KH Vatec and Samsung

April 17, 2012 Industry ReportTelecom equipment/Electronic components (Overweight) Investing in uncertain times: Re-emerging opportunities Earnings likely to be on the upswing We expect that telecom equipment (mainly handsets) and electronic component makersÊ earnings will begin to improve in 1Q. We estimate that the sector-average 1Q operating profit will increase 26.7% YoY, though revenues are likely to decline 3.1% YoY. This operating profit growth should be meaningful, since it would suggest that these companies have finished revamping their fundamentals. In 2Q, the companiesÊ earnings are likely to improve full swing. Indeed, we forecast the sectorÊs revenues and operating profit to jump 28.0% YoY and 140.5% YoY, respectively. Daewoo Securities Co., Ltd. Wonjae Park +822-768-3372 [email protected] Young Ryu +822-768-4138 [email protected] Investment strategy: Opportunities re-emerging We maintain our Overweight rating on the telecom equipment/electronic components sector. As noted in our 2012 outlook report, we expect the sector to be strong in 1H before weakening in 2H. Our optimism for 1H is premised on: 1) our belief that domestic IT companies, which struggled during 2010~2011, are ready to improve their profitability on revamped fundamentals, and 2) our view that a low base effect (from stagnation in 2011) should have a more significant impact in 1H than in 2H. We think that the recent pullback of telecom equipment/electronic component shares is only a technical correction. As such, we expect these shares to rebound once companies release their improved 1Q results. Thus, now seems to be the time to accumulate shares. We recommend as our top picks the following companies: 1) LG Electronics (066570 KS), whose P/B has plummeted to the 1x level despite the companyÊs rapid earnings improvement (especially at the TV unit); 2) Samsung ElectroMechanics (009150 KS) in light of its robust multilayer ceramic capacitor (MLCC) earnings and positive effects from Samsung ElectronicsÊ strong earnings; and 3) Partron (091700 KQ), which is likely to post historic-high earnings in 1Q. We are also interested in LS (006260 KS), which is seeing earnings improvement at LS Cable & System (one of its key subsidiaries), and Samsung Techwin (012450 KS), which is steadily picking up. We also advise investors to pay more attention to LED makers due to the anticipated growth of the LED lighting market. Strong in 1H, but weak in 2H (Wbn) 50,000 Telecom equipment sector index (L) US$/W (R) JPY100/W (R) 2,500 - Expect strong smartphone line-up by SEC and LGE - Smartphone market growth leading to earnings improvement at component companies S t ong 1H12 30,000 Weak 2H12 20,000 1,000 1,500 40,000 2,000 10,000 06 07 08 09 10 11F 12F 13F 500 Source: KDB Daewoo Securities Research Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. I. 1Q Preview and mid- to long-term outlook ...............................................................................3 Earnings to improve in 1Q.............................................................................................................3 Earnings improvement to gain speed in 2Q..................................................................................7 Mid- to long-term outlook of Korean IT industry............................................................................9 Issue analysis: Chinese makers present serious threat .............................................................11 II. Investment strategy & valuation..............................................................................................12 Look before it’s too late ...............................................................................................................12 LG Electronics (066570 KS) ........................................................................................................ 14 Samsung Electro-Mechanics (009150 KS) ..................................................................................... 18 Samsung Techwin (012450 KS) .................................................................................................. 21 LS (006260 KS).............................................................................................................................. 24 LG Innotek (011070 KS) ............................................................................................................... 27 Partron (091700 KQ)..................................................................................................................... 30 Intops (049070 KQ)....................................................................................................................... 34 Seoul Semiconductor (046890 KQ) ............................................................................................ 37 KH Vatec (060720 KQ).................................................................................................................. 40 Amotech (052710 KQ) .................................................................................................................. 43 Telechips (054450 KQ) ................................................................................................................. 46 P&Tel (054340 KQ) ....................................................................................................................... 49 2 April 17, 2012 Telecom equipment/Electronic components I. 1Q Preview and mid- to long-term outlook Earnings to improve in 1Q Operating profit picks up full swing: Up 26.7% YoY and up 143.8% QoQ We expect the 1Q operating results of telecom equipment (mainly handsets) and electronic component makers to signal a major upswing going forward. We estimate that the sectoraverage 1Q operating profit will increase 26.7% YoY, though revenues are likely to decline 3.1% YoY. This operating profit growth should be meaningful, since it would suggest that these companies have strengthened their fundamentals. This positive outlook seems particularly noteworthy, given that the first quarter is typically a slow season for the IT industry. On a QoQ basis, we expect the sector-average profit to soar 143.8%, though revenues are estimated to have contracted 8.2%. The surge in operating profit should be attributable to: 1) efforts to strengthen fundamentals in the face of an economic slowdown and AppleÊs market dominance in 2010 and 2011, 2) major destocking in 4Q11 in preparation for a full-swing industry pickup in 2012, and 3) the rapid expansion of Samsung ElectronicsÊ (SEC) smartphone business. Figure 1. 1Q12 Revenue growth (YoY) LGE SEMCO LG Innotek Samsung Techwin LS KH Vatech SSC Partron Intops P&Tel Telechips Amotech Average -100 -50 -3. 1% 0 50 100 Figure 2. 1Q12 Operating profit growth (YoY) LGE SEMCO LG Innotek Samsung Techwin LS KH Vatech SSC Partron Intops P&Tel Telechips Amotech Average -200 -100 0 26. 7% 100 200 TTB Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research Figure 3. 1Q12 Revenue growth (QoQ) LGE SEMCO LG Innotek Samsung Techwin LS KH Vatech SSC Partron Intops P&Tel Telechips Amotech Average -50 -25 -8. 2% 0 25 50 Figure 4. 1Q12 Operating profit growth (QoQ) LGE SEMCO LG Innotek Samsung Techwin LS KH Vatech SSC Partron Intops P&Tel Telechips Amotech Average -200 -100 0 100 143.8% 200 TTB TTB TTB Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research KDB Daewoo Securities Research 3 April 17, 2012 Telecom equipment/Electronic components Sharp growth of SECÊs smartphone sales to be positive for domestic IT companies In 1Q, SEC is estimated to have sold 43mn smartphones, driven by robust sales of the Galaxy S2 and the Galaxy Note (over 5mn units). Thus, we believe that the company has reclaimed its position as the worldÊs no. 1 smartphone seller (in terms of quarterly sales volume), beating Apple. Moreover, SEC is anticipated to unseat Nokia, ending the companyÊs 14-year dominance of the mobile handset market. On the back of robust smartphone sales, SEC reported a record quarterly operating profit of W5.8tr in 1Q, which is typically a slow season. The companyÊs smartphone unit is leading the growth of its semiconductor (non-memory sales including APs) and display (AMOLED, etc.) businesses, and the broader domestic IT industry. Figure 5. Global handset market share trend (%) 50 Nokia Apple LG Electronics Samsung ZTE 40 SEC became the leader of the global handset market in 1Q12 30 20 10 0 1Q08 1Q09 1Q10 1Q11 1Q12F Source: Gartner, KDB Daewoo Securities Research Figure 6. SECÊs smartphone sales volume (mn units) 60 Galaxy S3 Figure 7. SECÊs operating profit trend (Wbn) 8000 OP margin Galaxy Note 6000 40 Galaxy S2 4000 20 Galaxy S 2000 0 1Q08 1Q09 1Q10 1Q11 1Q12F 0 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12F Source: Company data, KDB Daewoo Securities Research Source: Company data, KDB Daewoo Securities Research KDB Daewoo Securities Research 4 April 17, 2012 Telecom equipment/Electronic components Figure 8. Quarterly global smartphone market share trend (%) 50 Apple Nokia HTC Samsung Research In Motion LG Electronics 40 SEC became the leader of the global smartphome market in 3Q11 30 20 10 0 1Q08 1Q09 1Q10 1Q11 1Q12F Source: Gartner, KDB Daewoo Securities Research Figure 9. AppleÊs earnings trend (US$bn) 50 Desktops (L) iPhone (L) 40 OP margin (R) 30 Portables (L) iPads (L) iPods (L) Others (L) (%) 40 30 20 20 10 10 0 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 0 Source: Company data, KDB Daewoo Securities Research Figure 10. Market cap trends of Apple and SEC (-3Y=100) 500 SEC Apple 400 300 200 100 0 4/09 10/09 4/10 10/10 4/11 10/11 4/12 Source: Thomson Reuters, KDB Daewoo Securities Research KDB Daewoo Securities Research 5 17 30. 1Q12 Earnings estimates for telecom equipment/electronic component companies 1Q12F Revenues OP YoY Revenues -5.4 17.16 KH Vatec 71.5 -5.0 152.5 -96. %) OP 1.008.35 Seoul Semiconductor 168.2 5.7 -38.40 Samsung Techwin 632.7 4.1p 110 113.7 -13.2 6.1 30. Figure 11.1 QoQ Revenues -9. we expect the shares to rebound once companies release their improved 1Q results.0 738.4 (Wbn.2 -10.7 -2.0 -31.5p 111. Share price performances of LED companies 150 LED companies KOSPI KOSDAQ 135.565.1p 90 9/11 12/11 3/12 Source: Thomson Reuters.9 -22.3 -11.0 23.5 111.288.02 135.57 P&Tel 10. 2012 Telecom equipment/Electronic components Table 1.2 9. KDB Daewoo Securities Research Figure 12.9 -1.84 -2.55 Intops 109.0 1.500.9 -56.8 1.07 95.6 -0.3 -14.0 31.71 0.1 OP 229. Share performances of IT product/component makers 150 Handset/components KOSDAQ KOSPI 130 118.8 120 113.73 -0.2 TTB -15.0 -29.8 -11.96 Note: TTB refers to „turning into black‰.0 TTB TTB 9.8 6.4 101.8 -60.43 SEMCO 1.2 28.April 17.77 LS 3.1 35.12 0.63 LG Innotek 1. especially considering the upward revisions to 1Q earnings estimates.20 430. As such.9 528.81 5.5 -70.19 Partron 133.00 Telechips 17.5 2.5 LG Electronics 12.72 22.765. KDB Daewoo Securities Research KDB Daewoo Securities Research 6 .75 3. Source: KDB Daewoo Securities Research Recent pullback is only a technical correction We think that the recent pullback of telecom equipment/electronic component shares is only a technical correction.9 10.79 Amotech 24.8 TTB -77.2 -57.1 90 9/11 11/11 1/12 3/12 Source: Thomson Reuters.91 11. LG Electronics (LGE) is also anticipated to enjoy operating profit expansion thanks to greater TV and air conditioner sales. driven by: 1) 2012 London Olympics 2) Projected recovery of US economy We expect the recovery of the TV market (which started in 1Q) to accelerate heading towards the 2012 London Olympics. we believe that such events will surely stimulate demand amid the worst downturn ever. 2% 25 50 Figure 16. KDB Daewoo Securities Research Source: Company data.4%. TV demand recovery to accelerate.5% 200 TTB Source: Company data. 0% 50 100 Figure 14. Indeed.0% YoY and 140. 2Q12 Operating profit growth (YoY) LGE SEMCO LG Innotek Samsung Techwin LS KH Vatech SSC Partron Intops P&Tel Telechips Amotech Average -50 0 42. revenues and operating profit should each rise 11. 7 KDB Daewoo Securities Research . Expectations of a US economic recovery are also positive for TV demand. earnings are likely to improve full swing. 2Q12 Revenue growth (QoQ) LGE SEMCO LG Innotek Samsung Techwin LS KH Vatech SSC Partron Intops P&Tel Telechips Amotech Average -50 -25 0 11. 2Q12 Operating profit growth (QoQ) LGE SEMCO LG Innotek Samsung Techwin LS KH Vatech SSC Partron Intops P&Tel Telechips Amotech Average -200 -100 0 100 TTB TTB 140. we forecast the sectorÊs revenues and operating profit to jump 28. weighing on the earnings of the worldÊs largest (SEC) and second largest (LG Electronics) TV makers . as well as those of electronic components makers including LED makers (the TV market makes up the largest portion of LED sales).5% YoY. KDB Daewoo Securities Research The recovery of the TV market is one of the most important variables affecting the IT industry. SECÊs smartphone business should continue to grow. 4% 50 100 150 TTB Figure 15. tepid TV demand led to a sluggish IT market in 2011. On a QoQ basis. Figure 13. 2012 Telecom equipment/Electronic components Earnings improvement to gain speed in 2Q Earnings to pick up faster in 2Q In 2Q. Indeed. respectively.2% and 42. Although some market watchers remain skeptical about the ability of sporting events such as the Olympic Games and the FIFA World Cup to directly boost TV sales. 2Q12 Revenue growth (YoY) LGE SEMCO LG Innotek Samsung Techwin LS KH Vatech SSC Partron Intops P&Tel Telechips Amotech Average -100 -50 0 28.April 17. driven by the expected release of the Galaxy S3. US Department of Commerce Source: NAHB (National Association of Home Builders) KDB Daewoo Securities Research 8 . Revenue trend by TV panel type (mn units) 300 250 12 200 150 100 4 50 0 04 05 06 07 08 09 10 11 12F 13F 0 8 (%) 16 Total (L) PDP (L) CRT (L) Others (L) LCD (L) YoY growth (R) Source: Displaybank. 2012 London Olympics logo Source: Official London Olympic website Figure 18. NAHB/Wells Fargo Housing Market Index 100 NAHB index 80 -45 -2 -4 -6 -50 -8 60 40 20 -10 -55 1/11 4/11 7/11 10/11 1/12 -12 0 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 Source: Census Bureau. 2012 Telecom equipment/Electronic components Figure 17. US trade balance (monthly trend) (US$bn) -40 Trade balance YoY growth (US$bn) 2 0 Figure 20.April 17. KDB Daewoo Securities Research Figure 19. LGE also uses components supplied by its group affiliates including LG Innotek and LG Display. SEC and LGE both possess strong supply chains. substrate. while profitability tends to remain very high at the initial stage and then starts to fall. The Korean IT industry. Such strong supply chains can greatly empower IT product makers that need to nimbly respond to rapidly changing market trends. as healthy profits attract rivals. Downstream industries.to long-term outlook of Korean IT industry SEC is estimated to have emerged as the worldÊs no. then. product differentiation is the key to maintaining/gaining competitiveness. Life cycle of IT products: Relationship between penetration and profitability (%) 99 Penetration rate OP margin (%) 45 66 Feature phone Tablet PC Smartphone TV PC 30 33 15 0 Early stage Middle Last stage 0 Source: KDB Daewoo Securities Research Commoditization of the smartphone market to present a growth opportunity for LGE Profitability cannot remain high forever. the development of SECÊs smartphone business has prompted: 1) rapid growth of the companyÊs non-memory businesses (including APs) and 2) improvements to the camera module. significantly affect their supply chains. 1 handset maker on the back of its strong supply chain SECÊs emergence as the worldÊs top handset maker . Apple secured an OP margin of a whopping 40% when the company opened up the smartphone market with its iPhone. 