130408 hsbc flexible display
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By Brian Sohn, Ricky Seo and Jerry Tsai
The smartphone and tablet industries are on the verge of another revolution – look out for a
new wave of innovation starting in 2H13
Curved handsets and bendable, stronger tablets will be the next big thing, thanks to new
plastic materials
Korean companies Samsung Electronics (OW) and LG Electronics (OW) stand to gain the most
from flexible display, but the whole supply chain will benefit; we upgrade Cheil Industries and
SFA to OW and Duksan Himetal to N(V)
Disclosures and Disclaimer This report must be read with the disclosures and analyst
certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
Flexible DisplayFantastic plastic – a shape-shifting game changer
Telecoms, Media & Technology
Equity – Asia
April 2013
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Impact from flexible display
Positive Neutral Negative Reason Impact
Handset makers
SEC Differentiation among smartphone makers Flexible display could help to sustain its dominance in the high-end smartphone segment
LGE Flexible display could be a key differentiating factor in high-end smartphones, and help to improve ASP and margin. Revise up 2013 handset margin assumption from 0.9% to 3.7%
Materials Cheil Industries
New business in plastic substrate and OLED materials to kick in
OLED business drives ECM division growth as it expects to take 23% of ECM revenue in 4Q15 from nothing in 4Q12
LG Chem Contribution from plastic substrate, which accounts for only a small portion of overall earnings
Although the company is a key player in making flexible display feasible, the contribution to earnings is limited
Duksan Himetal
Already a major supplier of OLED materials to Samsung Display
Already a main OLED material supplier for Samsung Display, limited upside from flexible display transition
Glass makers*
Glass substrate to be replaced by plastic in the longer term
Panels Samsung Display
Limited to small-sized displays, insignificant to overall earnings
Substantial potential to become major flexible display makers as its AMOLED line could be converted to flexible display when materials are ready for mass production
LG Display
Although the company should play an important role in commercialising flexible display, expect an insignificant contribution to earnings
Component LG Innotek
Indirect beneficiary if LGE’s smartphone business can turn around
Once LGE smartphone business turns round, it is likely to benefit from the mobile component business with LGE
SEMCO Already a major beneficiary of Samsung’s smartphone success
Handset accounts for 23% of estimated 2013 total revenue
LED makers*
No BLU is required in flexible display (e.g., Seoul Semi)
(Battery) Samsung SDI
Product mix improvement through irregular shaped battery IT battery accounts for 64% of estimated 2013 total revenue
LG Chem Although the company is a key player in making flexible display feasible, the contribution to earnings is limited
Equipment SFA Line conversion to LTPS OLED Additional small panel equipment orders from Samsung Display during 2-3Q13e, given that it has to switch or extend capacity for flexible AMOLED. Galaxy Note 3 likely to adopt flexible OLED (unbreakable).
LTPS equipment*
Line conversion to LTPS OLED from traditional LCD
Source: HSBC estimates *Note: Refer to the table on page 9 for the food chain
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Roadmap for flexible display
Phase Available solution Time frame Product Key benefit Prototype
Plastic substrate LTPS, RGB OLED, Polyimde (not fully transparent)
2Q13e Unbreakable smartphone
Lighter, slimmer, given no substrate glass required, but no change in form factor
Plastic substrate + ultra-thin glass
LTPS, RGB OLED, Polyimde, irregular type Li-Polymer battery
3Q13e Curved screen smartphone
Lighter, slimmer and curved screen design
Plastic substrate + plastic front glass
LTPS, OLED, transparent Polyimde substrate, irregular type Li-Polymer battery, new plastic material
2014e Bendable tablet, notebook
Lighter, expandable screen size
Transparent LTPS, OLED, transparent Polyimde substrate, transparent battery, new plastic material
2015e Transparent, smartphone, tablet, monitor
Transparent, rollable tablet
Source: HSBC estimates
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The next big thing – flexible display. Imagine a screen that is bent around the side of the phone, so you
can see data updates or messages. Then go a stage further and imagine a range of bendable, rollable and
foldable digital devices. Welcome to flexible display, the technology that is about to become commercial
reality. Flexible displays can be bent without being damaged, making it possible to create products that
are ultra-thin, almost unbreakable and flexible. The potential for this technology is substantial as the
ultimate goal is to produce cheap mass-produced digital devices that can be rolled up like paper.
We believe the introduction of flexible display will change the industry landscape. Starting with another
wave of innovation in 2H13, flexible display based on new plastic materials will evolve into bendable and
then transparent products.
This report focuses on Korean companies as they appear better placed to benefit from flexible display
than their global competitors, at least to begin with. They are at an advanced stage of development in
most of the processes needed to make this technology a reality and should also be the first to enjoy the
advantages of a vertically integrated supply chain.
Korean giants LG Electronics (LGE) and Samsung Electronics (SEC) are likely be the main beneficiaries.
The two companies are leading the way in developing this new technology (Samsung gave a sneak
preview at a recent trade show in Las Vegas) and have the capability to manufacture and release
differentiated products that will change the market.
Importantly, both have already commercialised organic light-emitting diode (OLED) technology, the base
technology for flexible display, and have established vertically integrated panel, chemical, and handset
production. LGE and SEC should lead the way in the initial stage when the flexible display technology is
first used in handsets for smartphones. LG Innotek (LGI) should benefit as a component supplier, as
should Cheil Industries and SFA as materials and equipment providers.
Summary
The concept of a digital device that can be rolled up like a piece of paper is no longer science fiction. We believe flexible display technology will be a game changer for smartphones and tablets and the first prototype products should be available in a few months. LG Electronics and Samsung Electronics stand to gain the most, but the whole vertically integrated Korean supply chain will benefit. We upgrade Cheil Industries and SFA to OW from N and Duksan Himetal to N(V) from UW(V). We remain OW on Samsung Electronics (an Asia Super 10 and GEMs Super 15 portfolio stock) and OW (remove the volatility indicator (V)) on LG Electronics and LG Innotek.
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All this is good news for the digital supply chain. For example, the smartphone market, which has grown
at a significant rate since the second half of 2009, is starting to mature. Aggressive new players are trying
to catch up with market leaders. Currently, all smartphones use rectangular touch screens, making it
harder to differentiate between products (see The new three “Cs” – commoditisation, concentration and
cost, 6 December 2012, and Lots of new products, little differentiation. Commoditisation accelerating,
14 January 2013). And with lower entry barriers leading to fierce price competition, sentiment has turned
gloomy as fears about lower profitability grow. Flexible display should help change that.
OLED gives established players an edge. Other than larger screen size and better resolution, there is
little room for improvement in flat display panel, which is based on light-emitting diode (LED)
technology. Top Korean LCD makers have been trying to breathe life into the industry but penetration
levels for LCD TVs are already high. LCD can’t be used in flexible display, which needs self-light
emitting material, such as OLED. Korean companies have led the development of OLED, which is
already being used in some smartphones and TVs. OLED’s faster response time and outstanding colour
definition have given the early entrants an edge as its use in high-end products also generates a margin
premium. OLED is the first step to making the commercialisation of flexible display a reality.
The challenges: 1) Customer satisfaction and good profit margins are the incentives driving the
commercialisation of flexible display. Heavy investments have already been made in LCD facilities,
which will have to be converted to produce flexible display. 2) A substitute for glass: most displays use
glass as it offers better resistance to heat, gas and moisture, and is more transparent than other materials;
but it is not flexible, so new plastic materials are needed. 3) Flexible display products need to show that
they can offer consumers added value. It remains to be seen how much of a premium companies will be
able to charge for these products. The consumer will be the judge of that. What can we expect? We think flexible display will be fully commercialised in 2014, but some products
based on existing technology may be available much earlier. The first thin smartphones and tablet PCs
using plastic substrates could be in stores in just a couple of months, but how much added value these
prototypes will offer consumers remains to be seen. We expect competition to start to hot up in 3Q13
after the release of smartphones with curved screens made of both plastic substrate and thin glass.
Curved design smartphone concept Curved design smartphone concept
Source: HSBC Source: HSBC
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LGE and SEC, which have vied with each other since the launch of OLED TV in January 2012, should
also compete fiercely in the flexible display smartphone market. In 2H13, SEC is likely to start offering
flexible display in its Galaxy Note 3 and LG Electronics in its Optimus G2 models, with possible volumes
of 10-15m and 5-10m, respectively. This would mean that by the end of the year flexible display could
represent 5% of the global smartphone market and 15% of high-end smartphones in 2H13. These models
are all high end, so the impact on earnings will be visible at an early stage. The first models will still use
glass in the outer layer of the curved screen, so won’t be completely flexible. However, by 2014 plastic
film will be available and the new products will represent a revolutionary change in the smartphone,
notebook and tablet industry.
Flexible display market forecasts Samsung’s OLED sales and OPM forecasts
0
2,000
4,000
6,000
8,000
10,000
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LCD OLED E-ink Others(USDmil)
0
5,000
10,000
15,000
20,000
25,000
2010 2011 2012 2013e 2014e
0%
5%
10%
15%
20%
25%
OLED rev enue (USDmil) OPM (RHS)
Source: Display Search, HSBC estimates Source: HSBC estimates
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Market prospects. We expect two important technological steps to be taken next year. First, an
evaporation process on top of plastic substrates will simplify the manufacturing process, leading to mass
production. We also expect transparent plastic to replace the frontal glass of curved screens. This will
broaden the scope of flexible display’s applications from pilot products, such as two-inch watches and
five-inch curved screens, to commercial 5-8 inch tablets and 13-15 inch notebooks. When this happens,
the size of the flexible display market size will increase substantially.
Given the scale and pace at which Samsung Display is converting some of its OLED facilities to flexible
lines, we estimate the market could be worth USD6bn by 2015. Much will depend on how fast new
materials and processes can be developed. While demand for prototype flexible display products, such as
watches and small curved screen is likely to be limited, we expect the market to start taking off when SEC
and LGE launch flexible display Galaxy Note 3 and Optimus G smartphones later this year.
Bendable display conceptual picture Bendable display conceptual picture
Source: HSBC Source: HSBC
Development of OLED display vs. flexible display
2011 2012 2013 2014 2015 2016
OLED TV Flex ible display
① Technological
improv ement
② Introduction of
prototy pe through
pilot line
③ Penetration of
new play ers
④ Mass production
for OLED TV
①Technological
improv ement
② Introduction
of prototy pe
③Penetration of
new play ers
Source: HSBC estimates
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The winners. We believe vertical integration is essential to fully commercialise flexible display for the
following reasons: 1) Although individual panel and materials companies are capable of solving
technological issues, the supply chain needs to be tested by the rigours of mass production; 2) We think
flexibility on pricing throughout the supply chain is also essential, especially in the early stages. TV set
makers have a “40% premium rule” for TV products but set prices lower when they launched LED and
ultra-high definition TV. They will probably have to adopt the same tactics for flexible display as
customers assess these new products. 3) A whole range of new components will be needed to meet the
requirements of flexible display (for example, a completely new shaped battery will have to be designed).
Korean handset makers that stand to benefit most at first as they have an opportunity to grow their market
share on the back of these new and highly differentiated flexible display products. It’s certainly a
substantial opportunity for LGE, which is experiencing a slump in its smartphone business. The
company’s market share is only 5%, but we believe this can rise to 7-8% in 2014. Samsung Electronics,
the leader in the smartphone handset market, can use flexible display to further strengthen its position.
We believe these two companies have a head start on their global handset rivals because they already a
vertically integrated supply chain in place. For example, we think flexible display will be difficult to
commercialise for Apple, given the large size of its orders and a lack of capacity in the industry.
Meanwhile, it may take Nokia and HTC some time to introduce flexible display products as organising
the supply chain is likely to be a lengthy process.
We believe LG Innotek (LGI) will be one the biggest indirect beneficiaries of the flexible display trend.
For example, if LGE’s handset business improves, LGI will supply it with most of the handset
Impact from flexible display
Food chain Name Impact Description
Handset and panel
Samsung Electronics
Handsets account for 51% and 64% of sales and operating profit in 2013e, respectively
Flexible display could help to sustain its dominance in the high-end smartphone segment
Samsung Display
OLED panels account for 6.8% and 9.1% of sales and operating profit in 2013e, respectively
Substantial potential to become a major flexible display maker as its AMOLED line could be converted to flexible display when materials are ready for mass production
Handset makers
LG Electronics Handsets account for 23% and 30% of sales and operating profit in 2013e, respectively
Flexible display could be a key differentiating factor in high-end smartphones and help to improve ASP and margin. Revise up 2013e handset margin assumption from 1% to 3%
Materials LG Chem Plastic substrate and Li-Polymer battery take <1% and 6% of total sales in 2013e
Although the company is a key player in making flexible display feasible, the contribution to earnings is limited
Cheil Industries Electronics Chemical Material (ECM)business accounts for 29% of 2013e sales
OLED business drives ECM division growth as it expects to take 24% of ECM revenue in 4Q15e, up from nothing in 4Q12
Duksan Himetal
OLED materials account for 71% of 2013e sales
Already a main OLED material supplier for Samsung Display, limited upside from flexible display transition
Component LG Innotek Mobile component business accounts for 60% of 2013e sales
Once LGE’s smartphone business turns around, it is likely to benefit from the mobile component business with LGE
SEMCO c50% of sales is from Samsung Electronics
Already a major component supplier to Samsung Electronics, the incremental benefit from flexible display could be limited
Panel LG Display G6 LTPS fab is to be converted to flexible OLED, it accounts for 6% of total output capacity
Although the company will likely play an important role in commercialising flexible display, expect insignificant contribution to earnings
Equipment SFA 57% of 2013e sales is related to OLED manufacturing equipment (back-end and logistics)
Additional small panel equipment orders from Samsung Display during 2-3Q13e, given that it has to switch or extend capacity for flexible AMOLED. Galaxy Note 3 will mostly likely adopt flexible OLED (unbreakable)
Source: HSBC estimates
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components – touch screen, PCB, and camera modules. LGI also holds the key to developing the required
flexible components (e.g. flexible PCB) when curved design is introduced. This will strengthen the
relationship between LGI and LGE. What’s more, LGI is developing a transparent electrode, essential for
transparent display in the longer term. We also believe Cheil Industries will have the largest upside risk in
the mid to long term as the company can co-operate with Samsung Display to develop core technologies
required for flexible display. This is Cheil’s differentiating factor and is expected to drive revenue growth
at its electronic material division.
It’s also good news for equipment makers. Starting in 3Q13, Samsung Display and LG Display are
expected to expand capacity by converting existing LCD fabs to plastic OLED to maximise investment
efficiency. As a result, SFA, Samsung Display’s equipment makers, is expected to benefit.
Our preferred stocks among handset makers are Samsung Electronics and LG Electronics, while we
prefer Cheil Industries, LG Innotek, and SFA among component, materials and equipment providers. We
upgrade Cheil Industries and SFA to OW from N and Duksan Himetal to N(V) from UW(V). We remain
OW on Samsung Electronics (an Asia Super 10 and GEMs Super 15 portfolio stock) and OW (remove
the volatility indicator (V)) on LG Electronics and LG Innotek.
Summary of ratings and target price changes
LG Electronics Cheil Industries LG Innotek SFA Samsung Electronics
LG Display LG Chem Duksan Himetal
Stock Code 066570 KS 001300 KS 011070 KS 056190 KS 005930 KS 034220 KS 051910 KS 077360 KSMarket Cap (KRWbn) 13,042.7 4,415.3 1,567.3 1,086.2 221,980.1 11,181.7 18,257.7 806.8Rating Reiterate OW Upgrade to OW
from N Reiterate OW Upgrade to OW
from NReiterate OW Reiterate OW(V) Reiterate OW(V) Upgrade to N(V)
from UW(V)Target Price (KRW) 116,000 108,000 108,000 75,000 2,000,000 51,500 365,000 31,700Previous TP (KRW) 104,000 98,000 108,000 56,000 2,000,000 51,500 365,000 17,500Current Price (KRW) 80,000 92,500 85,700 62,400 1,521,000 31,150 251,000 26,850Diff to TP 45.0% 16.8% 26.0% 20.2% 31.5% 65.3% 45.4% 18.1%PE 2012a 215.7x 22.4x -69.1x 14.9x 9.6x 48.5x 11.8x 16.1x 2013e 11.4x 14.3x 36.8x 11.1x 7.1x 5.4x 9.2x 14.2xPB 2012a 1.2x 1.4x 1.4x 2.9x 1.9x 1.1x 1.5x 3.7x 2013e 1.1x 1.3x 1.3x 2.4x 1.5x 0.9x 1.3x 2.9xROE 2012a 0.5% 6.4% -1.9% 19.6% 22.3% 2.3% 14.1% 26.1% 2013e 9.7% 9.6% 3.6% 23.3% 23.9% 18.8% 15.9% 23.1%EPS 2012a 371 4,124 -1,240 4,175 158,228 642 21,281 1,665 2013e 7,044 6,458 2,330 5,611 214,645 5,746 27,138 1,891BVPS 2012a 69,166 64,329 62,895 21,838 806,096 28,619 163,890 7,253 2013e 75,959 70,041 65,226 26,249 1,028,740 34,438 185,941 9,144
Source: Bloomberg, HSBC estimates; Priced as of 3 April 2013
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OLED/Flexible display food chain
Category Component Name Description Suppliers
TFT Glass Mother glass Base glass to apply TFT circuit NEG (NEG US)
Corning (GLW US) Plastic substrate Polyimide film Plastic film to apply on TFT glass LG Chem (051910 KS)
Cheil Industries (001300 KS) Nippon Steel Chemical Corp (5401 JP)
Circuit Surface mount device
Flexible printed circuit board Flexible plastic board with complex of circuit ACT (unlisted)
MLCC Multi-layer ceramic condenser Multiple layer of ceramic condenser to control power between chip on the circuit board
SEMCO (009150 KS) Murata (6981 JP)
OLED Common Layer HIL, HTL, ETL, EIL Layer to transfer electrons UDC (PANL US) Idemitsu Kosan (5019 JP) LG Chem (051910 KS) Cheil Industries (001300 KS) Doosan Electronics (unlisted)
Emission Materials Fluorescence materials, Phosphorescence materials
Self-illuminating material when electric power is applied
UDC (PANL US) Idemitsu Kosan (5019 JP) Kodak (unlisted)
Evaporation RGB LTPS Equipment to use low temperature laser base evaporation process
Tokki (7751 JP) AP System (054620 KS) ULVAC (6728 JP)
White OLED Sputtering equipment AVACO (083930 KS) Encapsulation Sealant Paste to stick upper glass and bottom glass in TFT Three Bond
LG Chem (051910 KS) Cheil Industries (001300 KS)
Frit seal Glass pounder to be used as adhesive paste Yamato (9064 JP) Corning (GLW US)
Face seal Apply adhesive seal in order to bind upper and bottom glass
Three Bond (unlisted) AVACO (083930 KS) LIG ADP (079950 KS)
PECVD chamber Vacuum chamber for face seal process Jusung Eng(036930 KS)
Source: HSBC
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Introduction to flexible display 11 Why flexible display is important 11
Flexible display: market prospects 13
Key success factors 16 1: Re-using LCD fabs 16
2: A substitute for glass 16
3: Plastic to replace frontal glass 18
4: Vertical integration 18
What to expect near term 20
Who benefits from flexible display? 24
Implications for non-Korean players 26
Technology overview 29
Technology overview 30 Introduction 30
Patent trends 36
Company section 39 LG Electronics (066570 KS) 40
Cheil Industries (001300 KS) 43
LG Innotek (011070 KS) 46
Samsung Electronics (005930 KS) 48
LG Display (034220 KS) 50
LG Chem (051910 KS) 52
SFA (056190 KS) 54
Duksan Himetal (077360 KS) 56
Disclosure appendix 69
Disclaimer 72
Contents
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Why flexible display is important
The era of mobile devices began in the second
half of the 1990s. As cell phones became widely
used, the market for mobile equipment grew at a
rapid rate. The main area of competition was in
making devices smaller and improving call
quality. Once the ideal size and call quality was
achieved it became harder to differentiate the
products in the early 2000s.
