 23,466 26,946 52,445 48,477 46,817 48,879 70,500 61,500 67,000 73,500 95,000 59,736 119,957 214,673 297,000 340,000Desktop PC 38,601 36,592 36,496 36,529 33,880 33,144 34,098 34,876 32,035 32,050 32,078 32,182 154,977 148,218 135,998 128,345 126,420LCD TV 43,205 44,252 51,122 64,709 44,821 46,299 49,025 61,488 44,886 48,318 49,536 62,973 205,279 203,288 201,633 205,713 212,120
Set area (km2) 24,203 25,207 28,916 35,427 26,217 26,975 28,893 35,358 27,115 29,006 30,342 37,421 105,248 113,753 117,443 123,884 132,370Notebook 2,864 2,738 2,939 2,858 2,430 2,407 2,589 2,766 2,236 2,194 2,379 2,561 11,752 11,399 10,191 9,370 9,087Tablet PC 500 686 792 1,545 1,108 1,042 1,077 1,557 1,335 1,446 1,571 2,035 1,741 3,522 4,784 6,388 7,312Desktop PC 4,669 4,407 4,457 4,585 4,245 4,177 4,289 4,509 4,134 4,160 4,156 4,286 18,256 18,119 17,220 16,736 16,980LCD TV 15,776 16,941 20,215 26,000 17,923 18,831 20,355 25,941 18,846 20,635 21,596 27,896 71,834 78,932 83,050 88,973 96,331Other 394 436 512 439 512 519 582 584 564 571 641 642 1,665 1,781 2,198 2,418 2,660
Panel/set ratio (%) 116.7% 123.1% 119.3% 103.3% 119.7% 126.7% 120.8% 102.1% 117.1% 116.8% 124.3% 103.4% 107.0% 114.6% 116.3% 114.6% 114.6%Notebook 112% 121% 122% 123% 105% 116% 102% 103% 109% 110% 108% 110% 106% 117% 106% 110% 110%Tablet PC 79% 96% 72% 102% 63% 90% 108% 109% 96% 110% 105% 140% 100% 96% 97% 115% 115%Desktop PC 123% 123% 121% 128% 115% 123% 115% 118% 123% 125% 119% 123% 127% 122% 117% 124% 124%LCD TV 114% 113% 104% 118% 124% 125% 108% 117% 113% 113% 111% 113% 102% 113% 119% 113% 113%Other 104% 101% 118% 102% 109% 104% 110% 112% 103% 105% 113% 110% 110% 110% 110% 109% 109%
YoY demand area growth (%) 8.4% 7.4% 6.8% 9.4% 8.3% 7.0% -0.1% -0.2% 3.4% 7.5% 5.0% 5.8% 13.2% 8.1% 3.2% 5.5% 6.8%Notebook 7% 2% -7% -12% -15% -12% -12% -3% -8% -9% -8% -7% 4% -3% -11% -8% -3%Tablet PC 126% 74% 66% 139% 122% 52% 36% 1% 21% 39% 46% 31% 254% 102% 36% 34% 14%Desktop PC 9% -1% -7% -3% -9% -5% -4% -2% -3% 0% -3% -5% 2% -1% -5% -3% 1%LCD TV 7% 9% 11% 11% 14% 11% 1% 0% 5% 10% 6% 8% 16% 10% 5% 7% 8%Other 17% -3% 17% 0% 30% 19% 14% 33% 10% 10% 10% 10% 39% 7% 23% 10% 10%
▶ Supply-demand
Oversupply ratio (%)Managed utilization 114% 115% 107% 119% 118% 122% 109% 116% 113% 114% 111% 115% 106% 114% 116% 113% 113%Full utilization 142% 139% 123% 137% 140% 133% 115% 129% 136% 130% 116% 120% 133% 135% 129% 125% 122%
28/77
Source: SECÊs
Analyst Day 2013
Global
LCD supply/demand
Appropriate utilization level is estimated at 88%
Oversupply ratio: Supply capacity/demand (in terms of shipment area) 129% in 2013F 125% in 2014F
Supply/demand conditions to improve YoY, but not enough to resolve oversupply
Utilization for the maintenance of appropriate inventory levels and stable prices is estimated at 88%
if global average utilization exceeds 88%, the likelihood of an increase in inventories and a fall in prices will climb
Normal level: Supply is 10% higher than demand
[LCD] Conclusion: Limited improvement in supply/demand conditions and intense competition in 2014
0
10
20
30
40
50
1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14F
80
90
100
110
120
130
140
150
160Supply (L) Demand (L) Oversupply (R)
(mn m2) (%)
Ove r su p p l y
Sh o r ta g e
Supply/demand ratio assuming100% utilization
29/77
Source: Gartner
OLED production capacityGartnerÊs Hype Cycle for OLED
Source: DisplaySearch, KDB
Daewoo Securities Research
Expectations have been sufficiently lowered
Historically, new technologies have passed through phases of inflated expectations and subsequent disillusionment
Markets for new technologies typically start taking off after escaping the trough of disillusionment
In 2014, companies to focus more on securing new technologies than on capex
[OLED] Reigniting growth engines after disillusionment
0
500
1,000
1,500
2,000
2,500
10 11 12 13 14F 15F
0
50
100
150
200
250
3004G (L) 5.5G (L) 6G (L)
8G (L) YoY growth (R)
(km2) (%)
30/77
Source: SECÊs
Analyst Day 2013
SDCÊs
medium-
to long-term revenue trend
SEC to increasingly use OLED displays in its products
SECÊs smartphone shipment outlook: 310mn units (+34% YoY) in 2013F 380mn units (+23% YoY) in 2014F
OLED penetration: 18% of global smartphones; 55% of SECÊs smartphones
Competition to shift to form factor from resolution applications of flexible OLED to expand
OLED technology has a wide range of applications
[OLED] Reigniting growth engines after disillusionment
SDC to pursue AMOLED-
driven growth
31/77
Source: Company data, KDB
Daewoo Securities Research
LGE G2 Quick Window caseSEC Galaxy S4 S-View case
Source: Company data, KDB
Daewoo Securities Research
Partial activation of display to minimize power consumption
It is impossible to turn on only a portion of an LCD screen, as the entire display needs backlighting
With OLED, only the area that needs to be turned on can be activated, with other areas remaining dark
As each individual pixel directly emits light in an OLED display, electric current does not flow through the inactive area
(LCD displays suffer from light leakage lower contrast ratio than OLED displays)
[OLED] Key strengths: 1) Lower power consumption
OLED: Partial activation of screen possible
reduced power consumption
LCD: Partial activation of screen impossible
no reduction in power consumption
32/77
Source: Company data
LGEÊs
G Flex and SECÊs Galaxy Round SECÊs curved OLED TV (55‰)
Source: Company data
OLED technology can be fabricated on plastic (instead of glass) substrates, facilitating innovative form factor designsbendable, rollable, and foldable displays
Smartphones with flexible OLED displays: 0.2% (2013F) 2% (2015F) 40% (2018F)
With the rise of the wearable device market, flexible OLED technology to gain increasing importance
[OLED] Key strengths: 2) Design
Curved and flexible display
33/77
Source: World Wide Web
Microsoft 3D desktop with a transparent display Transparent display featured in Minority Report
Source: Company data
Transparent displays to have wide applications in various industries
Organic materials: Transparent and light-emitting (backlight units are not necessary)
Applications: Vehicle head-up displays (HUD), wearable devices, furniture and home appliances, advertising, etc.