2012 Telecom equipment/Electronic components Mid. and then pick up speed (exhibiting an „S‰-shaped curve). However. is making a sharp recovery thanks to its strong supply chains. if the products are similar.especially in the smartphones category (which has become the largest source of revenues for global handset markers) marks a significant step for the companyÊs future growth. SEC manufactures products such as smartphones and TVs using components and electronic materials made by Samsung Group affiliates including SEMCO. which experienced the worst-ever demand contraction in 2010 and 2011. and electronic materials made by LG Chem. such as the smartphone industry. As the number of market participants grows. The penetration rate of an IT product tends to increase slowly at the initial stage of market development. Figure 21. and MLCC businesses of Samsung Electro-Mechanics (SEMCO). At this stage of a business cycle. and Cheil Industries. KDB Daewoo Securities Research 9 . Indeed. It appears that the smartphone market has entered this growth stage.April 17.in which case a stable supply chain is important. penetration increases and profitability decreases. the company that can ensure faster and stable supply should outperform its competitors . The sharp growth of SECÊs smartphone sales should trickle down to other domestic IT companies. Samsung Display. Indeed. Supply chain of global IT industry Product SEC LGE Apple Foxxcon Sony Components SEMCO SMD LGI LGD SEC. Surely. Just as SEC and LGE respectively secured first and second place in the global TV market on the back of their competitive supply chains. TDK. a lack of first-mover advantage (i. Others SMD. LGI.April 17. The companyÊs revolutionary products. Sumitomo Chemical. Sony has a business structure similar to AppleÊs. Nichia. Ibidedn. pushed the company to the top of the IT industry. and on Korean. which again require high-quality materials. However. high profitability) and innovative products should be disappointing for Korean IT makers. allowing domestic companies to narrow the gap with Japanese electronic materials rivals. LG Chem. Furukawa. we believe that OLED TVs can set a milestone for Korean IT companies in occupying the earlystage market. But the company has lost its market share to SEC and LGE as the products became increasingly commoditized. Japanese and Taiwanese makers to source components.. LGEÊs strongest advantage is the close relationship with its electronic materials supplier. Murata. KDB Daewoo Securities Research Commoditization to present opportunities to Korean smartphone makers with strong supply chains Thus. SEC is already performing well. Sumitomo Bakelit Source: Company data. Murata. Ibiden. but LGE should also benefit from the commoditization trend. Figure 22. The company has invented groundbreaking products and services such as the iPhone. However. SUMCO. In turn. Sony is a case in point. Hitachi Chemical. original products. high-quality products require high-quality components. However. companies with this type of business structure may suffer when product commoditization occurs with increased penetration. This type of business structure is highly effective if the company offers unique. the company relies on Foxconn to assemble its products. KDB Daewoo Securities Research 10 . Moreover. we expect the companiesÊ strong supply chains to help them acquire the upper hand in the global smartphone market. LGD. 2012 Telecom equipment/Electronic components Unlike Korean counterparts. this enables Apple to focus instead on quality control. the iPad and iTunes. the ongoing commoditization in the smartphone market should present a golden opportunity for Korean smartphone makers. JSR.e. it should be noted that SEC managed to be successful during the initial development stage of the LED BLU TV market. Others Materials Cheil Industries Others LG Chemical Others Shin-Etsu Chemical. outsourcing components and electronic materials (while assembling products inhouse). Nitto Denko. Indeed. SEMCO. AppleÊs competitiveness lies in its creativity and quality control. including the Walkman and the PlayStation. but Chinese suppliers have also grown fast enough to emerge as a serious threat. What is worrying is that these Chinese makers will likely expand their presence into high-end and overseas markets. and 3) secure stable sources of core technologies like electronic materials. ZTE ranked fourth among global handset makers in 4Q11 (%) 50 Nokia Apple LG Electronics Samsung ZTE Huawei Technologies 40 ZTE was ranked the fourth largest global handset maker in 4Q11 30 20 10 0 1Q08 1Q09 1Q10 1Q11 1Q12F Source: Gartner. At the 2012 CES. Xiaomi and CoolPAD have been gaining share in the midto low-end market.7 mm Weight: 110 g Display: 540 x 960 pixels (Super AMOLED capacitive touchscreen) Camera: 8 MP. Chinese vendors like ZTE.e.68mm thick).April 17. LED flash OS: Android OS.8 x 6. we believe it is essential for domestic firms to 1) take the lead in technology with continued R&D and patent licensing efforts. smartphones. v 4. 2) make early entry into new markets like India and Africa. These Chinese firms have been delivering rapid growth on the back of a robust consumer market. 2012 Telecom equipment/Electronic components Issue analysis: Chinese makers present serious threat The rapid growth of Chinese firms poses a serious threat Korean firms may have made significant advances in home appliances. Although Apple and SEC remain well ahead in the high-end market (i.4 x 64. with the number of mobile phone subscribers hitting the 1bn mark in March. the Ascend P1 S (6. In 4Q11. KDB Daewoo Securities Research Figure 24. Huawei unveiled the worldÊs slimmest smartphone. Figure 23. smartphones).5 GHz Release: Expect 2Q12 Source: GSMarena KDB Daewoo Securities Research 11 . In order to stay ahead of Chinese makers. which demonstrates that the technological strength of Chinese firms cannot be underestimated. while Huawei Technology now ranks sixth globally.0 CPU: Dual-core 1. Huawei. televisions and more recently. HuaweiÊs Ascend P1 S Size: 127. the Chinese firm ZTE overtook LG Electronics as the worldÊs fourth largest handset supplier. which is seeing earnings improvement at LS Cable & System (one of its key subsidiaries). and 2) our view that a low base effect (from stagnation in 2011) should have a more significant impact in 1H than in 2H. 2012 Telecom equipment/Electronic components II.000 2.000 1. Our optimism for 1H is premised on: 1) our belief that domestic IT companies.000 06 07 08 09 10 11F 12F 13F 500 Source: Thomson Reuters.000 (although the stock has recently pulled back). As such. Our top picks are LGE.Expect strong smartphone line-up by SEC and LGE . but weak in 2H (Wbn) 50. we believe it is only natural for Korean firms to record stronger margins and trade at higher multiples. Samsung ElectroMechanics and Partron We maintain our Overweight rating on the telecom equipment/electronic components sector.Smartphone market growth leading to earnings improvement at component companies S t ong 1H12 30. In light of the possible corrections.351. KDB Daewoo Securities Research KDB Daewoo Securities Research 12 . We also advise investors to pay more attention to LED makers due to the anticipated growth of the LED lighting market. which struggled during 2010~2011. Thus. and 3) Partron (091700 KQ). As noted in our 2012 outlook report. which is steadily picking up. given weaker expectations for a low base effect and a lack of confidence in growth. Strong in 1H. Figure 25.000 1. We recommend as our top picks: 1) LG Electronics (066570 KS). many of them have gained a more positive response than their Japanese or Taiwanese counterparts. we expect the sector to be strong in 1H before weakening in 2H. the widespread view that SEC is essentially the only serious rival to Apple helped drive the companyÊs stock price from a low of W672.000 (August 19th) to W1. which is likely to post historic-high earnings in 1Q. whose P/B has plummeted to the 1x level despite the companyÊs rapid earnings improvement (especially at the TV unit).000 10.500 . Still. which partly explains their stock price appreciation in 1Q. and Samsung Techwin (012450 KS).April 17. Investment strategy & valuation Look before it’s too late Maintain Overweight.000 Telecom equipment sector index (L) US$/W (R) JPY100/W (R) 2. Not only has the number of Korean vendors supplying core parts to Apple and SEC been increasing. there appears to be a possibility of additional corrections in 2H. Thus. 2) Samsung Electro-Mechanics (009150 KS) in light of its robust multilayer ceramic capacitor (MLCC) earnings and positive effects from Samsung ElectronicsÊ strong earnings. We think that the recent pullback of telecom equipment/electronic component shares is only a technical correction. We have also been seeing a positive change in the perception of other domestic firms in the IT sector. we expect these shares to rebound once companies release their improved 1Q results. now seems to be the time to accumulate shares. Samsung Techwin and LG Innotek also deserve attention 40. In 4Q11.500 LS. are ready to improve their profitability on revamped fundamentals. the following companies appear undervalued in 2H: LS (006260 KS).000 Weak 2H12 20. SEMCO (009150 KS): Strong competitiveness .000 110.600 Share price % Change (as of April 13th) -16. P/E multiples by sector (Daewoo Universe) (x) 24 17.010 Expected return (%) 58.600 75. Ratings and target prices for telecom equipment/electronic component makers in Daewoo Universe Ratings Ticker LG Electronics SEMCO Samsung Techwin LS LG Innotek SSC Partron Intops KH Vatec Telechips P&Tel Amotech 066570 KS 009150 KS 012450 KS 006260 KS 011070 KS 046890 KQ 091700 KQ 049070 KQ 060720 KQ 054450 KQ 054340 KQ 052710 KQ Previous Buy Buy Buy Buy Buy Trading Buy Buy Buy Trading Buy Hold Hold Hold Revised Previous (Wbn) 123.000 17.8 Trading Buy Source: KDB Daewoo Securities Research Figure 27.Samsung Techwin (012450 KS): Earnings Undervalued in 1H12 Source: KDB Daewoo Securities Research improvement and new business Table 2.5 0.300 5.0x 1.1 7.8 8.5x 0 Sh ip b uil d in g et/ co mp on en ts Ha nd s r ms tru ct i on nd uc to Di sp Fin Int ch in e ry Ma er ne t Au to lay an c e Se mi co 0.5 33.9 10.800 12.000 22.6 18 1.4 13.2 0.600 23.1 -14.000 12.0 1.000 31.LGE (066570 KS): Earnings improvement in 1H12 .3 24.7 15.3 6.4 Daewoo Universe average P/E of 10.9 45. P/B band for handset component segment (Wtr) 1.0 02 03 04 05 06 07 08 09 10 11 12 12F Source: KDB Daewoo Securities Research Source: Thomson Reuters.900 8.000 130.9 40.000 91.900 26.000 125.6 -32.LS (006260 KS): Earnings improvement at LS Cable & System .500 64.3 8.700 100.4 40.0 45. Investment strategy 1H12 Smartphone market growth leading to earnings improvement Waiting for turnaround .5x Figure 28.5x 2.490 5.100 7. KDB Daewoo Securities Research KDB Daewoo Securities Research Co 13 .5 2.4x 7.5 77.5 11.510 5.Partron (091700 KQ): Undervalued Earnings improvement 2H12 2H12 Undervalued in 1H12 Possibility of corrections of IT shares .400 92.300 17.300 Target Price Revised (Wbn) 26.790 2. 2012 Telecom equipment/Electronic components Figure 26.6 11.0x 12 6 5.April 17. 7 8.310 2. %) 19.g. Although smartphone sales volume will likely fall below expectation.524 197 8.6 4. Investors should take note that LGEÊs earnings are likely to improve further.8 KOSPI 2. And the HE division has obtained competitive edges in the 3D and OLED TV segments.9 Foreign Ownership (%) 21. Concerns over the division further deepened with the deterioration of the handset market (e.2 P/E (12F. the Optimus Vu).141 6.2 Note: All figures are based on consolidated K-IFRS. As such. Losses at the MC division (handsets and smartphones) are declining on the back of growing smartphone sales and higher cost efficiency.3 EPS Growth (12F.000 Share Price (04/13/12. However. Share price 120 110 100 90 80 70 60 50 40 4/11 8/11 12/11 4/12 KOSPI § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues (Wbn) 55.35%) Trident Securities Limited et al.1 5.808 4.9 -22. The HE division is expected to drive profitability improvement.715 Shares Outstanding (mn) 181 Avg Trading Volume (60D. we believe that LGE has already hit bottom (in terms of earnings). We project LGEÊs 1Q revenues and operating profit at W12.227 7. x) 9. Furthermore. The MC division is forecast to exceed the break-even point despite weak seasonality.394 3.91 Market Cap (Wbn) 12.2 4. under consolidated K-IFRS.7 1.646 Avg Trading Value (60D. Optimus LTE sales are stable while LGEÊs smartphone lineup is likely to improve with roll-outs of new models (e.9 -1. In 2011. while Motorola was sold to Google).3 0.008.6 1. 2012 Telecom equipment/Electronic components LG Electronics (066570 KS) Buy (Maintain) Target Price (12M.1 Price Return Volatility (12M Daily.8 7.1 11.9 52-Week Low (W) 53. NP refers to net profit attributable to controlling interests Source: Company data. %) 0.962 66.0 0.3 -17.6% from our previous estimate of W222.4 Relative -13. the companyÊs mobile communications (MC) division suffered losses due to its weak smartphone competitiveness. the companyÊs valuation should return to its normal level.9 EV/EBITDA (x) 17.g.257 54.5 2.100 (under consolidated K-IFRS).4bn Earnings are improving across all divisions We maintain our Buy call on LG Electronics (LGE) with a 12-month target price of W123..809 1. x) 12. (33.2 12.5tr and W430. After swinging to positive in 4Q.1 1.103 948 12. %) TTB Market EPS Growth (12F.1 Focus on TVs in 2012 and smartphones in 2013    Maintain Buy with a target price of W123.600 52-Week High (W) 119.3 6.345 1.699 9. and the home appliance (including air conditioners) business was expected to deteriorate due to rising raw material prices.9% on the back of the higher sales contribution of high-end products.3 2.000 1Q12 Preview: Raising operating profit forecast to W430. (6.130 2.6 P/B (x) 1.4bn (up 93.754 54. W) 77.7tr in 2012.546 366 -3.465 2. The companyÊs stronger smartphone lineup will boost profitability full swing from 2013. including 3D TVs. aided by solid smartphone and TV sales and the arrival of a strong season for the air conditioner business. The division is projected to generate an OP margin of 3.2 Major Shareholder(s) LG et al.000.8 15.67%) NPS (7.000 Beta (12M.135 11. The companyÊs home appliance business is also regaining stability.75x to our 2012F BPS of W70.3 1.. The division is forecast to post revenues of W23. Daily Rate of Return) 1.700 Expected Return (%) 58. W) 123.3 Market P/E (12F. providing a catalyst to LGEÊs earnings improvement. Wbn) 140 Dividend Yield (12F.710 OP (%) 0.578 10. We recommend that investors steadily accumulate LGE shares.1 EPS EBITDA FCF ROE P/E NP (Wbn) (Won) (Wbn) (Wbn) (%) (x) 1. '000) 1. the margin recovery outlook for the home entertainment (HE) division was uncertain amid a weak economy.3bn).6 Free Float (%) 65. Nokia stagnated.7 3.9 8.April 17.378 -2.7 -470 -2.637 OP (Wbn) 177 280 1. the company should continue to see growth in 1H. %. SD) 2. KDB Daewoo Securities Research estimates Daewoo Securities Research 14 .358 805 10.930 58. Our target price was derived by applying a P/B of 1.1 1.15%) Price Performance (%) 1M 6M 12M Absolute -14. 