As a result, companies started competing to
develop simple wireless telecom devices and
added value for customers by offering colour
display, MP3 and camera functions. The
landscape of the market changed quickly as GSM
and CDMA combined to form WCDMA or 3G.
The market became more operator-driven as
telecom companies used a variety of marketing
methods, including providing customers with
subsidies and two-year contracts.
By the second half of 2005, most phones had
similar design and functions (camera, colour
display, 3G) and with differentiation becoming
more difficult, commoditisation started and
competitors focused on lowering production costs.
Introduction to flexible display
Flexible display will improve the user experience for mobile
devices by increasing design options
Materials, evaporation and encapsulation are the key to mass
production
Korean companies are leading the way in technological advances
Brian Sohn* AnalystThe Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch +822 3706 8765briansohn@kr.hsbc.com
Ricky Seo* AnalystThe Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch +822 3706 8777rickyjuilseo@kr.hsbc.com
Jerry Tsai* AnalystHSBC Securities (Taiwan) Corporation Limited +8862 8725 6023jerrycytsai@hsbc.com.tw
*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/ qualified pursuant to FINRA regulations
The history of the handset industry
Time frame Technology Key application
1990s 2G Voice quality, ring tone, MP3, slimmer form factor 2000 Colour screen, dual display, longer battery life2002-03 Active matrix colour display, number portability, CDMA 2004-05 3G 3G, operator-driven subsidy programme, data download speed2005-08 Cost competitiveness in commoditised market, design differentiation2008-10 Smartphone, application store, eco-system2010-11 Android smartphone eco-system, multi-core application processor2012-13 LTE LTE, size and resolution of display2013e Design differentiation (flexible display)
Source: HSBC estimates
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After 2005, competitors turned their attention to
making cell phones essential in everyday life. As a
result, products with differentiated form factors,
such as casing, keypad and slim form factor, were
designed. The market for high-end phones started
to take off. Consumer interest in design was an
opportunity for Samsung and LG to strengthen
their positions in a market dominated by cost-
efficient companies, such as Nokia.
Then Apple’s iPhone arrived, providing completely
new experiences, such as entertainment features
and a highly distinctive design and customisation
options. The handset market went through rapid
change as Wi-Fi internet revolutionised the data
side of the business. Apple was the dominant force
until the advent of Android-based phones.
Differentiation has become even harder with most
companies using full HD panels, a standardised
quad-core application process, touch screen and
the Android operating system. In a commoditised
market, design is the high-end market’s main
differentiating point. We believe flexible display
will take this to a new level as the new technology
will see hand-held digital devices become lighter,
thinner and more convenient for users.
Display technology is advancing in four
directions: 1) improving the sense of reality
through 3D TV, 2) adopting additional functions,
such as touch and internet connectivity,
3) enabling greater mobility via lighter and
thinner products, such as in smartphones and
tablet PCs, and 4) expanding adaptability for
displays in homes and industries via thinner,
larger products, such as UHD TV.
Until recently, progress on flexible display
technology has been slow. The main reason is that
companies have already made heavy investments
in LCD, the technology used in flat display
panels. Flexible display requires a completely
Display development
Projection 3-D
Glassless 3-DTransparent
3D Glass
Touch Screen
CommunicationLighting
Bendable
Flexible
LCD Monitor
FHD TV, LCD, PDP
OLED TV
Digital signage
Realism
Multifunction
Lightening & Super-thinning
Thinning & Enlarging
2003 2008 2013 2020
Convenience
GlassThin-Large
GlassPlastic
High
Perform
ance
Projection 3-D
Glassless 3-DTransparent
3D Glass
Touch Screen
CommunicationLighting
Bendable
Flexible
LCD Monitor
FHD TV, LCD, PDP
OLED TV
Digital signage
Realism
Multifunction
Lightening & Super-thinning
Thinning & Enlarging
2003 2008 2013 2020
Convenience
GlassThin-Large
GlassPlastic
High
Perform
ance
Source: KEIT, HSBC
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different set of technologies, the first of which is
OLED display, which has a faster response time
and outstanding colour definition.
OLED is the base technology for flexible display
because of its self-illuminating properties that
allows greater design flexibility. Samsung Display
has made rapid progress in OLED technology and
is already using it its smartphones. LG Display
recently commercialised large TV displays using
this technology.
Flexible display uses plates that are pliable and as
thin as paper. They can be bent without being
damaged, making it possible to create products
that are thin, durable and flexible. The potential of
this technology is substantial as the ultimate goal
will be cheap digital devices that can be rolled up
like paper.
In the early stages, flexible display will be used in
small displays, such as watches, which can be
mass produced. Then, depending on how the
technology matures, it will be applied in
smartphones and tablets.
Flexible display: market prospects
We expect the flexible display market to develop
along similar lines as the OLED TV market. As
we explained in our report LG poised to take
lead in AMOLED TVs, January 2012, it is a four-
step process.
Establishing a stable base for the technology
(there was an early dispute between LG and
Samsung over different types of OLED)
Commercialisation based on pilot production
lines and market reaction
Characteristics of flexible display
Information
Technology Thin and light; change of shape and production possible according to need, and unbreakable Variety of organic materials, such as semiconductors and insulators. Low production cost as manufacturing at room temperature and atmospheric pressure is possibleBusiness Instead of simply substituting existing display industry, it has the potential to create market and new application areas Future value-oriented technology. Technology makes low-cost start-up costs possible Technology that is not dominated by any country or company
Source: HSBC
Development of OLED display vs. flexible display
2011 2012 2013 2014 2015 2016
OLED TV Flex ible display
① Technological
improv ement
② Introduction of
prototy pe through
pilot line
③ Penetration of
new play ers
④ Mass production
for OLED TV
①Technological
improv ement
② Introduction
of prototy pe
③Penetration of
new play ers
Source: HSBC estimates
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Entry of new players, including Japanese and
Taiwanese companies
Capex investment by LG and Samsung to
enable mass production
The commercialisation of flexible display is
expected to proceed in a similar manner. We think
that prototype products will be introduced by
Samsung and LG and the start of mass production
will be dictated by a variety of factors, including
technology, market response and cost. Samsung
Display and LG Display are both expected to start
small-scale flexible display manufacturing in the
next few months.
The debate about which is the best OLED
technology has yet to be resolved. When large-
size OLED panel production started in early 2012
the two companies adopted different strategies
when they set up pilot production lines.
LG Display plans to invest KRW700 billion in a
G8 White OLED facility, while Samsung Display
appears to have a two-track strategy, developing
both White OLED and RGB technology for high-
end products. For more details on OLED
technology, please see LG poised to take lead in
AMOLED TVs, 6 January 2012.
We believe LG Display is contemplating converting
a G6 LTPS line, which currently makes high-
resolution mobile display, to produce plastic display.
Samsung Display has already obtained two OLED
lines and may convert more capacity; it is also
working on a hybrid line that can produce both glass
and plastic OLED. How quickly new lines can be
adapted or expanded will depend how soon the
necessary materials can be developed.
Large-scale production in unlikely in 2H13 as not
all the technical systems are in place (e.g., it is not
yet possible to apply the evaporation process to
plastic substrate). However, we do expect a pilot
facility to produce prototype 2” watch and 5”
curved displays.
Things are moving fast and Samsung and LG are
likely to be able to apply flexible display
technology to their respective Galaxy Note 3 and
Optimus G2 models before the end of the year.
We expect demand in 2H13 to be about 25m and
take up about 5% of the smartphone market. If our
assumptions are correct, flexible display models
could capture 15% of the high-end smartphone
market by the end of the year.
The impact on profitability will depend on
generating decent yield on OLED, which may not
happen until next year at the earliest. At the
moment, because of the additional technical steps
required, production costs are higher than for
LCD. We expect them to fall considerably once
Flexible display market forecasts Samsung’s OLED sales and OPM forecast
0
2,000
4,000
6,000
8,000
10,000
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
LCD OLED E-ink Others(USDmil)
0
5,000
10,000
15,000
20,000
25,000
2010 2011 2012 2013e 2014e
0%
5%
10%
15%
20%
25%
OLED rev enue (USDmil) OPM (RHS)
Source: Display Search, HSBC estimates Source: Company data, HSBC estimate
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the evaporation process can be applied to plastic
substrate. This should happen next year, along
with other technical breakthroughs, such as the
development of transparent plastic that can
replace the front glass.
Once these are in place, flexible display will be
expanded from watches and small screens to 5-8
inch tablets and 13-15 inch notebooks. The
market should then really start to take off and we
forecast it will be worth up to USD6bn by 2015
and USD8bn in 2018.
However, it remains to be seen how much of a
premium companies will be able to charge for these
products. The consumer will be the judge of that.
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The commercialisation of flexible display will
depend on technology, mass production and cost.
We identify four key challenges.
1: Re-using LCD fabs
LCD panel businesses already make a wide range
IT products and TVs. Making sizeable new
investments could be a burden as profitability has
been declining due to oversupply. It will make
more sense for these companies to convert
existing LCD business lines to OLED to produce
flexible display.
Samsung Display and LG Display have already
made substantial investments in OLED, giving them
a head start on their Japanese and Taiwanese
competitors in the flexible display market. We
expect the LTPS-based RGB OLED technology –
already being used by Samsung Display in its high-
definition OLED small-size panel production – to
become the industry standard for flexible display.
2: A substitute for glass
Glass is currently used in the upper and lower
layers of LCD and OLED panels. The reason is
simple – it is flat, transparent and resistant to heat
and moisture. However, glass has low levels of
elasticity, making is unsuitable for flexible display.
Key success factors
Companies must convert existing LCD fabs to flexible display for
investment efficiency
Plastic material is needed to replace glass
Vertical integration – from material providers to handset
manufacturers – is important
Comparison of technologies involved in flexible display production
Process Technology Advantages Disadvantages
Backplane a-Si Cost competitiveness is high because most of existing LCD equipment can be re-used
Low mobility
Oxide More advanced than a-Si with the better mobility suitable for OLED, applicable in large-sized OLED panels and high-resolution panels
Applicability is uncertain due to low stability and low yield for mass-production
LTPS Most suitable for flexible display: 1) Sufficient mobility is feasible, 2) plastic can be easily utilised as it can be manufactured in a low-temperature environment
Equipment is expensive
Evaporation / Deposition
LED Backlight
Can’t be applied in flexible display
White OLED Can be applied in large-sized panel production Has limitations to be used in flexible display because it needs other layers, such as colour filters
RGB OLED Safest technology depositioning RGB colour in each cell; colour implementation is excellent on flexible surface
Source: HSBC
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Next-generation plastic looks like the best
substitute. Currently, it can be used in high-
performance thin transistors as its thermal
expansion coefficient is low. However, this is
expensive and not efficient due to its opaqueness.
However, on the plus side a wide range of
materials can be applied in plastic. Research is
being done on materials with high thermal
resistance, such as PET (Polyethylene
Terephthalate), PC (Polycarbonate), PES
(Polyether Sulfone), PI (Polyimide) and how
plastic boards can withstand the process of
thinning (see table on the next page).
We believe polyimide plastic film is most
compatible with flexible display since polyimide
provides the highest thermal resistance. Polyimide
is a transparent polymer material that has a
relatively low degree of crystallisation and an
amorphous structure. Moreover, it is an excellent
mechanical material and provides outstanding
heat and chemical resistance, electric
characteristics and stable size based on a rigid
chain structure. It is widely used in auto, aviation,
aerospace and flexible circuit boards.
Despite its advantages in being applicable in
insulating material, flexible film, and aerospace
aviation, polyimide is partially used in FPCB
(flexible printed circuit board) and costly displays
within aeroplanes due to its unique yellow colour;
efforts are being made to lower this yellow colour
and raise transparency. The result of this work,
polymer, is likely to be in use in 2014.
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3: Plastic to replace frontal glass
Frontal glass needs to be more scratch proof than
the lower glass panel. A plastic substitute would
need to have the same hardness as glass, but this
technology is still at an early stage. Some
Japanese companies are making progress in this
area, but the cost is much higher than tempered
glass, making commercialisation difficult.
4: Vertical integration
Some Japanese companies have already
developed technologies for the commercialisation
of flexible display and have even introduced some
prototypes. However, they are being produced by
a single company, so there is a lack of
competition in cost and mass productivity.
While a number of technological issues still need
to be resolved by individual material and panel
companies, we believe that vertical integration
among material developers, components and
panel producers, and handset makers is essential
for the commercial success of flexible display.
Given the newness and complexity of the
technology, co-operation among the companies in
the supply chain, especially in the early stages of
mass production, will be important.
We think flexibility on pricing is also essential.
Manufacturer info and pros and cons of plastic substrates
Pros Cons Manufacturer
PET (polyethylene terephthalate)
Strong UV resistance Excellent chemical-resistant Low moisture hygroscopicity (over 24h, 0.1%)
MD vs. TD direction optical anisotropy Weak temperature safety Gets murky due to partial recrystallisation after thermal process High CTE (20~80x10-6/K) Production room temperature (~130C)
General Atomics (USA) Mitsubishi Chemical (Japan)
PEN (polyethylene naphthalate )
Chemical-resistant Low CTE (~20x10-6/K) Low cost
Optical anisotropyWeak heat resistance Production room temperature (~130C)
Dupont Teijin Film (Japan)
PC (polycarbonate)
Good optical characteristic Good mechanical characteristic Easy to purchase
Weak chemical-resistanceHigh CTE (60~70x10-6/K) Low production room temperature (~150C) Weak UV resistance
Dupont Teijin Film (Japan) GE (USA) Mitsubishi (Japan)
PES (polyether sulfone)
UV resistance Easy to purchase
High moisture hygroscopicity (over 24h. 0.4~1.0%)High CTE (55x10-6/K) High cost Weak chemical-resistance Production room temperature (~180C)
i-Component (Korea) Sumitomo Bakelite (Japan)
PI (polyimide) Excellent chemical resistanceProduction room temperature (>200C) UV resistance Easy to purchase
High moisture hygroscopicity (over 24. 0.2~2.9%)CTE (50~60x10-6/K) Coloured board (dark yellow) Low transparency
DuPont (USA) Mitsubishi Gas (Japan) LG Chem (Korea) Cheil Industries (Korea)
AryLite Excellent heat-resistance Production room temperature (~200 C) Good optical characteristic Linear CTE change characteristic
Weak UV resistanceHigh (50_60x10-6/K)
Ferrania Image System (Italy)
Source: MOTIE, HSBC estimates
Conditions of plastic substrates vs. physical characters of glass
Plastic substrate
Glass
Glass transition temperature >250˚C Melting point of 1600˚C Heat deflection temperature 20 ppm/C
Gas transmittance <1,000/m2 day O Yellow index <5 O Flexibility O X
Source: MOTIE, HSBC
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Handset makers have a “40% premium rule” for
TV products, but set prices lower when they
launched LED and ultra-high definition TVs.
They will probably have to adopt the same tactics
for flexible display as customers assess these new
product lines.
Components will also have to change to meet the
design requirements of flexible display. For
example, different shaped batteries are being
developed to fit behind curved screens.
All in all, we believe vertically integrated
companies including the Samsung Group
(Samsung Electronics, Samsung Display, Cheil
Industries, SEMCO, Samsung SDI) and LG
Group (LG Electronics, LG Chem, LG Display,
and LG Innotek) are better placed to develop
flexible display than peers in Taiwan and Japan.
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The OLED technology needed to make prototype
flexible display products has already been
developed by Samsung Display and LG Display.
However, given it will be a gradual process – this
is how we see events unfolding.