Transparent display market to grow from US$1bn (2017F) to US$10bn (2022F)
Current transparency is only 60%
oxide TFT, transparent wiring, and high UV-resistant materials are needed
[OLED] Key strengths: 3) Creation of new demand
34/77
Source: SECÊs Analyst Day 2013
SDCÊs
smartphone
segment strategy
OLED panels to be adopted in low-
to mid-end smartphone
models
SDC to shut down its 4G LCD line; small- to medium-sized display lines to be fully dedicated to OLED production
High-end models: Flexible display technology (profitability)
Mid-end models: Economies of scale and cost-cutting (price competitiveness)
Demerits of OLED (relative to LCD):
1) Difficult to make high-resolution displays
2) High price point
3) Short product life
However, technological advances seems to have resolved most of these problems
[OLED] Smartphones
(low-
to mid-end models)
35/77
Source: SECÊs Analyst Day 2013
SDCÊs
tablet PC segment strategy
OLED to significantly boost performance of large-display devices
SECÊs OLED-equipped Galaxy Tab 7.7 failed to take off (high price point, low picture quality, short battery life)
1) Glass substrates and 2) batteries make large-sized tablet PCs thick and heavy
SECÊs premium tablet PC model expected to adopt OLED beginning next year (thickness and weight to decrease by 40-45%)
LTPS and oxide TFT can significantly reduce power consumption smaller battery
Devices with large displays (greater than 7ÊÊ) have been criticized for their bulkiness and weight
AppleÊs iPad
has become thicker and heavier since it adopted Retina
Apple is now more interested in reducing power consumption (with oxide TFT) than in improving picture quality
[OLED] Tablet PCs
36/77
Global tablet PC shipments and % of OLED-equipped devicesGlobal mobile phone shipments and % of OLED-equipped phones
18% of smartphones
and 3% of tablet PCs to adopt OLED by 2015
SEC: 36% of mobile phones (and 50% of smartphones) to use OLED displays
OLED to become a differentiating factor amid fierce competition in the mid-end smartphone segment
In 2014, 3% of SECÊs tablet PCs to be equipped with OLED panels (1.9mn units)
[OLED] Mobile-use demand outlook
Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
0
20
40
60
80
100
120
1Q10 1Q11 1Q12 1Q13 1Q14F 1Q15F
0
2
4
6
8
10Excluding SEC (L)
SEC (L)
OLED proportion (R)
(mn units) (%)
0
100
200
300
400
500
600
700
1Q10 1Q11 1Q12 1Q13 1Q14F 1Q15F
0
10
20
30
40
50
60Smartphone (L)
Feature phone (L)
OLED proportion within SEC (R)
OLED proportion (R)
(mn units) (%)
37/77
OLED panel shipment areaGlobal TV sales and % of OLED-equipped products
Mass production of OLED TVs to be delayed by at least a year
Sluggish TV market, marketing focus on UHDTV, and delays to the launch of the Apple iTV
OLED TV sales forecast for 2015 was revised down from 3.4mn units (1.5%) to 1.75mn (0.8%)
In terms of shipment area, sales should surge 100% YoY in 2015
[OLED] TV-use
demand outlook
Source: KDB Daewoo Securities Research Source: KDB Daewoo Securities Research
0
200
400
600
800
1,000
1,200
1,400
1Q10 1Q11 1Q12 1Q13 1Q14F 1Q15F
0
50
100
150
200
250
300Handset (L) Tablet (L)
TV (L) YoY growth (R)
(km2) (%)
OLED proportion in TV segment: 1.0%OLED proportion in tablet segment: 3.4%
0
20
40
60
80
1Q10 1Q11 1Q12 1Q13 1Q14F 1Q15F
0
1
2
3
4
5Excluding SEC (L)
SEC (L)
OLED proportion (R)
(mn units) (%)
38/77
Cost breakdown for 5‰
OLED panels Cost breakdown for small-
and mid-sized OLED panels
Small-
and mid-sized OLED panels are more cost competitive than LCDs
5‰-or-smaller OLED panels no longer incur heavier production costs than LCDs
OLED production can achieve greater economies of scale than LCD production, given its heavy fixed cost burdens (e.g., depreciation and personnel costs)
Cost reduction is easier for OLED than for LCD
In light of its improved cost competitiveness, OLED technology is likely to be used in low-end smartphones
[OLED] Cost breakdown
Source: DisplaySearch, KDB Daewoo Securities Research Source: DisplaySearch, KDB Daewoo Securities Research
Module38%
Encapsulation2%Array
3%
Depreciation22%
Labor14%
Indirect5%
OLED materials16% 0
5
10
15
20
25
30
1Q13 3Q13 1Q14F 3Q14F 1Q15F 3Q15F
Module Encapsulation OLEDArray Depreciation Labor
Indirect
(US$)
Current 5" LCD panel cost level
39/77
Cost breakdown for 55‰
OLED TV panel OLED and LCD panel costs
Large-sized OLED still incurs greater costs than LCD
Tablet PCs: 7‰ LCD cost: US$32; 7.7‰ OLED cost: US$63 (+60%; based on the same size)
TV: 55‰ LCD cost: US$450; 55‰ OLED cost: US$2,300 (+5.1x)
OLED TV costs are projected to fall by a CAGR of 30% through 2016; Likely to fall to US$780 in 2016
[OLED] Cost breakdown
Source: DisplayBank, KDB Daewoo Securities Research Source: DisplaySearch, KDB Daewoo Securities Research
0
20
40
60
80
100
2012 2013
7.0" LCD 9.0" LCD 7.7" OLED
(US$)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1Q13 3Q13 1Q14F 3Q14F 1Q15F 3Q15F
Module Encapsulation OLEDArray Depreciation LaborIndirect
(US$)
Current 55" LCD panel cost
40/77
Source: KDB Daewoo Securities Research
[OLED] Supply outlook
41/77
Source: KDB Daewoo Securities Research
[OLED] Demand outlook
Outlook for OLED-based device demand
Smartphone
commoditization likely to drive up tablet PC business growth
2014F OLED panel demand growth (based on area): +57% YoY
Smartphone-use: +28% YoY; 160mn units (2013F) 210mn units (2014F)
Tablet PC-use: +12,348% YoY; 15,000 units (2013F) 1.9mn units (2014F)
OLED TV-use: +1,070% YoY; 31,000 units (2013F) 370,000 units (2014F)
★ Demand 1Q13 2Q13 3Q13 4Q13F 1Q14F 2Q14F 3Q14F 4Q14F 1Q15F 2Q15F 3Q15F 4Q15F 2012F 2013F 2014F 2015F 2016F
▶ OLED demandPanel units ('000 units)
Phone (smartphone) 32,046 40,513 47,330 45,066 46,284 51,211 55,356 58,709 55,994 61,954 66,970 71,026 117,513 164,955 211,560 255,944 282,750Mobile PC (tablet PC) 15 48 201 458 1,160 1,234 1,974 2,221 3,624 0 15 1,867 9,053 28,433TV 2 9 9 11 55 71 110 132 260 338 525 629 0 31 367 1,752 3,722
Total 32,063 40,522 47,339 45,077 46,386 51,482 55,924 60,001 57,488 64,266 69,715 75,280 117,513 165,002 213,795 266,749 314,905QoQ growth (%) 1% 26% 17% -5% 3% 11% 9% 7% -4% 12% 8% 8%YoY growth (%) 19% 43% 53% 41% 45% 27% 18% 33% 24% 25% 25% 25% 61% 40% 30% 25% 18%
Average display size (inches)Phone (smartphone) 4.8'' 4.8'' 4.8'' 4.9'' 5.0'' 4.9'' 4.9'' 4.8'' 5.0'' 5.0'' 5.0'' 5.1'' 4.7'' 4.8'' 4.9'' 5.0'' 5.2''Mobile PC (tablet PC) 7.7'' 8.4'' 8.3'' 8.3'' 8.3'' 8.4'' 8.5'' 8.6'' 8.7'' 7.7'' 8.3'' 8.6'' 9.0''TV 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0'' 55.0''
Panel area (km2)Phone (smartphone) 227 289 344 346 357 383 414 436 464 526 578 646 795 1,208 1,591 2,221 2,603Mobile PC (tablet PC) 0 1 4 9 22 24 39 45 75 0 0 36 183 635TV 2 8 8 9 46 59 92 110 217 282 437 525 0 26 306 1,461 3,104
Total 229 297 351 355 403 446 514 568 705 847 1,061 1,246 795 1,235 1,934 3,865 6,341QoQ growth (%) -2% 30% 18% 1% 13% 11% 15% 11% 24% 20% 25% 17%YoY growth (%) 37% 52% 59% 49% 76% 50% 46% 60% 75% 90% 106% 119% 55% 57% 100% 64%
42/77
Source: KDB Daewoo Securities Research
Global OLED supply and demand conditions
OLED business is likely to regain traction next year due to
its adoption in tablet PCs and
wearable devices
In 2014, demand growth (57%) is expected to outpace capacity expansion (37%)
Smartphones: Small- and medium-sized OLEDs are likely to be used in low-end smartphones thanks to improved cost competitiveness.
Tablet PCs: Still more expensive than LCDs, but likely to be used in high-priced tablet PCs due to superior form factor
Wearable devices: Curved or flexible displays for wearable devices
TVs: Full-swing mass production of UHDTVs unlikely to materialize until end-2016
OLED capacity likely to grow 37% (based on input area) in 2014
Considering improving production yields, supply growth is forecast to outstrip capacity expansion.
Supply and demand likely to be in balance in 2014
[OLED] Conclusion
0
200
400
600
800
1,000
1,200
1,400
1Q10 1Q11 1Q12 1Q13 1Q14F 1Q15F
0
20
40
60
80
100
120
140Supply (L) Demand (L) Oversupply ratio (R)
(km2) (%)
43/77
Source: KDB Daewoo Securities Research
Global TSP shipments (in terms of value)Global TSP shipments (in terms of area)
Source: KDB Daewoo Securities Research
TSP market exhibited only modest growth despite rapid shipment area expansion
Smartphones: Shipment volume rose; average screen size expanded; shipment area increased by 54% YoY
Tablet PCs: Shipment volume rose; average screen size shrank; shipment area increased by 59% YoY
Average TSP price per unit area appears to have declined by 30%
[TSP] 2013
review
0
2
4
6
8
10
12
14
16
2012 2013F
Handset Tablet Notebook Other
(mn m2)
+69% YoY
0
5
10
15
20
25
30
35
2012 2013F
Handset Tablet Notebook Other
(US$bn)
+17% YoY
44/77
[TSP] Medium-
to long-term market outlook
TSP market to expand at CAGR of 16%; TSP PCs to account for 35%
of total PCs by 2016
Source: KDB Daewoo Securities Research
2.23.1
4.3
7.6
12.5
20.5
27.0
31.7
35.0
37.8
0
5
10
15
20
25
30
35
40
45
07 08 09 10 11 12 13F 14F 15F 16F
0
20
40
60
80
100
120
140Revenue (L) YoY growth (R)
(US$bn) (%)
iPhone
Galaxy S,iPad
Notebooks, monitorsadopt touch UI
45/77
Source: KDB Daewoo Securities Research
[TSP] SWOT analysis of Korean TSP makers
STRENGTHS WEAKNESSES
OPPORTUNITIES THREATS
1.