000 4 6. v4. GSMarena KDB Daewoo Securities Research 15 .4 x 8.4 x 9.000 3. LED flash OS: Android OS.8 x 67. KDB Daewoo Securities Research Source: Company data. Quarterly earnings trend of HE business (Wbn) 10. KDB Daewoo Securities Research Figure 32.5 mm Weight: 168 g Display: 768 x 1024 pixels (HD-IPS TFT capacitive touchscreen) Camera: 8 MP.0x 2.5 GHz Size: 139.000 0 2 0 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12F 1Q13F -3 0 1Q08 1Q09 1Q10 1Q11 1Q12F 1Q13F -2 Source: Company data.5x 100.9 mm Weight: .5 GHz Size: 126.April 17.000 1. Share performance Source: KDB Daewoo Securities Research Figure 30. LGEÊs smartphone line-up Name Optimus 4X HD Optimus Vu Optimus 3D Max 50.5x 2.0 CPU: Quad-core 1.6 mm Weight: 148g Display: 480 x 800 pixels pixels (3D LCD capacitive touchscreen) Camera: 5 MP. 2012 Telecom equipment/Electronic components Figure 29.000 1.2 GHz 0 07 08 09 10 11 12F 13F 14F Release Date 2Q12 Mar-12 2Q12 Source: KDB Daewoo Securities Research Source: Company data. LED flash OS: Android OS.3 CPU: Dual-core 1.000 5.000 3 4.3 CPU: Dual-core 1.0x Figure 33.000 Specification Size:-x .000 Home entertainment (L) OP margin (R) (%) TV business: E xpect O P margin of 4% 6 8.6 x 90.000 10. LED flash OS: Android OS.x 8.000 Revenues (L) OP margin (R) E arnings recovery 15. P/B band (W) 200.000 0 2.g Display:720 x 1280 pixels (HD-IPS TFT capacitive touchscreen) Camera:8 MP. v2. v2.0x 150.000 6 (%) 9 Figure 31. Quarterly earnings trend (Wbn) 20. 4 0.6 12F 54.3 131.9 1.141 2.1 694.740.9 54.5 28.9 0.1 5.0 -19. Quarterly earnings trend 1Q Mobile Revenues communications Operating profit OP margin (%) Handsets Revenues Operating profit OP margin (%) Revenues Home entertainment Operating profit OP margin (%) Home appliances Revenues Operating profit OP margin (%) Air conditioning & Revenues energy solutions Operating profit OP margin (%) Internal & other Revenues Operating profit OP margin (%) Revenues Operating profit OP margin (%) Pretax profit Pretax margin (%) Net profit Net margin (%) Handset sales volume TV sales volume LCD TV sales volume 2Q 2011 3Q 4Q Annual 1QF 2012F 2QF 3QF 4QF Annual 12.978.923.5 2.026.3 2.995.6 3.631 1.2 -0.0 70.7 2. KDB Daewoo Securities Research estimates Daewoo Securities Research 16 .0 1.8 1.0 0.1 2.0 1.554.1 58.6 -2.273 24.0 0.9 7.4 -281.8 3.0 1.113 9.3 51.6 692.9 14F 66.8 -57.3 TTB 124.0 1.050.2 24.0 1.752.9 2.833 18.085.6 (Wbn.085.085.7 3.1 2.088 1.1 2.0 0.1 1.9 23.6 0.5 35.591 1.7 -18.2 34.664.0 1.5 1.5 3.6 2.147 Diff.5 1.2 5.6 1.3 -7.689.3 3.0 7.9 2.725 6.783 5.2 -5.0 3.2 13.500.851.8 -124.8 4.3 24.1 2.3 11.0 -3.135 4.7 0.2 13.085.5 5.3 -2.6 42.8 -424.8 54.205 8.4 2.8 2.3 -19.0 0.3 11.050.0 1.1 1.8 14.110.4 6.8 12.9 1.050.9 14.7 1.245.0 229.762.495.6 27.8 76.4 3.679 7.9 -9. exchange rate (US$/W) Handset sales volume TV sales volume LCD TV sales volume 54.7 3.2 3.0 1.6 93.3 57.1 0. 2012 Telecom equipment/Electronic components Table 3.0 0.897.8 104.3 2.1 1.7 2.1 -14.4 5.4 -30.689.3 1.8 0.577.1 2.8 3.325 1.0 55.8 2.081.1 2.659.4 TTB 2.200.763.1 3.3 103.083.5 -19.8 5.5 12.8 0.695.194 10.062 1.080.0 305.7 -5.7 1.050.2 163.2 43.9 53.0 75.5 421.3 -10.9 30.3 336.2 0.9 2.0 0.3 1.8 24.255 6.814.0 8.5 -21.7 1.1 694.8 3.6 14F 63.655.3 -31.6 48.6 1.2 21.3 216.1 -54.1 -2.125.6 1.3 105.6 0.2 Previous 13F 57.4 38.005.5 1.008 38.5 1.0 83.9 156.3 23.7 215.701 5.1 70.3 2.9 1.2 2.4 501.995.841 -13.801.1 1.5 2.3 -0.7 319.3 5.5 3.221.9 -138.8 Note: Based on IFRS Source: Company data.1 -100.173 YoY -18.0 19.1 4.8 2.1 3.107.4 1.2 432.5 -31.504.038.8 TTB 167.2 54.718.175 -13.3 87.458.360.6 25.464.6 12.9 6.625.0 141.7 2.607.6 39.8 1.0 38.1 3.6 -0.7 -223.3 430.124.5 31.2 148.0 5.962 2.1 59.4 774.5 3.6 43.7 2.0 41.6 122.6 -285.4 2.0 1.7 0.1 769.360 2.5 88.0 0.9 2.0 -4.6 0.3 4.2 -85.5 8.303.4 13.0 38.232.930 1.4 860.699 3.3 -85.7 145.6 12.4 228.308 9.7 -139.512 6.290 38.5 0.5 1.850.3 130.5 14F 5.050.050.711 19.2 2.4 4.8 0.1 -25.9 1.0 2.4 132.385.5 113.9 1.8 1.3 10.8 3.0 2.2 -113.8 3.4 3.0 80.359 9.7 0.4 860.3 74.193 11.6 2.4 0.236.3 2.3 1.8 2.7 2.5 5.8 1.303.0 -1.3 2.2 1.3 62.902. KDB Daewoo Securities Research estimates Table 4.451 24.9 3.6 14.9 4. W.8 88.667.1 4.141.9 1. %p.1 304.5 4.9 686.2 4.7 -399.5 -1.5 -42.059.8 2.637 2.6 -7.2 12.0 0.9 2.0 -16.0 38.429.7 -5.8 2.256.8 5.0 6.7 100.3 222.2 -2.4 1.9 -3.8 2.9 5.4 -1.237 2.862 9.5 -2.5 -5.5 1.5 -0.0 4.6 34.5 1.9 90.5 2. %.775.688 2.4 -50.710 2.2 3.3 114.257 280 -399 -470 0.3 -244.April 17.8 0.4 102.0 9.465 1.9 -0.1 30.0 83.8 0.3 692.9 121.1 262. 0.2 -0.2 2.685 9.0 1.4 1.9 1.4 -8.159.1 130.083 875 653 2.3 88.6 251.1 2.5 0.8 158.1 748.7 -0.1 2.6 0.4 2.5 3.8 0.0 0.642 5.4 -3.2 4.1 97. -14.5 1.020 14.2 23.5 2.0 1.0 -11.7 -530.9 1.251.5 1.3 70.187 3.1 32.360.2 Revised 13F 58.9 3.7 -3.7 74.0 1.5 5.0 75.2 1.8 718.2 38.786 21.7 12F 54.9 1.7 245. %p) % Change 12F 13F 0.5 0.1 1.0 70.2 0.9 9.4 1.857 Note: Based on IFRS Source: Company data.4 2.6 162.2 -122.4 469.7 2.7 -143.2 12.1 -0.2 26.8 23.0 3.3 -3.8 3.1 1.2 1.436.0 0.7 -4.2 1.1 3.9 -38.802.1 2.0 0.0 4.0 0.6 3.6 372.909.9 -56.1 -21. Earnings forecast revisions 2011 Revenues Operating profit Pretax profit Net profit OP margin (%) Pretax margin (%) Net margin (%) Final exchange rate (US$/W) Avg.0 1.959.0 24.272.6 1.171.533 28.658.098 17.694.5 0.4 20.539 3.4 (Wbn.6 1.0 -3.2 0.8 1.130 2.4 1.3 -101.7 -469.549 8.9 -0.5 -53.584.6 289.692.9 1.5 2.175 17.9 2.1 748.3 43.2 13.085.639.740. Ê000) 1Q12F QoQ Est.0 96.0 -3.4 1.0 1.1 -0.562 11.7 0.6 41.0 3.7 -38.1 97.2 91.315.6 3.3 0.7 1.818.1 -43.7 31.765 1.6 52.930.0 2.581 1.085.2 11.0 37.5 5.324.9 280.5 -1.4 2.5 -2.5 149. 752 -304 -131 -106 850 228 976 -43 -311 401 1. 2012 Telecom equipment/Electronic components LG Electronics (066570 KS/Buy/TP: W123.808 19.980 7.192 4.500 12.603 7.5 8.324 5.127 2.465 1.688 457 2.797 4.036 32.396 200 0.894 904 2.733 896 306 -1.1 3.468 13.637 49.524 197 4.258 713 20.0 1.231 1.296 4.April 17.130 -42 243 157 2.3 6.4 9.395 12/13F 3.3 -3.514 86.7 2.747 14.018 109 4.5 25.962 43.6 -1.2 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.854 -304 0 108 625 0 980 0 -355 1.856 343 280 -680 228 -331 -399 34 -433 0 -433 -470 37 -642 -692 50 1.387 1.130 2.0 11.6 Source: Company data.843 -1.015 4.258 615 19.8 10.395 14.7 12.881 -433 3.9 4.117 5.058 12.360 3.747 10.389 999 3.293 -1.2 134.6 2.930 41.040 38.783 2.980 4.996 10.775 1.0 129.711 21.060 230 769 -345 -359 -2.997 12.495 1.262 -304 0 121 -537 0 0 -182 -355 642 3.7 19.896 7.292 10.091 303 45 -23 -1.249 1.5 4.462 11.251 5.737 16.669 8.797 12/14F 21.623 2.248 408 16.103 948 6.332 758 301 45 84 -437 -148 455 -133 -2.3 -2.088 1.327 18.0 12/14F 6.325 133 1.050 -1.192 1.736 4.225 999 3.710 -22 237 170 2.867 2.622 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 17.215 7.231 0 2.6 1.9 12/12F 54.9 12/12F 12.395 3.1 130.964 14.9 12/14F 66.5 0.199 11.9 13.100 500 8.3 33.7 3.2 58.346 3.581 90 3.444 -2.980 12/14F 3.688 3.533 2.775 1.947 1.940 16.3 4.082 3.192 3.494 3.475 19.8 1.192 5.9 9.499 4.0 5.2 63.5 12.2 25.1 7.1 45.7 3.360 -2.944 2.192 1. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 15.3 7.204 8.135 96 2.148 12/12F 17.7 3.383 66.7 8.809 4.310 12.862 9.631 1.5 5.510 12.395 7.185 77.889 5.088 313 1.0 0.670 5.5 -0.710 2.2 11.171 -304 0 114 -446 0 0 -91 -355 585 3.6 TTB 7.3 422.2 14.875 5.1 6.815 3.872 1.802 1.217 12/13F 19. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 17 .0 117.6 4.018 24.8 TTR 7.550 1.6 4.0 22.394 -457 -2.2 9.500 254 13.2 7.395 17.1 12/13F 8.231 2.257 42.095 1.898 999 3.050 2.167 70.0 37.775 0 1.048 18.8 -2.825 9.9 8.4 111.192 0 1.1 11.641 319 15.038 35.2 4.0 0.659 14.6 2.612 14.040 6.1 148.942 5.098 -754 1.000) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 54.065 4.243 14.7 1.699 76 1.546 366 2.346 7.475 1.7 1.250 16.0 9.000 10.394 16.583 926 302 45 346 -440 -400 874 -313 -2.3 16.4 48.041 43.258 1.9 10.391 1.2 11.671 1.067 3.017 6.6 6.192 3.202 518 18.502 5.7 119.358 805 5.733 1.0 0.1 9.2 27.663 5.622 9.6 117.9 0.465 -140 250 66 1.742 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 1.024 65 2.9 10.2 11.141 51 1.747 12.306 18.346 12/12F 2.258 845 21.9 14.4 1.290 1.997 1.1 12/13F 58. %) 19.743 476 7.8 10.008.818 625 8. %) 37.0 17. we think the unit will become a new growth driver. aided by SECÊs robust smartphone sales.7 7.507 Shares Outstanding (mn) 78 Avg Trading Volume (60D. SD) 2. KDB Daewoo Securities Research estimates Daewoo Securities Research 18 .200 52-Week High (W) 121. driven by expectations for its LED business. (11.2 Market EPS Growth (12F.000. However.0 8.8 Free Float (%) 76.735 1.000 Beta (12M. And the FC-CSP unit is displaying topline growth alongside smartphone market growth.000 1Q12 Preview: Solid earnings despite slow season. Thus.4bn Historic-high operating profit (excluding the LED business) expected in 2013 We maintain our Buy call on Samsung Electro-Mechanics (SEMCO) and our target price of W125.46%) Korea Investment Management (5.500 Expected Return (%) 24. SEMCO became the global FC-CSP market share leader in 2010 and has steadily improved its position since then. 2012 Telecom equipment/Electronic components Samsung Electro-Mechanics (009150 KS) Buy (Maintain) Target Price (12M. based on a BPS of W47.5 Relative 2.9 15.1 9. 3) The appreciation of SECÊs share price (269.1 21. (23.148 985 -436 18. x) 16. given that only Murata (Japan) and SEMCO have achieved economies of scale.8 Foreign Ownership (%) 18. 1) SEMCO has been delivering healthy earnings.504 942 -504 10. we believe it is time for investors to start focusing on the companyÊs future without an LED business.4 EPS Growth (12F.8 1.3 Major Shareholder(s) SEC et al.9 7.9 495 6.8 2.2bn) should boost SEMCOÊs shares. '000) 635 Avg Trading Value (60D.6x does not seem undemanding.277 576 7. We expect a record operating profit (excluding the LED business) in 2013. %) 0.2 52-Week Low (W) 59.6x (a 20% premium to the companyÊs 5-year average P/B of 2. OP estimated at W95. W) 125. A P/B of 2.1 Stable earnings are attractive    Maintain Buy and a target price of W125. Daily Rate of Return) 1. SEMCOÊs P/B reached 4.g.5 2.3 Market P/E (12F. Share price 110 100 90 80 70 60 50 40 4/11 8/11 12/11 4/12 KOSPI § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 5. but the unit merged into Samsung Electronics (SEC) as of April 1st. We estimate SEMCOÊs 1Q operating profit at W95. valued at W57.9 14. which seems healthy given that the first quarter is typically a slow season. tablet PCs).91 Market Cap (Wbn) 7.0x in 2010.032 321 5. The camera module unit (OMS division) should post solid results.384 1.0 523 6.3 7.2 P/E (12F.8 -14.69%) Capital Research and Management Company (CRMC) et al.1 480 6.2 16. W) 100.328 -367 12.6 -9. The FC-BGA unit is also picking up. %.596 under consolidated K-IFRS. finding opportunities in the converging PC and handset markets (e. Wbn) 61 Dividend Yield (12F.5 Note: All figures are based on consolidated K-IFRS. x) 9.9 P/B EV/EBITDA (x) (x) 2.9 11.April 17.3 350 4.143 -72 12.8 KOSPI 2. While SEMCO occupies only 8% of the W5tr FC-BGA market.3 17.000 Share Price (04/13/12. the MLCC business should be able to gradually pick up. Growing downward pricing pressure and potential yen depreciation may have negative impacts.1 Price Return Volatility (12M Daily. NP refers to net profit attributable to controlling interests Source: Company data. The multi-layer ceramic chip capacitor (MLCC) unit (a part of the LCR division) is also projected to improve on the back of smartphone market expansion and the TV market recovery. also aided by SECÊs robust smartphone sales.8%) Price Performance (%) 1M 6M 12M Absolute 2.651 498 8.3 6. SEMCOÊs substrate business (ACI division) is showing the quickest recovery among the companyÊs business units.180 981 -211 13.2x).8 555 7.4bn. Our target price is equivalent to a 2012F P/B of 2.8 7.3 1. following MLCC. 2) FC-CSP and FC-BGA will likely become the companyÊs new growth drivers. smartphones.897 shares received in return for the sale of the LED unit.4 6. SECÊs robust smartphone sales are positively affecting the HDI substrate unit. 2 9.9 127.9 49.0 1.8 9.102.0 4.689.6 432.568.5 77.2 431.9 5.4 1.2 346.9 10.1 1.776.9 4.9 -15.0 7.3 -45.1 73.9 9.651.4 -9.6 54.6 40.5 34.2 4.5 51.7 4.1 64.4 8.5 187.0 320.3 45.3 8.571.1 442.2 19.3 14.0 381.0 6.1 1.8 459.9 13.1 -6.2 479.8 4.668.8 -8.9 412.500 10 1.1 8.1 11.0 337.7 426.1 OMS -7.639.0 1.1 -1.8 48.0 6.3 12.3 9.1 37.4 OP margin ACI 4.0 4.7 Total 1.398.1 -3.000 OMS (L) CDS (L) ACI (L) LCR (L) OP margin (R) 15 1.2 8.0 0.7 -1.1 8.5 41.0 1.3 14.2 OMS 177.5 11.0 103.6 40.4 -12.1 3.3 404.6 6.5 -5.1 Pre-tax profit 90.3 57.6 5.7 67.6 TTB 31.5 LCR 64.1 Operating profit ACI 16.7 10.1 -30.3 378.5 23.0 8.6 1.9 5.9 475.7 109.0 417.5 21.April 17.5 18.8 0.9 11.8 Annual 1.6 142. Quarterly earnings trend 2011 1Q 2Q 3Q 4Q Annual 1QF Revenues ACI 351.9 6.8 KDB Daewoo Securities Research 19 .0 8.1 408.6 6.1 9.7 -2.2 7.7 5.6 99.1 427.8 1.1 541.7 5.0 18.9 9.8 2.755.6 Total 72.5 1.3 11.1 1.7 95.2 2Q -6.7 4QF 487.0 3.9 CDS 1.7 6.9 144.742. W.2 376.6 -9.3 4.2 392.7 LCR 429.7 3.500 (%) 20 2.4 1.5 9.6 Net margin 6.0 -5.0 58.1 1.0 428. KDB Daewoo Securities Research Table 5.8 2.9 Note: Based on IFRS / Source: Samsung Electro-Mechanics.1 -8.4 149.1 1.7 2012F 3QF 483.602.6 -1.2 425.9 349.3 3.2 110.6 101.565. Quarterly earnings trend (Wbn) 2.5 80.1 8.9 4.5 -1.3 53.1 Pre-tax margin 6.2 Total 5.4 CDS 440.1 378.4 5.0 5.0 128.2 3.7 1. Share performance Source: KDB Daewoo Securities Research Figure 35.0 364.1 Net profit 85.000 5 500 0 0 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12F -5 Source: Company data.6 135.0 2.8 15.2 29.2 13.4 3.8 CDS 4.2 155.1 6.3 6.5 399.1 181.0 20.6 391.0 -24.3 -26.8 LCR 14.663.2 108.4 1.2 0.9 14.5 3.854. 2012 Telecom equipment/Electronic components Figure 34.3 7.8 167.6 433.8 -46.6 80.7 6.6 148.7 397.4 -3.0 -0.7 3.6 8.1 17.9 11.3 1.0 2.2 0.4 1.1 (Wbn. %p) 1Q12F 1Q 22.400.1 3.9 95.0 6.3 7.8 68.4 2.4 5.4 190. KDB Daewoo Securities Research 2QF 455.6 414.645.5 OMS -12.033.0 11.6 44.6 -6.4 8.3 209.5 49. 7 1.8 4.5 10.510 1.504 975 406 4.9 10.3 121.021 1.6 26.844 42 2.6 5.9 7.046 1.9 16.647 46 10.278 56 7.887 564 4.802 52.907 3.210 4.8 7.3 5.009 431 4.063 43 3.504 13.3 6.095 1.0 1.046 2.8 6.322 1.178 1.2 32.9 2.938 388 1.071 556 670 558 9 5 -59 -115 -83 74 -97 -991 -1.9 6.000) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 6.1 6.884 1.884 49 9.1 14.1 117.141 388 1.610 5.474 750 0.287 1.143 -72 15.1 5.0 161.442 496 4.084 3.057 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 17.1 136.9 7.705 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 459 392 842 648 15 -102 -691 -272 -263 72 -84 -959 -1.3 7.0 15.April 17.3 7.2 11.348 1.357 2.3 37.735 15.630 1.146 1.096 1.771 1.437 52 9.818 6.434 12/14F 5.598 4.0 0.579 1. 2012 Telecom equipment/Electronic components Samsung Electro-Mechanics (009150 KS/Buy/TP: W125.1 14.070 -6 142 -25 315 471 4 -88 -72 -170 695 526 12/12F 500 539 527 496 10 75 -479 -710 -385 416 -87 -579 -585 -6 0 12 441 0 0 0 -39 362 526 888 12/13F 1.4 16.295 43 2.8 6.4 12/13F 15.057 1.828 3.7 13.328 -367 17.0 6.743 5.329 2.320 1.1 15.707 1.6 -37.8 12.096 1.4 26.568 992 576 576 -7 26 1 569 97 472 84 556 495 61 319 254 65 1.7 12.240 888 1.2 48.5 6.5 5.8 4.591 1.1 5.533 972 1.112 1.2 5.9 12.277 5.3 1.836 1.5 6.507 388 1.6 12.1 12/13F 7.7 7.395 919 476 476 65 24 1 541 87 455 84 539 480 59 301 238 63 981 -211 14.3 4.011 742 495 171 3.3 6.691 1.5 4.0 8.4 -35.2 8.4 132. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 3.876 12/12F 5.588 3.692 50.446 -1.9 11.0 1.0 27.6 7.709 1.8 Source: Company data.7 157.453 3.6 5.384 13.4 21.0 3.046 2.0 7.5 12/14F 14.032 5.066 625 625 -12 31 1 613 110 503 84 587 523 64 350 281 68 1.050 981 704 278 321 43 35 -1 364 56 309 84 392 350 43 155 108 47 942 -504 15.046 2.915 3.096 1.458 -6 0 18 301 0 0 -78 -53 85 972 1.9 6.746 388 1.3 2.128 1.7 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.695 47.529 368 3.180 12.0 12/12F 16.7 -4.230 587 826 695 8 5 -72 -130 -93 83 -110 -1.0 8.000 15.229 1.300 19.5 154.055 44.091 623 5.0 7.711 605 1.8 11.0 6.632 41 2.096 1.8 7.403 1.0 7.6 13.522 840 6.1 9.7 8. KDB Daewoo Securities Research estimates Daewoo Securities Research 20 .7 7.596 800 13.005 -6 0 20 4 0 0 -62 -50 84 888 972 12/14F 1.697 526 882 761 1.852 1.8 12/12F 6.4 1.177 12/13F 5.8 12/14F 7.502 3.1 7.394 3.1 89. 772 (under consolidated K-IFRS).432 Shares Outstanding (mn) 53 Avg Trading Volume (60D. it should take an extended period of time for the business to be actually launched. The Ministry of Knowledge Economy projects that the global market for graphene. it is not certain which company in the Samsung Group will take charge of the business. We attribute the stronger-than-expected 1Q results to: 1) the companyÊs 4Q inventory drawdowns and 2) margin improvements at the semiconductor component and semiconductor equipment divisions.4 2. x) 9.8 1M -6.900 52-Week High (W) 95.4 Market EPS Growth (12F.2bn (down 22.8x (20% discount to the companyÊs five-year average P/B of 3.. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 21 .0 2.2 6M 10.9 12.600 Expected Return (%) 40.9 225 4.7% YoY). with restructuring nearing completion.3 1. Both of these divisions are likely to reach break-even points after incurring double-digit losses in 4Q11.3 20.900 Beta (12M.9 23.060 161 5. %) 19. We arrived at our target price by applying a P/B of 2. The companyÊs 2011 earnings were sluggish due to massive upheaval (e.8bn (swing to positive QoQ and up 1.2 19.2 Price Return Volatility (12M Daily.9 EPS Growth (12F. The outlook for Samsung TechwinÊs graphene business is rosy.924 228 7. Our optimism for Samsung Techwin shares is premised on our growing expectations for the companyÊs new businesses (as well as near-term earnings improvements). W) 91. (32. in its peer group.g. Wbn) 39 Dividend Yield (12F.319 188 41 15. the worldÊs largest oil producer. Margins at the security camera.3 3. x) 19.0 Market P/E (12F. W) 64. semiconductor parts. this development appears meaningful. However.8 KOSPI 2.008.000 Share Price (04/13/12.948 251 8.5 12.5x. It should be noted that Samsung TechwinÊs margins appear to have normalized in 1Q.April 17. (9. '000) 627 Avg Trading Value (60D. Expectations for new businesses growing    Maintain Buy and a target price of W91.239 291 92 10.2 P/E (12F.g.000 1Q12 Preview: Operating profit estimated at W30.2 52-Week Low (W) 48.. In addition. %) -21.2 4.5 230 4.525 208 5.4 11.6 -16.76%) Korea Investment Management et al.256 347 102 11.3 P/B EV/EBITDA (x) (x) 5. SD) 2. The target price offers an upside of 40.7% YoY).0 -5.8% QoQ and down 1. will surge to US$30bn in 2015 and US$600bn in 2030. Samsung Techwin is making the quickest progress in the segment (e.8bn New compressor and graphene businesses We maintain our Buy call on Samsung Techwin and our 12-month target price of W91.91 Market Cap (Wbn) 3.6 2.000.7 Foreign Ownership (%) 14. the arrival of a new CEO).3 Major Shareholder(s) SEC et al. construction of a test production pilot line). We project the companyÊs 1Q12 revenues to come in at W632. which can be used to make flexible displays. %.8 233 4. and power systems units are on the road to recovery.009 260 6. However. unchanged) to our 2012F BPS of W32.5 279 5.0 3. %) 0. 2012 Telecom equipment/Electronic components Samsung Techwin (012450 KS) Buy (Maintain) Target Price (12M.0 19. We estimate the companyÊs 1Q12 operating profit at W30.8 15.2 1.1 12M -21.7 14.2 0. Daily Rate of Return) 1. However. The company recently took orders for 17 large compressors (for use in oil and gas production) from Saudi Aramco.0 17.29%) Price Performance (%) Absolute Relative Margins normalizing.395 241 70 10. and auto/aircraft parts.3 Share price 140 120 100 80 60 40 4/11 8/11 12/11 4/12 KOSPI Note: All figures are based on consolidated K-IFRS. NP refers to net profit attributable to controlling interests Source: Company data. defense.394 310 -11 19.3 180 3.9% from the current price. § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 2. Given that the worldÊs compressor market is worth a whopping W23tr. we believe that Samsung Techwin is turning around.9 Free Float (%) 67. 5 0.0 RR TTR -25.5 -32.9 69.4 11.2 62.0 5.4 20.0 3.April 17.0 -1.8 FY 681.8 7.3 5.3 5.4 -0.0 -49.7 229.9 10.0 45.2 1.7 2Q 171.2 153. a valuation gain of W91.2 173.3 43.8 13.2 23.1 -0.1 -3.5 15.059.4 30.6 244.2 7.7 -13.9 41.0 7.2 -11.8 2012F 3QF 212.0 5.3 693.9 -2.1 731.4 -1. 2012 Telecom equipment/Electronic components Figure 36.1 34.2 0.1 309.8 2.1 -8.1 44.3 21.0 130.6 74.8 873.3 -0.0 6.0 46.4 30.7 7.0 22.8 -0.4 -27.9 8.5 15.0 -24.8 166.8 -0.9 6.3bn on the remaining stake).0 0.6 11.5 886.3 75.2 TTB 163.0 -31.8 4.8 12.2 5.1 81.4 819.1 5.0 6.0 49.4 805.4 8.4 12.3 0.0 5.6 -18.2 250.9 50.7 6.5 42.4 7.0 0.0 0.8 7.0 10.1 RR RR -27.6 4.9 7.5 227.4 5.0 8.3 195.7 3.0 46.0 5.7 -1.7 265.5 6.2 902.9 216.2 9.0 -2.2 Revenues Operating profit OP margin (%.7bn on the sale of some shares.2 7.2 -9. Quarterly earnings trend 1Q SIS Digital solutions IMS Power systems Defense program Total SIS Digital solutions IMS Power systems Defense program Total SIS Digital solutions IMS Power systems Defense program Total 163.1 83.8 6.7 198.8 23.9 36.3 161.5 2011 3Q 170.0 -22. IMS = Intelligent Machinery & Solution * IT Solution discontinued its camera module business on June 30th Note 2: 2Q Operating profit included W156bn related to the companyÊs Korea Aerospace Industries (KAI) shares (W64.0 2QF 184.5 287.0 216.3 188.6 -1.8 22.4 164.2 -1.8 FY 814.2 174.4 -11.7 791.4 89.2 13.0 39.1 2.7 77.8 142.3 1.6 24.6 -8.4 -2.5 -1. Source: Company data.2 -5.2 5.7 4.0 5.3 -1.6 11.1 8.6 5.8 277.1 6.7 7.2 249.3 632.0 14.6 21.8 1QF 167.0 1.0 57.0 16.3 337.1 4QF 250.7 7.4 13.4 -10.5 -1.4 15.5 60.3 50.9 20.5 809.9 5.6 -0.5 10.2 4.4 9.2 216.5 11.3 9. %) 1Q12F YoY QoQ 2.7 180.7 45.9 198.7 -5.0 41.1 756.7 83.8 -0.4 71.1 11.4 1.4 75.8 -1.6 14.0 184.6 51.5 0.0 -0.2 6.4 6.3 -2.5 65.7 -60.6 90.5 -0.2 42.8 4.7 2.9 42.0 37.5 175.0 1.3 5.947.0 7. %p) Pretax profit Net profit Pretax profit margin Net profit margin Note 1: SIS = Security & Image Solution.3 -13.5 -8.0 2.0 4.4 6.9 -39.0 8.2 TTB 4.8 8.3 5.1 15.5 4.8 9.9 (Wbn.4 643.0 78.7 11. KDB Daewoo Securities Research estimates Daewoo Securities Research 22 .9 -8.9 4Q 176.6 17.5 247.8 43.5 6.5 -12.9 50.8 1.8 -1.1 98.0 241.0 1.1 -9. DIS = Digital & IT Solution.8 9.0 5.8 6.7 10.3 3.5 9.0 -7.6 5. Share performance Source: KDB Daewoo Securities Research Table 6.1 -45. 8 12.1 6.0 17.6 15.0 7.5 86.0 96.2 15.6 2.9 6.395 4.9 12/12F 19.602 6 2.4 12/14F 4.9 14.3 9.6 5.0 24.0 6.188 594 740 245 3.0 166.5 129.710 712 867 221 4.2 10.4 5.244 188 547 407 102 1.3 8.403 545 456 88 251 -3 34 32 248 17 231 -1 230 230 1 399 398 1 188 41 6.167 4 1.058 700 16.2 4.599 1.5 4.1 15.5 1.5 7.6 12/13F 15.8 5.6 22.668 406 654 486 122 2.3 3.6 -21.3 10.256 6.802 39.5 79.8 12/12F 3.0 4.3 5.0 19.4 1.239 5.1 1.621 266 189 986 4 1. 2012 Telecom equipment/Electronic components Samsung Techwin (012450 KS/Buy/TP: W91.8 5.2 2.0 18.107 1.9 5.9 6.467 593 431 161 161 34 32 47 196 15 181 0 181 180 0 309 308 1 241 70 7.9 10.194 963 223 330 410 605 457 25 1.625 12/12F 1.194 815 555 260 260 49 37 66 308 29 280 0 280 279 1 408 407 1 347 102 8.360 5 2.4 25.3 6.8 -35.665 1.April 17.934 12/13F 1.1 139.2 1.6 6.0 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.904 46.7 6.9 3.9 28. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 23 .8 -39.0 -1.6 16.240 800 15.439 646 801 233 4.621 266 189 1.0 0.829 696 488 208 208 39 34 53 246 21 226 0 226 225 1 354 353 1 291 92 8.086 267 330 490 765 593 20 1.6 82.060 2.949 547 683 259 3.7 6.075 2.627 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 96 230 11 82 18 106 -109 -103 57 -71 -35 60 -48 -3 -15 126 -81 -5 0 -43 -33 76 112 188 12/12F 203 181 60 62 17 16 -23 -45 -34 18 -15 -119 -119 -3 0 3 -5 0 0 0 -37 80 188 268 12/13F 234 226 65 67 16 16 -36 -61 -46 25 -21 -128 -128 -3 0 4 32 0 0 -32 -39 139 268 406 12/14F 253 280 68 73 15 16 -66 -98 -73 40 -29 -137 -139 -3 0 5 18 0 0 -37 -44 134 406 540 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 12.8 27.851 2.256 12/14F 1.200 307 330 563 875 691 18 2.5 5.7 19.568 1.7 0.9 12/13F 3.3 5.6 7.000) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 2.2 20.6 12/14F 12.5 14.0 13.200 26.9 7.2 36.2 13.015 242 330 444 650 490 22 1.009 3.9 0.948 2.3 10.9 6.5 7.525 2.772 600 17.708 500 0. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 1.319 6.0 7.7 16.9 5.4 8.701 1.4 11.411 268 592 441 111 2.884 32.930 266 189 1.2 11.251 266 189 1.7 24.1 153.4 11.0 28.992 540 752 559 140 2.7 14.2 Source: Company data. 6 0. which tend to pick up the slack for one another.9 6..5 328 10.9%.715 812 451 11. Of note. up 1. down 14.9 7. Still.6 12. Also.9% QoQ) from W131.8 52-Week Low (W) 66.9 EPS Growth (12F.4% in 2011.9 Major Shareholder(s) Zayul Koo et al.4 Relative -10. %) 1. %) 19.1 7.400 Expected Return (%) 45. We revised up our 1Q operating profit estimate by 3.4 281 8.43%) LS Treasury Stock et al. Share price 120 110 100 90 80 70 60 50 40 4/11 8/11 12/11 4/12 KOSPI § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 16. sulfuric acid.000 1Q12 Preview: Revising up operating profit estimate by 3.g.9 0.2% to W135.April 17. KDB Daewoo Securities Research estimates Daewoo Securities Research 24 . W) 110.6bn (down 13.1 LS Cable & System’s long-awaited recovery begins    Maintain Buy with a target price of W110. we expect quarterly operating profit to remain stable at around W150bn.4 Foreign Ownership (%) 14.6 391 12. sulfuric acid prices soared 136.120 5.8 -27. (33. LS Cable & SystemÊs earnings are likely to recover on normalizing Middle Eastern orders (orders from Kuwait.980 600 3. Saudi Arabia and Qatar have been gaining momentum) and the projected earnings pickup at its subsidiaries (US-based SPSX has been displaying stronger growth at its communications cable unit). In particular. LS-Nikko Copper is expected to show strong earnings growth in 2012 thanks to rising by-product prices (e.5 13. In particular. Wbn) 11 Dividend Yield (12F.867 572 4. Our target price implies an upside of 45. Daily Rate of Return) 1. The cable accident alone added W70.6 1. Most importantly.5% YoY.8 12.2 Note: All figures are based on consolidated K-IFRS.000.91 Market Cap (Wbn) 2. SD) 2. '000) 133 Avg Trading Value (60D.8 Free Float (%) 52. 2012 Telecom equipment/Electronic components LS (006260 KS) Buy (Maintain) Target Price (12M..0bn (down 3.7 20.6 1. Going forward.2% to W135.5 Market EPS Growth (12F.8% YoY. x) 9.808 988 -874 14. which was derived by applying a P/E of 12.008. However. NP refers to net profit attributable to controlling interests Source: Company data.173 882 246 12.535.4 15. LS MtronÊs machine sales (e.6bn Recovery of LS Cable & System provides a major tailwind We maintain our Buy call on LS with a target price of W110. the subsidiary was hurt by declines in high-margin orders (in the wake of the political turmoil in the Middle East) and oneoff expenses (penalties and losses from a submarine cable accident). the average 2012F P/E of global cable companies is 12.428 Shares Outstanding (mn) 32 Avg Trading Volume (60D. x) 8.2 P/B EV/EBITDA (x) (x) 2.8 -9. We forecast 1Q consolidated IFRS revenues of W3. The key strength of LS lies in its healthy subsidiaries.1 7.77%) NPS (9.352 338 2.7 Market P/E (12F.653 538 1. In 2011.8% QoQ). %) 138. (13.000 Share Price (04/13/12.3 8.7 118 3.104 639 4. the companyÊs earnings seem dependent on the recovery of LS Cable & System (a key subsidiary). silver.7bn to expenses as of 4Q11. gold. tractors and auto-use injection molding machines) remain robust.5 251 7. and connector and copper foil sales are likely to recover.4bn.7 9.9x (the average of the companyÊs pre-holding 2009 P/E and post-holding 2010 P/E) to our consolidated K-IFRS 2012F EPS of W8.8 KOSPI 2.4x.0 Price Return Volatility (12M Daily.4 -32. %.813 731 4.128 978 226 12.100 52-Week High (W) 128. W) 75.5 13.g.28%) Price Performance (%) 1M 6M 12M Absolute -11. in 2012.2 P/E (12F. and rare metals).7 14.5 1.7 8.500 Beta (12M. We advise investors to keep tabs on the companyÊs 1Q performance. it appears as though a 1Q earnings recovery will be needed to dispel the concerns surrounding the company. 7 1.6 0.0 135.606 7.2 6.7 0. %p) % Diff.8 -0.4 9.8 73.3 (Wbn.5 YoY -3.5 2.5 2.4 2.3 2014F 15.6 9.535 4. 2013F -3.955.9 2.3 2.9 0.297 661 462 333 10.030 4.0 Pretax margin 0.0 10.867 571 371 281 8.5 -13.6 2.2 -2.3 2014F -3.9 2.8 2.275 5.8 11.0 Source: Company data.339 4.829 4.1 (Wbn.3 94. KDB Daewoo Securities Research KDB Daewoo Securities Research 25 .116.0 131.9 2.4 Revenues 12.7 0.2 0.2 10.0 3.0 0.1 -12.0 3.008.9 -20.8 -9.4 3.0 2.2 64.4 -122.1 2.5 83.3 2.4 2.202.6 0.4 0.385 13.1 70. Earnings forecast revisions 2011 2012F Previous 2013F 2014F 16.359 14.April 17.9 -68.5 3.7 63.8 2.2 63.5 2.8 2.1 17.2 9.3 -4.2 3.7 -95.5 1.0 2012F 12.0 109.5 12.8 3.1 4Q 2.336.319.7 145.5 2012F -3.1 0.6 2.4 0.9 -0.5 157.2 0.0 12.0 -3.4 0.7 89.9 4.813 731 517 391 11.983 9.2 159.1 2012F 2QF 3.8 2.7 Net margin 0.9 1.1 1.966 3. 2012 Telecom equipment/Electronic components Figure 37.562 4.974 4.5 106.033.6 0.9 2.8 -14.5 1QF 3. Share performance Source: KDB Daewoo Securities Research Table 7.6 9. %) 1Q12F QoQ Previous Change 1.4 77.636 Operating profit 337 520 582 Pretax profit 99 335 390 Net profit 116 257 292 EPS 3.2 -12.9 58.3 15.6 3.353 2. KDB Daewoo Securities Research Table 8.4 0.9 Source: Company data. W.104 639 434 328 10.4 9.1 160.7 3.3 3Q 3.8 0.9 1.9 2.4 2.3 93.063 OP margin 2.6 85.2 3QF 4QF 3.5 2. Quarterly earnings trend 1Q Revenues Operating profit Pretax profit Net profit EPS OP margin Pretax margin Net margin 3.1 -0.0 2011 2Q 3.1 75.2 Revised 2013F 14.3 1.4 2.7 10.1 82.008.279.1 2.5 -0.1 -0.186 4.7 29.3 3.956 -2.9 130.6 1.3 2.0 10. %.980 5.001 4. 172 4.363 2.7 1.5 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.538 967 572 572 -201 214 0 371 82 289 0 289 281 9 307 298 9 812 451 6.867 11.8 3.509 1.9 216.6 -43.9 Source: Company data.7 12/14F 6.1 5.8 11.9 10.432 2.850 825 9.407 260 8.6 126.405 1.915 852 12.550 11.153 841 2.852 161 225 2.351 160 5.4 4.457 148 5.9 8.8 6.717 1.4 2.0 10.4 236.792 80.1 12.246 161 225 1.4 2.730 1.5 12/12F 8.965 267 3.2 7.596 3.250 0.629 916 3.410 12/14F 6. 2012 Telecom equipment/Electronic components LS (006260 KS/Buy/TP: W110.578 1.2 12.9 9.732 69.2 51.7 -53.958 3.253 1.165 1.481 175 5.809 1.6 2.6 8.8 1.April 17.328 1.211 3.8 2.5 4.104 12.861 326 2.8 0.434 51.4 19.779 3.356 1.5 7.217 262 7.4 127.219 161 225 2.1 12.3 2.993 1.192 60.1 1.6 11.8 4.511 559 3.0 1.915 805 2.920 1.9 7.5 13.9 5.7 4.885 844 11.1 8.786 12/12F 5.6 3.257 841 2.9 9. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 4.0 12/12F 12.000) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 12.967 265 7.0 114.173 17.5 12/13F 7.2 12/13F 14.6 142.3 8.7 2.0 2.060 639 639 -206 218 0 434 95 338 0 338 328 11 355 345 10 882 246 6.0 257.813 13.761 2.8 2.002 4.120 4.097 841 2.9 10.6 150.373 841 2.6 149.861 572 3.2 3.0 69.450 12.6 8.214 959 255 338 -231 209 0 107 48 59 62 121 118 4 138 135 3 538 1.521 1.188 731 731 -214 225 0 517 114 404 0 404 391 13 421 408 13 978 226 6.967 269 7.1 7.2 1.3 12/14F 15.354 2.7 4.350 13.9 3.4 1.940 540 2.699 1.172 2.419 3.965 290 3.3 4.266 603 2.5 2.327 2.1 227. KDB Daewoo Securities Research estimates Daewoo Securities Research 26 .1 7.653 12.883 1.684 1.1 10.111 1.7 1.128 19.864 835 10.3 -45.138 1.4 2.220 549 3.2 5.307 1.5 12.8 14.544 161 225 2.965 357 3.352 11.893 1.3 1.0 7.3 1.093 12/13F 5.3 4.1 138.7 7.8 16.791 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 40 59 547 231 52 -125 -508 -145 -113 -64 -58 -518 -438 -64 -160 144 541 828 0 -48 -240 62 264 326 12/12F 754 289 523 187 54 26 23 -222 106 140 -82 -240 -200 -64 0 24 -237 0 0 0 -237 277 326 603 12/13F 560 338 544 188 55 26 -227 -263 -130 165 -95 -328 -210 -64 -80 26 -30 0 0 -38 -242 202 603 805 12/14F 553 404 574 191 56 26 -311 -363 -179 228 -114 -339 -221 -64 -84 30 -103 0 0 -40 -253 111 805 916 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 20.660 194 5.2 4.2 4.6 -27.715 16.965 318 3.6 104.9 132.972 1. 8 KOSPI 2.000. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 27 . Margin improvement should be attributable to: 1) the camera module unitÊs higher OP margin (up 3.0 Free Float (%) 52. after bottoming in 4Q11.2% YoY).500 Beta (12M. Another positive is the expected improvement in margins.2 5.1x (EPS of W7.4 Price Return Volatility (12M Daily. which is based on a 2012F P/B of 2. NP refers to net profit attributable to controlling interests Source: Company data. Indeed. We expect the companyÊs LED business to turn to profit in 3Q.000 Likely to post record revenues and revert to operating profit (W22.600 Expected Return (%) 40. this contract expired at end-4Q. However. While LG InnotekÊs earnings are likely to be driven by the strength of its camera module business in 1H. Our target price also corresponds to a 2012F P/E of 33.6 20.7 6.868 Shares Outstanding (mn) 20 Avg Trading Volume (60D.200 52-Week High (W) 120. SD) 3. LG Innotek signed a contract under which it agreed to purchase 6-inch sapphire substrates at over US$400/unit. Wbn) 20 Dividend Yield (12F.584 170 3. x) 9.553 -67 -1.0 79 3. W) 92.2 205 10. For 1Q. The LED unitÊs cost structure is anticipated to improve.1 4. The end of inventory drawdowns in late 2011 should also have a positive impact. x) 23.104 157 3.2 P/E (12F.7 Market P/E (12F.158 785 94 12.7% YoY). %.4 Faster-than-expected earnings improvement    Maintain Buy with a target price of W130.0% YoY). aided by strong sales of camera modules (up 40. In early 2011.211 376 -591 -10.1%p YoY) and 2) smaller losses at the LED unit.008.7 23.3 5.591). After posting an operating loss of W60bn in 4Q11.5 1. (47.5 Share price 110 100 90 80 70 60 50 40 4/11 8/11 12/11 4/12 KOSPI § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 4.0% YoY).6 13.1 52-Week Low (W) 56.5 6. '000) 217 Avg Trading Value (60D.5 153 7. the LED business is forecast to become an earnings driver in 2H.020 269 4. 2012 Telecom equipment/Electronic components LG Innotek (011070 KS) Buy (Maintain) Target Price (12M.000 Share Price (04/13/12.5 Major Shareholder(s) LGE et al. but an earlier recovery is also possible. Daily Rate of Return) 1.900 562 -69 5.8 196 10.87%) Norges Bank (5.2 6.4bn) in 1Q Earnings to be driven by camera modules in 1H and LEDs in 2H We maintain our Buy call on LG Innotek with a target price of W130.1x (consolidated K-IFRS).1 P/B EV/EBITDA (x) (x) 2.2 9. we expect LG Innotek to swing to an operating profit of W22. up 17.2% QoQ.April 17.4 5.900) and a 2013F P/E of 17.241 437 -1. as the companyÊs top customer rolled out a new tablet PC model and is expected to release a new smartphone model in June.4 12M -19. the companyÊs earnings should improve through 3Q12 and the pace of the turnaround seems to be faster than expected. and touch windows (up 159.2 8.4bn in 1Q. Although our valuation may not appear conservative.3x (EPS of W3.3 1.8 1.4 EPS Growth (12F. We believe LG InnotekÊs earnings have been improving at a rapid pace. In particular. %) TTB Market EPS Growth (12F. automotive parts (up 68. The 6-inch sapphire substrate price subsequently dropped by more than 40% last year. 6M 30.483 334 5. we believe that momentum from LG InnotekÊs earnings turnaround should be taken into account.1 Note: All figures are based on consolidated K-IFRS.2 Relative -11.9 1. W) 130.055 16.07%) Price Performance (%) 1M Absolute -12. %) 0.0 9. %) 19.91 Market Cap (Wbn) 1.2 Foreign Ownership (%) 16.5 -145 -7.2 12. camera module sales are forecast to stay robust going forward.8 -14. we expect record-high revenues of W1.591 690 -36 10.29tr (up 6. 2 42.7 45.2 107.6 43.7 1.7 0.9 374.843.2 43.4 38.1 27.1 2.7 36.4 134.2 1. 63.0 0.5 87.8 -0.9 3.7 7.7 5.0 101.1 -7.1 87.3 272.9 -0.5 0.7 -15.8 316.551.0 120.7 20.8 382.4 289.2 TTB 2.0 65.0 445.6 17.0 -14.4 5. 2012 Telecom equipment/Electronic components Figure 38.2 0.7 -3.5 100.3 272.4 1.4 1.4 5.7 109.6 156.3 -10.3 -174.9 6.171.9 69.5 -4.0 -26.1 443.0 25.4 59.216. %.9 47.2 352.3 -89.5 TTB -26.9 248.8 123.0 20.1 1.8 50.7 0.3 62.7 1.7 1.7 38. Share performance Source: KDB Daewoo Securities Research Table 9.2 46.4 -1.528.0 111.099.8 30.4 50.0 -0.2 41.3 -3.4 TTB TTB 2.1 2.8 55.0 100.8 23.2 78.7 40.9 22.1 32.9 46.5 1.3 -4.2 40.3 159.3 -0.6 -9.7 23.2 34.5 -7.7 19.7 542.4 -60.4 116.4 481.3 90.8 25.0 41.2 0.3 59.1 85.7 -0.5 47.0 -0.2 -8.8 3.584.1 57.5 56.7 RR 17.1 15.0 89.9 37.9 -1.5 170. W) Est.4 -1.0 15.2 68.8 51.3 -145.9 0.8 2.2 412.5 -7.0 22.9 229.2 89.4 25.7 109.8 34.0 55.9 46.6 18.0 -35.4 -0.2 228.7 -15.0 -8.7 203.8 50.8 0.6 4.4 227.0 5.4 106.1 -4.7 279. Quarterly earnings trend 1Q Tuner PM CM LED Wireless telecom Motor EMA Reve Photomask nues Lead frame Tape substrate PCB Package Touch window Internal & other Total OP OP margin (%) Pretax profit Net profit Pretax margin (%) Net margin (%) 2Q 2011 3Q 4Q Annual 1QF 2012F 2QF 3QF 1Q12F 4QF Annual YoY -6.0 123.2 78.5 1.9 -5.9 -0.6 39.7 20.0 443.2 1.7 53.4 48.4 -3.1 81.1 36.7 96.7 1.2 34.2 89.7 2.9 905.6 56.0 204.3 40.6 95.7 38.0 50.5 1.0 227.3 28.3 -7.9 193.2 1.4 289.3 130.2 1.2 5.1 53.1 183.3 RR -8.6 Note: Based on IFRS Source: KDB Daewoo Securities Research Daewoo Securities Research 28 .6 3.2 4.1 21.1 15.9 180.4 1.4 5. Diff.6 6.288.1 264.2 -43.099.7 34.4 -2.5 1.1 -7.5 55.4 97.8 248.9 47.8 23.2 TTB -7.6 -93.3 63.9 89.6 8.1 20.0 100.1 27.8 23.1 46.401.2 393.2 TTB -9.4 153.0 36.9 39.7 116.5 -0.2 7.6 23.9 43.0 -5.2 43.3 50.6 -3.2 474.4 122.0 -66.4 6.213.365.3 1.9 170.7 39.9 QoQ (Wbn.6 22.0 236.4 57.1 1.1 94.5 154.0 30.2 1.1 1.3 40.0 7.4 39.6 -2.3 -7.3 1.0 101.8 958.0 155.2 32.1 46.3 7.0 -14.April 17.3 23.1 63.9 60.5 92.2 180.5 316.4 33.0 203.171.067.7 23.5 55.8 24.0 113.5 -0.3 1.8 85.6 -1.6 -7.2 -17.5 30.8 106. 1 10.689 891 654 144 1.551 0 3.8 22.0 0.168 462 30 3.9 1.1 10.5 232.166 0 0.180 0 0.4 -10.2 5.4 -1.1 7.2 12/12F 5.900 23.7 13.987 1.1 3.9 58.500 69.636 1 3.748 1.564 59.575 12/14F 2.7 13.6 1.6 10.9 -3.2 7.584 4.553 4.020 5.7 0.045 50 0.175 353 1.663 1 3.413 12/13F 1.325 12/12F 1.337 1.158 32.674 0 2.575 101 848 604 0 1.069 423 28 2.545 183 4.4 12/13F 6.6 12/13F 12.5 134.614 100 1.3 9.663 203 5.8 108.261 499 31 3.0 12.164 389 432 -43 -67 -108 90 0 -175 -29 -145 0 -145 -145 0 -141 -141 0 376 -591 8.7 24.572 756 694 122 1.9 117.5 -3.9 TTR TTR 5.0 1.3 2.611 1. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 29 .5 236.3 5.533 950 616 334 334 -101 103 0 233 28 205 0 205 205 0 214 214 0 785 94 12.788 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 367 -175 602 398 21 -92 -45 -31 -9 62 -16 -668 -632 -50 7 8 491 586 0 -7 -87 188 248 436 12/12F 442 79 483 370 22 6 -120 -201 -47 84 0 -459 -421 -50 0 12 3 0 0 0 -109 -15 436 421 12/13F 648 153 537 395 27 2 -25 -99 -39 70 -17 -621 -584 -50 0 13 -159 -50 0 0 -113 -132 421 289 12/14F 736 205 580 421 30 2 -21 -93 -37 65 -28 -580 -539 -50 0 9 -92 -50 0 -1 -111 64 289 353 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 5.000) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 4.6 5.5 4. 2012 Telecom equipment/Electronic components LG Innotek (011070 KS /Buy/TP: W130.3 -1.0 1.412 1.3 3.211 13.483 5.549 1.0 11.2 -0.8 134.162 0 2.778 1.325 101 848 372 0 1.5 -7.306 132 4.April 17.9 3.972 421 1.0 22.5 10.0 1.335 1.8 5.2 8.357 160 4.1 125.776 0 2.1 14.413 101 848 451 0 1.0 0.7 5.179 841 572 269 269 -99 100 0 170 17 153 0 153 153 0 162 162 0 690 -36 11.980 289 1.677 2 3.085 1.6 13.3 126.591 28.3 1.883 701 531 170 170 -91 97 0 79 0 79 0 79 79 0 88 88 0 562 -69 10.2 198.6 121.5 2.7 5.3 33.788 101 848 808 0 1.5 12/14F 6.0 0.5 128.410 1.860 1.4 12/14F 9.007 0 2.337 62.2 216.527 78.7 12.7 49.764 1.8 7.2 3. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 1.7 4.3 4.5 6.633 826 674 134 1.1 94.8 1.7 12/12F 23.736 436 868 376 25 2.1 5.1 2.2 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.9 3.2 3.1 7.474 671 694 109 1.0 -13.2 8.0 10.5 TTB TTB 6.0 Source: Company data. 9 18. x) Market P/E (12F. given that 1) Patron is expected to display strong 2012F EPS growth (39.8 1.1% YoY). It should be noted that OP margin has already fallen to the level of the firmÊs camera module business.36%) NPS (5. (25. Our target price implies an upside potential of 45. Although PartronÊs deteriorating margins remain worrisome.1 2.942 75 33 21.2 613 61 9.3 3. 6M -1. %) Free Float (%) 52-Week Low (W) 52-Week High (W) Beta (12M. %. After posting roughly W50bn in 1Q10.2bn (up 101.2 -11.9 11.503 58 31 25. %) Market EPS Growth (12F.5 360 38 10. Wbn) Dividend Yield (12F.900 12.492).9x to our 2012F EPS of W1. SD) Foreign Ownership (%) Major Shareholder(s) Jong Gu Kim et al.April 17. fueled by 1) its top customerÊs growing smartphone sales and 2) a potential boost from tablet PC sales (Partron is supplying or is likely to supply parts for Galaxy Tab models).2 683 69 10.46 367 30 591 8 2.900 Operating profit forecast to reach W11. W) Expected Return (%) EPS Growth (12F.2bn in 1Q and an all-time high of W14.6 We forecast 1Q operating profit of W11. We expect 2Q operating profits to set a record high of W14.6 24 792 39 3 22. Such remarkable top-line growth has been driven by robust sales of the Galaxy S2 and the Galaxy Note (for which Partron supplies camera modules. DMB antennae.4 Relative -12. Daily Rate of Return) Price Return Volatility (12M Daily. Share price 140 120 100 80 60 40 4/11 8/11 12/11 4/12 KOSDAQ § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 233 36 15.9 -1.9bn) by 6. which was derived by applying a P/E of 11. the company has been setting record quarterly revenues (over W70bn in 2Q11 and W100bn in 3Q11).503 (up from W1. it is difficult for the company to achieve both top-line and bottom-line growth at this point. W) Share Price (04/13/12. 2012 Telecom equipment/Electronic components Partron (091700 KQ) Buy (Maintain) Target Price (12M.1 7.4 32 1. We revised up our original 1Q revenue estimates (W125.0 19.0%) relative to its peers and 2) the company has continued to post record-breaking earnings.5 45 1.410 21.900.2 9.5 39.3 1.1%p YoY). %) P/E (12F.4 Note: All figures are based on non-consolidated K-IFRS.1 58 1.19%) Price Performance (%) 1M Absolute -13.0 13. NP refers to net profit attributable to controlling interests Source: Company data. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 30 .8 499.7 9. Given that achieving economies of scale is an important competitive advantage for parts makers. followed by record OP in 2Q   Maintain Buy with a target price of W17.9 Record revenues expected in 1Q. Partron has displayed the most rapid growth among its peer group and is likely to continue growth going forward. and GPS antennae).5 6.1 1.3% (down 2. We expect 1Q revenues to reach an all-time high of W133.6 17. We attribute such margin contraction to growing downward pricing pressures and an increase in the sales contribution of lowmargin camera modules. we believe that Patron should focus on top-line growth over margins for now.3 5.5 6.5% YoY) and an OP margin of 8.0 73.4 12M -6.700 1.9 6.300 45. We believe the stock merits a premium.4%.2 8.4bn in 2Q12 We believe that Patron should focus on top-line growth over margins for now  We reiterate our Buy call on Patron with a target price of W17.4bn on a combination of continued top-line growth and an OP margin improvement. '000) Avg Trading Value (60D. breaking the previous record made in 4Q11.9bn (up 152.5 8.5% from the current share price.4 569 54 9.8 11.3 P/B EV/EBITDA (x) (x) 3.718 66 32 23. x) KOSDAQ Market Cap (Wbn) Shares Outstanding (mn) Avg Trading Volume (60D.8 8.081 41 -14 24.9 51 1. %.5 8.4 52.737 10.4 Net profit 32.5 -0.8 0.6 Net margin 9.2 5.5 284 8.1 273 11.4 3QF 152.0 -0.3 9.9 -1.5 -0.9 11.2 3.9 10.6 Source: Company data.6 Operating profit 37.0 16.0 -0.2 10.2 -0.8 1.7 0.3 1.6 11.2 3.7 11.7 0.0 68.1 8.8 328 8.2 Source: KDB Daewoo Securities Research KDB Daewoo Securities Research 31 .5 7.9 9. Quarterly earnings trend 1Q Revenues Operating profit Pretax profit Net profit EPS OP margin Pretax margin Net margin 53.8 6.4 61. %p) % Diff.9 9.942 10.5 12.3 -0.1 -2.0 51. Share performance Source: KDB Daewoo Securities Research Table 10.3 (Wbn.3 7.8 2011 2Q 77.2 4Q 121.0 -2. 2012 Telecom equipment/Electronic components Figure 39.2 91.7 10. %) 1Q12F QoQ Previous Change 10.3 -0.2 58.4 12.4 9. Earnings forecast revisions 2011 2012F Previous 2013F 606.1 5.4 8.0 68.1 Pretax profit 37.9 -0.5 68.7 -2.5 1.2 -0.1 -0.1 YoY 152.5 87.5 5. W.0 1QF 133.7 2012F 568.9 91.7 156 10. 2013F 1.9 0.6 8.5 8.7 9.2 10.4 2014F 682.5 Pretax margin 10.0 8.718 9.1 8.4 10.8 12.9 1.9 Revised 2013F 613.6 54.503 9.April 17.4 14.2 -0.7 0.9 9.081 1.2 60.5 3Q 107.492 OP margin 10.1 52.8 11.3 125.4 9.1 10.9 11.7 10.9 60.0 10.5 9.6 2014F 670.6 11.5 2012F 4.0 8.0 9.9 -0.8 16.9 14.1 -2.8 8.2 2014F 1.0 1.2 Revenues 359.1 10.4 51.3 7.8 9.1 -1.1 101.4 13.1 10.1 305 8.4 4.5 8.4 10.9 8.2 6.7 10.7 2012F 2QF 145.9 545.2 4QF 136.3 8.1 -1.9 1.6 4.2 0.7 -0.2 -2.1 0.8 58.959 10.0 60.5 52.7 69.1 -0.0 -0.1 -2.4 7.8 44.9 299 8.2 409 9.3 7.6 EPS 1.5 9.1 (Wbn.9 467 11.3 44.1 8.8 5.0 368 11. KDB Daewoo Securities Research Table 33. 9 3.0 40.5 65.2 6.0 7.5 5.8 15.9 2.1 7.4 7.9 5.5 101.3 17.4 326.6 8.5 10.5 107.8 -20.3 51.4 -20.3 1.0 100.2 67.2 -42.6 0.8 3.8 -2.9 11.6 26.5 2010 2Q 3Q 4Q 1Q 2011 2Q 3Q 4Q 1QF (Wbn.3 10.0 3.8 2.2 3.4 1.0 1.0 9.6 46.4 18.6 3.0 14.3 15.3 -41.0 -43.8 11.3 6.0 10.8 25.9 9.6 1.9 9.4 -1. %.5 1.5 2.0 10.4 13.5 -13.4 5.0 104.0 2.4 8.3 9.3 -14.9 -9.3 19.9 87.5 7.5 10.2 5.0 7.0 4.5 15.7 148.0 11.8 5.4 -51.2 3.7 13.5 29.4 9.2 12.2 6.7 -7.3 34.5 304.8 104.4 1.7 2.6 33.9 9.9 18.1 2.1 6.7 37.4 3.2 29. W.8 22.4 26.0 8.3 -61.5 66.4 9.7 43.6 196.1 21.6 12.5 10.9 1. %p) Chip Antenna Antenna GPS Subtotal Crystal oscillator Dielectric filter Isolator Camera module RF module/optical mouse Total YoY Chip Antenna Antenna GPS Subtotal Crystal oscillator Dielectric filter Isolator Camera module RF module/optical mouse Total Operating profit OP margin Pretax profit Pretax margin Net profit Net margin Source: Company data.1 -15.7 -1.2 1.1 0.0 12.7 4.5 84.9 4.8 1.9 11.9 9.8 7.3 140.6 4.5 2.7 -2.1 45.3 69.8 28.0 100.9 9.6 71.2 5.7 4.9 Crystal oscillator Dielectric filter Isolator Camera module RF module/optical mouse Total Revenues contribution (%.2 6.8 86.4 10.6 129.9 6.6 -54.1 5.8 8.7 56.3 12.2 1.6 2.0 19.0 11.8 5.9 41.2 46.8 13.5 19.2 -4.9 9.7 -49.6 0.0 21.9 12.3 1.6 71.9 1.2 -7.6 13.9 57.9 6.1 14.2 1.5 1.2 69.4 -54.1 8.1 2.3 7.4 12.3 0.9 22.7 0.0 141.5 20.6 10.0 -19.7 -20.4 0.7 53.5 10.6 -29.3 1.5 4.8 6.2 11.1 57.0 105.2 5.4 4.1 9.4 1.8 7.3 6.7 11.4 2.8 7.4 5.0 7.9 1.5 25.3 4.2 13.4 5.2 1.5 35.3 100.April 17.6 9.3 10.2 94.1 0.0 86.0 6.4 7.9 9.2 -1.3 107.8 6.0 15.0 20.9 100.1 4.8 6.6 1.3 133.8 1.5 -0.0 11.1 20.2 1.7 8.6 17.6 92.1 9.5 60.7 0.7 100.8 22.8 0.0 0.5 8.1 43.0 44.4 11.1 0.3 76.1 100.7 10.6 9.5 41.8 2.7 10.3 19.1 11.7 6.3 8.3 17.2 -6.1 14.1 11.2 1.1 6.1 0.3 0.8 42.3 -7.2 0.0 17.6 -31.9 100.5 46.4 11.8 11.5 81.5 20.5 13.8 36.6 34.3 5.4 16.7 13.1 -23.8 17.7 22.4 12.2 8.0 9.4 13.3 40.0 96.0 1.5 100.0 22.6 14.0 9.8 152.1 7.8 9.4 -19.9 20.5 51.1 11.5 71. Quarterly earnings forecasts by business division 1Q Revenues Antenna Chip Antenna GPS Subtotal 6.5 -2.2 14.7 7.4 16.5 2. KDB Daewoo Securities Research KDB Daewoo Securities Research 32 .7 15.1 0.0 37.7 7.4 145.1 6.4 16.7 18.5 7.4 20.4 5.1 13.3 181.0 107.7 5.8 -24.9 5.9 4.6 6.5 8.2 7.7 10.6 1.0 11.0 5.3 27.9 9.6 2.1 30.3 100.3 4.1 17.4 2.2 1.5 -25.1 1.9 11.5 4.5 -4.0 100.3 9.1 12.2 121.0 9.0 52.5 6.6 5.5 16.7 136.4 5.8 77.5 18.7 8. %p) 2012F 2QF 3QF 8.5 1.2 2.2 6.2 53.4 2.2 5.6 -7.5 5.6 7.4 2.0 5.7 9.5 2.0 22.3 -17.5 4.2 13.9 4QF 9.1 100.4 0.3 12.8 1.2 20.2 2.2 6.0 5.7 14.6 1.1 12.0 24.2 7.0 17.2 9.7 1.6 39.1 34.7 1.3 8.9 9.0 75.9 26.0 152.6 10. 2012 Telecom equipment/Electronic components Table 11.8 0.7 9.9 25.9 19.0 6.3 42.8 1.0 -9.2 1.0 1.9 100.7 20.3 9.4 5.8 0.6 17.9 46.5 55.6 1.0 7.6 26.2 12.5 7. 4 10.5 1.4 10.8 9.0 2.5 14.3 2.9 8.0 58.1 53.0 8.7 12/13F 7.4 12/14F 683 555 128 59 69 69 -1 1 0 68 10 58 0 58 58 0 60 60 0 75 33 11.718 1.5 12/14F 6. 2012 Telecom equipment/Electronic components Partron (091700 KQ/Buy/TP: W17.3 8.3 14.4 9.2 6.2 44.8 17.5 36.4 12.4 7.5 7.0 15.638 6.887 8.0 40.4 54.156 9.8 57.2 13.0 1.6 12.8 13.1 123.April 17.0 52.2 119.3 5.5 112.7 5.5 7.5 57.1 43.5 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.942 2.1 24.5 48.0 12/12F 569 466 103 49 54 54 -1 1 0 53 8 45 0 45 45 0 46 46 0 58 31 10. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 116 4 71 33 3 148 2 33 2 264 103 66 34 2 8 3 4 111 153 15 22 116 0 153 12/12F 132 7 80 37 3 189 2 44 2 321 111 74 34 3 11 5 4 122 199 15 22 161 0 199 12/13F 145 4 90 41 3 234 2 58 1 379 121 84 34 3 13 7 4 134 245 15 22 205 0 245 12/14F 161 6 100 46 4 285 2 79 1 446 131 93 34 3 20 14 4 151 295 15 22 254 0 295 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 26 32 10 3 0 0 -9 -32 -11 35 -7 -53 -37 0 2 -18 19 25 0 -5 -1 -8 12 4 12/12F 46 45 13 4 1 0 -4 -9 -4 8 -8 -43 -15 0 0 -28 1 0 0 0 -1 4 4 7 12/13F 52 51 15 5 0 0 -5 -10 -5 9 -9 -48 -20 0 0 -28 -7 0 0 -7 -1 -3 7 4 12/14F 60 58 17 6 0 0 -5 -10 -5 10 -10 -55 -26 0 0 -28 -4 0 0 -9 -2 1 4 6 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 13.5 12/12F 8.2 13.0 8.9 11.0 3.5 2.7 1.6 13.625 250 16.2 13.503 1.5 1.7 72.9 12/13F 613 500 114 53 61 61 -1 1 0 60 9 51 0 51 51 0 53 53 0 66 32 10.4 1.7 23.9 6. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 33 .5 6.3 5.2 7.5 15.6 9.4 9.152 300 17.6 16.063 200 0.2 15.5 14.3 25.9 11.1 1.1 21.3 1.2 9.8 119.9 Source: Company data.7 14.9 51.4 12.3 54.0 10.7 12.081 1.900) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 360 291 69 32 37 38 0 0 0 37 5 32 0 32 32 0 34 34 0 41 -14 11.1 39.1 8.9 2.202 5.7 9.0 42.5 43.8 1.852 350 17.2 15.8 61. and now appears to have overtaken Nokia as the worldÊs top handset maker.0 6. such as downward pricing pressure and limits on market share.2 454 25 5.7 432 24 5.1% to W22.100 Expected Return (%) 33.800 to W22. currently trading at a 2012F P/E of 6.5 1. SD) 2.840 in light of profitability deterioration and a reduction in equity-method gains).5 -11.3 -0. NP refers to net profit attributable to controlling interests Source: Company data. 2012 Telecom equipment/Electronic components Intops (049070 KQ) Buy (Maintain) Target Price (12M.5 0. %) 2.070 26 -11 6.4 Relative -6. and 3) the companyÊs 2012F EPS growth is strong (22. but lower our 12-month target price from W26.6%).8 18 2. seems deeply undervalued in light of the following: 1) Earnings are improving sharply in line with robust smartphone sales by its largest customer.350 Beta (12M.03%) FID Low Priced Stock Fund (9. the release of smartphones by its largest customer has driven the ongoing rapid improvement in IntopsÊ earnings and profitability.900.6 P/B EV/EBITDA (x) (x) 0.2 P/E (12F.200 52-Week High (W) 21.5% QoQ).46 Market Cap (Wbn) 147 Shares Outstanding (mn) 9 Avg Trading Volume (60D.6 4. ending NokiaÊs 14-year dominance. Since 2H10.1 Earnings are not quite satisfactory    Trim 12-month target price by 16.7 6.6bn.3% YoY. Share price 120 110 100 90 80 70 60 50 40 4/11 8/11 12/11 4/12 KOSDAQ § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 317 16 4.6bn Earnings to continue to improve We maintain our Buy call on Intops.8 410 20 4.7 0.900. with revenues doubling from W50bn to W100bn (OP margin of roughly 6%).8 6.4x. Operating profit is forecast at W5. down 0.7 9.9 10.8 KOSDAQ 499. We expect Intops to deliver 1Q revenues of W109.0% YoY.545 27 16 7.0x (raised from 7x in reflection of market share gains) to our 2012F EPS of W2.9 20 2. up 5.April 17. x) 6.050 29 18 8.0 0. IntopsÊ largest customer claimed the top spot in the global smartphone market in 3Q11.9 Market EPS Growth (12F.283 20 41 7. The stock.6 24 2. KDB Daewoo Securities Research estimates Daewoo Securities Research 34 .39%) Korea Investment Management (11.1 Price Return Volatility (12M Daily.900 Share Price (04/13/12.6 52-Week Low (W) 14.3 5. As Intops is very likely to remain the core supplier for the new models to be released by its largest customer.1 -6. W) 22. Intops is increasingly facing obstacles related to transactions with its largest customer.6 26 3.1 Major Shareholder(s) Jae Kyoung Kim et al. We derived the target price by applying a P/E of 9.9 -11.7 Market P/E (12F. Wbn) 1 Dividend Yield (12F. %) 19.5 0. W) 17. Daily Rate of Return) 1. x) 9.779 28 17 8. 2) Intops will be able to maintain its market share (within its largest customer) for a prolonged period of time on enhanced competitiveness. Handset case earnings tend to fluctuate widely depending on sales volume (because of the large share of fixed costs in total production costs).3 0.8bn (up 23. (31.6 Note: All figures are based on non-consolidated K-IFRS. the companyÊs earnings should continue to grow for the time being.4 22 2. Maintain Buy rating 1Q12 Preview: Operating profit of W5.9 EPS Growth (12F. '000) 55 Avg Trading Value (60D. which should weigh on the companyÊs stock price.9% from the current price. However. Intops continues to strengthen its position as a major supplier to its largest customer.6 Foreign Ownership (%) 24.3 425 23 5.5 Free Float (%) 68.545 (lowered from W3. %) 22. Our target price represents an upside potential of 33. %.5 2. exceeding the W100bn mark for the fourth straight quarter.3%) Price Performance (%) 1M 6M 12M Absolute -7. 3 8.3 6.6 -0.4 7.5 8.070 3.3 2012F 425.6 33.2 -1.1 29.4 516 6.5 12.3 2014F -0.9 11.4 4.0 3QF 113.3 4.0 3.0 6.9 25.8 4.8 24.7 2011 2Q 100.3 7.9 8.5 Revenues 409.7 5.4 -3.9 -2.3 8.8 5.6 -20.6 6.0 51.3 2012F 2QF 109.4 7.050 5.8 4.8 33.0 3.2 4QF 91.6 764 5.0 Pretax margin 5.7 6.9 Net margin 4.5 4.1 6.9 2.8 2014F 454.2 35.2 4Q 110.779 5.7 -33.2 7.9 -0.7 25.0 -2.6 -319.2 Net profit 17.5 9.2 7.1 Revised 2013F 432.2 24.7 7.5 415.8 18.545 5.8 5.8 -2.1 -6.3 7.0 31.840 OP margin 4.8 6.9 6.5 7.1 4. W.5 45.1 5.5 -4.9 2.0 26.5 8.5 11.2 492 6.1 18.1 Operating profit 19.3 7.3 -1.6 8.0 -4.0 7.0 12.6 -1.3 5.3 92. Earnings forecast revisions 2011 2012F Previous 2013F 423.April 17.840 5.0 EPS 2.8 3.6 -27.4 12.5 528.3 4.1 6.0 6. 2012 Telecom equipment/Electronic components Figure 40.6 4.2 21.5 33.0 1QF 109.5 2014F 453.8 -323. %.2 3.9 5.6 7.7 -33.2 47.3 6.7 10.7 Pretax profit 23.7 -0.8 6.3 0.4 -3.2 23.8 553 5.4 6.5 8. Share performance Source: KDB Daewoo Securities Research Table 12.4 8.3 -2. 2013F 2.1 825 6.9 23.840 5.8 YoY 23.9 -319.0 -20.0 Source: KDB Daewoo Securities Research KDB Daewoo Securities Research 35 .6 -32.8 907 6.3 7.9 11.9 -2.4 -0.6 -2.6 3.1 12.4 5.8 3Q 110. %p) % Diff.6 4.0 3.4 -6. Quarterly earnings trend 1Q Revenues Operating profit Pretax profit Net profit EPS OP margin Pretax margin Net margin 89.8 (Wbn.4 (Wbn. %) 1Q12F QoQ Previous Change -0.1 5.8 2012F 2.5 -33.6 -0.6 -0.2 -252 0. KDB Daewoo Securities Research Table 13.9 923 6.5 403 3.7 Source: Company data.3 27.3 5.6 7.7 -35.8 -2.0 -27. 900) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 410 365 44 23 21 20 4 -5 -3 24 6 18 0 18 18 0 16 16 0 26 -11 6.3 4.1 78.7 23.3 7.781 430 16.6 5.0 2.1 38.3 272.9 2. 2012 Telecom equipment/Electronic components Intops (049070 KQ/Buy/TP: W22.5 2.6 3.9 15. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 36 .7 22.4 5.4 5.6 5.9 4.4 5.9 6.7 5.7 13.6 -36.9 12/12F 6.5 12.4 3.0 9.4 194.0 0.4 0.5 0.2 14.5 0.2 5.3 62.6 35.8 0.2 37.9 -30.050 3.6 3.0 9.715 480 17.8 12/13F 6.3 17.453 37.7 27.3 29.4 -23.6 63.1 5.651 580 0.5 2.9 20.8 3.0 28.6 9.545 2.5 13.2 12/13F 432 382 50 26 24 24 8 -9 1 32 8 24 0 24 24 0 22 22 0 28 17 6.4 12/12F 425 377 49 25 23 23 6 -8 1 29 7 22 0 22 22 0 20 20 0 27 16 6.3 15.5 -41.3 25. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 152 12 27 5 17 219 13 58 2 371 78 33 38 7 19 0 17 97 274 4 19 251 0 274 12/12F 176 37 29 6 14 218 14 58 2 395 78 35 38 6 24 0 20 103 292 4 19 272 0 292 12/13F 207 60 33 7 17 218 15 59 2 425 84 39 38 7 32 0 26 116 309 4 19 291 0 309 12/14F 236 85 34 7 18 217 16 59 2 453 86 41 38 7 39 0 31 125 327 4 19 311 0 327 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 1 18 14 4 0 -6 -23 -2 3 -23 -7 -50 -5 0 -53 8 5 11 0 -5 -1 -44 56 12 12/12F 21 22 5 4 0 -2 1 -2 0 2 -7 7 -4 0 0 11 -3 0 0 -1 -1 25 12 37 12/13F 21 24 4 4 0 -2 1 -3 -1 4 -8 9 -4 0 0 13 -6 0 0 -5 -1 23 37 60 12/14F 22 26 2 4 0 -2 2 -2 0 2 -9 10 -4 0 0 14 -7 0 0 -5 -1 25 60 85 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 9.8 4.4 18.3 5.183 35.2 5.8 1.0 8.6 Source: Company data.7 7.9 6.0 4.6 246.1 224.8 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.0 68.3 35.4 14.5 12/14F 454 402 52 27 25 25 10 -11 1 35 9 26 0 26 26 0 24 24 0 29 18 6.3 2.5 1.5 3.070 2.3 2.8 8.3 5.3 5.0 3.6 12/14F 5.5 4.779 3.6 4.9 26.949 33.6 5.2 19.869 530 17.5 16.573 31.0 29.April 17.3 -9. 000.000 13.550 42. Despite the ongoing economic downturn around the globe. (48. SSCÊs shares have been underperforming the market due to disappointing earnings. W) Share Price (04/13/12.7 949 77 8. demand for energy-efficient LED lighting should only grow. higher capacity utilization directly leads to profitability improvement.1 79 1. The sluggish performance (down 18.4 804 53 6.5 P/B EV/EBITDA (x) (x) 4.05%) Price Performance (%) 1M Absolute -10. 2) The LED market outlook is brightening: SSC is the developer of Acrich.8 -6. x) KOSDAQ Market Cap (Wbn) Shares Outstanding (mn) Avg Trading Volume (60D.0 Relative -9. %) Market EPS Growth (12F. NP refers to net profit attributable to controlling interests Source: Company data.7x.9 99 1. Share price 110 100 90 80 70 60 50 40 4/11 8/11 12/11 4/12 KOSDAQ § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 839 110 13.9 51.0 2.9 18.6 2. 2012 Telecom equipment/Electronic components Seoul Semiconductor (046890 KQ) Trading Buy (Maintain) Target Price (12M. '000) Avg Trading Value (60D.6% YoY) should be attributable to flagging TV BLU revenues and weak seasonal demand. In the LED industry.2 26. In calculating our target price.000.April 17. the worst seems to be over for SSC. Maintain Trading Buy rating 1Q12 Preview: Operating profit appears sluggish Short-term earnings are negative. SD) Foreign Ownership (%) Major Shareholder(s) Jung Hoon Lee et al.2bn. W) Expected Return (%) EPS Growth (12F.341 58 1.8 13.703 133 21 12. but bright market outlook    Lower 12-month target price to W26. We estimate that 1Q revenues have reached a disappointing W168.6 54 931 88 -10 8.8 19.3 4.8bn (under K-IFRS).2 740 31 4. %) P/E (12F. Operating profit is estimated to have hit W3. the worldÊs first semiconductor light source that operates directly from AC power without a converter. x) Market P/E (12F.1 94 1.359 112 -7 11.2 16.7 9.0 19. %) Free Float (%) 52-Week Low (W) 52-Week High (W) Beta (12M.7 1. %.9 12.4 16. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 37 . We advise investors to start taking an interest in the stock in light of the following: 6M 3.1 35 593 55 -119 5.7 10.06%) Norges Bank (5. in consideration of how well the lighting industry is faring.2 24. but falling 77.151 29 0. swinging to a positive territory QoQ.1 16.000 to W26.4% YoY. Wbn) Dividend Yield (12F. which is roughly a 10% discount to the five-year average low P/B of 2.1 1.6 Note: All figures are based on non-consolidated K-IFRS.1 23.0 56.8 499.4 12M -45.300 1.9 35. Daily Rate of Return) Price Return Volatility (12M Daily. The contraction should be mainly due to higher fixed costs caused by revenue declines. Fortunately.5 24. 3) The company has strong patent assets: SSCÊs patents should help keep the competition in check when the lighting market expands sharply. but cut our 12month target price from W31.9 1. we applied a P/B multiple of 2.874).2 25.7 1) Earnings are turning around: Capacity utilization is increasing at both SSC and its subsidiary Seoul Optodevice.3 Weak earnings.4x (2012F BPS of W10. Thus.46 1.0 -39. we may revisit our rating on the company after 1Q earnings are released.000 23.614 142 -68 18.103 98 8. but bright LED lighting market outlook and patent assets should boost competitiveness We maintain our Trading Buy rating on Seoul Semiconductor (SSC). 7 234 6. Quarterly earnings trend 1Q Revenues Operating profit Pretax profit Net profit EPS OP margin Pretax margin Net margin 207.3 40.9 12.4 2QF 187.7 (Wbn.7 407 10.8 16.%p) YoY 1Q12F QoQ 6.8 203 6.2 -10.8 220 5.9 11.0 -65.0 69 1.9 -10.0 4QF 210.7 10.5 4.3 Source: Company data.4 315 3.2 15.3 8.9 4.6 251 8.1 FY 804.9 581 3.1 4Q 157.3 -7.9 TTB TTB TTB TTB 6.0 26.1 -6. KDB Daewoo Securities Research KDB Daewoo Securities Research 38 .1 29.2 4.0 15.9 FY 739.4 6.9 2.0 -11.6 12.6 -77.6 8.2 54.1 15.8 -4.9 -4.9 9.9 7.1 6.6 33.3 11.1 18.1 7.0 2011 3Q 166.7 2Q 208.8 7.5 28.0 20.8 3.3 12.4 53.7 7. Quarterly earnings trend (Wbn) 300 Revenues (L) OP margin (R) (%) 20 200 10 100 0 0 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12F -10 Source: Company data.2 6.4 -69. Share performance Source: KDB Daewoo Securities Research Figure 42.9 14.9 -18.1 66. 2012 Telecom equipment/Electronic components Figure 41.7 5.8 -65. %.9 2.0 18.8 -3.April 17.3 931 6.2 10.8 5.0 11.3 2012F 3QF 238.9 -188 -6.7 9.6 8.6 13.4 14. KDB Daewoo Securities Research Table 14.6 1QF 168.0 23. 1 17.3 -63.1 8.524 10.1 23.9 2.5 5.4 4.9 27.1 12/13F 16.7 10.5 11.4 18.2 8.4 11.4 8.301 13.103 888 215 116 98 98 26 -6 12 124 25 99 0 99 99 0 100 100 0 133 21 12.5 12.8 12.6 1.5 0.9 9.6 51.017 185 71 93 21 169 164 4 354 663 29 360 274 0 663 12/13F 661 55 259 108 117 444 40 174 30 1.6 1.7 7.April 17.974 119 0.8 25.6 -11.5 10.8 8.6 Source: Company data.3 257.112 9.957 12.6 593 1.4 10.0 4.703 2.235 187 101 58 29 232 227 4 419 816 29 360 427 0 816 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 -15 35 32 26 5 0 -65 -1 29 -20 -17 -84 -80 -13 10 -1 60 83 0 -18 -4 -40 50 10 12/12F 18 54 34 23 11 11 -58 -38 -15 18 -12 -15 -18 -13 0 16 53 -15 0 0 -8 56 10 66 12/13F 24 79 33 23 12 11 -70 -46 -19 15 -19 -15 -22 -13 0 20 -20 -17 0 -12 -9 -11 66 55 12/14F 46 99 34 22 12 11 -62 -41 -17 14 -25 -10 -18 -13 0 21 4 -18 0 -15 -9 40 55 95 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 35.105 188 87 76 25 187 182 4 374 731 29 360 342 0 731 12/14F 777 95 300 125 135 458 52 169 31 1. 2012 Telecom equipment/Electronic components Seoul Semiconductor (046890 KQ/Trading Buy/TP: W26.6 12/14F 13.6 17.6 9.359 1.1 27.8 4.7 53.5 8.4 12/14F 1.9 5.0 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.3 19.6 6.6 8.4 17.3 317.1 2.7 12/13F 949 772 177 100 77 77 21 -5 7 98 19 79 0 79 79 0 79 79 0 112 -7 11.3 7.1 8.0 44. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 454 10 176 74 72 425 31 181 27 879 177 54 108 15 93 88 3 270 609 29 360 220 0 609 12/12F 586 66 213 89 96 430 33 175 29 1.3 -72.0 0.9 6.7 8.7 15.7 1.2 5.3 16. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 39 .8 60.2 352.5 9.2 4.9 -61.7 9.9 10.874 200 21.7 12/12F 804 667 138 85 53 53 13 -3 1 66 12 54 0 54 54 0 54 54 0 88 -10 10.1 51.1 11.000) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 740 631 109 84 25 31 11 -4 4 41 7 35 0 35 35 0 35 35 0 55 -119 7.6 4.1 16.6 44.4 56.9 46.9 19.1 8.4 1.2 10.1 931 1.9 11.1 4.5 17.7 12/12F 24.9 12.9 8.016 250 18.8 1.459 300 17.0 1.0 5.3 74.4 4.4 415. '000) 127 Avg Trading Value (60D. W) 8.5% from the current share price. module sales to Nokia have had a significant impact on KH VatecÊs earnings.300.1bn (down 31. We expect that KH VatecÊs earnings will improve gradually starting in 3Q. We estimate that that the company will deliver 1Q consolidated K-IFRS-based revenues of W71. NP refers to net profit attributable to controlling interests Source: Company data.2 1.2 4. the company has focused on diversifying its customer base since late-2010.3 Foreign Ownership (%) 9. 2012 Telecom equipment/Electronic components KH Vatec (060720 KQ) Trading Buy (Maintain) Target Price (12M.300 Beta (12M. Nevertheless.2% YoY.7 Share price 110 100 90 80 70 60 50 40 4/11 8/11 12/11 4/12 KOSDAQ § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP (Wbn) (Wbn) (%) (Wbn 351 24 6.0 5.9 1. KDB Daewoo Securities Research estimates Daewoo Securities Research 40 .6% QoQ) and an operating profit of W500mn (down 96. We revised down our initial projections for KH VatecÊs 1Q revenues and operating profit by 2.8% (from W73. Daily Rate of Return) 1. SD) 4. as: 1) magnesium product sales to Samsung Electronics are growing steadily.3% YoY.7 P/B EV/EBITDA (x) (x) 2.6 5.9 10 345 17 4. as the number of products adopting modules is decreasing due to tepid IT demand and the proliferation of smartphones. down 57. currently trading at a 2012F P/B of 0.300. (32.602 38 8 10.0 624 21 -65 5.5 3.7 13 316 16 4. x) 9.2 Market P/E (12F. We arrived at our target price by applying a P/E of 8x (down from 9x to reflect sluggish earnings) to our 2012F consolidated K-IFRS-based EPS of W1.0 9.6 Relative -11.6 20 424 27 6.372).914). Wbn) 1 Dividend Yield (12F. but lower our target price from W12. When KH Vatec generated strong earnings. %.300 to W8.9 52-Week Low (W) 6. W) 7. it has not yet seen any tangible results. The sluggish result is largely attributable to flagging module sales to Nokia. the proportion has plummeted to less than 10% in 4Q (vs. However.6 0. but at a slow pace We maintain our Trading Buy rating on KH Vatec.April 17. To offset its weak sales to Nokia.045 (down from W1.7 Free Float (%) 64.6 Note: All figures are based on consolidated K-IFRS. module sales to Nokia accounted for over 50% of revenues. as the companyÊs proportion of module sales is unlikely to increase.4 Market EPS Growth (12F.5 4.0 -57. We believe that KH VatecÊs share price. %) 19. 