Phase 1: Unbreakable display for 2Q13
Technology using LTPS, RGB OLED, opaque
PI (Polyimide) substrate LTPS backplane and RGB OLED technology are
suitable for producing flexible products. Many
LCD businesses already produce IT equipment,
such as smartphones, tablet PCs and high-
resolution displays. This will help reduce costs.
PI is already used widely in electronic materials,
so the basic structure of flexible display can be
made by coating the OLED luminous layer on top
of the polyimide-coated lower glass. After this
process is complete, a plastic OLED structure can
be achieved by removing the lower glass.
Although it is not perfectly transparent, the lower
glass will have a plastic finish.
Removing the lower glass can make the display
much slimmer, lighter and durable. However, it
will not be completely unbreakable as the upper
glass would still be used. A thinner display will
mean thinner smartphones and tablets.
We expect further progress to be made on using
polyimide film technology in flexible display
production in the next few months.
What to expect near term
Unbreakable backplane with curved design could be a killer
application in 2H13
Bendable tablets to boost smartphone/notebook demand in 2014
Fully transparent display may take three years
Structure of OLED and unbreakable display
0.7 mm thick glass substrate
5 um polyimide
SiN passivationlayer
TFT ITO Pixel
Back Channel Etch a-Si TFT made on a glass/polyimide
substrate
Lower glassLower glass
plastic display
Glass substrate with spin coated polyimide and SiN
passivation layer.
Upper glassUpper glass
0.7 mm thick glass substrate
5 um polyimide
SiN passivationlayer
TFT ITO Pixel
Back Channel Etch a-Si TFT made on a glass/polyimide
substrate
Lower glassLower glass
plastic display
Glass substrate with spin coated polyimide and SiN
passivation layer.
Upper glassUpper glassUpper glass
Source: HSBC
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Phase 2: Unbreakable backplane with curved design in 3Q13
Technology based on LTPS, RGB OLED, PI
substrate, and thin glass
Curved design is one of the great attractions of
flexible display. We expect the first products to be
small two-inch displays, such as watches and car
instruments, where resolution quality is less
demanding. Larger curved displays will require an
unbreakable backplane and will involve the same
technology as described in phase one.
Phase 3: Bendable, true plastic display in 2014
Technology based on LTPS, RGB OLED, and
translucent PI substrate Once polyimide enters mass production, we
expect flexible display technology to develop
rapidly. An improved polyimide material is likely
to be introduced in 2014, which will lead to the
commercialisation of products with displays of
over five inches, such as tablets and notebooks.
Bendable display requires the following
procedures: 1) coat polyimide film to the upper
and lower glass panels, 2) OLED manufacturing
procedure to build luminous layer; and 3) separate
upper and lower glass panes. Once bendable
display is commercialised, we expect to see
products that can be bent to an angle of less than
90 degrees.
Irregular type Li-polymer battery Stepped Li-polymer battery
Curved display
Irregular type Li-polymer battery
Curved display
Irregular type Li-polymer battery
Stepped Li-polymer battery
Curved display
Stepped Li-polymer battery
Curved display
Source: HSBC Source: HSBC
Curved design smartphone design Curved design smartphone design
Source: HSBC Source: HSBC
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Phase 4: Transparent display in 2015
Technology based on LTPS, RGB OLED, and
transparent PI substrate We believe transparent polyimide will be available
from 2014, but it may take at least a year to enter
commercial production. A lot of technological
challenges remain, including how to make
transparent batteries. We think the first products to
be partially transparent, as progress will depend on
the response from the public. How much demand
will there be for transparent devices?
Phase 5: True flexible display
Current technology does not allow for truly
flexible display products that are totally
transparent and can be rolled up. How quickly the
technology develops remains to be seen – for
example, bendable batteries are needed – and how
much added value will be created for consumers
is also unknown at this stage.
Bendable display conceptual picture Bendable display conceptual picture
Source: HSBC Source: HSBC
Curved design smartphone design Transparent display conceptual picture
Source: HSBC Source: HSBC
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Transparent display concept Transparent display concept
Source: HSBC Source: HSBC
Comparison of TFT backplanes
a-Si Oxide LTPS
Glass Substrate
OvercoatSource
ElectrodeDrain
Electrode
Drive Electrode
a-Si (N+)a-Si
Gate Insulator
Gate Electrode
Glass Substrate
OvercoatSource
ElectrodeDrain
Electrode
Drive Electrode
a-Si (N+)a-Si
Gate Insulator
Gate Electrode
Glass Substrate
a-IGZO
Etching Stopper
Glass Substrate
a-IGZO
Etching Stopper
Glass Substrate
p-Sip-Si (N+)
Glass Substrate
p-Sip-Si (N+)
Mobility Fair Average Very good Scalability G3~G10 G8 or larger Up to G8 Availability Very good Average Good Advantages Low cost Scalability, Good uniformity Superior mobility, stability
Good track record Weakness Low mobility Low cost Low scalability
Source: HSBC estimates
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We believe flexible display will have a positive
impact on the overall display industry because it
will create a new line of business. We expect new
product shapes and designs to revitalise the slowing
notebook market. Smart watches, previously
considered a niche market, should also benefit.
We are convinced that a vertically integrated
industry structure that includes materials, panels and
handsets is essential to commercialise flexible
display. This involves:
Re-using existing LCD equipment
Co-operation between handset makers and
material providers to obtain a decent yield
from mass production
Set makers fully utilising flexible display to
maximise added value and secure sales capacity
Samsung Electronics and LG Electronics have the
technological advantages to lead industry as both
have already commercialised OLED panels that
are generating stable yields.
We believe it’s the handset makers that stand to
benefit most at first as they have an opportunity to
grow their market share on the back of these new
and highly differentiated flexible display
products. It’s certainly a substantial opportunity
for LGE, which is experiencing a slump in its
smartphone business. The company’s market
share is only 5%, but we believe this can rise to 7-
8% in 2014. Samsung Electronics, the leader in
the smartphone handset market, can use flexible
display to further strengthen its position.
We believe LG Innotek (LGI) will be one the
biggest indirect beneficiaries of the flexible display
trend. For example, if LGE’s handset business
improves, LGI will supply most of handset
components – touch screen, PCB, and camera
modules – to LGE. LGI also holds the key to
developing the required flexible components (e.g.,
flexible PCB) when curved design is introduced.
This will strengthen the relationship between LGI
and LGE. Moreover, LGI is focusing on
developing a transparent electrode, essential for
transparent display in the longer term.
We also believe Cheil Industries will have the
largest upside risk in the mid to long term as the
company can co-operate with Samsung Display to
Who benefits fromflexible display?
LGE and SEC are expected to benefit the most
Their major suppliers, LG Innotek and Cheil Industries, are also
well positioned
SFA has an opportunity to benefit from converting and expanding
Samsung’s production lines
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develop core technologies required for flexible
display. This is Cheil’s differentiating factor and
is expected to drive revenue growth at its
electronic material division.
It’s also good news for equipment makers.
Starting in 3Q13, Samsung Display and LG
Display are expected to expand capacity by
converting existing LCD fab to plastic OLED in
order to maximise investment efficiency. As a
result, SFA, Samsung Display and related
equipment makers are expected to benefit.
Our preferred stocks among handset makers are
Samsung Electronics and LG Electronics, while
we prefer Cheil Industries, LG Innotek, and SFA
among component, materials and equipment
providers. We upgrade Cheil Industries and SFA
to OW from N and Duksan Himetal to N(V) from
UW(V). We remain OW on Samsung Electronics
(an Asia Super 10 and GEMs Super 15 portfolio
stock) and OW (remove the volatility (V)
indicator) on LG Electronics and LG Innotek.
HSBC estimate vs. Consensus
(KRWbn) _________ HSBCe __________ _______ Consensus ________ _______ % Difference _______
2013e 2014e 2013e 2014e 2013e 2014e
LG Electronics Sales 60,769 64,901 54,519 57,862 11.5% 12.2% OP 1,686 1,946 1,483 1,892 13.7% 2.9% OP margin 2.8% 3.0% 2.7% 3.3% 0.1%pt -0.3%pt LG Innotek Sales 5,939 6,598 6,015 6,588 -1.3% 0.2% OP 157 250 128 228 22.0% 9.5% OP margin 2.6% 3.8% 2.1% 3.5% 0.5%pt 0.3%pt Cheil Industries Sales 6,788 7,368 6,789 7,521 0.0% -2.0% OP 415 501 422 512 -1.6% -2.2% OP margin 6.1% 6.8% 6.2% 6.8% -0.1%pt 0.0%pt Samsung Electronics Sales 225,668 245,350 238,686 264,048 -5.5% -7.1% OP 39,182 41,939 39,388 43,038 -0.5% -2.6% OP margin 17.4% 17.1% 16.5% 16.3% 0.9%pt 0.8%pt LG Display Sales 33,560 34,567 31,349 33,274 7.1% 3.9% OP 2,362 2,755 1,384 1,553 70.7% 77.4% OP margin 7.0% 8.0% 4.4% 4.7% 2.6%pt 3.3%pt LG Chem Sales 25,243 28,347 24,791 26,611 1.8% 6.5% OP 2,693 3,213 2,299 2,686 17.1% 19.6% OP margin 10.7% 11.3% 9.3% 10.1% 1.4%pt 1.2%pt SFA Sales 771 979 694 842 11.1% 16.3% OP 109 137 93 116 17.9% 17.3% OP margin 14.1% 14.0% 13.3% 13.8% 0.8%pt 0.1%pt Duksan Himetal Sales 189 251 171 213 10.9% 17.5% OP 47 66 48 61 -2.2% 7.9% OP margin 25.0% 26.2% 28.3% 28.6% -3.4%pt -2.3%pt
Source: Bloomberg , HSBC estimate
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Flexible display uses OLED as its basic
technology, giving companies like Samsung and
LG, which have already commercialised the
process, an early-mover advantage. They probably
have a 2-3 year head start. Taiwanese and
Japanese panel makers believe that OLED
technology is not mature yet, so they have not
invested much in mass production, although they
are investing in R&D.
Two Taiwan companies, AU Optronics and
Innolux, are actually further advanced in one area
of flexible display technology than the Korean
companies – electronic paper (EPD) – which is
commonly used in e-books. For example, they
have made excellent progress in terms of
production yield (see E Ink: Initiate OW(V): The
year of recovery, 18 March 2013).
Implications for non-Korean players
Samsung and LG should enjoy early-mover advantage because of
their advanced technology in flexible display
Taiwan players are already strong in electronic paper and waiting
for OLED technology to stabilise
Apple is behind at the moment, but should catch up by 2015
Comparison between flexible colour EPD and flexible OLED
Flexible colour EPD Flexible OLED
Advantages Similar to a piece of paper
Consumes electricity only when changing page Wide viewing angle Easy to mass produce with simple manufacturing processes
Self-light emitting -> No need of external light source Able to generate natural colour and image Fast reaction speed Wide viewing angle
Disadvantages Mirror reflection type -> requires external light source
Difficult to generate natural colour
Difficult to play movie due to slow reaction speed
High cost from organic EL
Requires high-end TFT
Difficult to mass produce due to complicated manufacturing processes
Source: HSBC estimates
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The downside is that e-paper does not have self-
illuminating properties and must be viewed under
an external light source. It also uses a colour filter,
so it has limited ability to generate natural colours
and also has a fairly low rate of response, which is
not compatible with showing video clips.
This is why OLED is considered to be the solution
for the next generation of flexible display. Taiwan
panel makers already have a G3.5 pilot production
line to manufacture small-sized OLED panels, and
a conversion from LTPS to OLED line is being
seriously considered. In Japan, Panasonic and
Sony have already displayed ultra-high definition
OLED TV technology this year.
However, generally, non-Korean panel makers
appear reluctant to invest aggressively in OLED
or flexible technology as the start-up costs are
high. The technology will only become profitable
with strong demand for flexible design
smartphones or tablets. At the moment only small
displays are possible, so companies find it hard to
justify the investment needed to set up mass
production of OLED or flexible displays.
There is also the risk that with such a new
technology early entry could result in expensive
failure. It seems that panel makers may be waiting
for a good entry point after the Korean players
make the first move and build up the necessary
supply chain.
Meanwhile, in the US, Apple appears to be
interested and has filed a patent application for a
smartphone that uses flexible display. However,
Apple still has doubts about the ability of these
new products to combine natural-coloured images
and excellent clarity. This is the main reason
why Apple had not been aggressively pursuing
OLED technology.
Apple is considered to be more interested in
applying Retina display to iPhones and looking at
other options for iPads and MacBooks than
moving into something completely new. Apple
emphasises the importance of platform efficiency
in mass producing one innovative product rather
than going into a variety of product line-ups.
Therefore, it may be some time before Apple
commits a lot of resources to flexible display.
Apple’s “wrap-around” display
Source: USPTO
We think the market will take notice once Korean
companies such as Samsung and LG start to
introduce differentiated flexible design products.
As their technology improves, mass production will
kick in, expanding the supply chain for materials
and equipment by 2H 2014. In turn, with
economies of scale we expect production costs to
fall and the number of products to increase; we
believe this will be the catalysts for Taiwanese and
Japanese players to enter the market.
Korean companies are likely to benefit from being
able to introduce high-end products after each
technical improvement. Meanwhile, competition
will increase as products with many different form
factors come on the market as mass production
grows outside Korea.
Although the company has a great record of
innovation (e.g. sophisticated software, in-cell touch,
Retina display and aluminium casing), Apple may
find it increasingly difficult to differentiate its
products using existing technology. Apple is
expected to introduce flexible display in 2H 2014
when the technology platform has stabilised and
mass production improves. Given its outstanding
ability to meet customers’ needs, the company may
start to come up with innovative flexible display
products in 2015.
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Technology overview
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Introduction
The Korean display industry has become an
important driver of the semiconductor and IT sector.
Korea was the leading flat panel display exporter in
2011 (USD157bn), followed by China
(USD739bn) and Japan (USD8bn). We think
flexible display will help maintain this trend.
Technology trends
LCD vs. OLED
There’s a substantial amount of LCD capacity in
place that supports a wide range of commercial
digital manufacturing processes. OLED, which is
needed for flexible display, is much a newer
technology, but is likely to develop rapidly as
demand grows.
Electronic paper
Electronic paper, one of the earliest examples of
flexible display, is most commonly used in e-books.
Other technologies like QR-LPD (Quick Response-
Liquid Powder Display) and Cholesteric LCD are
being developed. The market for electronic paper is
rapidly expanding because of the popularity of e-
books; the product is also eco-friendly.
Market and R&D trends
Flexible display has the potential to create a large
new area of applications for the display industry.
After e-books, the pace at which the market
expands will depend on the development of the
technology. By 2018, we expect the flexible
display market to be worth about USD8.2bn.
Technology overview
Overview of display technology
Manufacturing process of flexible display
Patents in flexible display technology
TV market breakdown by technology
0
60
120
180
240
300
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e
CRT PDP LCD-HD LCD-FHD LED-LCD 3D-LED UHD OLED
PDP TV introduction
Analog to digital
(HD) conv ersion
Full HD introduction
LED introduction
3D TV introductionUD TV introduction
CRT PDP
LCD-HD
LCD-FHD
LED-LCD
3D-LED
(m units)
UHD
OLED TV introduction
Source: HSBC estimates
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Main players
Samsung Display
Developed OLED based 4.1-inch flexible
display used for stainless steel substrate
2006: developed 5.6-inch Flexible LTPS TFT
AMOLED used by stainless steel substrate
2009: developed 6.5-inch Flexible Oxide TFT
AMOLED applying plastic PI
Successfully developed WVGA(800x480)
flexible AM OLED
LG Display
2009: developed 4.3-inch HVGA Flexible
AMOLED
2010: developed world’s largest 19-inch
bendable electronic paper
E Ink
Leading the electronic paper panel industry
and selected to supply display for Amazon’s
Kindle and Sony’s Librie
Developed new “full” flexible display and
display that can product flash standard of video
SiPix
The company develops e-paper panel
technology and has been acquired by
Taiwan’s AUO. It had developed micro-cup
like electronic paper based on the
electrophoresis method
The company produces products through the
roll-to-roll process
As flexible display gains traction, many countries
are increasing investment in R&D, including
Japan, Taiwan, the US and the EU.
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Manufacturing process
The manufacturing process of flexible display is
similar to that of OLED. For a display panel to be
bendable, it needs to be “self-luminant” without a
BLU (Back Light Unit).
The manufacturing processes for large and small
OLED displays are different. White OLED has
become the standard technology for large displays.
It makes mass production easier as it uses the same
colour filter as the existing LCD manufacturing
process. For small panels, RGB OLED technology
is generally used due to its proven resolution and
mass production yield.
There are three main processes in manufacturing
flexible or OLED display: 1) TFT backplane
manufacturing; 2) the evaporation process to build
an OLED material layer; and 3) the encapsulation
process to produce the display panel.
Process 1: TFT backplane manufacturing
process
To form TFT Backplane, it is important to
consider the molecule’s speed of movement for
each material. For the past versions of LCD
monitors and TVs, molecules forming each cell
were not required to electrically react fast because
the required speed of response and resolution
were low. Therefore, a-Si (amorphous silicon)
was picked as the most compatible material for
the backplane. However, to have high resolution
and fast response speed, an alternative material
was needed, such as Oxide or LTPS (Low
Temperature Poly Silicon). However, compared to
a-Si, they had a smaller user base and needed new
technologies, raising production cost significantly.
Despite having high cost, LTPS became widely
used and prices are rising thanks to a broader user
base (e.g. Samsung Galaxy smartphone and
Apple’s Retina display). As a result, LTPS is the
standard high-resolution technology.