Customers include SEC and LGE
2.
Market dominance to increase on advanced technology, high productivity, and abundant cash
1.
Relatively high cost structure
2.
Lack of vertical integration for reinforced glass and ITO film
1.
SEC to enhance tablet
PC marketing campaigns
2.
TSP to be adopted full swing in laptops and monitors
3.
Film-based TSP has higher price competitiveness than glass-based TSP
1.
Intense competition: Entries of large companies
2.
Mid-
to low-end mobile devices driving growth
3.
Chinese makersÊ
aggressive marketing campaigns
46/77
Adoption of film-based TSPs
to expand
Source: KDB Daewoo Securities Research
[TSP] Core trends: 1) Film-based TSP
Mobile (smartphones, tablet PCs)
Large-sized
(monitors, AIO PCs)
Mid-
to large-sized
(laptops)ITO film supply shortages to easeSlim GFF (0.25mm)
Resistive(ITO)
Capacitive(ITO)
Capacitive(Metal)
AlternativeTechnology
Projected (Self)
Projected (Mutual)
Surface
Metal Mesh
Silver Nano Wire
Infra Red
Acoustic
Optical
CNT / Graphene
Film
Integrated
Glass
G2(OGS) GG(SITO) GG(DITO)
On - Cell In - Cell
GF2(DITO) G1F GFF
Resistive(ITO)
Capacitive(ITO)
Capacitive(metal)
Alternativetechnologies
Projected (self)
Projected (mutual)
Surface
Metal mesh
Silver
nanowire
Infrared
Acoustic
Optical
CNT/graphene
Film
Integrated
Glass
G2
(OGS) GG
(SITO) GG
(DITO)
On-cell In-cell
GF2
(DITO) G1F GFF
47/77
Source: Displaybank, KDB Daewoo Securities Research
Comparison of narrow bezels
Photo process is essential for narrow bezel design
Demand for narrow bezel designs that meet both large-sized and mobile needs is rising
Commercial production of 30/30um products started this year; Bezels to narrow further to 20/20um and 10/10um in 2014
Photo process: Photosensitive paste method (Ag) has recently been preferred to metal-on-ITO technology
[TSP] Core trends: 2) Narrow bezel design
Differentiation factor for TSPs: Ensuring high narrow bezel production yields using photo process Galaxy Note 8.0 Galaxy Tab
3 8.0
Screen printing Photo process
48/77
Source: KDB Daewoo Securities Research
TSP for notebooksTSP for mobile devices
Source: AUO, KDB Daewoo Securities Research
Shifting from made-to-order production to standardization
TSP for mobile devices:made-to-order production (labor-intensive)
1) Unique design, 2) camera and speaker windows, 3) bezel, logo, etc.
TSP for notebooks and monitorsstandardized (capital-intensive)
Mass production of a few different kinds of products; suitable for large panel makers
[TSP] Core trends: 3)
One-glass solution (OGS)
Unique cover glass designs,cutouts for speakers/cameras,bezel color and logos
49/77
Raising OGS productivity is necessary for the production of low-priced TSP solutions for notebooks and monitors
Source: KDB Daewoo Securities Research
Produced based on the needs of each customer;
A variety of TSP technologies exist
Cost reductions via mass production arising from
standardization
[TSP] Core trends: 3)
One-glass solution (OGS)
▶ Smartphone
11 12 13F 14F 15F 16F
Add-on type (GG, G1F, GFF) 70% 62% 49% 39% 32% 27%
In-cell 0% 8% 15% 16% 16% 16%
On-cell 9% 13% 16% 18% 20% 22%
OGS 2% 3% 9% 20% 25% 29%
Other 20% 14% 10% 8% 7% 6%
▶ Tablet PC11 12 13F 14F 15F 16F
Add-on type (GG, G1F, GFF 95% 84% 71% 62% 45% 23%In-cell 0% 0% 0% 0% 1% 11%On-cell 0% 5% 12% 16% 22% 30%OGS 2% 8% 14% 18% 28% 33%Other 3% 4% 4% 4% 4% 3%
▶ Notebook11 12 13F 14F 15F 16F
Add-on type (GG, G1F, GFF 54% 52% 11% 4% 2% 2%In-cell 0% 0% 0% 0% 0% 0%On-cell 0% 0% 0% 0% 0% 0%OGS 13% 12% 65% 78% 82% 83%Other 34% 36% 24% 18% 16% 16%
50/77
Source: Company data
Cambrios
ClearOhm
(silver nanowire)UniPixel
UniBoss
(metal mesh)
Source: Company data
Metal mesh and silver nanowire
are suitable for large-sized TSPs
ITO: 1) Increased resistance for large-sized TSP; 2)concerns about indium supply; 3) not applicable to flexible displays
Metal mesh: Forms grid-type electrodes with a line width of 1-6um using conductive metal materials
Silver nanowire: Solutions that include coating materials in which silver nanowires are suspended
CNT and graphene: Stronger than iron and more conductive than copper; highly flexible
[TSP] Core trends: 4)
Replacements for ITO
51/77
Source: KDB Daewoo Securities Research
Large-sized TSP market share by country (2012)Small-
and mid-sized TSP market share by country (2012)
Source: KDB Daewoo Securities Research
Korean TSP makers to see a turning point in 2014
Opportunities: SEC to adopt TSPs in its PCs and tablet PCs full swing
Risks: 1) Intense competition and 2) entries of large companies
Major trends: 1) film-based TSP, 2) narrow bezel design, 3) OGS, 4) ITO replacements
Core competitiveness factors: 1) cost leadership and 2) product differentiation
[TSP] Conclusion: Crisis and change offer opportunities
Taiwan53%
China28%
Korea19%
Taiwan71%
China20%
Korea9%
52/77
Rating Target price Current price Upside
(W) (W) (%) 12 13F 14F 12 13F 14F 12 13F 14F 12 13F 14F
SFA Engineering Buy 65,000 41,200 57.8 11.9 10.7 9.3 2.1 1.6 1.5 -19.6 -3.4 15.6 19.6 16.4 16.1
Iljin Display Buy 26,000 17,050 52.5 9.4 8.1 6.9 4.5 3.4 2.3 104.4 -10.6 17.2 53.3 38.3 36.3
Silicon Works Buy 31,000 (Raise) 24,300 27.6 12.1 9.3 8.3 1.4 1.4 1.3 25.1 -26.7 24.7 17.3 11.5 13.2
LG Display Hold - 23,800 - 0.0 0.0 0.0 47.6 19.2 21.1 TTB -4.3 -7.8 7.4 6.8 6.9
ROE (%)Stock
P/E (x) P/B (x) EPS growth (%)
Source: KDB Daewoo Securities Research
[Investment Strategy] OLED is still the best answer for differentiation strategy
Relevant stocks, including top picks
LCD: Unlikely to hit bottom until: 1) panel prices fall to cash cost levels, or 2) Chinese and Taiwanese makers lower their utilizations (2Q14F)
OLED: Market sentiment is at bottom due to excessive concerns about delays in investments, offering bottom-fishing opportunities
TSP: Excessive competition to continue due to low entry barriers; top-tier firms to fare well, widening their gap with second-tier players
Major signals: Decline in supply for LCD; for OLED, a pickup in demand arising from robust sales of tablet PCs, wearable smart devices, and mid- to low-end smartphones should be noted
Top picks: SFA Engineering (OLED), Iljin Display (TSP), Silicon Works (LCD)
Display sector investment preference:OLED > TSP > LCD
Top picks
53/77
Source: KDB Daewoo Securities Research
[Investment Strategy] LCD: Global peer group analysis
Valuations of global LCD makers
Relative share performances of global LCD makers ROE-P/B comparison of global LCD makers (2014F)
13F 14F 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F
LGD 26,700 25,443 1,059 565 443 404 4.3 3.8 19.2 21.1 0.8 0.8 2.0 2.2
SEC 228,418 242,791 38,861 43,167 31,413 35,038 23.8 21.6 8.0 7.1 1.7 1.4 3.7 3.3
Sharp 28,098 28,328 779 900 24 239 5.9 30.5 165.1 21.1 3.2 2.8 8.0 7.7
AUO 14,730 14,515 277 183 91 41 1.7 1.2 35.4 56.9 0.5 0.5 3.1 3.3
CMI 15,059 13,798 610 383 225 162 3.5 2.2 15.6 26.7 0.5 0.5 2.9 3.5