53% in 2010).6 Major Shareholder(s) Nam Kwang Hee et al.7 7.4 13.5 EPS Growth (12F. and 2) the company is likely to supply tablet PC-use parts to a US e-book store starting in the quarter.5 Price Return Volatility (12M Daily. profitability improvement may be slower than anticipated.9 1. Historically.2bn) and 73. is unlikely to decline sharply.5 26 EPS EBITDA FCF ROE P/E (Won) (Wbn) (Wbn) (%) (x) 811 34 42 7.4 0.1% (from W2bn). respectively.2 7. but not fast enough    Lower target price to W8.9 17 382 21 5. However.5 12M -63.2 P/E (12F.6x (based on a BPS of W12.045 26 1 8.510 Expected Return (%) 10.120 52-Week High (W) 21.5 0.2 0. Maintain Trading Buy 1Q12 Preview: Operating profit to remain weak (W500mn) Earnings are likely to recover. Price Performance (%) 1M Absolute -12. x) 7.9% QoQ).277 31 4 9. %) 67.1%) Getting better.3 -17. Our target price implies upside potential of 10.8 KOSDAQ 499.7 27.46 Market Cap (Wbn) 120 Shares Outstanding (mn) 16 Avg Trading Volume (60D. %) 0. down 14.8 6M -7.300 Share Price (04/13/12. 2 2. 2013F -8.5 -22.3 1.5 3.9 (Wbn.8 -23.8 4QF 90.1 0.1 22.2 -77 -1.8 -0.1 26.4 398 7.2 31.0 -39.9 -1.1 371.8 35.0 17.4 26.277 5.6 1.0 -33.3 2014F 464. KDB Daewoo Securities Research Table 16.8 0.9 -35.3 27.0 5.4 8.6 1.9 5.4 1.1 6.2 -0.2 7.1 4.5 6.5 6.1 0.9 -2.7 1.647 6.1 2012F 2QF 81.8 15.9 Source: KDB Daewoo Securities Research KDB Daewoo Securities Research 41 .8 -2.976 7.8 -0.2 11 1.4 Source: Company data.7 3.7 6.6 5.0 20.6 Pretax margin 10.5 -22.3 4.2 0.0 -1.1 -13.602 6.6 16.4 0.0 2012F -7.045 4.7 5.8 6.7 -0.2 7. Quarterly earnings trend 1Q Revenues Operating profit Pretax profit Net profit EPS OP margin Pretax margin Net margin 103.4 1QF 71.5 14.8 2012F 344.4 -37.6 11.5 1.5 -0.4 33.3 -96.0 2011 2Q 62.3 6.5 6.3 4Q 83. %p) % Diff.3 0.6 -57.7 Pretax profit 18.9 432 6.7 0.2 -1.6 TTB TTB -0.0 3Q 66.9 Net margin 7.4 -23 1.7 4.8 Revenues 351.3 22.4 -0. Share performance Source: KDB Daewoo Securities Research Table 15.7 -1. %) 1Q12F QoQ Previous Change -14.9 -90.4 28.9 42.8 -0.2 6.3 -99.0 1.6 0.8 -73.0 YoY -31.3 Net profit 13.7 -1.372 OP margin 12.4 1.8 7.1 7 0.6 20.9 -18.9 -10.3 15.9 17.1 11.4 7.9 7.2 -0.5 0.6 73.9 -0.3 21.0 3. 2012 Telecom equipment/Electronic components Figure 43.2 25.8 -1.3 6.1 1.0 2014F -8.5 Operating profit 23. %.4 713 13.6 -2.1 (Wbn.9 -23.2 -18.8 2.0 -20.7 0.7 5.8 Revised 2013F 382.0 0. Earnings forecast revisions 2011 2012F Previous 2013F 415.April 17.3 2014F 424.8 -90.1 -99.1 0.1 3QF 101.3 209 3.1 29.1 -92.2 -99.6 -19.1 -2.6 -2.1 1.0 EPS 811 1.0 -14.2 72 2.3 9.6 6.1 -18.9 -2. W. 0 8.6 8.9 6.2 9.5 5.4 8.9 12/13F 382 333 50 28 21 21 1 0 0 22 2 20 0 20 20 0 23 23 0 31 4 8.5 7.4 5.3 6.884 14.8 18.5 3.9 3.7 7.1 5.2 67.6 1.6 Source: Company data.300) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 316 279 37 27 10 16 0 0 0 16 6 10 0 10 10 0 13 13 0 21 -65 6. 2012 Telecom equipment/Electronic components KH Vatec (060720 KQ/Trading Buy/TP: W8.2 12/12F 345 303 42 25 17 17 1 0 0 18 1 17 0 17 17 0 19 19 0 26 1 7.4 7.9 6.277 1.April 17.7 159.2 7.1 5.5 7.7 7.7 166.6 4.4 3.6 5.9 79.4 5.914 50 4.4 8.5 6.0 21.240 15.197 100 7.1 2.838 0 0.0 11.6 12/12F 7.5 4.9 7.4 83.8 4.4 1.5 4.4 152.4 28.2 4.7 3.4 22.777 150 9.7 0.0 0.1 9.6 5.6 10.3 86.6 0.616 12.4 0.4 11.0 0.5 0.9 87.9 4.3 10.7 25.6 1.5 1.5 3.6 5.6 624 1.0 -37.4 7.330 11.7 -23.2 3.2 143.2 22.9 4.7 25.7 9.3 9.602 2.1 5.9 12/13F 5.9 6.9 12/14F 4. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 42 .3 12/14F 424 366 59 31 27 27 1 0 0 28 3 26 0 26 26 0 28 28 0 38 8 8.0 6.2 6.6 4.045 1.0 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.0 -33.9 9. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 200 28 73 43 2 166 0 151 6 366 139 56 76 8 31 28 2 171 196 8 28 158 0 196 12/12F 221 38 80 47 3 180 0 159 8 401 145 61 76 8 41 36 2 186 215 8 28 175 0 215 12/13F 242 46 88 51 3 193 0 167 10 436 152 67 76 9 46 41 2 199 237 8 28 195 0 237 12/14F 267 56 97 57 3 207 0 176 11 474 161 74 76 10 50 44 2 210 264 8 28 219 0 264 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 44 10 19 11 1 -4 19 5 -7 24 -4 -58 -53 -4 17 -18 28 34 0 -4 -2 15 13 28 12/12F 21 17 9 8 1 1 -4 -7 -4 5 -1 -16 -16 -4 0 3 5 0 0 0 -3 10 28 38 12/13F 24 20 11 8 2 1 -5 -8 -5 6 -2 -17 -16 -4 0 3 1 0 0 -1 -3 8 38 46 12/14F 29 26 12 8 2 1 -6 -9 -6 7 -3 -17 -17 -4 0 3 -2 0 0 -2 -3 10 46 56 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 13.8 7.0 -10. 8 7. profitability has not fully recovered yet.3 149 13 8.5 -2 -198 16 -23 -1.9 Note: All figures are based on non-consolidated K-IFRS. while operating profit is projected to soar by 738.8 11 1. Our target price was derived by applying a P/E of 11x to our 2012F EPS of W518 (non-consolidated K-IFRS).5 6. revenues are expected to rise by 22. Our investment recommendation is premised on the following: 1) Amotech is expected to benefit from the proliferation of smartphones. 2) The growth of the smart motor business. '000) 67 Avg Trading Value (60D. In 1Q.131 28 4 9. which mutes the noise created from the use of high-speed data in smartphones.2 Foreign Ownership (%) 0.6 -18. The companyÊs shares are trading at a 2012F P/E of 9.4 2 192 18 -3 2.27%) Treasury fund (5.7 134 10 7.0 0.5 5 518 21 -5 4.4 Major Shareholder(s) Byoug Kyu Kim et al.71%) Price Performance (%) Absolute Relative Beneficiary of smartphone proliferation    Upgrade from Hold to Trading Buy and present a 12-month target price of W5.4 8.810 Beta (12M.2%. The NFC antennas are highly likely to be used in SECÊs next generation model.3 Share price 110 100 90 80 70 60 50 40 4/11 8/11 12/11 4/12 KOSDAQ § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 91 6 6. Car motors are also highly anticipated. as they are essential for hybrid and electric vehicles.600. One risk facing the company is the annual interest expense of W1bn related to the debt arising from the establishment of a subsidiary.5 7. Notably. The company produces CMF (common mode filter).4 5.8 EPS Growth (12F.0 52-Week Low (W) 2. Daily Rate of Return) 1.2 P/E (12F. %.2 Price Return Volatility (12M Daily.6 12M -23. (26.9 118 8 6.0 4. Wbn) 0 Dividend Yield (12F. NP refers to net profit attributable to controlling interests Source: Company data.2x. We raised our previous revenues and operating profit forecasts by 5.April 17.6 9. respectively.600 Earnings are gradually improving on solid CMF sales The smart motor business needs to take off for additional growth We upgrade our rating on Amotech from Hold to Trading Buy and present a 12month target price of W5.8 6M 52.7bn. and a Korean company and Whirlpool (Germany) from 2010.7% and 31.2 37. In addition. sales of the companyÊs NFC (near field communication) antennas are also increasing.4 P/B EV/EBITDA (x) (x) 0.600 Share Price (04/13/12. the companyÊs next-generation growth engine.1 93 2 2.0 Free Float (%) 68.7 Market P/E (12F.0% YoY to W24.6 0.7 42.3%p YoY to 3. The companyÊs laminated CMF product has the added advantages of being small in scale (enabling the miniaturization of devices) and competitive in price. %) 0.8 0. 1M 0.46 Market Cap (Wbn) 49 Shares Outstanding (mn) 10 Avg Trading Volume (60D. x) 9. The car motor business will likely boost the companyÊs earnings going forward.775 52-Week High (W) 6.1% YoY to W1bn. The application of such products is expanding on the increasing sophistication of smartphones. is materializing.7 0. %) 19. x) 9. as they have been adopted in Samsung ElectronicsÊ (SEC) flagship smartphone model.3 8 794 24 1 6.5x and a 2013F P/E of 6. W) 5. it is positive for the shares that the company is turning around after posting losses in 2011.7 6. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 43 . Sales of washing-machine-use brushless DC (BLDC) motors are expected to increase. 2012 Telecom equipment/Electronic components Amotech (052710 KQ) Trading Buy (Upgrade) Target Price (12M. as the company began to supply to Haier (China) from 2007. Although OP margin is anticipated to rise by 3. %) TTB Market EPS Growth (12F.010 Expected Return (%) 11.8 KOSDAQ 499. W) 5. SD) 3.9%.5 0. 9 -36.1 2.6 Source: Company data.5 3.5 2. 2012 Telecom equipment/Electronic components Figure 44.4 2.5 6.3 -5.6 -3.2 3.5 5. Quarterly earnings trend 1Q Revenues Operating profit Pretax profit Net profit EPS OP margin Pretax margin Net margin -28.7 5.131 8.5 5.6 5.0 1.6 -5. Share performance Source: KDB Daewoo Securities Research Table 17.3 -1.3 1.4 2.4 -1.0 830 7.4 11.8 31.5 11.7 Pretax profit -3.6 8.3 2012F 8.3 1.9 1.4 (Wbn.7 794 7.3 52.4 0.6 2.3 -1.7 -8.1 -28.7 Source: KDB Daewoo Securities Research KDB Daewoo Securities Research 44 .6 -3.0 518 6.9 -36.0 519 6.3 4.4 5.6 8.9 -41.3 74.3 5.3 36.6 2014F 8.6 -5.9 1. %p) % Diff.7 -2.6 -3.5 3QF 3.2 13.4 0.6 2.1 -28.8 7.April 17.4 -1.3 -1.6 8.2 0. Earnings forecast revisions 2011 2012F Previous 2013F 122.9 -41.9 -3.4 Net margin -2.7 8.0 74.4 2.5 2.6 8.5 8.1 7.9 -41.9 8.7 -8.9 -41.3 5.4 2.6 2.5 7.4 -28.7 Net profit -1.8 7.5 7.3 YoY -1.1 2014F 138.4 10.9 4Q 3.3 4.3 -4.5 Revenues 93.6 2.3 -5.6 (Wbn. %) 1Q12F QoQ Previous Change 0.4 2.7 -2.5 4.9 36.5 8.9 EPS -198 297 OP margin 2.7 2014F 149.6 -3.9 -41.6 3Q 3.5 7.2 0.6 32.5 3.9 8.8 7.5 1. 2013F 9.0 -2.3 7.9 52.0 5.7 36.3 1.3 8.1 5.3 -4.3 Pretax margin -3. %.1 9.8 2012F 117.4 Operating profit 2.4 -1.2 10.9 3.9 3.1 0.5 1QF -8. W.9 -41.3 108.1 0.3 7.6 8.7 7.4 2.4 -1.7 8.0 25.0 -2.8 3.3 7.1 -28.3 Revised 2013F 134.9 -36.7 2012F 2QF 2.8 8.2 0.7 7.1 -28.0 -2.8 3.8 8.8 4QF -4. KDB Daewoo Securities Research Table 18.0 3.6 -5.6 8.9 2.1 19.7 8.9 2011 2Q -3.1 0.9 -36.4 0.4 0.1 11. 3 12/13F 134 92 42 32 10 10 -2 5 1 8 0 8 0 8 8 0 6 6 0 24 1 17.0 0.5 53.677 11.3 96.7 -11.5 -2.9 1.1 87.0 11.162 9.8 4.7 2.3 4.0 2.0 1.9 -1.533 0 0.3 2.5 90.6 518 1.9 0.7 TTR 4.375 0 0.0 4.7 12/14F 4.4 67.6 4.5 6.7 2.9 4.0 0. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 58 2 23 25 2 180 12 107 13 238 86 16 69 1 44 37 4 130 109 5 25 69 0 109 12/12F 68 2 27 30 3 186 12 111 14 254 89 19 69 1 54 46 4 143 111 5 25 74 0 111 12/13F 80 7 30 33 3 193 13 115 15 273 92 22 69 1 64 56 5 156 117 5 25 82 0 117 12/14F 91 12 33 36 3 200 15 119 16 291 93 23 69 2 71 63 5 165 126 5 25 93 0 126 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 8 -2 20 10 4 -2 -10 -3 -7 2 0 -42 -26 -5 -8 -3 26 30 0 0 -4 -8 10 2 12/12F 14 5 16 9 4 2 -7 -5 -5 3 0 -18 -13 -5 0 0 4 0 0 0 -5 0 2 2 12/13F 20 8 16 10 4 2 -4 -3 -3 2 0 -19 -14 -5 0 0 4 0 0 0 -6 6 2 8 12/14F 24 11 17 11 5 2 -4 -3 -3 2 -1 -19 -15 -5 0 1 0 0 0 0 -6 5 8 12 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 3.3 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.4 95.5 7.0 0.256 10.5 12/12F 9.7 5.9 3.131 2.8 119.7 2.9 89.054 0 0.7 0.4 5.1 12/12F 118 82 36 28 8 8 -3 5 0 5 0 5 0 5 5 0 3 3 0 21 -5 17.3 15.9 14.8 128.9 7.3 15.9 1.8 32.4 15.3 5.884 0 0. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 45 .9 96.4 1.3 16.6 4.0 6.600) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 93 70 24 21 2 2 -5 5 0 -3 -1 -2 0 -2 -2 0 -4 -4 0 16 -23 16.0 0.9 6.2 1.3 34.890 10.3 226.6 2.0 13.8 8.5 12/13F 6.8 794 2.2 0. 2012 Telecom equipment/Electronic components Amotech (052710 KQ/Trading Buy/TP: W5.9 130.0 0.1 0.8 7.8 TTB 4.7 12/14F 149 101 49 35 13 13 -2 5 2 12 1 11 0 11 11 0 9 9 0 28 4 18.9 9.April 17.7 42.5 4.9 2.7 -198 1.1 -0.4 8.9 4.0 26.8 133.3 76.2 Source: Company data.3 -59.7 6.9 29.5 4.3 15. x) 9. KDB Daewoo Securities Research estimates Daewoo Securities Research 46 . %) TTB Market EPS Growth (12F. NP refers to net profit attributable to controlling interests Source: Company data.5 Major Shareholder(s) Seo Min Ho et al.770 Beta (12M. Wbn) 0 Dividend Yield (12F. %) 1. Operating loss is projected to decline YoY and QoQ to W800mn.6 1. We maintain our Hold rating on Telechips. considering: 1) they are trading at a 2012F P/B of only 0.4 6 584 14 -2 6.April 17.6 6. Orders for chipsets appear to be expanding.8 0.7 6.9 Market P/E (12F.9 107 7 6. W) 5.3% QoQ to W17.8 9. revenues are forecast to decline 11. it can post steady growth.7 1.7 1.6 91 4 4. once a company penetrates the market.7 2.0 Relative -1. earnings are expected to improve from 2Q. However. Share price 120 110 100 90 80 70 60 50 40 4/11 8/11 12/11 4/12 KOSDAQ § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 74 0 0.0 0. we will review our rating in light of the pace of earnings improvement in 2Q. However.790 Expected Return (%) 0. However.7x (BPS of W7.68%) Price Performance (%) 1M 6M 12M Absolute -2. 2012 Telecom equipment/Electronic components Telechips (054450 KQ) Hold (Maintain) Target Price (12M. Telechips reported car chip sales of W17.0 72 -5 -6.5bn in 2011.7bn. Telechips is no longer eligible for tax credits as the company has failed to return to black.0 EPS Growth (12F. car chip sales are forecast to expand by 35. '000) 60 Avg Trading Value (60D.7 Free Float (%) 51. %) 19. The companyÊs shares appear undervalued. Earnings to recover full swing from 2H We maintain our Hold rating for Telechips.5 4 388 10 -4 4. W) Share Price (04/13/12. backed by an increase in set-top box (STB) and Dongle chip sales. which is attributable to 1) a decrease in the top line and 2) a deteriorating cost structure.2 6.61%) Treasury fund (11. it is negative that the company generated an operating loss for the fifth consecutive quarter in 4Q and is forecast to remain in the red in 1Q. In 2012. x) 9. SD) 3. while SG&A expenses also surged QoQ. However.0 Note: All figures are based on non-consolidated K-IFRS.2 -25.7 Nearing the bottom    Maintain Hold 1Q12 Preview: Operating loss likely for the sixth consecutive quarter Likely to swing to operating profit in 2Q.0 P/B EV/EBITDA (x) (x) 1. Daily Rate of Return) 1.962). Despite increased R&D related to application processors (AP).1% YoY to W27.5 9 847 17 0 9.0 4.5 -3 -316 7 -1 -3. it takes some time to enter the car chip market. Furthermore.0 -19.700 52-Week High (W) 8. In 1Q.0 Price Return Volatility (12M Daily.7bn due to unfavorable seasonality.2 10 959 19 4 9. This negatively affected the companyÊs net profit.8 119 9 7. Moreover.2bn in 2010 and W20.5 Foreign Ownership (%) 9.5 16. Due to increased R&D costs. (33. Typically. as the company is expected to record poor earnings.2 P/E (12F. %.8 KOSDAQ 499.46 Market Cap (Wbn) 61 Shares Outstanding (mn) 11 Avg Trading Volume (60D. sales have yet to show a meaningful improvement. car chips sales are steadily growing.1 20.4 0.01%) FID Low Priced Stock Fund (9.1 0. the companyÊs COGS-to-revenues ratio rose QoQ. and 2) the companyÊs cash and cash equivalents stand at W45bn.7 52-Week Low (W) 3. 0 EPS -310 476 OP margin -6.6 -63.1 12 -3.4 Pretax profit -3.8 26.0 20.1 -0.8 Revised 2013F 107.5 0.5 2011 2Q 17.2 5. %.4 -0.0 2012F 2QF 23.0 0.8 22.9 20.9 -2.1 7. Earnings forecast revisions 2011 2012F Previous 2013F 101.4 -14.4 5.5 7.5 -63.3 0.0 26.3 22.2 7.0 -2.2 0.6 0. %) 1Q12F QoQ Previous Change -11.3 5.2 1.5 1.4 41 -1.6 -1.2 11.5 9.0 9.6 9.3 1.8 9.5 2012F 91.1 1. W.5 8.5 11.4 2014F 118.0 0.3 -29.8 -0.4 1.4 -1.0 2.4 3.0 -91 -6.9 3.8 0.4 1.3 7.9 17.4 -0.3 10.5 -1.0 -88.5 YoY 1.2 584 4.7 -0.6 2012F 4.3 -70.9 7.1 1.1 20.5 8.8 22.2 11.6 2. Share performance Source: KDB Daewoo Securities Research Table 19.5 12.4 -5.1 Operating profit -4.7 1.7 3.0 2014F 5.8 Source: KDB Daewoo Securities Research KDB Daewoo Securities Research 47 .5 (Wbn.0 -62.2 3QF 25.8 Net margin -4.0 1.8 -0. 