Flexible display manufacturing process
Mother Glass Mother Glass
EvaporationPolyimide coating
LTPS TFT processing
Mother Glass Mother Glass
Mother Glass
Mother Glass
Mother Glass
Mother Glass
Encapsulation
Cathode
Glass release Flexible display
Polyimide film
OLED materials
Adhesive film
Mother Glass Mother Glass
EvaporationPolyimide coating
LTPS TFT processing
Mother Glass Mother Glass
Mother Glass
Mother Glass
Mother Glass
Mother Glass
Encapsulation
Cathode
Glass release Flexible display
Polyimide film
OLED materials
Adhesive film
Source: HSBC
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Producing at a low temperature helps to improve
manufacturing productivity for flexible display
because: 1) it requires flexible materials, such as
plastic film; and 2) organic materials are not stable.
TFT manufacturing process has four steps:
1) abrasion process: clean and grind to smooth out
the rugged surface of the mother glass, specially
made for LCD panel; 2) photo process: put photo
mask on the back of cleaned mother glass and
then shoot a laser at it, so that the circuit can be
reflected on an area where the mask are not
covered; 3) etching process to form circuits; and
4) cut the glass.
The easiest way to understand the photo process is
to imagine shooting a laser at a glass plate to burn
an area where the circuit will be formed. After the
photo process, the circuit bulges through the
etching process. Then the touch screen is put on.
For flexible display, the process of generating
backplane is the same as that of LED or OLED.
LTPS and OLED capacity by companies
Maker Gen. Fab Size Fab Type OLED Size K sheet / month
LGD 2 365*460 Kumi (E1) OLED G2 4 730*920 Paju (E2) OLED G4 1/2 25 4 730*920 Paju (AP2) LTPS LCD - 55 5.5 1300*1500 Paju (E2) OLED G5 1/2 5.5 1300*1500 Paju (AP3) LTPS LCD - G8 2200*2500 Paju (M1) OLED G8 1/2 8 G8 2200*2500 Paju (M2) OLED G8
SDC 4 730*920 Chunahn (A1) OLED G4 1/2 59 4 730*920 Chunahn (L4) LTPS LCD - 20 5.5 1300*1500 Tangjung (A2-1) OLED G5.5 1/4 96 0.5 1300*1500 Tangjung (A2-2) OLED G5.5 27 8 2200*2500 Tangjung (A3) OLED G8 1/6
AUO 3.5 320*750 Linkou (L3D) OLED G3.5 8 3.5 610*750 Hsinchu (L3B) LTPS LCD - 20 4 730*920 AFPD OLED G4 1/2 17 4 730*920 AFPD LTPS LCD - 45 5.5 1300*1500 Xiamen OLED G5.5 6 1500*1850 Lungtan (L6B) OLED G6 or 1/4
CMI 3.5 620*750 CMEL Tainan OLED G3.5 1/2 5 3.5 620*750 TPO Jhunan OLED G3.5 1/2 5 3.5 620*750 TPO Jhunan OLED G3.5 18 3.5 620*750 TPO Jhunan LTPS LCD - 80 5.3 1200*1300 Shenzhen LTPS LCD - 23
Source: Company data, HSBC
Evaporation process chart
SubstrateTFT TFT TFT
HIL
SubstrateTFT TFT TFT
HTL
HBL
HIL
SubstrateTFT TFT TFT
HTL
Red Green Blue
ETL
HBL
HIL
SubstrateTFT TFT TFT
HTL
Red Green Blue
ETL
Cathode(AI/LIF)
Step 1: Cleaning, Baking, Plasma Treatment Step 2: HIL, HTL Step 3: RGB, ETL
Step 4: EIL (LiF), Cathode (AI)
SubstrateTFT TFT TFT
HIL
SubstrateTFT TFT TFT
HTL
HBL
HIL
SubstrateTFT TFT TFT
HTL
Red Green Blue
ETL
HBL
HIL
SubstrateTFT TFT TFT
HTL
Red Green Blue
ETL
Cathode(AI/LIF)
Step 1: Cleaning, Baking, Plasma Treatment Step 2: HIL, HTL Step 3: RGB, ETL
Step 4: EIL (LiF), Cathode (AI)
SubstrateTFT TFT TFT
HIL
SubstrateTFT TFT TFT
HIL
SubstrateTFT TFT TFT
HTL
HBL
HIL
SubstrateTFT TFT TFT
HTL
HIL
SubstrateTFT TFT TFT
HIL
SubstrateTFT TFT TFT
HTL
Red Green Blue
ETL
HBL
HIL
SubstrateTFT TFT TFT
HTL
HIL
SubstrateTFT TFT TFT
HIL
SubstrateTFT TFT TFT
HTL
Red Green Blue
ETL
Cathode(AI/LIF)
Step 1: Cleaning, Baking, Plasma Treatment Step 2: HIL, HTL Step 3: RGB, ETL
Step 4: EIL (LiF), Cathode (AI)
Source: HSBC
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Process 2: Evaporation process
The evaporation process involves placing several
layers of organics, which emit light on the
backplane in a vacuum. An electrical membrane is
formed through plasma treatment, and with the
help of organics, a cathode is formed.
The important aspect in the evaporation process is
how to pile on the organic layers. There are three
technologies: 1) Embedded Metal Mask (EMM);
2) Laser Induced Thermal Imaging (LITI); and 3)
the printing method, which raises a membrane by
making tiny droplets like an inkjet printer.
Although each method has pros and cons, FMM is
the most widely used for the small panels due to
its high yield from mass production. On the other
hand, FMM’s material efficiency is lower because
it spreads organic materials on the backplane
through the holes in the thin metal mask.
Moreover, it has limits in realising high-definition
displays of over 250ppi. Recently, demand for the
laser printing has been increasing because full HD
panels with over 400ppi are now used in
smartphones. Flexible display has similar issues to the TFT
backplane manufacturing process. It needs
material, which can withstand high temperatures
when using laser technology. FMM technology is
expected to be used until the flexible material,
which can tolerate high temperature, is developed.
Process 3: Encapsulation process
The last major process is encapsulation, which
enhances durability and lengthens useful life by
protecting the panel from water and oxygen
permeation. Encapsulation is considered a
relatively easy process for LCD manufacturing.
However, it also became one of the most
important processes in determining mass
production yield in OLED manufacturing, as
unstable organic materials are used.
Generally, “Frit Seal” and “Face Seal”
technologies are used for the evaporation process.
Frit Seal builds walls between evaporated organic
materials and covers glass over it. It has an
advantage in terms of yield because its process
and structure are simple. In addition, it helps
preserve organic materials as its simple structure
makes it easier to maintain a highly vacuumed
status. On the other hand, its disadvantage stems
from its weakness to physical shock and
overheating problems as melted glass becomes
sticky. Face Seal technology has been developed
to alleviate these problems. It coats adhesive film
on evaporated organic materials, and covers the
upper glass in it. Although the filming process
Encapsulation technology comparison, Frit Seal and Face Seal structure
Frit Seal Face Seal
Structure
TFT (Lower Glass)
OLEDCathode
CPL
Upper Glass
N2Frit
TFT (Lower Glass)
OLEDCathode
CPL
Upper Glass
N2Frit
TFT (Lower Glass)
OLED
Upper Glass
Polymer
Adhesive
1st Passi.
2nd Passi.
TFT (Lower Glass)
OLED
Upper Glass
Polymer
Adhesive
1st Passi.
2nd Passi.
Hardness/slim Bezel limiting value 1.2mm 0.6mm Panel Mo wiring (resistivity 14 Ω) Mo/AI wiring (resistivity 5 Ω) TSP On-Cell Only In-Cell, On-Cell Flexible No Yes
Source: HSBC
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lowers yields for mass production, it still can
maintain the highly vacuumed status and
enhances endurance to the external shock thanks
to the adhesive film.
Face Seal is better suited than Frit Seal for
flexible display. It is easier to use plastic materials,
(Frit Seal uses melted glass for adhesion) because
adhesive film eases the overheating problem.
Moreover, to produce truly flexible display in the
future, the upper glass should be removed and
replaced with film.
Comparison of TFT backplane technology
TFT
Oxide TFT
LTPS
Cost
Performance
Laser processing
Sputtering
TFT
Oxide TFT
LTPS
Cost
Performance
Laser processing
Sputtering
Source: HSBC
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Patent trends
The core technologies of flexible display include
substrate, driver, and display, while each
technology can be broken down into materials and
manufacturing processes.
Display
The US, Japan and Korea account for more than
90% of the global patents for flexible display. In
Korea, Samsung Electronics, LG Electronics and
LG Display have the biggest number of patents.
Canon, Seiko Epson, and Ricoh are the most active
companies in Japan and the US is dominated by E
Ink, SiPix Imaging, and Seiko Epson.
Drivers
The key technology for drivers is the development
of active material for printing or R2R process.
Developing organic semiconductors and organic
insulators are essential, given their advantages for
low temperature and large-sized processes. Also,
TFT technology using inorganic materials, such as
a-Si TFT and Oxide TFT, are still under
development, because they are more stable than
organic materials.
Samsung Electronics is the biggest patent issuer,
followed by Konica Minolta and Merck, while the
US accounts for more than 40% of total driver
patents. Korea seems to relatively strong in
organic semiconductor materials, especially
insulators, while Japanese and US companies are
strong in materials for organic semiconductors.
Major companies include Samsung Electronics,
Konica Minolta and Merck.
Substrates
Substrates require a lot of physical characteristics,
such as high light transmittance, physical strength,
outstanding formability, stability against heat and
chemical solvent, low transmittance of gas and
moisture, low price, etc. Currently, materials that
can completely meet those requirements have not
been developed. Metal foil, ultra-thin glass, paper
sheet, and plastic sheets are under development.
Comparison of thickness between display technologies
TFT-LCD
Liquid crystal
Glass
Polarizer
Backlight unit
Glass
Polarizer
Color Filter
AMOLED Flexible display True flexible display
Glass
Glass
OLED materials
OLED materials
OLED materials
Glass
Polyimide Film
TFT-LCD
Liquid crystal
Glass
Polarizer
Backlight unit
Glass
Polarizer
Color Filter
Liquid crystal
Glass
Polarizer
Backlight unit
Glass
Polarizer
Color Filter
AMOLED Flexible display True flexible display
Glass
Glass
OLED materials
Glass
Glass
OLED materials
OLED materialsOLED materials
OLED materials
Glass
Polyimide Film
OLED materials
Glass
Polyimide Film
Source: HSBC
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OLED / Flexible display food chain
Category Component Name Description Suppliers
TFT Glass Mother glass Base glass to apply TFT circuit NEG (NEG US) Corning (GLW US)
Plastic Substrate Polyimide Film Plastic film to apply on TFT glass LG Chem (051910 KS) Cheil Industries (001300 KS) Nippon Steel Chemical Corp (5401 JP)
Circuit Surface Mount Device
Flexible Printed Circuit Board Flexible plastic board with complex of circuit ACT (unlisted)
MLCC Multi-layer Ceramic Condenser Multiple layer of ceramic condenser to control power between chip on the circuit board
SEMCO (009150 KS) Murata (6981 JP)
OLED Common Layer HIL, HTL, ETL, EIL Layer to transfer electrons UDC (PANL US) Idemitsu Kosan (5019 JP) LG Chem (051910 KS) Cheil Industries (001300 KS) Doosan Electronics (unlisted)
Emission Materials Fluorescence materials, Phosphorescence materials
Self-illuminating material when electric power is applied
UDC (PANL US) Idemitsu Kosan (5019 JP) Kodak (unlisted)
Evaporation RGB LTPS Equipment to use low temperature laser base evaporation process
Tokki (7751 JP) AP System (054620 KS) ULVAC (6728 JP)
White OLED Sputtering equipment AVACO (083930 KS) Encapsulation Sealant Paste to stick upper glass and bottom glass in TFT Three Bond (unlisted)
LG Chem (051910 KS) Cheil Industries (001300 KS)
Frit Seal Glass pounder to be used as adhesive paste Yamato (9064 JP) Corning (GLW US)
Face Seal Apply adhesive seal in order to bind upper and bottom glass
Three Bond (unlisted) AVACO (083930 KS) LIG ADP (079950 KS)
PECVD Chamber Vacuum chamber for face seal process Jusung Eng(036930 KS)
Source: HSBC
4” panel price forecasts
(USD) 2012 2013e 2014e 2015e
Retina 19 17.5 15.8 13 OLED 20.5 18.3 16.5 13 standard 17 15 13.5 10 Flexible 38 23 18
Source: HSBC estimates
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Company section
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The biggest beneficiary
We expect LGE to be the biggest beneficiary of
the commercialisation of flexible display. LGE’s
handset business has been suffering from low
profitability because the company had to launch
new products at lower prices than competitors.
It struggle to differentiate new products because its
R&D trailed competitors, hence the lower price tags.
However, this is changing and profitability has
improved recently, thanks better technology in its
smartphones, including full HD display, 13M pixel
camera, and the introduction of Qualcomm’s new
application processor, the fastest on the market.
The biggest concern: sustaining the improving profitability in handsets
A long-term concern is that investors are
becoming increasingly worried about the lack of
differentiation among smartphones. For example,
the market feedback after the launch of the iPhone
5 and Galaxy S4 was lukewarm. The worry is that
these phones can’t be taken much further. Even
the Octa-core application processor, display with
over 400ppi or a camera with more than 13M
pixels are not making that much difference. This,
in turn, has raised concerns about a possible
deterioration in profitability for the overall
smartphone industry.
Reaching the limits of innovation in terms of
hardware reduces the technology gap between
first-tier companies and the chasing pack. We
think the biggest issue for LG Electronics is
whether its improving profitability is sustainable.
Flexible display to support the profitability of handset business
Help is at hand. Flexible display, with all the
design and differentiation options that come with
it, should give the company a real advantage over
many competitors.
We expect the company to launch smartphone
models with curved designs in 2H13, although
true flexible display will take more time. The last
time LG Electronics had a real edge was back in
2005 when its “Chocolate” phone was a big hit,
LG Electronics(066570 KS)
LGE should be the biggest beneficiary of flexible display, as it is
expected to lead the commercialisation process
Concerns over profitability of the handset business to ease,
thanks to better position in the smartphone market
Reiterate OW (remove the volatility indicator (V)) and raise target
price to KRW116,000 from KRW104,000
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thanks its advanced design, functions and
hardware specifications.
Flexible display to help in the smartphone and tablet markets
We expect LGE to do a better job of positioning
in the smartphone and tablet PC markets than it
has done in recent years. It can build a premium
image among customers by being first to market
with a curved smartphone and launching a tablet
PC with a bendable display by as early as 2014.
We think that operating profit margin of the
handset business is the biggest swing factor for
the share price. The introduction of flexible
display should increase its market share in the
high-end smartphone market, which can lead to
improved handset margins.
Reiterate OW, raise TP to KRW116,000 from KRW104,000
We raise our 2013 handset operating profit margin
estimate to 3.7% from 0.9% and our 2013
operating profit estimate by 6.8% to reflect
improvements in the handset business. As a result,
we increase our target price to KRW116,000 from
KRW104,000.
We reiterate our OW (remove the volatility
indicator (V)) rating; the company is one of our
preferred stock in the sector because of the
expected benefits of commercialising flexible
display. Our 2013 and 2014 operating profit
estimates are 14% and 3% above consensus. Our
target price of KRW116,000 is based on a sum-of-
the-parts methodology, implying a 1.5x 2013e PB
and a 16.5x 2013e PE, while the stock currently
trades at a 1.1x 2013e PB and an 11.4x 2013e PE.
Valuation and risks
Valuation
We raise our target price to KRW116,000 from
KRW104,000 to factor in our 7% upward
earnings revision in 2013. We use a sum-of-the-
parts methodology for end-2013 to reflect
different characteristics of each business unit and
typical seasonality. For the TV division, we use
an estimated 2013 EV/EBITDA multiple of 5.2x,
which is at a 30% premium to 4.0x, the lowest
EV/EBITDA multiple of its Japanese peers during
the past 10 years.
LGE: Quarterly earnings trend
(KRWbn) 1Q12 2Q12 3Q12 4Q12 1Q13e 2Q13e 3Q13e 4Q13e 2012 2013e 2014e
Sales HE 5,330 5,478 5,486 6,443 5,948 6,280 7,635 8,742 22,738 28,605 30,511 Handset 2,452 2,321 2,448 2,812 3,155 3,394 3,512 3,743 10,032 13,804 14,862 HA 2,536 2,875 2,868 2,942 2,618 2,834 2,730 3,015 11,221 11,197 11,309 AE 1,218 1,475 974 683 1,242 1,637 1,008 686 4,350 4,573 4,619 Others 647 709 600 618 647 647 647 647 2,574 2,590 3,600 Total 12,183 12,859 12,376 13,497 13,610 14,793 15,532 16,834 50,915 60,769 64,901 Operating profits HE 217.1 216.3 88.6 19.2 14.9 157.0 179.4 209.5 541.2 560.8 889.0 Handset 38.9 -56.7 21.5 56.3 119.9 98.4 133.5 157.2 60.0 509.0 501.0 HA 151.6 165.3 128.5 79.9 111.5 150.8 136.5 92.5 525.3 491.2 466.1 AE 81.1 70.1 11.8 -11.1 54.9 83.2 45.3 8.3 151.9 191.8 183.2 Others -40.5 -46.0 -29.9 -37.1 -8.1 -19.4 -19.4 -19.8 -153.5 -66.7 -92.7 Total 448.2 349.0 220.5 107.2 293.1 470.0 475.3 447.8 1,124.9 1,686.1 1,946.5 OP margin HE 4.1% 3.9% 1.6% 0.3% 0.3% 2.5% 2.3% 2.4% 2.4% 2.0% 2.9% Handset 1.6% -2.4% 0.9% 2.0% 3.8% 2.9% 3.8% 4.2% 0.6% 3.7% 3.4% HA 6.0% 5.7% 4.5% 2.7% 4.3% 5.3% 5.0% 3.1% 4.7% 4.4% 4.1% AE 6.7% 4.8% 1.2% -1.6% 4.4% 5.1% 4.5% 1.2% 3.5% 4.2% 4.0% Others -6.3% -6.5% -5.0% -6.0% -1.2% -3.0% -3.0% -3.1% -6.0% -2.6% -2.6% Total 3.7% 2.7% 1.8% 0.8% 2.2% 3.2% 3.1% 2.7% 2.2% 2.8% 3.0%
Source: Company data, HSBC estimate
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We believe a 30% premium is reasonable, given
the differences in margins and high-end product
offerings. In terms of the handset division, we
apply a 10.0x EV/EBITDA multiple, the average
for Motorola and HTC during the past 10 years, as
we expect LGE’s handset business to remain
profitable, given its positive smartphone shipment
outlook for 2013. For the appliance and air-
conditioner divisions, we apply a 4.1x and 6.7x
EV/EBITDA, respectively, which are the average
multiples of its peers.