Average 7.8 11.9 48.6 26.6 1.3 1.2 3.9 4.0
ROE P/E P/B EV/EBITDARevenue OP NP
LGD
S E C
LGE
AUO
CMI
Sharp
Sony
Hitachi
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0 5 10 15 20 25 30 35
(ROE, %)
(P/B, x)
0
100
200
300
400
500
11/11 2/12 5/12 8/12 11/12 2/13 5/13 8/13 11/13
LGD AUO CMI Sharp
(-1Y=100)
54/77
Source: KDB Daewoo Securities Research
[Investment Strategy] OLED:
Global peer group analysis
Valuations of global OLED makers
Relative share performances of global OLED makers ROE-P/B comparison of global OLED makers (2014F)
13F 14F 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F 13F 14FSFA Engineering 512 650 76 92 69 80 16.4 16.1 10.7 9.3 1.6 1.5 4.4 2.9Wonik
IPS 393 587 36 100 17 71 6.0 22.0 41.3 9.7 2.5 2.0 14.5 5.8AP
Systems 289 324 27 33 22 27 22.9 21.2 10.3 8.3 1.9 1.6 6.0 5.2KC Tech 196 226 20 25 17 19 8.8 9.1 9.3 8.3 0.8 0.7 5.8 4.6Avaco 152 178 4 8 -28 7 -38.5 10.9 - 9.1 1.1 1.0 7.3 3.4AMAT 9,782 10,610 1,931 2,320 1,346 1,645 17.0 17.5 15.9 13.6 2.7 2.4 9.6 8.4TEL 6,205 6,981 303 709 215 483 3.5 7.5 46.3 21.4 1.6 1.5 12.9 7.8Lam Research 4,735 4,987 830 923 653 703 13.4 12.6 12.7 11.5 1.7 1.4 7.3 6.3Dainippon Screen 2,347 2,495 86 142 53 94 6.3 11.1 24.6 13.9 1.5 1.4 12.2 8.4Ulvac 1,879 1,974 110 122 61 68 9.3 9.8 12.2 10.9 1.4 1.2 8.1 7.6Daifuku 2,373 2,562 107 130 61 78 6.9 8.5 25.6 20.1 1.7 1.6 11.9 10.0Average 6.5 13.3 20.9 12.4 1.7 1.5 9.1 6.4
Revenue OP NP ROE P/E P/B EV/EBITDA
Daifuku
Ulvac
Dainippon Screen
Lam ResearchTEL
AMAT
A vaco
K C Tech
AP Systems
Wonik IPS
S FA
0.5
1.0
1.5
2.0
2.5
3.0
0 5 10 15 20 25
(ROE, %)
(P/B, x)
-50
0
50
100
150
200
250
300
11/11 2/12 5/12 8/12 11/12 2/13 5/13 8/13 11/13
SFA AP Systems AMAT Daifuku Ulvac
(-1Y=100)
55/77
Source: KDB Daewoo Securities Research
[Investment Strategy] TSP: Global peer group analysis
Valuations of global TSP makers
Relative share performances of global TSP makers ROE-P/B comparison of global TSP makers (2014F)
13F 14F 13F 14F 13F 14F 13F 14F 13F 14F 13F 14F 13F 14FS-MAC 584 707 43 46 25 32 20.7 21.9 9.4 7.2 1.8 1.4 4.1 3.5Iljin
Display 714 895 67 83 60 70 38.3 36.3 8.1 6.9 3.4 2.3 6.5 4.9Melfas 795 694 0 14 -3 13 -1.8 7.7 - 13.6 1.1 1.0 17.0 8.0TPK Holding 5,490 5,116 405 247 293 171 17.8 10.0 7.0 11.4 1.2 1.2 4.1 4.7Wintek 2,795 2,654 -183 -113 -210 -122 -18.2 -13.7 - - 0.6 0.6 17.6 9.0Young Fast 357 389 -9 -7 -11 -6 0.9 1.2 - - 0.4 0.4 1.4 0.9J Touch 424 597 2 24 3 21 3.1 19.7 28.7 5.2 1.1 0.9 11.3 -Atmel 1,475 1,587 79 235 -7 161 8.0 20.1 27.7 14.0 3.4 2.9 15.8 8.9Synaptics 858 941 166 181 104 116 21.0 19.9 13.5 13.0 2.6 2.1 9.1 8.0Cypress 769 783 36 73 -44 10 10.2 31.0 25.1 18.4 8.3 8.2 13.9 15.1ILI Technology 360 352 14 11 13 10 11.8 7.7 9.3 9.4 1.2 1.1 8.5 8.5Average 10.2 14.7 16.1 11.0 2.3 2.0 9.9 7.1
Revenue OP NP ROE P/E P/B EV/EBITDA
0
50
100
150
200
250
11/11 2/12 5/12 8/12 11/12 2/13 5/13 8/13 11/13
Iljin Display Melfas Atmel
Synaptics Cypress ILI Technology
(-1Y=100)
ILI Technology
S MA C
I l j in Display
MelfasTPK HoldingWintek
Young Fast
J Touch
Atmel
Synaptics
Cypress
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
-30 -20 -10 0 10 20 30 40 50
(ROE, %)
(P/B, x)
56/77
Source: KDB Daewoo Securities Research
[Investment Strategy] Earnings and share performances of global peers
Earning and share performance of AUO Earning and share performance of Innolux Earning and share performance of Sharp
Earning and share performance of Sony Earning and share performance of Panasonic Earning and share performance of Hitachi
-30
-20
-10
0
10
20
30
40
08 09 10 11 12 13
0
10
20
30
40
50
60
Quarterly OP (L)
Share price (R)
(NT$bn) (NT$)
-25
-20
-15
-10
-5
0
5
10
15
08 09 10 11 12 13
0
10
2030
40
50
6070
80
90
Quarterly OP (L)
Share price (R)(NT$bn) (NT$)
-120
-100-80
-60
-40-20
0
2040
60
06 07 08 09 10 11 12 13
0
500
1,000
1,500
2,000
2,500
Quarterly OP (L)
Share price (R)(JPYbn) (JPY)
-400
-300
-200
-100
0
100
200
300
06 07 08 09 10 11 12 13
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000Quarterly OP (L)
Share price (R)
(JPYbn) (JPY)
-200
-150
-100
-50
0
50
100
150
200
06 07 08 09 10 11 12 13
0
500
1,000
1,500
2,000
2,500
3,000
Quaterly OP (L)
Share price (R)
(JPYbn) (JPY)
-100
-50
0
50
100
150
200
250
06 07 08 09 10 11 12 13
01002003004005006007008009001,000
Quarterly OP (L)
Share price (R)
(JPYbn) (JPY)
57/77
De-rating is not over yet
Notes: K-IFRS consolidated financial statements; net profit attributable to controlling interests; Based on the November
27, 2013 closing price
Source: Daewoo Securities Research
Source: KDB Daewoo Securities Research
Share performanceEarnings forecasts and stock information
LG
Display (034220 KS/Hold)
Valuation premium (owing to cost competitiveness and product differentiation vs. Taiwanese makers) is narrowing
Inventory is likely to pile up, as panel makers have increased capacity utilization despite sluggish TV sales
Price continues to fall as capacity utilization remains elevated at Taiwanese and Chinese makers
Increases in small- and medium-sized panel shipments are not sufficient to offset decreasing profitability of TV panels
LCD industry unlikely to pick until after 2Q14
FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F
Revenue (Wbn) 25,512 24,291 29,430 26,700 25,443 26,288OP (Wbn) 1,311 -764 912 1,059 565 872OP Margin (%) 5.1 -3.1 3.1 4.0 2.2 3.3NP (Wbn) 1,156 -771 233 443 404 641EPS (W) 3,232 -2,155 652 1,237 1,130 1,790ROE (%) 11.0 -7.3 2.3 4.3 3.8 5.9P/E (x) 12.3 - 47.6 18.8 20.6 13.0P/B (x) 1.4 0.9 1.1 0.8 0.8 0.8
Share Price (11/27/13, W) 23,800 2,028.81Expected Return - 8,516OP (13F, Wbn) 1,059 Shares Outstanding (mn) 358Consensus OP (13F, Wbn) 1,122 Free Float (%) 62.1EPS Growth (13F, %) 89.8 Foreign Ownership (%) 26.4Market EPS Growth (13F, %) 13.4 Beta (12M) 1.2P/E (13F, x) 18.8 21,800Market P/E (13F, x) 11.3 36,100
KOSPIMarket Cap (Wbn)
52-Week Low (W)52-Week High (W)
LG Display
Trading volume
58/77
Source: KDB Daewoo Securities Research
Annual operating profit trend and forecast
TV panel profitability has plunged
LG
Display
(034220 KS/Hold)
Earnings to weaken due to deteriorating profitability of TV panels
AppleÊs profit contribution: Loss (1Q-2Q13)BEP (3Q13)W150bn (4Q13F)
TV panel profitability started to plunge in 2H13 (and has neared the BEP)
TV panel OP margin: 4.6% (2013F)2.0% (2014F)
In 2013, W800bn out of total operating profit of W1.06tr is estimated to have come from the TV panel unit
0
200
400
600
800
1,000
1,200
1,400
1,600
2012
Deprecia
tion
IT/mob
ile TV
2013F
Deprecia
tion
IT/mob
ile TV
2014F
(Wbn)
912
1,059
565
+574
-185
-29-586+121
Consensus:W1.0t r
-242
59/77
Source: KDB Daewoo Securities Research
Operating profit and 12 month-forward P/BLCD panel shipment area
Source: KDB Daewoo Securities Research
Valuation is nearing historic low
Structural growth (i.e., valuation re-rating) depends on recovery in the TV market