2013F 5.0 0.4 Source: Company data.0 -2.7 1.1 1.2 6.3 -0.8 2.0 6.3 221 7.5 706 6. Quarterly earnings trend 1Q Revenues Operating profit Pretax profit Net profit EPS OP margin Pretax margin Net margin 17.5 2.9 -278 -13.8 8.4 6.8 -88.0 20.8 2.6 0.5 3.4 -0.0 (Wbn.6 9.9 Pretax margin -4.5 9.1 Revenues 72.8 6.3 -26 -4.9 0.3 2.5 -2.6 7.7 1QF 17.6 5.1 12.7 157 4.8 2.9 20.7 -2.1 7.4 -5.5 8.0 -0.8 3Q 17.2 959 7.2 9.7 17.2 7.5 4Q 20.3 8.4 2014F 112.8 4QF 24.8 20.0 26.8 6.9 -87.5 239 7.5 1.6 -14. %p) % Diff. 2012 Telecom equipment/Electronic components Figure 45.0 Net profit -3.0 847 6.4 -33 -4.9 -1.April 17.1 -0.0 87. KDB Daewoo Securities Research Table 20.8 8.0 0.3 4.7 7.0 9.4 793 6.2 9.7 -0. 4 561.930 9.8 3.April 17.4 22.9 0.962 100 14.0 36.5 6.2 -6.4 -54.0 7.8 0.7 7.0 3.1 -316 820 7.6 12/12F 91 62 29 25 4 4 2 -2 0 6 0 6 0 6 6 0 6 6 0 14 -2 15.6 12/13F 6.655 120 12.2 6.5 8.0 0.5 -4.2 16.3 584.2 8.6 -3.1 8.2 45.1 2.6 12/12F 9.8 12/13F 107 72 35 28 7 7 3 -2 0 10 1 9 0 9 9 0 8 8 0 17 0 15.6 552.1 TTB TTB 9.1 17.6 17.4 12/14F 119 79 40 31 9 9 3 -3 0 11 1 10 0 10 10 0 9 9 0 19 4 15.4 847 1.8 31.9 9.7 10.5 2.0 -51.9 7.9 12/14F 6.9 3.0 74.9 6.7 10.5 34.8 11.4 10.513 7.6 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.7 2.8 Source: Company data.2 23.6 1.6 1.3 6.443 140 12.1 9.2 8.9 7.1 611.1 4.7 1.1 13.0 -3.5 8.7 -2.6 -14.9 88.7 8.0 23.796 8. 2012 Telecom equipment/Electronic components Telechips (054450 KQ/Hold) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 72 53 19 24 -5 -5 2 -2 1 -3 0 -3 0 -3 -3 0 -4 -4 0 7 -1 10.7 1.2 0.0 1.2 8.2 7. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 48 .0 959 1.4 6.4 -51.450 80 0.0 -51.8 584 1.4 -22.5 TTR TTR 11.8 5. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 65 3 8 11 1 44 10 5 10 109 11 9 0 1 10 0 1 21 89 5 14 79 0 89 12/12F 77 9 11 13 1 47 10 5 10 124 13 12 0 2 16 3 3 29 94 5 14 85 0 94 12/13F 87 13 14 16 2 49 10 6 10 137 16 14 0 2 19 3 4 35 102 5 14 93 0 102 12/14F 98 21 16 17 2 52 10 7 10 150 18 15 0 2 23 3 5 40 110 5 14 102 0 110 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 6 -3 12 1 11 -3 -2 -1 0 -1 0 -1 -1 -9 6 2 -3 0 -5 -1 2 2 3 4 12/12F 11 6 8 1 9 0 -3 -3 -3 2 0 -9 -2 -9 0 2 4 0 0 0 1 6 4 10 12/13F 13 9 8 2 9 0 -4 -3 -3 2 -1 -9 -2 -9 0 2 0 0 0 -1 1 4 10 14 12/14F 17 10 9 2 9 0 -1 -2 -2 2 -1 -9 -3 -9 0 3 -1 0 0 -1 1 8 14 22 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 5.7 26. 156 -12 -14 -12. as well as a delay in securing new customers. we believe that investors should take a conservative approach until the company receives orders for new smartphone models from the largest customer or attracts new customers. We also considered the need to apply a discount to asset value. SD) 3.6 Foreign Ownership (%) 9.2 P/E (12F. P&Tel also played a part in the customerÊs technological development. W) 2.0 Free Float (%) 48.7 7 406 7 2 4. we remain neutral on the company in light of the large uncertainty over its earnings recovery. which is only 12.3 -10.240 52-Week High (W) 6.2 6.9 -19 -1.4 52-Week Low (W) 2. P&Tel was a major vendor to its largest customer. was very likely to expand its smartphone business aggressively. However. Earnings are unlikely to improve for the time being. P&Tel has not received orders for new models.1 -53.490 Expected Return (%) 0. building on the success of its Galaxy 2 model. As such.61%) Murky outlook set to continue   Maintain Hold 1Q Preview: Largest customer has yet to place orders for new models.0 -2 -89 -1 -5 -1. P&Tel is anticipated to report revenues of W10.1 Relative -10.8 KOSDAQ 499.0 EPS Growth (12F. (48. %) RR Market EPS Growth (12F. We expected P&Tel to turn around in 2011.April 17.46 Market Cap (Wbn) 42 Shares Outstanding (mn) 17 Avg Trading Volume (60D.7 -34.3 0. %) 19.2bn recorded in 3Q09.3 -10.5% of the record-high quarterly revenues of W86.6 Note: All figures are based on non-consolidated K-IFRS. NP refers to net profit attributable to controlling interests Source: Company data.7 5.1 P/B EV/EBITDA (x) (x) 0.4 Major Shareholder(s) Kim Chul et al. given the failure to secure orders for new models from its largest customer.9 12M -59.7 Share price 140 120 100 80 60 40 4/11 8/11 12/11 4/12 KOSDAQ § Earnings & Valuation Metrics FY 12/10 12/11 12/12F 12/13F 12/14F Revenues OP OP Margin NP EPS EBITDA FCF ROE P/E (Wbn) (Wbn) (%) (Wbn) (Won) (Wbn) (Wbn) (%) (x) 178 -1 -0. %) 0. The company is projected to post an operating loss (W2bn) for the sixth consecutive quarter due to the sharp top line contraction.3x (BPS of W8.2 8. x) Market P/E (12F.0 67 2 2. %. Wbn) 0 Dividend Yield (12F.3 5 297 5 -1 3. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 49 .3 6M -24. and a lack of growth momentum.1% YoY) under non-consolidated IFRS.4 77 3 3. Daily Rate of Return) 0.800 Beta (12M. as the company has continued to post losses. satisfying at least 25% of the customerÊs handset case requirements.9 Price Return Volatility (12M Daily. Price Performance (%) 1M Absolute -11.5 1 57 3 4 0. '000) 97 Avg Trading Value (60D. W) Share Price (04/13/12. x) 9.4 0. The stock is currently trading at a 2011F P/B of only 0. The companyÊs largest customer is showing strong growth as expected.8bn (down 38. Even so.1 0.4 56 -5 -8. In 1Q. 2012 Telecom equipment/Electronic components P&Tel (054340 KQ) Hold (Maintain) Target Price (12M.7 0.6 114.3 2.958) under non-consolidated IFRS. as its largest customer. 54 -16 -28.3 51. Projected to record an operating loss for the sixth consecutive quarter Conservative approach until the company receives new orders or secures new customers  We maintain our Hold rating on P&Tel. 4 -0.9 2.5 8.5 109.2 2.2 -1.4 1QF 10.3 (Wbn.7 8.8 2012F 0.5 -1.0 360 3.2 -0.9 -4.4 0.0 -2.0 RR RR RR RR -7.6 2012F 2QF 13.2 -0.8 -1.7 Revised 2013F 66.April 17.3 -5. W.5 -0.7 -2. %) 1Q12F QoQ Previous Change 2.9 2014F 71.1 -118.0 13.0 0.8 6. %.9 -55 -18.6 -2.6 -5.4 -14. Earnings forecast revisions 2011 2012F Previous 2013F 64.4 0.9 -2.6 Source: KDB Daewoo Securities Research Daewoo Securities Research 50 .0 297 2.6 8.3 -1.6 YoY -38.9 51 -4.5 -12.8 0. 2013F 3.6 -32.9 -1.0 -8.6 -5. KDB Daewoo Securities Research Table 22. %p) % Diff.8 -1.5 -744 -48.8 -3.4 1.9 Pretax profit -22.3 -5.5 -1.8 -2.4 2.3 13.4 Pretax margin -41.9 0.7 5.0 6.5 -89 -8.4 -22 1.8 406 3.7 -12.0 3QF 17.8 55.5 2012F 55.3 5.4 -22.6 5.9 -3.0 -0.9 -174 -29.5 2014F 77.9 -0.1 -127 -16.6 -8.0 13.1 -14.6 -1.8 -3. 2012 Telecom equipment/Electronic components Figure 46.7 341 3.9 0.5 EPS -1.5 Net profit -19.9 -111 -29.3 7.1 3.8 6.4 -1.156 88 OP margin -28.6 128.2 10.6 -2.1 0.1 2.9 4QF 14.0 RR TTR TTR TTR -4.7 Source: Company data.6 6.4 2.8 -12.9 -2.7 -5.9 -23.1 -22.9 4.9 4.5 -12.6 Net margin -36.3 -0.6 -12.8 1.1 -1.9 8.4 -8.8 8.8 -12.6 (Wbn.9 10.9 Operating profit -15.6 -8.3 -18 -11.1 -63 -14. Quarterly earnings trend 1Q Revenues Operating profit Pretax profit Net profit EPS OP margin Pretax margin Net margin 17.5 -2.8 -2.6 1.7 RR RR RR RR 29.1 -2.2 -2.3 3Q 12.4 4.9 -1. Share performance Source: KDB Daewoo Securities Research Table 21.0 -3.2 2011 2Q 13.0 5.4 2014F 8.4 Revenues 53.0 -137.6 8.1 RR RR RR RR -1.0 -2.5 7.8 4Q 10. 3 2.3 4. Plant and Equipment Intangible Assets Total Assets Current Liabilities AP & Other Payables Short-Term Financial Liabilities Other Current Liabilities Non-Current Liabilities Long-Term Financial Liabilities Other Non-Current Liabilities Total Liabilities Controlling Interests Capital Stock Capital Surplus Retained Earnings Non-Controlling Interests Stockholders' Equity 12/11 85 5 6 1 1 76 2 25 1 161 6 4 0 2 3 0 3 9 152 8 17 129 0 152 12/12F 96 13 9 2 2 67 2 24 1 163 8 5 0 2 3 0 3 11 152 8 17 127 0 152 12/13F 113 25 12 2 3 60 2 24 1 173 11 8 0 3 3 0 3 14 159 8 17 132 0 159 12/14F 131 40 14 2 3 52 2 24 1 182 12 9 0 4 3 0 3 15 167 8 17 139 0 167 Cash Flows (Summarized) (Wbn) Cash Flows from Op Activities Net Profit Non-Cash Income and Expense Depreciation Amortization Others Chg in Working Capital Chg in AR & Other Receivables Chg in Inventories Chg in AP & Other Payables Income Tax Paid Cash Flows from Inv Activities Chg in PP&E Chg in Intangible Assets Chg in Financial Assets Others Cash Flows from Fin Activities Chg in Financial Liabilities Chg in Equity Dividends Paid Others Increase (Decrease) in Cash Beginning Balance Ending Balance 12/11 -19 -19 11 4 0 -1 -11 -5 1 -6 0 -27 -2 0 -21 -4 0 0 0 0 0 -45 50 5 12/12F -2 -2 1 4 0 1 -1 -2 0 1 0 10 -3 0 0 13 0 0 0 0 0 8 5 13 12/13F 3 5 0 4 0 1 -2 -4 -1 2 0 9 -4 0 0 13 0 0 0 0 0 12 13 25 12/14F 6 7 0 4 0 1 -1 -2 0 1 0 10 -4 0 0 14 0 0 0 0 0 15 25 40 Forecasts/Valuations (Summarized) P/E (x) P/CF (x) P/B (x) EV/EBITDA (x) EPS (W) CFPS (W) BPS (W) DPS (W) Payout ratio (%) Dividend Yield (%) Revenue Growth (%) EBITDA Growth (%) Operating Profit Growth (%) EPS Growth (%) Accounts Receivable Turnover (x) Inventory Turnover (x) Accounts Payable Turnover (x) ROA (%) ROE (%) ROIC (%) Liability to Equity Ratio (%) Current Ratio (%) Net Debt to Equity Ratio (%) Interest Coverage Ratio (x) 12/11 12/12F 12/13F 12/14F 8.3 0.437.9 8.0 -69.9 7.4 1.4 -10.0 Source: Company data.0 0.1 -2.5 8.7 -54.7 2.213.2 44.5 12/14F 77 62 15 12 3 3 4 -4 0 7 0 7 0 7 7 0 9 9 0 7 2 8.0 37.699.7 3.358.4 -1.9 -14.5 1.9 -36.3 15.7 12/13F 67 55 12 11 2 2 3 -3 0 5 0 5 0 5 5 0 7 7 0 5 -1 7.0 3.2 10.2 -60.947 8.0 3.4 -8.6 -11.3 -66.7 RR RR TTB 82.0 0.9 9.0 0.9 -12.0 0.5 -0.2 TTR RR TTB 36. KDB Daewoo Securities Research estimates KDB Daewoo Securities Research 51 .026.2 9.053.8 Statement of Financial Condition (Summarized) (Wbn) Current Assets Cash and Cash Equivalents AR & Other Receivables Inventories Other Current Assets Non-Current Assets Investments in Associates Property.4 9.6 -49.6 12.7 51.April 17.4 3.7 19.958 9.5 5.2 7.9 19.356 9.2 4.7 TTR RR TTB 25.7 -28.6 34.9 1.7 8.9 4.8 10. 2012 Telecom equipment/Electronic components P&Tel (054340 KQ/Hold) Comprehensive Income Statement (Summarized) (Wbn) Revenues Cost of Revenues Gross Profit SG&A Expenses Operating Profit (Adj) Operating Profit Non-Operating Profit Net Financial Income Net Gain from Inv in Associates Pretax Profit Income Tax Profit from Continuing Operations Profit from Discontinued Operations Net Profit Controlling Interests Non-Controlling Interests Total Comprehensive Profit Controlling Interests Non-Controlling Interests EBITDA FCF (Free Cash Flow) EBITDA Margin (%) Operating Profit Margin (%) Net Profit Margin (%) 12/11 54 57 -3 13 -16 -16 -7 -3 -10 -23 -3 -19 0 -19 -19 0 -18 -18 0 -12 -14 -22.3 7.156 -89 297 406 -930 129 511 622 8.8 -60.4 6.2 8.3 2.0 0.0 0.863 0 0 0 0 0.3 0.294.0 0.9 3.6 -1.7 8.1 12/12F 56 52 5 9 -5 -5 3 -3 0 -2 0 -2 0 -2 -2 0 0 0 0 -1 -5 -1.2 1.6 36.3 0.0 0.8 -3.1 -10.2 1.4 -4.0 -2.7 4.617. we may call a trading opportunity in case there is a technical or short-term material development.000 Telechips (W) 12.000 20.000 15... and the Analysts do not serve as an officer.000 50. and other than this. As of the publication date. Trading Buy (■).000 150. has interest in LG Electronics in accordance with a subscription agreement. material conflict of interest of the Analyst or Daewoo Securities Co.000 0 4/10 10/10 4/11 10/11 4/12 4/10 10/10 4/11 10/11 4/12 Analyst Certification The research analysts who prepared this report (the „Analysts‰) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations.000 0 P&Tel 4. Ltd..000 15.000 25. Not covered (■).000 0 Seoul Semiconductor 10/10 4/11 10/11 4/12 4/10 10/10 4/11 10/11 4/12 4/10 10/10 4/11 10/11 4/12 4/10 10/10 4/11 10/11 4/12 (W) 35. etc. Ltd.000 20. and other than this.000 30. like all employees of Daewoo Securities.000 80.000 5. investment banking.000 10.000 25.000 20.000 100.000 10.000 0 4/10 10/10 4/11 10/11 4/12 LG Electronics (W) 200. * The target price was determined by the research analyst through valuation methods discussed in this report... in part based on the analystÊs estimate of future earnings.000 30. Daewoo Securities has no other special interests in the covered companies. Daewoo Securities Co.000 0 4/10 10/10 4/11 10/11 4/12 0 4/10 10/10 4/11 10/11 4/12 50. Daewoo Securities has no other special interests in the companies covered in this report.000 100. 2012 Telecom equipment/Electronic components Important Disclosures & Disclaimers Disclosures As of the publication date.000 60.000 100.000 4.000 150. Buy (▲). as well as general market and economic conditions. Ltd. Daewoo Securities has no other special interests in the covered companies. Samsung Techwin.000 10. Stock Ratings Buy Trading Buy Hold Sell Relative performance of 20% or greater Relative performance of 10% or greater.000 50.000 40.000 Samsung T echwin (W) 150.000 150.000 40.000 30. and other than this.000 20.000 LS (W) 250.000 0 4/10 KH VAT EC (W) 10.000 6. * Although it is not part of the official ratings at Daewoo Securities.000 15.000 8. or will be directly or indirectly related to the specific recommendations or views contained in this report but. * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. Seoul Semiconductor and LG Electronics as an underlying asset. the Analysts do not know or have reason to know of any actual. is. proprietary trading and private client division.000 2.000 0 4/10 10/10 4/11 10/11 4/12 Samsung Electro-Mechanics (W) 140. which includes revenues from.000 20.. Samsung Techwin. Seoul Semiconductor and LG Electronics as an underlying asset. issued equity-linked warrants with Samsung Electro-Mechanics.April 17. Daewoo Securities Co. Sell (◆)). At the time of publication of this report.000 8.000 0 10/10 4/11 10/11 4/12 4/10 10/10 4/11 10/11 4/12 5. Opinions expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this report. Daewoo Securities Co.000 10. As of the publication date. The achievement of the target price may be impeded by risks related to the subject securities and companies.000 0 Intops (W) 70. except as otherwise stated herein. Hold (●).000 5. No part of the compensation of the Analysts was.000 30. the Analysts receive compensation that is impacted by overall firm profitability. Except as otherwise specified herein.000 50.000 10. has been acting as a financial advisor to Telechips for its treasury stock trust. Ltd. the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. among other business units. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof.000 200. the institutional equities.000 25.000 0 4/10 LG Innotek (W) 35.000 50.000 15. but with volatility Relative performance of -10% and 10% Relative performance of -10% Industry Ratings Overweight Neutral Underweight Fundamentals are favorable or improving Fundamentals are steady without any material changes Fundamentals are unfavorable or worsening * Ratings and Target Price History (Share price (----).000 120. Ltd.000 60.000 0 Partron (W) 35. Target price (----). director or advisory board member of the subject companies.000 100. Daewoo Securities Co.000 10. Daewoo Securities Co. (W) 200.000 2.000 6.000 100.000 Amotech (W) 20. policy prohibits its Analysts and members of their households from owning securities of any company in the AnalystÊs area of coverage. has acted as a liquidity provider for equity-linked warrants backed by shares of Samsung Electro-Mechanics. Daewoo Securities Research 52 .000 5. As of the publication date. Ltd. or may be expecting to enter into. which is regulated by the Hong Kong Securities and Futures Commission. Ltd. market-making or other financial services as are permitted under applicable laws and regulations. Ho Chi Minh City Vietnam Tel: 84-8-3910-6000 Daewoo Securities (America) Inc. and is only intended for major institutional investors as defined in Rule 15a-6(b)(4) under the U. Laws of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person. 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