Under our research model, for stocks without a
volatility indicator, the Neutral band is 5ppts above
and below the hurdle rate for Korea stocks of 10%.
Our target price of KRW116,000 implies a potential
return of 45.6% (including a forecast dividend yield
of 0.6%), above the Neutral band; therefore, we are
reiterating our Overweight rating. Potential return
equals the percentage difference between the current
share price and the target price, including the
forecast dividend yield when indicated.
We remove the volatility indicator (V) as the
stock’s average volatility (defined as the past
month’s average of the daily 365-day moving
average volatilities) is below the 40% volatility
threshold as defined by our research model.
Risks
Downside risks include: delayed launch of flagship
smartphones and TVs, and a slower-than-expected
recovery in demand for consumer electronics.
Summary of the STOP valuation
(KRWbn) 2013e EBITDA
EV/EBITDA (x)
EV Comments
+Total EV 3,261 6.4x 20,945 Home entertainment 1,013 5.2x 5,270 Applying a 30% premium to the lowest 2013e EV/EBITDA multiple of
Japanese peers, given LGE has the second largest market share in the LCD TV market (Sony, Sharp, Panasonic)
Mobile handsets 811 10.0x 8,107 Applying average multiple of peers (Motorola Mobility Holdings and HTC) Appliance 793 4.1x 3,251 Applying average 2013e EV/EBITDA multiple of peers (Electrolux and
Whirlpool) Air conditioner 644 6.7x 4,317 Applying the multiple to Daikan Industries, given LGE's strong
competitiveness in CAC market -Net debt (less) 4,347 +Stake in subsidiaries 4,241 37.9% stake in LG Display 3,578 LGD's market cap of KRW9.9trn with a 15% discount49% stake in LG Innotek 663 LGI's market cap of KRW1.8trn with a 15% discount Target mkt cap 20,839 Total # of shrs (‘000) 180,066 Target price (KRW) 116,000
Source: HSBC estimates
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Vertical integration at Samsung an upside risk
Although Cheil Industries is a supplier of many
essential materials for Samsung Display, investor
confidence suffered because its polariser and OLED
businesses have slowed due to delayed technological
developments and product launches. However, we
believe that Cheil Industries has the largest upside
risk in the mid to long term. The opportunities to co-
operate with Samsung Display to develop core
technologies for flexible display are expected to lead
revenue growth at the electronic material division.
ECM business, the biggest swing factor, should improve on OLED materials
Cheil Industries has a wide portfolio of businesses,
including fashion, chemical, and electronic
materials. The stock price depends on the
performance of the electronic material division, and
the growth drivers have been sluggish, owing to a
slowdown in the polariser business and delayed sales
of OLED materials.
However, Cheil Industries seems to have made
progress in developing plastic substrate with
polyimide (just as LG Chem has done). It is
expected to play an important role in helping
Samsung Display develop and launch plastic display
products. We expect OLED materials sales to pick
up in 2H13 and to grow significantly from 2014. We
expect 13% and 20% of ECM revenue will come
from OLED in 2013 and 2014, respectively. ECM
(electronic chemical materials) revenue accounts for
about 30% of the company’s total revenue.
Upgrade to OW from N; raise TP to KRW108,000 from KRW98,000
We increase our 2013 sales and operating profit
estimates by 8.8% and 11.2%, respectively, mainly
to reflect improvement in the ECM division, thanks
to flexible display. Our 2013 and 2014 operating
profit estimates are in line with consensus.
Accordingly, we raise our target price to
KRW108,000 as we believe Cheil Industries is a
beneficiary of flexible display.
Cheil Industries(001300 KS)
Samsung Group’s vertical integration in flexible OLED
development represents an opportunity
OLED materials to improve the ECM business, the biggest swing
factor for the share price
Upgrade to OW from N, raise target price to KRW108,000 from
KRW98,000
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Our target price is derived from EV/EBITDA
multiples in our sum-of-the-parts (SOTP) valuation
and implies a 16.7x 2013e PE and a 1.5x 2013e PB
versus a historical average of 16.6x and 1.3x,
respectively. The stock currently trades at a 14.3x
2013e PE and 1.3x 2013e PB.
Valuation and risks
Valuation
We raise our target price to KRW108,000 from
KRW98,000 as we increase our 2013 earnings
estimates by 8.8% to reflect upside opportunities
from flexible OLED display. Our target price
implies a 16.7x 2013e PE and a 1.5x 2013e PB.
We use the target EV/EBITDA multiples in our
SOTP valuation to capture Cheil’s potential as a
pure electric chemical company. In this regard, we
apply a 20% premium to the peer average. For the
chemical and fashion divisions, we apply peer
average valuations.
Under our research model, for stocks without a
volatility indicator, the Neutral band is 5ppts
above and below the hurdle rate for Korea stocks
of 10%. Our target price implies a potential return
of 16.8%, above the Neutral band; therefore, we
are upgrading our rating to Overweight from
Neutral. Potential return equals the percentage
difference between the current share price and the
Cheil Industries: Quarterly earnings trend
(KRWbn) 1Q12 2Q12 3Q12 4Q12 1Q13e 2Q13e 3Q13e 4Q13e 1Q14e 2012 2013e 2014e
Sales ECM 375.7 407.3 385.1 400.7 440.9 473.3 511.6 510.1 494.6 1,568.8 1,936.0 2,146.7 Chemical 613.1 675.7 731.7 645.4 639.6 655.0 720.1 817.1 677.6 2,665.9 2,831.7 3,010.8 Fashion 429.3 415.5 357.1 523.2 436.6 438.2 452.1 595.2 475.9 1,725.1 1,922.0 2,111.7 Others 10.4 14.5 25.5 23.3 24.8 24.9 24.6 24.4 24.7 73.7 98.6 98.4 Total 1,428.5 1,513.0 1,487.6 1,580.8 1,541.8 1,591.4 1,708.4 1,946.8 1,672.8 6,009.9 6,788.3 7,367.6 Operating profit ECM 43.5 55.4 36.2 39.3 29.0 33.2 55.5 67.8 57.1 174.4 185.5 260.0 Chemical 25.8 35.8 30.8 5.1 20.4 35.1 40.3 36.9 33.2 97.5 132.7 135.1 Fashion 26.0 11.7 -3.3 30.9 27.1 15.3 13.4 36.7 28.8 65.3 92.5 98.5 Others 0.0 0.8 0.5 -0.5 0.0 1.3 1.4 1.6 2.2 0.8 4.3 7.3 Total 95.3 103.2 81.8 41.4 76.4 85.0 110.6 143.0 121.3 321.7 415.0 500.9 OP margin ECM 11.6% 13.6% 9.4% 9.8% 6.6% 7.0% 10.8% 13.3% 11.5% 11.1% 9.6% 12.1% Chemical 4.2% 5.3% 4.2% 0.8% 3.2% 5.4% 5.6% 4.5% 4.9% 3.7% 4.7% 4.5% Fashion 6.1% 2.8% -0.9% 5.9% 6.2% 3.5% 3.0% 6.2% 6.1% 3.8% 4.8% 4.7% Others 0.0% 5.3% 2.0% -2.1% 0.0% 5.1% 5.7% 6.8% 8.9% 1.1% 4.4% 7.4% Total 6.7% 6.8% 5.5% 2.6% 5.0% 5.3% 6.5% 7.3% 7.3% 5.4% 6.1% 6.8%
Source: Company data, HSBC estimates
Cheil Industry: Historical one-year forward PE trend Cheil Industry: Historical one-year forward PB trend
16.6x
21.2x
12.0x
5
10
15
20
25
30
35
2007 2008 2009 2010 2011 2012
PER 5y r Av g +1SD -1SD(x )
1.3x
1.7x
1.0x
0.5
1.0
1.5
2.0
2.5
2007 2008 2009 2010 2011 2012 2013
P/BV 5y r Av g +1SD -1SD(x )
Source: Bloomberg, HSBC estimates Source: Bloomberg, HSBC estimates
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target price, including the forecast dividend yield
when indicated.
Risks
Downside risks are: 1) narrowing spread in the
chemical business with input price hikes and price
pressure from downstream; and 2) weaker overall
demand for the consumer electronics business.
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LGI, the main vendor for LGE’s smartphone components
Although LG Innotek is not considered to be a
direct beneficiary of flexible display, we believe it
has a lot to gain if LG Electronics’ handset
business improves as it makes most of the
components (touch screen, PCB, and camera
module).
We believe LGI will also be key for the
development of flexible components (e.g. flexible
PCB), so the introduction of curved design will
strengthen the relationship between the
companies. We also see an upside risk as LG
Innotek is focusing on developing a transparent
electrode, which is important for transparent
display in the longer term.
Recovery of profitability in handsets to improve volume and margin
Mobile components account for about 60% of
LGI’s total revenue, but profitability has been low
because of price pressure on LG Electronics’
handset business. However, we expect volume
and profitability to improve through higher ASP
once LG Electronics strengthens its position in
the premium handset segment on the back of
flexible display.
Reiterate OW (remove the volatility indicator (V)) with unchanged TP of KRW108,000
We reiterate our OW rating on the back of the
upside risk of LGE’s handset business. To factor
in a decrease in orders from Apple, we cut our
2013 operating profit estimate by 14%. However,
we maintain our target price at KRW108,000 as
we roll over book value per share to 2013
(KRW65,226) from the 2012-13 average.
Our 2013 operating profit estimate is 22% above
consensus. As LGI underperformed the market
due to concerns about its camera module business
with Apple, its valuation has fallen to an attractive
level. Currently, it is trading at a 1.3x one-year
forward PB, which is a historical trough vs. a
historical average of 1.6x.
LG Innotek (011070 KS)
Both volume and margin are expected to improve as LGE gains
market share in the handset market
Attractive valuation at a 1.3x 2013e PB vs. the historical average
of 1.6x
Reiterate OW (remove the volatility indicator (V)) with an
unchanged TP of KRW108,000 based on historical average one-
year forward PB of 1.6x
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Valuation and risks
Valuation
We lower our 2013 operating profit estimate by
14% to factor in a decrease in orders from Apple.
However, we keep our target price at
KRW108,000 as we roll over our base year of
BVPS to 2013 from the 2012-13 average. We use
a target PB multiple of 1.6x which is the stock’s
five-year historical average, as we believe that it
is more appropriate to reflect the non-LED
businesses, such as camera modules and substrate.
Under our research model, for stocks without a
volatility indicator, the Neutral band is 5ppts above
and below the hurdle rate for Korea stocks of 10%.
Our target price of KRW108,000 implies a potential
return of 26%, above the Neutral band; therefore,
we are reiterating our Overweight rating. Potential
return equals the percentage difference between the
current share price and the target price, including
the forecast dividend yield when indicated.
We remove the volatility indicator (V) as the
stock’s average volatility (defined as the past
month’s average of the daily 365-day moving
average volatilities) is below the 40% volatility
threshold as defined by our research model.
Risks Downside risks include: 1) a weaker-than-expected
overall TV and handset demand lowers its utilisation
further; 2) raw material prices increase due to tight
supply; and 3) unfavourable FX reducing profit.
LGI: Historical one-year forward PB trend
1.6x
2.0x
1.2x
0.5
1.0
1.5
2.0
2.5
3.0
2009 2010 2011 2012 2013
P/BV 5y r Av g +1SD -1SD(x )
Source: Bloomberg, HSBC estimates
LGI: Quarterly earnings trend
(KRWbn) 1Q12 2Q12 3Q12 4Q12 1Q13e 2Q13e 3Q13e 4Q13e 2012 2013e 2014e
Sales LED 190.4 234.6 296.3 276.9 261.5 264.2 295.8 301.8 998.2 1,123.3 1,268.6DN 270.9 236.3 210.0 187.7 279.4 312.9 338.0 368.4 904.9 1,298.7 1,548.7Camera Module 384.7 328.0 269.1 679.7 407.0 415.2 423.5 431.9 1,661.5 1,677.6 1,815.9PCB 88.3 99.4 112.5 130.2 104.9 106.5 115.0 116.2 430.4 442.6 512.5Package Substrate 105.3 122.4 113.9 89.7 129.2 131.1 132.4 133.7 431.3 526.4 548.4Material 103.2 109.4 131.6 124.0 125.2 127.1 128.4 129.7 468.2 510.4 531.7Automotive 86.7 95.8 79.5 96.7 97.7 99.2 100.2 101.2 358.7 398.2 414.9Total 1,229.5 1,225.9 1,212.9 1,584.9 1,405.0 1,456.1 1,533.2 1,582.8 5,253.2 5,977.2 6,640.8Operating profit LED -22.8 -28.2 -17.8 -30.5 -22.2 -5.3 7.4 9.1 -99.2 -11.1 41.4DN 7.4 8.7 7.5 6.4 6.8 8.5 11.0 13.3 30.0 39.6 48.5Camera Module 19.2 19.4 1.3 16.3 7.3 11.6 11.9 12.1 56.2 42.9 50.8PCB 7.1 8.0 13.5 10.4 8.4 9.6 11.5 12.8 38.9 42.3 52.0Package Substrate -0.3 5.0 5.8 0.6 3.1 4.3 4.8 5.2 11.1 17.4 25.6Material 12.2 11.2 14.0 2.9 7.6 8.5 9.4 7.4 40.3 32.9 36.4Automotive 0.9 -5.0 1.8 4.3 -2.0 -1.9 -1.8 -1.7 2.0 -7.4 -5.2Total 23.6 19.0 26.2 10.6 9.0 35.3 54.2 58.2 79.3 156.7 249.5OP margin LED -12.0% -12.0% -6.0% -11.0% -8.5% -2.0% 2.5% 3.0% -9.9% -1.0% 3.3%DN 2.7% 3.7% 3.6% 3.4% 2.5% 2.7% 3.3% 3.6% 3.3% 3.1% 3.1%Camera Module 5.0% 5.9% 0.5% 2.4% 1.8% 2.8% 2.8% 2.8% 3.4% 2.6% 2.8%PCB 8.0% 8.0% 12.0% 8.0% 8.0% 9.0% 10.0% 11.0% 9.0% 9.5% 10.1%Package Substrate -0.3% 4.1% 5.1% 0.7% 2.4% 3.3% 3.6% 3.9% 2.6% 3.3% 4.7%Material 11.8% 10.2% 10.7% 2.4% 6.0% 6.7% 7.3% 5.7% 8.6% 6.5% 6.9%Automotive 1.0% -5.3% 2.3% 4.5% -2.1% -1.9% -1.8% -1.6% 0.6% -1.9% -1.3%Total 1.9% 1.5% 2.2% 0.7% 0.6% 2.4% 3.5% 3.7% 1.5% 2.6% 3.8%
Source: Company data, HSBC estimate
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Expected to lead flexible display
Samsung Electronics is extremely well placed to
benefit from the flexible display revolution, in our
view. We believe Samsung Display, its flat panel
subsidiary, can lead the flexible display industry,
based on: 1) advantages gained from vertical
integration in materials and equipment; and 2) its
success in glass OLED technology.
Samsung Display has been producing large
quantities of OLED panels for five years, with a
near 100% market share. We think applying this
experience to flexible OLED will be much easier,
even though there are several technological
challenges still to be overcome.
In addition, affiliates, such as Cheil Industries,
SEMCO and Samsung SDI, will support Samsung
Electronics in commercialising flexible display.
Flexible OLED will enable Samsung smartphones
to come up with differentiated designs, supporting
its dominance in the smartphone market.
Galaxy Note 3 could be the first flexible smartphone from Samsung
We think Galaxy Note 3, which is expected to be
introduced in 2H13, will be the first Samsung
smartphone with flexible OLED panels, making it
almost unbreakable. Note 3 will likely be much
slimmer, lighter and stronger than previous ultra-
high end models in the same series. We are
assuming 10-15m units to be shipped in 4Q13.
Near-term catalysts include a positive demand
outlook for Galaxy S4, which should use glass
OLED. We expect 300 global carriers to have
the phone within three months, up from 230 in
six months for S3. We assume 80m S4 units and
total smartphone shipments of 330m in 2013
(54% y-o-y).
Samsung Electronics (005930 KS)
Set to emerge as a leader in flexible display based on vertical
integration and experience in glass OLED
Galaxy Note 3 could be the first flexible OLED (unbreakable)
smartphone from Samsung
Reiterate OW with an unchanged target price of KRW2,000,000;
an Asia Super 10 and GEMs Super 15 portfolio stock
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Curved OLED TV
Source: HSBC
Valuation and risks
Valuation
We reiterate our Overweight rating and our target
price of KRW2,000,000. Our target price is based
on an unchanged target multiple of 1.9x 2013e PB,
which reflects our improving ROE assumption to
our historical 10-year average PB. The stock
currently trades at a 1.5x 2013e PB.
Under our research model, for stocks without a
volatility indicator, the Neutral band is 5ppts
above and below the hurdle rate for Korea stocks
of 10%. Our target price of KRW2,000,000
implies a potential return of 31.5%, above the
Neutral band; therefore, we are reiterating our
Overweight rating. Potential return equals the
percentage difference between the current share
price and the target price, including the forecast
dividend yield when indicated.