AppleÊs momentum to weaken if the launch of the iTV is further delayed
LG Display (034220 KS/Hold)
0
2
4
6
8
10
12
1Q09 1Q10 1Q11 1Q12 1Q13 1Q14F
-30
-20
-10
0
10
20
30
40Shipment area (L) QoQ growth (R)
(mn m2) (%)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
04 05 06 07 08 09 10 11 12 13 14
-600
-400
-200
0
200
400
600
800
1,000OP (R)P/B (L)
(x) (Wbn)
P eak
Trough
1.5
2.5
2.2
1.2
0.6
1.6
1.3
0.7
60/77
Source: Daewoo Securities Research
LG Display (034220 KS/Hold)
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13F 1Q14F 2Q14F 3Q14F 4Q14F 2012F 2013F 2014F 2015F
Shipment area (km2) 8,089 8,553 9,173 10,062 8,182 8,890 8,784 8,835 8,315 8,555 8,993 8,890 35,818 34,661 34,752 36,905
Notebook 1,201 1,130 1,181 1,115 798 947 952 948 763 930 928 957 4,627 3,645 3,578 3,470
Monitor 1,381 1,133 1,193 1,413 1,456 1,439 1,387 1,358 1,593 1,509 1,321 1,449 5,120 5,640 5,872 5,784
TV 4,906 5,516 5,894 6,181 4,989 5,898 5,586 5,323 4,867 5,299 5,799 5,217 22,497 21,796 21,182 22,934
Small- to medium-sized 600 775 905 1,295 910 606 859 1,206 1,092 817 945 1,266 3,574 3,581 4,121 4,717
ASP (US$/m2) 669 701 733 802 770 657 678 704 705 645 646 731 731 700 681 669
Revenue (Wbn) 6,184 6,910 7,593 8,743 6,803 6,571 6,579 6,746 6,358 5,983 6,182 6,919 29,430 26,700 25,443 26,288
Notebook 928 967 987 874 612 723 724 692 546 657 640 654 3,756 2,751 2,497 2,328
Monitor 1,299 1,175 1,215 1,399 1,429 1,380 1,316 1,237 1,427 1,336 1,141 1,239 5,089 5,361 5,143 4,890
TV 2,906 3,386 3,569 3,759 2,925 3,352 2,895 2,490 2,193 2,267 2,329 2,055 13,621 11,661 8,845 9,203
Small- to medium-sized 1,051 1,382 1,822 2,710 1,837 1,117 1,645 2,328 2,192 1,723 2,072 2,971 6,965 6,927 8,958 9,867
COGS (Wbn) 5,856 6,140 6,792 7,637 6,099 5,607 5,591 5,976 5,733 5,241 5,283 5,961 26,425 23,273 22,217 22,623
Materials 4,427 4,712 5,233 5,929 4,500 4,165 4,214 4,561 4,293 3,799 3,762 4,463 20,301 17,440 16,316 16,651
Depreciation 990 1,065 1,188 1,227 1,118 959 892 927 950 950 1,025 1,000 4,470 3,896 3,925 3,945
SG&A 539 531 504 519 553 599 599 617 636 655 675 695 2,093 2,368 2,660 2,793
Operating profit (Wbn) -211 239 297 587 151 366 389 153 -11 87 225 264 912 1,059 565 872
OP margin (%) -3.4 3.5 3.9 6.7 2.2 5.6 5.9 2.3 -0.2 1.5 3.6 3.8 3.1 4.0 2.2 3.3
EBITDA (Wbn) 779 1,304 1,485 1,814 1,269 1,380 1,349 1,192 1,104 1,173 1,351 1,266 5,382 5,190 4,894 5,147
EBITDA margin (%) 12.6 18.9 19.6 20.7 18.6 21.0 20.5 17.7 17.4 19.6 21.9 18.3 18.3 19.4 19.2 19.6
Shipment area growth (%) -3.9 5.7 7.2 9.7 -18.7 8.6 -1.2 0.6 -5.9 2.9 5.1 -1.1 15.2 -3.2 0.3 6.2
Notebook -5.1 -6.0 4.6 -5.6 -28.4 18.7 0.5 -0.4 -19.6 21.9 -0.2 3.1 -0.3 -21.2 -1.9 -3.0
Monitor -5.0 -18.0 5.3 18.5 3.0 -1.2 -3.6 -2.1 17.3 -5.2 -12.5 9.7 -13.9 10.1 4.1 -1.5
TV -1.5 12.4 6.9 4.9 -19.3 18.2 -5.3 -4.7 -8.6 8.9 9.4 -10.0 20.9 -3.1 -2.8 8.3
Small- to medium-sized -18.3 29.1 16.8 43.1 -29.7 -33.5 41.9 40.4 -9.5 -25.1 15.6 34.0 88.1 0.2 15.1 14.5
ASP growth (%) -2.2 4.8 4.6 9.4 -4.0 -14.7 3.2 3.8 0.1 -8.5 0.2 13.2 -0.4 -4.2 -2.7 -1.8
61/77
Source: Daewoo Securities Research
LG Display (034220 KS/Hold)
Financial statement (forecast)Comprehensive income statement (forecast)
12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F29,430 26,700 25,443 26,288 8,915 9,259 9,335 9,89626,425 23,273 22,217 22,623 2,339 2,829 3,173 3,554
3,005 3,427 3,225 3,665 3,524 3,197 3,047 3,1482,093 2,368 2,660 2,793 2,390 2,168 2,066 2,135
912 1,059 565 872 347 315 300 310912 1,059 565 872 15,541 14,890 14,997 15,103
-454 -321 -40 -40 402 445 493 540159 148 145 141 13,108 12,398 12,473 12,528
36 48 48 48 498 475 468 465459 738 525 832 24,456 24,149 24,331 25,000222 290 116 183 9,206 7,751 7,425 7,644236 448 410 649 6,958 5,803 5,529 5,713
0 0 0 0 1,015 830 830 830236 448 410 649 1,233 1,118 1,066 1,101233 443 404 641 5,009 5,746 6,112 6,178
3 6 5 9 3,441 3,896 3,896 3,89696 360 322 561 1,388 1,622 1,940 2,00694 352 314 550 14,215 13,497 13,536 13,8222 8 8 11 10,210 10,562 10,697 11,069
5,382 5,150 4,749 5,072 1,789 1,789 1,789 1,789-431 -232 276 693 2,251 2,251 2,251 2,25118.3 19.3 18.7 19.3 6,239 6,682 6,907 7,369
3.1 4.0 2.2 3.3 30 90 98 109
0.8 1.7 1.6 2.4 10,240 10,652 10,795 11,178
Controlling InterestsNon-Controlling Interests
Non-Controlling InterestsEBITDAFCF (Free Cash Flow)EBITDA Margin (%)
Operating Profit Margin (%)
Net Profit Margin (%)
Total Comprehensive ProfitControlling Interests
Non-Operating ProfitNet Financial IncomeNet Gain from Inv in Associates
Pretax ProfitIncome TaxProfit from Continuing OperationsProfit from Discontinued OperationNet Profit
Intangible Assets
Inventories
(Wbn)
Cost of SalesGross Profit
Other Current AssetsSG&A ExpensesOperating Profit (Adj)
Property, Plant and Equip
Current Assets
Non-Current Assets
(Wbn)
Operating Profit
Revenue
AP & Other PayablesShort-Term Financial LiabOther Current Liabilities
Cash and Cash EquivalenAR & Other Receivables
Total AssetsCurrent Liabilities
Investments in Associates
Non-Controlling Interests
Capital StockCapital Surplus
Non-Current LiabilitiesLong-Term Financial LiabOther Non-Current Liabilit
Total LiabilitiesControlling Interests
Retained Earnings
Stockholders' Equity
62/77
Source: Daewoo Securities Research
LG Display (034220 KS/Hold)
Valuation multiples (forecast)Cash flow statement (forecast)
12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F
4,730 4,654 4,585 4,953 47.6 18.8 20.6 13.0
236 448 410 649 2.4 1.8 1.8 1.75,292 4,836 4,340 4,422 1.1 0.8 0.8 0.84,197 3,827 3,925 3,945 2.4 2.0 2.1 1.9
273 264 259 255 652 1,237 1,130 1,790-805 -265 158 153 13,143 12,671 12,823 13,526-721 -342 -49 65 27,143 28,193 28,590 29,635
-1,457 217 151 -101 0 500 500 500-73 222 102 -69 0.0 40.4 44.3 27.9148 -690 -273 184 0.0 2.2 2.2 2.2-78 -288 -116 -183 21.2 -9.3 -4.7 3.3
-3,655 -4,251 -4,208 -4,204 86.4 -4.3 -7.8 6.8-3,914 -3,620 -4,000 -4,000 TTB 16.1 -46.6 54.3
-286 -252 -252 -252 TTB 89.9 -8.7 58.5509 -420 0 0 9.7 8.4 8.6 9.036 41 44 48 12.5 11.7 12.0 12.5
-241 24 -34 -368 7.4 6.8 6.9 7.2-61 210 0 0 1.0 1.8 1.7 2.6
0 0 0 0 2.3 4.3 3.8 5.90 0 -179 -179 4.4 5.6 4.0 6.2
-180 -186 145 -189 138.8 126.7 125.4 123.7821 491 343 382 96.8 119.5 125.7 129.5
1,518 2,339 2,829 3,173 17.6 10.8 7.4 3.82,339 2,829 3,173 3,554 4.9 5.6 3.0 4.6
OthersIncrease (Decrease) in CashBeginning Balance
Cash Flows from Fin ActivitiesChg in Financial LiabilitiesChg in EquityDividends Paid
Chg in InventoriesChg in AP & Other Payables
Income Tax PaidCash Flows from Inv Activities
Chg in PP&EChg in Intangible AssetsChg in Financial AssetsOthers
Non-Cash Income and ExpenseDepreciationAmortizationOthers
Chg in Working CapitalChg in AR & Other Receivables
Net Profit
Cash Flows from Op Activities(Wbn)
P/B (x)P/CF (x)
P/E (x)
DPS (W)Payout ratio (%)
CFPS (W)BPS (W)
ROA (%)ROE (%)
EV/EBITDA (x)EPS (W)
EPS Growth (%)Accounts Receivable Turnove
EBITDA Growth (%)Operating Profit Growth (%)
Dividend Yield (%)Revenue Growth (%)
Inventory Turnover (x)Accounts Payable Turnover (
Ending BalanceNet Debt to Equity Ratio (%)Current Ratio (%)
ROIC (%)Liability to Equity Ratio (%)
Interest Coverage Ratio (x)
63/77
Time is on the side of OLED OLED smartphone sales to increase by 29% YoY to 210mn units in 2014
Applications of OLED panels to expand from premium smartphones to tablet PCs, mid- to low-end smartphones, and wearable smart devices
Both top and bottom lines to improve on increasing sales of front-end process equipment (e.g., 8G organic evaporators,encapsulation and PECVD equipment)
Cost reduction via higher productivity and in-house production of parts
Source: KDB Daewoo Securities Research
Share performanceEarnings and valuation metrics
SFA Engineering (056190 KQ/Buy/TP: W65,000) TOP PICK
FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F
Revenue (Wbn) 655 782 508 512 650 709OP (Wbn) 69 109 70 76 92 106OP Margin (%) 10.5 13.9 13.8 14.8 14.2 15.0NP (Wbn) 55 89 71 69 80 92EPS (W) 3,049 4,943 3,972 3,837 4,437 5,144ROE (%) 21.6 28.0 19.6 16.4 16.1 16.6P/E (x) 16.1 12.3 11.9 10.7 9.3 8.0P/B (x) 3.0 3.0 2.1 1.6 1.5 1.3
Share Price (11/27/13, W) 41,200 511.65Expected Return 58% 740OP (13F, Wbn) 76 Shares Outstanding (mn) 18Consensus OP (13F, Wbn) 77 Free Float (%) 52.1EPS Growth (13F, %) -3.4 Foreign Ownership (%) 15.1Market EPS Growth (13F, %) 13.4 Beta (12M) 0.8P/E (13F, x) 10.7 40,050Market P/E (13F, x) 11.3 69,100
KOSDAQMarket Cap (Wbn)
52-Week Low (W)52-Week High (W)
Notes: K-IFRS consolidated financial statements; net profit attributable to controlling interests; Based on the November
27, 2013 closing price
Source: Daewoo Securities Research
SFA
Trading volume
64/77
Global handset growth
Growth potential of OLED is widely underestimated
Gross profit marginNet profit and share performance
Global OLED capacity
Source: KDB Daewoo Securities Research
SFA Engineering (056190 KQ/Buy/TP: W65,000) TOP PICK
0
50
100
150
200
250
300
350
07 08 09 10 11 12 13
0
5
10
15
20
25
30
35New orders (L)Revenue (L)Gross margin (R)
(Wbn) (%)Structural improvement in fundamentals
0
5
10
15
20
25
30
1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14F
0
20
40
60
80Net profit (L)
Share price (R)
(Wbn) (W'000)
0
20
40
60
80
100
2011 2012 2013F 2014F 2015F
Handset growth Smartphone growth OLED smartphone growth(%)
0
500
1,000
1,500
2,000
2,500
10 11 12 13 14F 15F
0
50
100
150
200
250
3004G (L) 5.5G (L) 6G (L)
8G (L) YoY growth (R)
(Km2) (%)
65/77
Source: KDB Daewoo Securities Research
Balance sheetIncome statement
SFA Engineering (056190 KQ/Buy/TP: W65,000) TOP PICK
12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F508 512 650 709 439 455 540 608372 371 486 524 40 134 141 141136 141 164 185 162 61 81 88
66 65 71 79 5 5 7 770 76 92 106 2 3 3 470 76 92 106 140 160 175 18823 15 10 12 0 0 0 0
-10 -4 -6 -7 114 115 121 1270 0 0 0 14 26 29 32
93 91 102 118 579 615 715 79722 22 23 26 183 114 150 16371 69 80 92 160 98 130 1420 0 0 0 0 3 3 3
71 69 80 92 23 13 17 1971 69 80 92 23 34 41 460 0 0 0 0 0 0 0
71 69 80 92 19 28 31 3671 69 80 92 206 148 191 2090 0 0 0 373 467 524 588
79 83 103 120 9 9 9 935 86 79 84 20 27 27 27
15.5 16.3 15.9 16.9 392 444 501 565
13.8 14.8 14.2 15.0 0 0 0 0
14.1 13.5 12.3 13.0 373 467 524 588
Controlling InterestsNon-Controlling Interests
Non-Controlling InterestsEBITDAFCF (Free Cash Flow)EBITDA Margin (%)
Operating Profit Margin (%)
Net Profit Margin (%)
Total Comprehensive ProfitControlling Interests
Non-Operating ProfitNet Financial IncomeNet Gain from Inv in Associates
Pretax ProfitIncome TaxProfit from Continuing OperationsProfit from Discontinued OperationNet Profit
Intangible Assets
Inventories
(Wbn)
Cost of SalesGross Profit
Other Current AssetsSG&A ExpensesOperating Profit (Adj)
Property, Plant and Equip
Current Assets
Non-Current Assets
(Wbn)
Operating Profit
Revenue
AP & Other PayablesShort-Term Financial LiabOther Current Liabilities
Cash and Cash EquivalenAR & Other Receivables
Total AssetsCurrent Liabilities
Investments in Associates
Non-Controlling Interests
Capital StockCapital Surplus
Non-Current LiabilitiesLong-Term Financial LiabOther Non-Current Liabilit
Total LiabilitiesControlling Interests
Retained Earnings
Stockholders' Equity
66/77
Source: KDB Daewoo Securities Research
ValuationsCash flow statement
SFA Engineering (056190 KQ/Buy/TP: W65,000) TOP PICK
12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F
53 100 101 103 11.9 10.7 9.3 8.0
71 69 80 92 10.6 9.7 8.2 7.022 22 24 27 2.1 1.6 1.5 1.3
9 3 3 4 7.4 4.4 2.9 2.00 4 8 9 3,972 3,837 4,437 5,144
-1 3 5 6 4,457 4,252 5,057 5,887-7 30 20 9 22,686 25,333 28,263 31,688
-26 102 -20 -7 1,000 1,300 1,600 1,80011 0 -2 -1 23.8 33.4 35.5 34.511 -60 32 12 2.1 3.2 3.9 4.4
-34 -20 -23 -26 -35.1 0.9 26.9 9.1-43 -35 -71 -75 -31.8 5.7 24.1 16.0
-5 -7 -10 -10 -35.5 8.2 21.6 15.5-9 -12 -12 -12 -19.6 -3.4 15.6 15.9
-34 -25 -55 -60 3.4 4.6 9.2 8.45 9 6 7 50.6 99.5 108.6 99.4
-56 28 -23 -28 3.9 4.4 6.2 5.7-2 0 0 0 12.4 11.5 12.0 12.2
-31 45 0 0 19.6 16.4 16.1 16.6-23 -17 -23 -28 57.3 65.5 101.6 123.8
0 0 0 0 55.1 31.7 36.4 35.5-47 94 8 0 239.9 400.4 360.4 372.587 40 134 141 -72.2 -82.2 -85.3 -86.240 134 141 141 1,488.5
OthersIncrease (Decrease) in CashBeginning Balance
Cash Flows from Fin ActivitiesChg in Financial LiabilitiesChg in EquityDividends Paid
Chg in InventoriesChg in AP & Other Payables
Income Tax PaidCash Flows from Inv Activities
Chg in PP&EChg in Intangible AssetsChg in Financial AssetsOthers
Non-Cash Income and ExpenseDepreciationAmortizationOthers
Chg in Working CapitalChg in AR & Other Receivables
Net Profit
Cash Flows from Op Activities(Wbn)
P/B (x)P/CF (x)
P/E (x)
DPS (W)Payout ratio (%)
CFPS (W)BPS (W)
ROA (%)ROE (%)
EV/EBITDA (x)EPS (W)
EPS Growth (%)Accounts Receivable Turnove
EBITDA Growth (%)Operating Profit Growth (%)
Dividend Yield (%)Revenue Growth (%)
Inventory Turnover (x)Accounts Payable Turnover (
Ending BalanceNet Debt to Equity Ratio (%)Current Ratio (%)
ROIC (%)Liability to Equity Ratio (%)
Interest Coverage Ratio (x)
67/77
Time to be optimistic
•
The largest beneficiary of SEC’s tablet PC sales growth: 70% of the company’s revenue stems from SEC’s tablet PC
unit
1) Apple’s iPad:
+19% YoY
from 73mn units (2013F market share of 34%)
to 87.5mn units (2014F market share of
29%)
2) SEC’s tablets:
+79% YoY
from 41.9mn units (2013F market share of 19%) to 75mn units (2014F market share of
25%)
•Demand for narrow-bezel touch panels is growing
1) Strong consumer desire for large screens and portability
2) Photolithography process is crucial for narrow-bezel production
Source: Under non-consolidated K-IFRS; based on November 27, 2013
closing price
Source: KDB Daewoo Securities Research
Source: KDB Daewoo Securities Research
Share performance Earnings and valuation metrics