Risks
Downside risks include further KRW appreciation,
which may dampen profitability, while JPY
weakness may weaken competitiveness. A
potential demand decrease from the global
economic slowdown is another risk.
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A leader in developing flexible display
LG Display is expected to play a key role, along
with LG Chem, in developing flexible display. Its
advanced technology and potential to recycle
existing LCD fabs will be an important factor in
commercialising flexible display.
LG Display’s technological leadership has been
proved through its success with IPS technology,
retina display and ultra-high definition TV. LG
Display was also the first company to
commercialise the use of White OLED in TVs.
World’s first OLED TV, but…
LG Display has already introduced the world’s first
curved OLED TV, the CES, this year. To us, this
suggests it has made progress in developing the all-
important plastic substrate for small screens.
The problem is that small-size panels produced by
6th-generation LTPS won’t increase sales or
profits significantly. This will have to wait until
the company produces differentiated bendable
tablet PC and laptop products, perhaps as early as
next year.
Curved OLED TV
Source: HSBC
Valuation and risks
Valuation
Our target price of KRW51,500 is based on a 1.5x
PB, which is the mid-cycle multiple, on our
unchanged 2013 book value estimate. Our 2013
earnings estimate is 70% above consensus.
Under our research model, for stocks with a
volatility indicator, the Neutral band is 10ppts
above and below the hurdle rate for Korea stocks
of 10%. Our target price of KRW51,500 implies a
potential return of 68.2% (including a forecast
dividend yield of 2.8%), above the Neutral band;
therefore, we are reiterating our Overweight (V)
rating. Potential return equals the percentage
LG Display (034220 KS)
Expected to lead the flexible display industry through its advanced
technology and by recycling existing LCD fabs
However, larger flexible display needed to benefit further
Reiterate OW(V) rating with an unchanged target price of
KRW51,500
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difference between the current share price and the
target price, including the forecast dividend yield
when indicated.
Risks
The main industry risk is the lack of promotion of
LCD TVs, which could result in weaker sell-through.
The main company-specific downside risk is its
aggressive investment in OLED, which has yet to be
commercially proven for larger-sized applications.
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Set to support plastic substrate for flexible display LG Chem is expected to play a key role with LG
Display in commercialising flexible display by
developing components and materials. These
include plastic substrate, ultra-thin glass and
irregular shaped batteries. LG Chem has already
selected OLED as the core growth driver and is
known to have already secured the appropriate
technologies. The company is aiming to launch
flexible OLED lighting, the first in the world, in
July 2013. This proves the company has already
developed plastic substrate, which will enable it to
commercialise flexible display.
Advanced technology in battery
The company’s advanced battery technology is
also expected to help develop flexible display
devices. The battery is going to be one of the most
important components in the initial stage of
flexible display. Once flexible display is
introduced, each manufacturer is going to require
batteries to customised for its own products.
We believe this will improve the profitability of
LG Chem by raising ASP. It is already making
innovative batteries for notebooks. We believe the
batteries required for flexible display could offset
the slowdown in its cylindrical battery business.
LG Chem (051910 KS)
Planning to launch world’s first flexible OLED lighting, proving its
advanced plastic substrate technology
Customised batteries for different companies to improve
profitability, offsetting the slowdown in the cylindrical battery
business
Reiterate OW(V) with an unchanged target price of KRW365,000
LGC: 2013e total revenue breakdown LGC: 2013e optical / electronics revenue breakdown
Chemicals
72%
Battery
13%
Optical/Ele
ctronics
15%
LCD Glass
3%
Polarizer
73%
3D
Retarder
21%
ITO film
3%
Source: HSBC estimates Source: HSBC estimates
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Reiterate OW(V) rating with an unchanged TP of KRW365,000
We reiterate our OW(V) rating on LG Chem.
However, we exclude it from our preferred stocks
as we expect the impact of flexible display on
earnings will be limited in the short term. We
expect this new technology will improve the
company’s profitability significantly starting from
2015 when the new market is likely to expand
dramatically. Our 2013 and 2014 operating profit
estimates are 17% and 20% above consensus. Our
target price is based on a 6.5x target EV/EBITDA
multiple to the company’s normalised (2013-14e
average). LGC is currently trading at a 9.2x 2013e
PB and a 1.3x 2013e PE.
Valuation and risks
Valuation
We use sum-of-the-parts to value LG Chem. We
apply a 6.5x target EV/EBITDA multiple to the
company’s normalised (2013-14e average)
petrochemical EBITDA, and a 7.7x EV/EBITDA
multiple to the IT Material business (including the
battery segment). The 6.5x multiple is the sector’s
average historical multiple, and 7.7x is a 20%
premium to the IT material industry average,
considering the company’s leading position. Our
target price implies a 2.0x PB ratio on 2013e
BVPS, which is in line with the historical average
since 2006, while the stock currently trades at a
1.3x 2013e PB.
Under our research model, for stocks with a
volatility indicator, the Neutral band is 10ppts
above and below the hurdle rate for Korean stocks
of 10%. Our target price implies a potential return
of 47.6% (including the forecast dividend yield of
2.2%), above the Neutral band; therefore, we are
reiterating our Overweight (V) rating. Potential
return equals the percentage difference between
the current share price and the target price,
including the prospective dividend yield.
Risks
The key downside risk to our call is delays in the
new projects.
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Flexible AMOLED adoption in Galaxy Note 3
We think SFA will get additional small panel
equipment orders from Samsung Display during
2-3Q13, given that it has to switch or extend
capacity for flexible AMOLED. Galaxy Note 3
will mostly likely adopt flexible OLED
(unbreakable). Overall AMOLED demand will
increase as Samsung is targeting OLED adoption
to mid-tier smartphones this year.
Samsung already made a 27,000-panel per month
order to the supply chain for the A2 extension fab
in late 2012, but flexible AMOLED will require
additional capacity to fully cover Samsung’s
product roadmap from 2014. SFA is guiding
around KRW50bn of orders would generate a
9,000-panel per month capacity addition by SD.
Substantial TV investment not confirmed, but still likely
A key catalyst for the company is OLED TV
investment by Samsung Display. LGE’s
introduction of OLED TV earlier this year will
speed up the development of this technology. We
think there a strong possibility that Samsung will
make significant investments from 2H14.
Samsung seems to have a two-track AMOLED
strategy: 1) White OLED for mainstream use; and
2) better quality RGB technology for the premium
market. We estimate SFA to get nearly
KRW100bn in orders per the 8,000-panel per
month capacity addition by SD. LGE’s aggressive
TV launch will encourage Samsung to launch its
own OLED TV as soon as possible.
Upgrade to OW, raise TP to KRW75,000 from KRW56,000
We raise our TP because of: 1) a 12% earnings
upgrade to factor in a new 2013 order assumption of
KRW742bn (up from KRW677bn); and 2) a change
in the multiple to the top of the three-year band from
the three-year average due to the TV investment. We
think the AMOLED supply chain will be re-rated on
the back of potential AMOLED TV investment by
its key customers. Our target price is based on a
13.3x historical peak one-year forward PE and 2013
EPS estimate of KRW5,611. Our 2013 operating
profit estimate is 18% above consensus.
SFA (056190 KS)
AMOLED adoption in Samsung Galaxy Note 3 should increase
equipment orders
Potential OLED TV investment at Samsung Display is a key
catalyst for the share re-rating
Upgrade to OW (from N) and raise TP to KRW75,000 from
KRW56,000 on earnings upgrade and change in multiple
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Valuation and risks
Valuation
We raise our 2013 earnings estimate by 7% to
factor in: 1) possible new orders for 5.5G fab,
thanks to the introduction of the mid-tier
smartphones with AMOLED panels; and 2)
margin improvement, thanks to material costs
decline along with KRW appreciation. We raise
our target price to KRW75,000 from KRW56,000
to reflect the earnings revision and new target
multiple of a 11.5x one-year forward PE.
We continue to use a three-year historical average
PE as our target multiple as: 1) we believe it
better captures the company’s value since it
started to develop front-end equipment; and 2) it
has become difficult to define a peer group due to
the nature of this business. Our target price
implies a 13.4x 2013e PE and a 2.9x 2013e PB.
Under our research model, for stocks without a
volatility indicator, the Neutral band is 5ppts above
and below the hurdle rate for Korea stocks of 10%.
Our target price implies a potential return of 22.1%
(including the forecast dividend yield of 1.9%),
above the Neutral band; therefore, we are upgrading
our rating to Overweight from Neutral. Potential
return equals the percentage difference between the
current share price and the target price, including the
forecast dividend yield when indicated.
Risks
Downside risks: 1) further delays in the supply of
front-end equipment to SMD’s AMOLED
manufacturing lines, and Samsung Electronics’
LCD lines disappointing the market; and 2) delays
in Samsung Display’s capacity expansion of 5.5G.
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Panel size matters
Duksan Himetal is an outstanding material
provider that is supplying OLED HIL and HTL to
Samsung Display. The company could secure a
three-year revenue CAGR of 27% and stable
profitability with an operating profit margin of
over 25%. However, it is hard to find a further
growth driver after 2014, given the adoption of
OLED panels is limited to small panels below five
inches. Meanwhile, the recent outperformance of
the company seems to reflect: 1) the better-than-
expected sales of the Galaxy series; and
2) adoption of OLED by mid-end smartphones.
Samsung Display’s investment in OLED TV the major catalyst
The company’s revenue growth prospects have
been improving on Samsung Display’s plans for
OLED TV. Even though Samsung Display has not
decided whether to adopt white OLED or the
existing RGB, we think it will introduce OLED
TV products in 2H13. We believe that this will
increase Duksan’s revenue dramatically. Cheil
Industries, an affiliate of Samsung Group, is the
major risk
Duksan will benefit from the increasing demand
for OLED materials for small-sized display panels
which will be regarded as a new application (or
business opportunity) once flexible display is
introduced. However, we are concerned about
possible competition from Cheil Industries,
which could reduce its share of business with
Samsung Display.
The risk of this happening will increase if Cheil
Industries uses the vertically integrated structure
available through Samsung Display. Cheil
Industries could penetrate the OLED supply chain,
starting with plastic substrate, and further
strengthen its market share in HIL and HTL. We
think this would hurt Duksan’s share price.
Duksan Himetal(077360 KS)
An outstanding material provider, but with limited growth in small-
sized panels
Cheil Industry is likely to take market share from the company
based on vertical integration by the Samsung Group
Upgrade to N(V) from UW(V), raise TP to KRW31,700 from
KRW17,500 based on historical average one-year forward PE
of 16.8x
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Upgrade to N(V) from UW(V), raise target price to KRW31,700
Although Duksan should be one of the
beneficiaries of flexible display, we upgrade it to
N(V) rather than OW(V), given that: 1) small size
display will require only a marginal increase in
the use of materials; 2) Samsung Group’s vertical
integration is likely take market share from
Duksan. We raise our 2013 operating profit
estimate by 52% to reflect the better utilization
ratio of Samsung Display and ramp-up in 8G fab.
Our 2013 OP estimate is 2.2% below consensus,
while our 2014 OP estimate is 8% higher.
Accordingly, raise our target price to KRW31,700.
Our 2013 operating profit estimate is 2.2%
below consensus.
Valuation and risks
Valuation
We raise our 2013 operating profit estimate by
52% to reflect the better utilization ratio of
Samsung Display and ramp-up in 8G fab.
Accordingly, we raise our target price to
KRW31,700 from KRW17,500. We base our
target price on a 16.8x target multiple (its five-
year average one-year forward PE).
We believe a five-year average one-year forward
PE multiple better captures the company’s
specific business momentum compared to a peer
multiple, especially in OLED materials versus
peers, as most electronic chemical companies are
not overly focused on OLED materials. Duksan
was established as a solder ball producer in 1995
and started expanding its business into OLED
materials five years ago. It trades at a 14.2x 2013e
PE and a 2.9x 2013e PB.
Under our research model, for stocks with a
volatility indicator, the Neutral band is 10ppts above
and below the hurdle rate for Korea stocks of 10%.
Our target price of KRW31,700 implies a potential
return of -18.1%, within the Neutral band; therefore,
we are upgrading our rating to Neutral (V) from
Underweight (V). Potential return equals the
percentage difference between the current share
price and the target price, including the forecast
dividend yield when indicated.
Risks
Upside risks include: 1) an earlier-than-expected
launch of OLED TVs due to competition between
Samsung Electronics and LG Electronics; and
2) resumed investment by Samsung Display due
to stronger-than-expected demand from OLED
TVs and OLED tablets.
Downside risks: 1) Possible market share erosion
by Cheil Industries on the back of Samsung
Group’s vertical integration; and 2) weaker than
expected demand for OLED TV.
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Financials & valuation: LG Electronics Overweight Financial statements
Year to 12/2012a 12/2013e 12/2014e 12/2015e
Profit & loss summary (KRWb)
Revenue 50,960 60,769 64,901 68,428EBITDA 2,448 3,195 3,306 3,357Depreciation & amortisation -1,312 -1,509 -1,359 -1,306Operating profit/EBIT 1,136 1,686 1,946 2,051Net interest -642 -652 -656 -660PBT 524 1,643 2,118 2,246HSBC PBT 524 1,643 2,118 2,246Taxation -433 -329 -424 -449Net profit 67 1,268 1,635 1,734HSBC net profit 67 1,268 1,635 1,734
Cash flow summary (KRWb)
Cash flow from operations 1,537 3,325 3,773 3,846Capex -1,404 -1,200 -1,000 -1,000Cash flow from investment -1,350 -2,289 -2,019 -2,069Dividends -36 -90 -90 -90Change in net debt -449 -582 -1,247 -1,269FCF equity -1,525 638 1,068 1,113
Balance sheet summary (KRWb)
Intangible fixed assets 1,077 1,077 1,077 1,077Tangible fixed assets 10,022 10,206 10,334 10,316Current assets 14,554 17,585 19,863 22,013Cash & others 1,832 2,414 3,661 4,930Total assets 31,457 35,252 38,297 41,130Operating liabilities 12,255 14,826 16,268 17,396Gross debt 6,488 6,488 6,488 6,488Net debt 4,655 4,073 2,826 1,557Shareholders funds 12,454 13,678 15,281 16,987Invested capital 11,567 11,627 11,345 11,080
Ratio, growth and per share analysis
Year to 12/2012a 12/2013e 12/2014e 12/2015e
Y-o-y % change
Revenue -6.1 19.2 6.8 5.4EBITDA 54.8 30.5 3.5 1.5Operating profit 199.7 48.4 15.4 5.4PBT - 213.4 28.9 6.1HSBC EPS - 1799.4 28.9 6.1
Ratios (%)
Revenue/IC (x) 4.3 5.2 5.7 6.1ROIC 2.2 14.1 16.1 17.2ROE 0.5 9.7 11.3 10.8ROA 0.2 3.8 4.4 4.4EBITDA margin 4.8 5.3 5.1 4.9Operating profit margin 2.2 2.8 3.0 3.0EBITDA/net interest (x) 3.8 4.9 5.0 5.1Net debt/equity 36.6 29.2 18.2 9.0Net debt/EBITDA (x) 1.9 1.3 0.9 0.5CF from operations/net debt 33.0 81.6 133.5 247.0
Per share data (KRW)
EPS Rep (fully diluted) 370.83 7043.52 9079.98 9632.34HSBC EPS (fully diluted) 370.83 7043.52 9079.98 9632.34DPS 200.00 500.00 500.00 500.00Book value 69165.84 75958.82 84861.77 94337.02
Valuation data
Year to 12/2012a 12/2013e 12/2014e 12/2015e
EV/sales 0.2 0.2 0.1 0.1EV/EBITDA 4.9 3.4 2.7 2.1EV/IC 1.0 0.9 0.8 0.6PE* 215.7 11.4 8.8 8.3P/Book value 1.2 1.1 0.9 0.8FCF yield (%) -20.9 9.5 17.6 20.7Dividend yield (%) 0.3 0.6 0.6 0.6
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (KRW)80000.00 Target price (KRW)116000.00 4
5.0
Reuters (Equity) 066570.KS Bloomberg (Equity) 066570 KSMarket cap (USDm) 11,725 Market cap (KRWb) 13,092Free float (%) 58 Enterprise value (KRWb) 10781Country Korea Sector Electronic EquipmentAnalyst Brian Sohn Contact +822 3706 8765
Price relative
446105461064610746108461094610
104610114610124610134610
2011 2012 2013 2014
446105461064610746108461094610104610114610124610134610
LG Electronics Rel to KOSPI INDEX
Source: HSBC Note: price at close of 03 Apr 2013
59
Telecoms, Media & Technology Asia Technology 8 April 2013
abc
Financials & valuation: Cheil Industries Inc Overweight Financial statements
Year to 12/2012a 12/2013e 12/2014e 12/2015e
Profit & loss summary (KRWb)
Revenue 6,010 6,788 7,368 7,808EBITDA 530 653 748 765Depreciation & amortisation -209 -238 -247 -237Operating profit/EBIT 322 415 501 528Net interest -95 -95 -95 -95PBT 293 421 531 574HSBC PBT 293 421 531 574Taxation -84 -94 -119 -129Net profit 209 327 411 445HSBC net profit 209 327 411 445
Cash flow summary (KRWb)
Cash flow from operations 86 534 663 711Capex -412 -300 -300 -300Cash flow from investment -479 -269 -261 -258Dividends -38 -38 -38 -38Change in net debt 400 -179 -317 -368FCF equity -453 27 132 164
Balance sheet summary (KRWb)
Intangible fixed assets 463 463 463 463Tangible fixed assets 1,799 1,979 2,037 2,105Current assets 1,837 2,334 2,911 3,500Cash & others 113 387 799 1,261Total assets 5,418 5,951 6,458 7,001Operating liabilities 697 846 885 926Gross debt 1,269 1,364 1,459 1,553Net debt 1,156 977 660 292Shareholders funds 3,254 3,543 3,917 4,325Invested capital 3,288 3,542 3,727 3,882
Ratio, growth and per share analysis
Year to 12/2012a 12/2013e 12/2014e 12/2015e
Y-o-y % change
Revenue 7.7 13.0 8.5 6.0EBITDA 38.1 23.1 14.6 2.3Operating profit 44.6 29.0 20.7 5.5PBT 6.3 43.8 26.0 8.2HSBC EPS -19.5 56.6 26.0 8.2
Ratios (%)
Revenue/IC (x) 2.0 2.0 2.0 2.1ROIC 7.8 9.6 10.9 11.0ROE 6.4 9.6 11.0 10.8ROA 5.4 7.1 7.9 7.8EBITDA margin 8.8 9.6 10.2 9.8Operating profit margin 5.4 6.1 6.8 6.8EBITDA/net interest (x) 5.6 6.8 7.8 8.0Net debt/equity 35.5 27.5 16.8 6.8Net debt/EBITDA (x) 2.2 1.5 0.9 0.4CF from operations/net debt 7.4 54.7 100.5 243.4
Per share data (KRW)
EPS Rep (fully diluted) 4123.93 6457.68 8133.45 8802.24HSBC EPS (fully diluted) 4123.93 6457.68 8133.45 8802.24DPS 750.00 750.00 750.00 750.00Book value 64328.71 70040.62 77429.40 85487.41
Valuation data
Year to 12/2012a 12/2013e 12/2014e 12/2015e
EV/sales 0.8 0.7 0.6 0.5EV/EBITDA 8.8 7.1 6.0 5.5EV/IC 1.4 1.3 1.2 1.1PE* 22.4 14.3 11.4 10.5P/Book value 1.4 1.3 1.2 1.1FCF yield (%) -12.8 0.7 3.5 4.2Dividend yield (%) 0.8 0.8 0.8 0.8
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (KRW)92500.00 Target price (KRW)108000.00 1
6.8
Reuters (Equity) 001300.KS Bloomberg (Equity) 001300 KSMarket cap (USDm) 4,344 Market cap (KRWb) 4,850Free float (%) 79 Enterprise value (KRWb) 4652Country Korea Sector Electronic EquipmentAnalyst Brian Sohn Contact +822 3706 8765
Price relative
66000760008600096000
106000116000126000136000146000
2011 2012 2013 2014
66000760008600096000106000116000126000136000146000
Cheil Industries Inc Rel to KOSPI INDEX
Source: HSBC Note: price at close of 03 Apr 2013
60
Telecoms, Media & Technology Asia Technology 8 April 2013
abc
Financials & valuation: LG Innotek Co Overweight Financial statements
Year to 12/2012a 12/2013e 12/2014e 12/2015e
Profit & loss summary (KRWb)
Revenue 5,316 5,939 6,598 7,086EBITDA 549 643 702 734Depreciation & amortisation -471 -486 -452 -434Operating profit/EBIT 77 157 250 300Net interest -103 -101 -99 -98PBT -18 61 153 203HSBC PBT -18 61 153 203Taxation -7 -14 -34 -45Net profit -25 47 118 157HSBC net profit -25 47 118 157
Cash flow summary (KRWb)
Cash flow from operations 301 733 768 803Capex -350 -400 -400 -400Cash flow from investment -383 -421 -423 -422Dividends 0 0 0 -4Change in net debt 6 -187 -220 -252FCF equity -14 79 116 153
Balance sheet summary (KRWb)
Intangible fixed assets 145 145 145 145Tangible fixed assets 2,631 2,499 2,451 2,421Current assets 2,073 2,461 2,895 3,304Cash & others 353 540 760 1,012Total assets 4,886 5,149 5,542 5,930Operating liabilities 1,450 1,666 1,940 2,175Gross debt 2,168 2,168 2,168 2,168Net debt 1,815 1,628 1,408 1,156Shareholders funds 1,268 1,315 1,434 1,587Invested capital 3,046 2,899 2,790 2,683
Ratio, growth and per share analysis
Year to 12/2012a 12/2013e 12/2014e 12/2015e
Y-o-y % change
Revenue 16.8 11.7 11.1 7.4EBITDA 46.8 17.2 9.2 4.6Operating profit - 102.8 59.3 20.3PBT - - 152.1 32.8HSBC EPS - - 152.1 32.8
Ratios (%)
Revenue/IC (x) 1.7 2.0 2.3 2.6ROIC 4.8 4.8 7.6 9.3ROE -1.9 3.6 8.6 10.4ROA 3.1 2.7 3.9 4.3EBITDA margin 10.3 10.8 10.6 10.4Operating profit margin 1.5 2.6 3.8 4.2EBITDA/net interest (x) 5.3 6.4 7.1 7.5Net debt/equity 143.1 123.8 98.2 72.8Net debt/EBITDA (x) 3.3 2.5 2.0 1.6CF from operations/net debt 16.6 45.0 54.6 69.4
Per share data (KRW)
EPS Rep (fully diluted) -1239.94 2330.12 5874.35 7800.07HSBC EPS (fully diluted) -1239.94 2330.12 5874.35 7800.07DPS 0.00 0.00 0.00 200.00Book value 62892.66 65222.86 71097.41 78697.74
Valuation data
Year to 12/2012a 12/2013e 12/2014e 12/2015e
EV/sales 0.7 0.6 0.5 0.4EV/EBITDA 6.4 5.2 4.4 3.8EV/IC 1.2 1.1 1.1 1.1PE* 36.8 14.6 11.0P/Book value 1.4 1.3 1.2 1.1FCF yield (%) -0.9 4.7 6.9 9.1Dividend yield (%) 0.0 0.0 0.0 0.2
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (KRW)85700.00 Target price (KRW)108000.00 2
6.0
Reuters (Equity) 011070.KS Bloomberg (Equity) 011070 KSMarket cap (USDm) 1,548 Market cap (KRWb) 1,729Free float (%) 47 Enterprise value (KRWb) 3312Country Korea Sector Electronic EquipmentAnalyst Brian Sohn Contact +822 3706 8765
Price relative
45225
65225
85225
105225
125225
145225
2011 2012 2013 2014
45225
65225
85225
105225
125225
145225
LG Innotek Co Rel to KOSPI INDEX
Source: HSBC Note: price at close of 03 Apr 2013
61
Telecoms, Media & Technology Asia Technology 8 April 2013
abc
Financials & valuation: Samsung Electronics Overweight Financial statements
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Profit & loss summary (KRWb)
Revenue 165,002 201,104 225,668 245,350EBITDA 29,236 44,671 56,014 60,100Depreciation & amortisation -13,592 -15,622 -16,833 -18,160Operating profit/EBIT 15,644 29,049 39,182 41,939Net interest 148 -121 295 492PBT 17,192 29,915 40,581 43,669HSBC PBT 0 0 0 0Taxation -3,433 -6,070 -8,234 -8,860Net profit 13,759 23,845 32,347 34,808HSBC net profit 13,759 23,845 32,347 34,808
Cash flow summary (KRWb)
Cash flow from operations 22,043 36,708 43,993 46,087Capex -21,966 -22,965 -21,000 -23,000Cash flow from investment -21,113 -31,322 -25,909 -28,301Dividends -826 -1,130 -1,130 -1,130Change in net debt -552 -10,301 -14,115 -11,218FCF equity -71 9,737 20,226 20,879
Balance sheet summary (KRWb)
Intangible fixed assets 3,355 3,730 4,096 4,449Tangible fixed assets 62,044 68,485 73,505 79,272Current assets 71,502 87,269 107,130 125,427Cash & others 26,878 37,448 50,056 60,008Total assets 155,800 181,072 211,214 240,636Operating liabilities 39,963 44,798 42,895 41,165Gross debt 14,524 14,793 13,287 12,020Net debt -12,354 -22,655 -36,770 -47,988Shareholders funds 97,090 117,094 150,647 183,065Invested capital 70,061 77,237 91,780 107,975
Ratio, growth and per share analysis
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Y-o-y % change
Revenue 6.7 21.9 12.2 8.7EBITDA 1.9 52.8 25.4 7.3Operating profit -9.6 85.7 34.9 7.0PBT -11.1 74.0 35.7 7.6HSBC EPS -15.1 72.8 35.7 7.6
Ratios (%)
Revenue/IC (x) 2.5 2.7 2.7 2.5ROIC 19.2 31.4 37.0 33.5ROE 15.1 22.3 24.2 20.9ROA 13.8 17.9 19.4 17.9EBITDA margin 17.7 22.2 24.8 24.5Operating profit margin 9.5 14.4 17.4 17.1EBITDA/net interest (x) - 369.4 - -Net debt/equity -12.2 -18.6 -23.7 -25.6Net debt/EBITDA (x) -0.4 -0.5 -0.7 -0.8CF from operations/net debt - - - -
Per share data (KRW)
EPS Rep (fully diluted) 91579.92 158228.16 214644.64 230975.90HSBC EPS (fully diluted) 91579.92 158228.16 214644.64 230975.90DPS 5500.00 7500.00 7500.00 7500.00Book value 674342.14 806096.24 1028739.86 1243857.39
Valuation data
Year to 12/2011a 12/2012e 12/2013e 12/2014e
EV/sales 1.2 0.9 0.8 0.6EV/EBITDA 6.8 4.2 3.0 2.6EV/IC 2.8 2.4 1.9 1.5PE* 16.6 9.6 7.1 6.6P/Book value 2.3 1.9 1.5 1.2FCF yield (%) 0.0 4.6 9.7 10.2Dividend yield (%) 0.4 0.5 0.5 0.5
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (KRW)1521000.00 Target price (KRW)2000000.00 3
1.5
Reuters (Equity) 005930.KS Bloomberg (Equity) 005930 KSMarket cap (USDm) 200,657 Market cap (KRWb) 224,042Free float (%) 75 Enterprise value (KRWb) 187373Country Korea Sector SemiconductorsAnalyst Ricky Seo Contact +822 37068777
Price relative
564219
764219
964219
1164219
1364219
1564219
1764219
2011 2012 2013 2014
564219
764219
964219
1164219
1364219
1564219
1764219
Samsung Electronics Rel to KOSPI INDEX
Source: HSBC Note: price at close of 03 Apr 2013
62
Telecoms, Media & Technology Asia Technology 8 April 2013
abc
Financials & valuation: LG Chemical Limited Overweight Financial statements
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Profit & loss summary (KRWb)
Revenue 22,676 23,263 25,337 28,225EBITDA 3,592 2,786 3,485 4,162Depreciation & amortisation -757 -865 -1,053 -1,279Operating profit/EBIT 2,835 1,921 2,433 2,882Net interest -23 -55 -24 -55PBT 2,797 1,851 2,395 2,815HSBC PBT 2,797 1,851 2,395 2,815Taxation -627 -389 -536 -631Net profit 2,107 1,403 1,789 2,111HSBC net profit 2,107 1,403 1,789 2,111
Cash flow summary (KRWb)
Cash flow from operations 2,240 2,311 2,526 2,965Capex -2,223 -1,900 -1,950 -1,938Cash flow from investment -2,402 -2,090 -2,141 -2,129Dividends -319 -368 -405 -405Change in net debt 435 147 20 -432FCF equity -25 426 590 1,040
Balance sheet summary (KRWb)
Intangible fixed assets 207 207 207 207Tangible fixed assets 7,494 8,519 9,407 10,056Current assets 7,256 7,372 7,879 8,678Cash & others 1,379 1,350 1,346 1,432Total assets 15,286 16,626 18,222 19,870Operating liabilities 2,908 3,036 3,162 3,376Gross debt 2,670 2,788 2,804 2,459Net debt 1,291 1,438 1,458 1,026Shareholders funds 9,708 10,781 12,207 13,955Invested capital 10,670 11,712 12,986 14,133
Ratio, growth and per share analysis
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Y-o-y % change
Revenue 16.5 2.6 8.9 11.4EBITDA 2.2 -22.4 25.1 19.4Operating profit 0.5 -32.2 26.6 18.5PBT -0.8 -33.8 29.3 17.6HSBC EPS 8.8 -33.4 27.5 18.0
Ratios (%)
Revenue/IC (x) 2.4 2.1 2.1 2.1ROIC 23.0 13.6 15.3 16.5ROE 24.0 13.7 15.6 16.1ROA 16.7 9.4 10.8 11.7EBITDA margin 15.8 12.0 13.8 14.7Operating profit margin 12.5 8.3 9.6 10.2EBITDA/net interest (x) 155.8 51.1 144.8 75.8Net debt/equity 13.3 13.3 11.9 7.3Net debt/EBITDA (x) 0.4 0.5 0.4 0.2CF from operations/net debt 173.6 160.6 173.2 289.0
Per share data (KRW)
EPS Rep (fully diluted) 31967.97 21281.24 27138.25 32020.70HSBC EPS (fully diluted) 31967.97 21281.24 27138.25 32020.70DPS 4000.00 5000.00 5500.00 5500.00Book value 147283.94 163565.17 185203.42 211724.11
Valuation data
Year to 12/2011a 12/2012e 12/2013e 12/2014e
EV/sales 0.8 0.8 0.7 0.6EV/EBITDA 4.9 6.3 5.0 4.0EV/IC 1.6 1.5 1.3 1.2PE* 7.9 11.8 9.2 7.8P/Book value 1.7 1.5 1.4 1.2FCF yield (%) -0.2 2.6 3.7 6.6Dividend yield (%) 1.6 2.0 2.2 2.2
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (KRW)251000.00 Target price (KRW)365000.00 4
5.4
Reuters (Equity) 051910.KS Bloomberg (Equity) 051910 KSMarket cap (USDm) 14,898 Market cap (KRWb) 16,634Free float (%) 66 Enterprise value (KRWb) 17565Country Korea Sector ChemicalsAnalyst Brian Sohn Contact +822 3706 8765
Price relative
205312255312305312355312405312455312505312555312605312
2011 2012 2013 2014
205312255312305312355312405312455312505312555312605312
LG Chemical Limited Rel to KOSPI INDEX
Source: HSBC Note: price at close of 03 Apr 2013
63
Telecoms, Media & Technology Asia Technology 8 April 2013
abc
Financials & valuation: LG Display Overweight (V) Financial statements
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Profit & loss summary (KRWb)
Revenue 24,291 29,430 33,560 34,567EBITDA 2,727 4,542 6,512 6,490Depreciation & amortisation -3,651 -3,905 -4,150 -3,735Operating profit/EBIT -924 637 2,362 2,755Net interest -84 -157 -140 0PBT -1,081 459 2,352 2,855HSBC PBT -1,081 459 2,352 2,855Taxation 293 -222 -235 -228Net profit -771 236 2,117 2,626HSBC net profit -771 236 2,117 2,626
Cash flow summary (KRWb)
Cash flow from operations 3,660 4,240 4,868 6,490Capex -4,063 -4,261 -4,000 -4,000Cash flow from investment -3,494 -4,484 -4,201 -4,181Dividends -179 -35 -34 -308Change in net debt 768 -475 -1,104 -1,996FCF equity -148 -401 493 2,261
Balance sheet summary (KRWb)
Intangible fixed assets 535 498 488 478Tangible fixed assets 14,697 13,108 12,958 13,223Current assets 7,858 8,915 9,930 11,284Cash & others 2,333 2,654 2,758 3,754Total assets 25,163 24,456 25,407 27,119Operating liabilities 10,422 9,759 9,610 9,875Gross debt 4,610 4,456 3,456 2,456Net debt 2,277 1,802 698 -1,298Shareholders funds 10,131 10,240 12,322 14,640Invested capital 10,336 10,107 11,008 11,356
Ratio, growth and per share analysis
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Y-o-y % change
Revenue -4.8 21.2 14.0 3.0EBITDA -35.6 66.6 43.4 -0.3Operating profit -170.5 - 270.8 16.6PBT -185.4 - 412.9 21.4HSBC EPS -166.4 - 795.5 24.1
Ratios (%)
Revenue/IC (x) 2.3 2.9 3.2 3.1ROIC -4.7 3.2 20.1 22.7ROE -7.3 2.3 18.8 19.5ROA -2.8 1.3 9.4 10.0EBITDA margin 11.2 15.4 19.4 18.8Operating profit margin -3.8 2.2 7.0 8.0EBITDA/net interest (x) 32.3 28.9 46.5 -Net debt/equity 22.5 17.6 5.7 -8.9Net debt/EBITDA (x) 0.8 0.4 0.1 -0.2CF from operations/net debt 160.7 235.3 697.4 -
Per share data (KRW)
EPS Rep (fully diluted) -2093.10 641.64 5746.19 7129.79HSBC EPS (fully diluted) -2093.10 641.64 5746.19 7129.79DPS 0.00 99.08 887.30 1100.94Book value 28313.60 28618.66 34437.72 40915.42
Valuation data
Year to 12/2011a 12/2012e 12/2013e 12/2014e
EV/sales 0.9 0.8 0.6 0.5EV/EBITDA 8.2 4.9 3.2 2.9EV/IC 2.2 2.2 1.9 1.7PE* NM 48.5 5.4 4.4P/Book value 1.1 1.1 0.9 0.8FCF yield (%) -0.7 -2.0 2.4 11.3Dividend yield (%) 0.0 0.3 2.8 3.5
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (KRW)31150.00 Target price (KRW)51500.00 6
5.3
Reuters (Equity) 034220.KS Bloomberg (Equity) 034220 KSMarket cap (USDm) 19,894 Market cap (KRWb) 22,213Free float (%) 45 Enterprise value (KRWb) 22079Country Korea Sector Electronic EquipmentAnalyst Jerry Tsai Contact +8862 6631 2863
Price relative
14568
19568
24568
29568
34568
39568
44568
2011 2012 2013 2014
14568
19568
24568
29568
34568
39568
44568
LG Display Rel to KOSPI INDEX
Source: HSBC Note: price at close of 03 Apr 2013
64
Telecoms, Media & Technology Asia Technology 8 April 2013
abc
Financials & valuation: SFA Engineering Overweight Financial statements
Year to 12/2012a 12/2013e 12/2014e 12/2015e
Profit & loss summary (KRWb)