Iljin
Display (020760 KS/Buy/TP: W26,000) TOP PICK
FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F
Revenue (Wbn) 114 324 597 714 895 974OP (Wbn) 15 36 65 67 83 91OP Margin (%) 12.7 11.2 10.8 9.4 9.3 9.3NP (Wbn) 12 31 64 60 70 74EPS (W) 446 1,153 2,356 2,106 2,468 2,632ROE (%) 25.3 43.2 53.3 38.3 36.3 28.8P/E (x) 25.4 10.1 9.4 7.7 6.6 6.2P/B (x) 8.7 4.6 4.5 3.2 2.2 1.7
Share Price (11/27/13, W) 17,050 2,028.81Expected Return 52% 483OP (13F, Wbn) 67 Shares Outstanding (mn) 28Consensus OP (13F, Wbn) 67 Free Float (%) 53.7EPS Growth (13F, %) -10.6 Foreign Ownership (%) 13.9Market EPS Growth (13F, %) 13.4 Beta (12M) 0.7P/E (13F, x) 7.7 14,550Market P/E (13F, x) 11.3 23,500
KOSPIMarket Cap (Wbn)
52-Week Low (W)52-Week High (W)
Iljin Display
Trading volume
68/77
Source: KDB Daewoo Securities Research
GFF vs. G1F technology
GFF technology actually results in lower costs than G1F technology
G1F technology requires glass patterning
defective product means a waste of cover glass (30% of materials
cost)
As such, G1F technology is not widely used despite its various strengths in terms of transparency and thinness
Display Panel (LCD/OLED)
ITO layer (Tx, Driving Line)
ITO layer (Rx, Sensing Line)
OCA (Optical Clear Adhesive)
OCA (Optical Clear Adhesive)
Cover Glass
PET Film
OCA (Optical Clear Adhesive)
PET Film
Display Panel (LCD/OLED)
ITO layer (Tx, Driving Line)
ITO layer (Rx, Sensing Line)
OCA (Optical Clear Adhesive)
OCA (Optical Clear Adhesive)
Cover Glass
PET Film
OCA (Optical Clear Adhesive)
PET Film
Display Panel (LCD/OLED)
ITO layer (Tx, Driving Line)
ITO layer (Rx, Sensing Line)
OCA (Optical Clear Adhesive)
Cover Glass
OCA (Optical Clear Adhesive)
PET Film
Display Panel (LCD/OLED)
ITO layer (Tx, Driving Line)
ITO layer (Rx, Sensing Line)
OCA (Optical Clear Adhesive)
Cover Glass
OCA (Optical Clear Adhesive)
PET Film
GFF(Glass-Film-Film)
G1F(Glass-Film)
Iljin
Display (020760 KS/Buy/TP: W26,000) TOP PICK
69/77
Source: Displaybank,
Narrow bezel comparison
Photolithography process is crucial for narrow-bezel production
Demand for narrow-bezel displays is growing in line with increasing consumer desire for large screens and portability
90% of Iljin DisplayÊs products are based on photolithography; scheduled to begin mass production of 30um products
Iljin
Display
(020760
KS/Buy/TP:
W26,000)
Galaxy Note 8.0 Galaxy Tab3 8.0
Screen printing Photolithography
TOP PICK
70/77
Iljin
Display
(020760
KS/Buy/TP:
W26,000) TOP PICK
Source: KDB Daewoo Securities Research
Balance sheetIncome statement
12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F597 714 895 974 158 164 235 288505 620 776 845 53 35 67 106
92 94 119 129 75 88 118 12827 27 35 38 25 29 39 4265 67 83 91 1 1 1 165 67 83 91 114 175 205 232-5 6 4 2 1 1 1 01 2 2 1 87 146 171 1960 0 0 0 18 18 18 17
60 73 87 93 273 339 440 520-5 14 17 19 114 171 205 21764 60 70 74 78 95 127 1380 0 0 0 33 71 71 71
64 60 70 74 3 6 8 864 60 70 74 8 8 11 110 0 0 0 4 0 0 0
63 58 69 73 0 0 0 063 58 69 73 122 179 215 2270 0 0 0 151 160 225 293
74 80 99 106 14 14 14 1462 -3 35 45 36 -8 -8 -8
12.4 11.2 11.0 10.9 102 156 222 291
10.8 9.4 9.3 9.3 0 0 0 0
10.8 8.3 7.8 7.6 151 160 225 293
Controlling InterestsNon-Controlling Interests
Non-Controlling InterestsEBITDAFCF (Free Cash Flow)EBITDA Margin (%)
Operating Profit Margin (%)
Net Profit Margin (%)
Total Comprehensive ProfitControlling Interests
Non-Operating ProfitNet Financial IncomeNet Gain from Inv in Associates
Pretax ProfitIncome TaxProfit from Continuing OperationsProfit from Discontinued OperationNet Profit
Intangible Assets
Inventories
(Wbn)
Cost of SalesGross Profit
Other Current AssetsSG&A ExpensesOperating Profit (Adj)
Property, Plant and Equip
Current Assets
Non-Current Assets
(Wbn)
Operating Profit
Revenue
AP & Other PayablesShort-Term Financial LiabOther Current Liabilities
Cash and Cash EquivalenAR & Other Receivables
Total AssetsCurrent Liabilities
Investments in Associates
Non-Controlling Interests
Capital StockCapital Surplus
Non-Current LiabilitiesLong-Term Financial LiabOther Non-Current Liabilit
Total LiabilitiesControlling Interests
Retained Earnings
Stockholders' Equity
71/77
Iljin
Display
(020760
KS/Buy/TP:
W26,000) TOP PICK
Source: Daewoo Securities Research
Valuation multiples (forecast)Cash flow statement (forecast)
12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F
97 78 78 85 9.4 7.7 6.6 6.2
64 60 70 74 8.2 6.4 5.4 5.121 24 29 32 4.5 3.2 2.2 1.79 12 15 15 8.0 6.2 4.7 4.00 1 1 1 2,356 2,106 2,468 2,632
-12 6 7 4 2,705 2,552 3,014 3,17912 3 -4 -3 4,865 5,021 7,308 9,725
-31 -12 -30 -11 200 150 180 200-4 -3 -10 -3 8.5 7.1 7.3 7.636 13 32 11 0.9 0.9 1.1 1.20 -9 -17 -19 83.9 19.7 25.3 8.9
-43 -76 -39 -38 69.1 7.5 23.8 7.9-36 -72 -40 -40 77.6 3.8 24.2 9.3
0 0 0 0 104.4 -10.6 17.2 6.6-6 -5 0 0 12.4 10.6 10.5 9.6-2 1 1 2 22.6 26.5 26.3 24.0
-23 -19 -7 -8 15.8 11.9 11.8 10.8-20 33 0 0 28.3 19.5 17.9 15.5
2 5 0 0 53.3 38.3 36.3 28.8-3 -6 -4 -5 55.2 34.7 33.4 31.8-2 -51 -3 -3 80.7 111.5 95.9 77.631 -17 32 39 139.6 95.7 114.8 133.121 53 35 67 -13.8 15.6 -2.9 -15.753 35 67 106 44.6 24.9 30.9 33.8
OthersIncrease (Decrease) in CashBeginning Balance
Cash Flows from Fin ActivitiesChg in Financial LiabilitiesChg in EquityDividends Paid
Chg in InventoriesChg in AP & Other Payables
Income Tax PaidCash Flows from Inv Activities
Chg in PP&EChg in Intangible AssetsChg in Financial AssetsOthers
Non-Cash Income and ExpenseDepreciationAmortizationOthers
Chg in Working CapitalChg in AR & Other Receivables
Net Profit
Cash Flows from Op Activities(Wbn)
P/B (x)P/CF (x)
P/E (x)
DPS (W)Payout ratio (%)
CFPS (W)BPS (W)
ROA (%)ROE (%)
EV/EBITDA (x)EPS (W)
EPS Growth (%)Accounts Receivable Turnove
EBITDA Growth (%)Operating Profit Growth (%)
Dividend Yield (%)Revenue Growth (%)
Inventory Turnover (x)Accounts Payable Turnover (
Ending BalanceNet Debt to Equity Ratio (%)Current Ratio (%)
ROIC (%)Liability to Equity Ratio (%)
Interest Coverage Ratio (x)
72/77
Needs to reduce dependence on Apple
Shipments to increase on supply for use in AppleÊs second-generation iPad mini and iPad Air
T-con market share for LGEÊs TVs: 8%(2013F)30%(2014F)
Likely to emerge as a supplier of core chips for UHDTVs and AppleÊs iTV
Commercial production of new products (including mobile single-chip solutions, touch ICs, and LED ICs) to start next year
Outlook for car ICs (angular sensors and position sensosr) is also positive in the medium to long term
Raise target price by 7% to W31,000 (revise up 2014F EPS by 8% in light of progress of new businesses)
Source: KDB Daewoo Securities Research
Share performanceEarnings and valuation metrics
Silicon Works (108320 KQ/Buy/TP: W31,000) TOP PICK
Notes: K-IFRS consolidated financial statements; net profit attributable to controlling interests; Based on the November
27, 2013 closing price
Source: Daewoo Securities Research
FY (Dec.) 12/10 12/11 12/12 12/13F 12/14F 12/15F
Revenue (Wbn) 257 302 473 400 440 525OP (Wbn) 38 25 44 28 36 44OP Margin (%) 14.7 8.2 9.2 7.0 8.2 8.4NP (Wbn) 41 33 41 30 38 45EPS (W) 2,688 2,021 2,529 1,855 2,312 2,735ROE (%) 27.5 15.5 17.3 11.5 13.2 14.1P/E (x) 12.5 15.4 8.8 13.2 10.6 9.0P/B (x) 2.7 2.2 1.4 1.4 1.3 1.2
Share Price (11/27/13, W) 24,300 511.65Expected Return 28% 395OP (13F, Wbn) 28 Shares Outstanding (mn) 16Consensus OP (13F, Wbn) 29 Free Float (%) 72.2EPS Growth (13F, %) -26.7 Foreign Ownership (%) 26.0Market EPS Growth (13F, %) 13.4 Beta (12M) 1.0P/E (13F, x) 13.2 19,500Market P/E (13F, x) 11.3 27,000
KOSDAQMarket Cap (Wbn)
52-Week Low (W)52-Week High (W)
Silicon Works
Trading volume
73/77
Silicon Works (108320 KQ/Buy/TP: W31,000) TOP PICK
Source: KDB Daewoo Securities Research
Balance sheetIncome statement
12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F473 400 440 525 301 235 259 288394 336 364 434 116 184 209 238
78 63 76 91 85 0 0 035 36 40 47 42 0 0 044 28 36 44 5 0 0 044 28 36 44 35 37 41 44
6 7 8 8 3 3 3 3-6 -3 -3 -3 14 13 13 120 0 0 0 8 7 6 5
50 35 44 52 336 272 300 3329 5 6 8 79 0 0 0
41 30 38 45 65 0 0 00 0 0 0 0 0 0 0
41 30 38 45 14 0 0 041 30 38 45 1 1 1 20 0 0 0 0 0 0 0
41 30 38 45 1 1 1 141 30 38 45 80 1 1 20 0 0 0 256 270 299 331
46 30 37 45 8 8 8 8-5 79 32 39 69 69 69 69
9.8 7.5 8.5 8.6 180 200 228 260
9.2 7.0 8.2 8.4 0 0 0 0
8.7 7.6 8.5 8.5 256 270 299 331
Controlling InterestsNon-Controlling Interests
Non-Controlling InterestsEBITDAFCF (Free Cash Flow)EBITDA Margin (%)
Operating Profit Margin (%)
Net Profit Margin (%)
Total Comprehensive ProfitControlling Interests
Non-Operating ProfitNet Financial IncomeNet Gain from Inv in Associates
Pretax ProfitIncome TaxProfit from Continuing OperationsProfit from Discontinued OperationNet Profit
Intangible Assets
Inventories
(Wbn)
Cost of SalesGross Profit
Other Current AssetsSG&A ExpensesOperating Profit (Adj)
Property, Plant and Equip
Current Assets
Non-Current Assets
(Wbn)
Operating Profit
Revenue
AP & Other PayablesShort-Term Financial LiabOther Current Liabilities
Cash and Cash EquivalenAR & Other Receivables
Total AssetsCurrent Liabilities
Investments in Associates
Non-Controlling Interests
Capital StockCapital Surplus
Non-Current LiabilitiesLong-Term Financial LiabOther Non-Current Liabilit
Total LiabilitiesControlling Interests
Retained Earnings
Stockholders' Equity
74/77
TOP PICKSilicon Works (108320 KQ/Buy/TP: W31,000)
Source: Daewoo Securities Research
Valuation multiples (forecast)Cash flow statement (forecast)
12/12 12/13F 12/14F 12/15F 12/12 12/13F 12/14F 12/15F
0 81 31 38 8.8 13.2 10.6 9.0
41 30 38 45 8.3 12.4 10.2 8.78 1 0 1 1.4 1.4 1.3 1.22 1 1 1 4.2 5.5 3.7 2.51 1 1 1 2,529 1,855 2,312 2,735
-2 4 5 5 2,697 1,974 2,401 2,814-48 62 0 0 15,791 17,065 18,851 20,860-52 83 0 0 650 600 800 0-14 42 0 0 25.0 30.9 33.0 0.026 -66 0 0 2.9 2.4 3.3 0.0-1 -12 -6 -8 56.8 -15.4 10.1 19.21 4 3 3 72.4 -35.5 25.5 21.1
-1 -3 0 0 75.5 -35.9 29.0 22.4-5 0 0 0 25.1 -26.7 24.7 18.35 3 0 0 8.7 5.03 3 3 3 13.4 9.5
-5 -16 -9 -12 9.6 6.40 0 0 0 13.6 9.9 13.2 14.11 -5 0 0 17.3 11.5 13.2 14.1
-6 -10 -9 -12 66.0 51.4 170.8 225.00 0 0 0 31.5 0.5 0.4 0.5
-5 69 25 29 379.9120 116 184 209 -66.2 -86.9 -86.9 -87.1116 184 209 238
OthersIncrease (Decrease) in CashBeginning Balance
Cash Flows from Fin ActivitiesChg in Financial LiabilitiesChg in EquityDividends Paid
Chg in InventoriesChg in AP & Other Payables
Income Tax PaidCash Flows from Inv Activities
Chg in PP&EChg in Intangible AssetsChg in Financial AssetsOthers
Non-Cash Income and ExpenseDepreciationAmortizationOthers
Chg in Working CapitalChg in AR & Other Receivables
Net Profit
Cash Flows from Op Activities(Wbn)
P/B (x)P/CF (x)
P/E (x)
DPS (W)Payout ratio (%)
CFPS (W)BPS (W)
ROA (%)ROE (%)
EV/EBITDA (x)EPS (W)
EPS Growth (%)Accounts Receivable Turnove
EBITDA Growth (%)Operating Profit Growth (%)
Dividend Yield (%)Revenue Growth (%)
Inventory Turnover (x)Accounts Payable Turnover (
Ending BalanceNet Debt to Equity Ratio (%)Current Ratio (%)
ROIC (%)Liability to Equity Ratio (%)
Interest Coverage Ratio (x)
75/77
Important disclosures & disclaimers
DisclosuresAs of the publication date, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of 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 LG Display as an underlying asset, and other than this, Daewoo Securities has no other special interests in
the covered companies.Of the equity-linked warrants covered in this report, Daewoo Securities Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of LG Display as underlying assets.
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.
SFA Engineering
0
20,000
40,000
60,000
80,000
100,000
11/11 5/12 11/12 5/13 11/13
(W) Iljin Display
0
5,000
10,000
15,000
20,000
25,000
30,000
11/11 5/12 11/12 5/13 11/13
(W) Silicon Works
0
10,000
20,000
30,000
40,000
50,000
11/11 5/12 11/12 5/13 11/13
(W) LG Display
0
10,000
20,000
30,000
40,000
50,000
11/11 5/12 11/12 5/13 11/13
(W)
76/77
Important disclosures & disclaimers
Analyst CertificationThe 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 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 in the 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.
DisclaimersThis report is published by Daewoo Securities Co., Ltd. („Daewoo‰), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any
translation into English from the Korean language. If this report is an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof. Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market
or otherwise, in each case either as principals or agents. Daewoo and its affiliates may have had, or may be expecting to enter
into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur.
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Important disclosures & disclaimers
DistributionUnited Kingdom: This report is being distributed by Daewoo Securities (Europe) Ltd. in the United Kingdom only to (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other persons to whom it may lawfully be communicated, falling within Article 49(2)(A) to (E) of the Order (all such persons together being referred to as “Relevant Persons”). This report is directed only at Relevant Persons. Any person who is not a Relevant Person should not act or rely on this report or any of its contents. United States: This report is distributed in the U.S. by Daewoo Securities (America) Inc., a member of FINRA/SIPC, and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U.S. Securities Exchange Act of 1934. All U.S. persons that receive this document by their acceptance thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements. Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its affiliates to any registration or licensing requirement within such jurisdiction.