Revenue 507 771 979 958EBITDA 79 117 145 140Depreciation & amortisation -9 -8 -8 -7Operating profit/EBIT 70 109 137 133Net interest 10 11 11 11PBT 93 120 147 143HSBC PBT 93 120 147 143Taxation -22 -24 -29 -30Net profit 71 96 118 113HSBC net profit 71 96 118 113
Cash flow summary (KRWb)
Cash flow from operations 70 125 147 150Capex -6 -5 -5 -5Cash flow from investment -51 51 -53 -2Dividends -17 -20 -26 -31Change in net debt 43 -148 -63 -112FCF equity 54 98 120 116
Balance sheet summary (KRWb)
Intangible fixed assets 14 14 14 14Tangible fixed assets 119 116 112 109Current assets 438 617 796 896Cash & others 40 188 251 363Total assets 578 754 930 1,029Operating liabilities 204 304 388 396Gross debt 0 0 0 0Net debt -40 -188 -251 -363Shareholders funds 373 448 541 631Invested capital 327 255 283 260
Ratio, growth and per share analysis
Year to 12/2012a 12/2013e 12/2014e 12/2015e
Y-o-y % change
Revenue -35.1 51.9 26.9 -2.1EBITDA -31.8 49.1 23.1 -3.1Operating profit -35.5 55.7 25.4 -2.9PBT -16.2 29.0 23.1 -2.7HSBC EPS -16.8 34.4 23.1 -4.0
Ratios (%)
Revenue/IC (x) 1.7 2.7 3.6 3.5ROIC 18.1 30.0 40.7 38.6ROE 19.6 23.3 23.9 19.3ROA 12.5 14.4 14.0 11.6EBITDA margin 15.5 15.2 14.8 14.6Operating profit margin 13.8 14.1 14.0 13.8EBITDA/net interest (x) - - - -Net debt/equity -10.7 -41.9 -46.4 -57.5Net debt/EBITDA (x) -0.5 -1.6 -1.7 -2.6CF from operations/net debt - - - -
Per share data (KRW)
EPS Rep (fully diluted) 4175.18 5610.87 6906.56 6633.33HSBC EPS (fully diluted) 4175.18 5610.87 6906.56 6633.33DPS 1000.00 1200.00 1500.00 1800.00Book value 21837.72 26248.59 31655.14 36915.41
Valuation data
Year to 12/2012a 12/2013e 12/2014e 12/2015e
EV/sales 2.1 1.2 0.9 0.8EV/EBITDA 13.6 7.9 6.0 5.3EV/IC 3.3 3.6 3.0 2.9PE* 14.9 11.1 9.0 9.4P/Book value 2.9 2.4 2.0 1.7FCF yield (%) 4.9 8.8 10.8 10.4Dividend yield (%) 1.6 1.9 2.4 2.9
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (KRW)62400.00 Target price (KRW)75000.00 2
0.2
Reuters (Equity) 056190.KQ Bloomberg (Equity) 056190 KSMarket cap (USDm) 1,003 Market cap (KRWb) 1,120Free float (%) 47 Enterprise value (KRWb) 925Country Korea Sector Electronic EquipmentAnalyst Ricky Seo Contact +822 37068777
Price relative
356774067745677506775567760677656777067775677
2011 2012 2013 2014
356774067745677506775567760677656777067775677
SFA Engineering Rel to KOSPI INDEX
Source: HSBC Note: price at close of 03 Apr 2013
65
Telecoms, Media & Technology Asia Technology 8 April 2013
abc
Financials & valuation: Duksan Hi-Metal Neutral (V) Financial statements
Year to 12/2012a 12/2013e 12/2014e 12/2015e
Profit & loss summary (KRWb)
Revenue 144 189 251 295EBITDA 47 53 74 99Depreciation & amortisation -6 -6 -9 -8Operating profit/EBIT 42 47 66 91Net interest 1 -1 -1 -2PBT 43 51 69 94HSBC PBT 43 51 69 94Taxation -1 -3 -4 -18Net profit 42 48 65 77HSBC net profit 42 48 65 77
Cash flow summary (KRWb)
Cash flow from operations 51 37 53 64Capex -49 -5 -5 -5Cash flow from investment -54 -5 -5 -5Dividends 0 0 0 0Change in net debt 6 -32 -48 -59FCF equity -3 25 41 75
Balance sheet summary (KRWb)
Intangible fixed assets 34 34 34 34Tangible fixed assets 71 116 113 111Current assets 89 158 254 341Cash & others 14 46 94 153Total assets 199 312 407 492Operating liabilities 14 80 109 132Gross debt 2 2 2 2Net debt -12 -45 -93 -151Shareholders funds 183 230 295 358Invested capital 166 181 198 201
Ratio, growth and per share analysis
Year to 12/2012a 12/2013e 12/2014e 12/2015e
Y-o-y % change
Revenue 11.1 31.5 32.5 17.6EBITDA 10.8 11.4 40.8 33.0Operating profit 5.9 13.5 39.2 37.6PBT 22.5 19.0 35.6 36.3HSBC EPS 21.3 13.6 36.8 18.0
Ratios (%)
Revenue/IC (x) 1.0 1.1 1.3 1.5ROIC 29.5 25.9 33.1 37.3ROE 26.1 23.1 24.8 23.5ROA 24.4 19.4 18.8 17.7EBITDA margin 33.0 28.0 29.7 33.6Operating profit margin 29.0 25.0 26.2 30.7EBITDA/net interest (x) - 101.3 65.5 62.7Net debt/equity -6.8 -19.4 -31.4 -42.3Net debt/EBITDA (x) -0.3 -0.8 -1.2 -1.5CF from operations/net debt - - - -
Per share data (KRW)
EPS Rep (fully diluted) 1665.26 1891.39 2586.51 3052.90HSBC EPS (fully diluted) 1665.26 1891.39 2586.51 3052.90DPS 0.00 0.00 0.00 0.00Book value 7252.94 9144.33 11730.84 14208.60
Valuation data
Year to 12/2012a 12/2013e 12/2014e 12/2015e
EV/sales 5.4 3.9 2.8 2.1EV/EBITDA 16.3 14.0 9.3 6.4EV/IC 4.6 4.1 3.5 3.1PE* 16.1 14.2 10.4 8.8P/Book value 3.7 2.9 2.3 1.9FCF yield (%) -0.3 3.2 5.2 9.5Dividend yield (%) 0.0 0.0 0.0 0.0
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (KRW)26850.00 Target price (KRW)31700.00 1
8.1
Reuters (Equity) 077360.KQ Bloomberg (Equity) 077360 KSMarket cap (USDm) 707 Market cap (KRWb) 789Free float (%) 48 Enterprise value (KRWb) 740Country Korea Sector Electronic EquipmentAnalyst Brian Sohn Contact +822 3706 8765
Price relative
15131
20131
25131
30131
35131
2011 2012 2013 2014
15131
20131
25131
30131
35131
Duksan Hi-Metal Rel to KOSPI INDEX
Source: HSBC Note: price at close of 03 Apr 2013
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Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Brian Sohn, Ricky Seo, Jerry Tsai and Hongsik Jo
Important disclosures
Equities: Stock ratings and basis for financial analysis
HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.
This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website.
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.
Rating definitions for long-term investment opportunities
Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.
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*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities
As of 05 April 2013, the distribution of all ratings published is as follows: Overweight (Buy) 44% (30% of these provided with Investment Banking Services)
Neutral (Hold) 38% (29% of these provided with Investment Banking Services)
Underweight (Sell) 18% (23% of these provided with Investment Banking Services)
Information regarding company share price performance and history of HSBC ratings and price targets in respect of its long-term investment opportunities for the companies the subject of this report,is available from www.hsbcnet.com/research.
HSBC & Analyst disclosures Disclosure checklist
Company Ticker Recent price Price Date Disclosure
LG DISPLAY 034220.KS 30350.00 05-Apr-2013 5LG ELECTRONICS 066570.KS 78200.00 05-Apr-2013 2, 6, 7, 11SAMSUNG ELECTRONICS 005930.KS 1505000.00 05-Apr-2013 2, 5, 6, 7, 11
Source: HSBC
1 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next
3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company. 4 As of 28 February 2013 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 28 February 2013, this company was a client of HSBC or had during the preceding 12 month period been a client
of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 28 February 2013, this company was a client of HSBC or had during the preceding 12 month period been a client
of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. 7 As of 28 February 2013, this company was a client of HSBC or had during the preceding 12 month period been a client
of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.
* HSBC Legal Entities are listed in the Disclaimer below.
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Additional disclosures 1 This report is dated as at 08 April 2013. 2 All market data included in this report are dated as at close 03 April 2013, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
4 As of 29 March 2013, HSBC owned a significant interest in the debt securities of the following company(ies) :LG DISPLAY,SAMSUNG ELECTRONICS
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Disclaimer * Legal entities as at 8 August 2012 ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR
Issuer of report
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25, 1-ka, Bongrae-dong
Chung-ku, Seoul 100-161, Korea
Telephone: +822 3706 8700/3
Fax: +822 3706 8797
Website: www.research.hsbc.com
This document has been issued by The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HSBC") for the information of its institutional and professional customers; it is not intended for and should not be distributed to retail customers. If it is received by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. HSBC has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Research Division of HSBC only and are subject to change without notice. HSBC and its affiliates and/or their officers, directors and employees may have positions in any securities mentioned in this document (or in any related investment) and may from time to time add to or dispose of any such securities (or investment). HSBC and its affiliates may act as market maker or have assumed an underwriting commitment in the securities of companies discussed in this document (or in related investments), may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. HSBC Securities (USA) Inc. accepts responsibility for the content of this research report prepared by its non-US foreign affiliate. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security discussed herein should do so with HSBC Securities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report. In the UK this report may only be distributed to persons of a kind described in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001. The protections afforded by the UK regulatory regime are available only to those dealing with a representative of HSBC Bank plc in the UK. In Singapore, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”) and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It may not be further distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients in Singapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. In Australia, this publication has been distributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its “wholesale” customers (as defined in the Corporations Act 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 232595). These respective entities make no representations that the products or services mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been given to the particular investment objectives, financial situation or particular needs of any recipient. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR. In Japan, this publication has been distributed by HSBC Securities (Japan) Limited. In Korea, this publication is distributed by The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is not a prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. HBAP SLS is regulated by the Financial Services Commission and the Financial Supervisory Service of Korea. In Hong Kong, this document has been distributed by The Hongkong and Shanghai Banking Corporation Limited in the conduct of its Hong Kong regulated business for the information of its institutional and professional customers; it is not intended for and should not be distributed to retail customers in Hong Kong. The Hongkong and Shanghai Banking Corporation Limited makes no representations that the products or services mentioned in this document are available to persons in Hong Kong or are necessarily suitable for any particular person or appropriate in accordance with local law. All inquiries by such recipients must be directed to The Hongkong and Shanghai Banking Corporation Limited. It may not be further distributed in whole or in part for any purpose. In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed “Commentary” in Canada although other affiliate jurisdictions may term “Commentary” as either “macro-research” or “research”), the Commentary is not an offer to sell, or a solicitation of an offer to sell or subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments). © Copyright 2013, The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch MICA (P) 038/04/2012, MICA (P) 063/04/2012 and MICA (P) 110/01/2013
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Global Stephen Howard Analyst, Global Sector Head +44 20 7991 6820 stephen.howard@hsbcib.com
Europe Nicolas Cote-Colisson Analyst +44 20 7991 6826 nicolas.cote-colisson@hsbcib.com
Antonin Baudry Analyst +33 1 56 52 43 25 antonin.baudry@hsbc.com
Dan Graham Analyst +44 20 7991 6326 dan.graham@hsbcib.com
Dominik Klarmann, CFA Analyst +49 211 910 2769 dominik.klarmann@hsbc.de
Luigi Minerva Analyst +44 20 7991 6928 luigi.minerva@hsbcib.com
Olivier Moral Analyst +33 1 5652 4322 olivier.moral@hsbc.com
Adam Rumley Analyst +44 20 7991 6819 adam.rumley@hsbcib.com
Dhiraj Saraf, CFA Analyst +91 80 3001 3773 dhirajsaraf@hsbc.co.in
Americas Richard Dineen Analyst +1 212 525 6707 richard.dineen@us.hsbc.com
Sean Glickenhaus Analyst +1 212 525 4131 sean.x.glickenhaus@us.hsbc.com
Global Emerging Markets (GEMs) Hervé Drouet Analyst +44 20 7991 6827 herve.drouet@hsbcib.com
Jean Kaplan Analyst +44 20 7991 6831 jean.kaplan@hsbcib.com
Martin Mabbutt Analyst +44 20 7991 6457 martin.mabbutt@hsbc.com
Emerging Europe, Middle East & Africa (EMEA) Franca Di Silvestro Head of Research, SA +27 11 676 4223 franca.disilvestro@za.hsbc.com
Bülent Yurdagül Analyst +90 212 376 46 12 bulentyurdagul@hsbc.com.tr
Asia Tucker Grinnan Analyst +852 2822 4686 tuckergrinnan@hsbc.com.hk
Yogesh Aggarwal Analyst +91 22 2268 1246 yogeshaggarwal@hsbc.co.in
Neale Anderson Analyst +852 2996 6716 neale.anderson@hsbc.com.hk
Luis Hilado Analyst +65 6658 0607 luishilado@hsbc.com.sg
Rajesh Raman Analyst +65 6658 0608 rajeshraman@hsbc.com.sg
Jenny Lai Head of Research, Taiwan +8862 6631 2860 jennylai@hsbc.com.tw
Carrie Liu Analyst +8862 6631 2864 carriecfliu@hsbc.com.tw
Steven C Pelayo Analyst +852 2822 4391 stevenpelayo@hsbc.com.hk
Ricky Seo Analyst +822 37068777 rickyjuilseo@kr.hsbc.com
Rajiv Sharma Analyst +91 22 2268 1239 rajivsharma@hsbc.co.in
Brian Sohn Analyst +822 3706 8765 briansohn@kr.hsbc.com
Hongsik Jo Analyst +822 3706 8774 hongsikjo@kr.hsbc.com
Jerry Tsai Analyst +8862 6631 2863 jerrycytsai@hsbc.com.tw
Chi Tsang Analyst +852 2822 2590 chitsang@hsbc.com.hk
Yolanda Wang Analyst +8862 6631 2867 yolandayywang@hsbc.com.tw
Tse-yong Yao Analyst +8862 6631 2861 tse-yongyao@hsbc.com.tw
Joyce Chen Analyst +8862 6631 2862 joycechchen@hsbc.com.tw
Specialist Sales
Tim Maunder-Taylor +44 20 7991 5006 tim.maunder-taylor@hsbcib.com
Gareth Hollis +44 20 7991 5124 gareth.hollis@hsbcib.com
Myles McMahon +852 2822 4676 mylesmacmahon@hsbc.com.hk
Kubilay Yalcin +49 211 9104880 kubilay.yalcin@hsbc.de
Global Telecoms, Media & Technology Research Team
*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations.
Brian Sohn*AnalystThe Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch+822 3706 8765briansohn@kr.hsbc.com
Brian Sohn joined HSBC in April 2010 as Korea Technology analyst, from LG Electronics, where he was Head of Investor Relations.Before joining LG Electronics in 2001, Brian served as a research analyst at the Korea Institute of Public Finance for five years. Brian received an MBA and BS from the University of Akron. He is also a US certified public accountant.
Ricky Seo*AnalystThe Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch+822 3706 8777rickyjuilseo@kr.hsbc.com
Ricky has been covering Korean semi stocks since his first post as an equity analyst at a major investment bank in 2006, following five years as a manager on the Strategic Planning Team of Samsung Electronics’ Semiconductor Division. Prior to joining HSBC in March 2011, he shifted to a domestic equity house in 2009 and was ranked among the top semiconductor analysts by Maekyoung andHankyoung in 2010.
Jerry Tsai*AnalystHSBC Securities (Taiwan) Corporation Limited+8862 6631 2863jerrycytsai@hsbc.com.tw
Jerry Tsai is an analyst in Taiwan’s Technology research team. Previously, he covered non-tech small cap/material sectors at two majorinvestment banks. Prior to his career in finance, he was a licensed civil/transportation engineer in the US for six years. He receivedhis MBA from Carnegie Mellon and holds a Bachelor’s degree in engineering from UC Berkeley.
Steven PelayoRegional Head of Technology Research, Asia PacificThe Hongkong and Shanghai Banking Corporation Limited+852 2822 4391stevenpelayo@hsbc.com.hk
Steven Pelayo joined HSBC in June 2006 as a global technology analyst focusing on Asian semiconductor foundries, equipment andpackaging and test services. Currently, Steven is Regional Head of Technology Research for Asia Pacific. In addition to covering thefoundry/semiconductor sector, he develops regional products in conjunction with other HSBC technology analysts and coordinatesviews within the broader technology space in Asia. Prior to joining HSBC, Steven was Managing Director and equity research analystin the US. He has focused on the technology sector on both the buy and sell side for more than a decade, and is a CFA charterholder.
Hongsik Jo*AnalystThe Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch+822 37068774hongsikjo@kr.hsbc.com
Hongsik Jo joined HSBC as a research associate for Korea technology research in February 2012. Prior to this, he worked at leadingUS and Australian firms where he supported insurance and brokerage sector analysts. Hongsik holds a Bachelor of Economics degreefrom Seoul National University, Korea.
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