Apr 14, 2023

Biggest beneficiary of hybrid OLED on tech products Share By ChanWoo Kim IT materials and thin-glass processing services provider Chemtronics focuses mainly on chemicals and electronics businesses. The chemicals business division, which generated 47% of total sales in 2022, is widening the client base for its chemical products from paint manufacturers to chip and display makers, and is expected to expand the business range of its display glass processing services from rigid OLED to hybrid OLED. The electronics business division, which accounted for 53% of annual sales in 2022, supplies a wide range of products including electronics components (surface-mount technology parts and others), wireless charging modules (Wits), and autonomous driving solutions (Nexvi). Biggest beneficiary of hybrid OLED adoption on tech products Major client Samsung Display recently announced plans to invest KRW4.1tr into 8.7G OLED facilities to meet demand from its US customer. Adoption of OLED on the US device maker's products will likely lead to growing use of OLED on tech products as a whole from 2024, and we believe Chemtronics stands to benefit strongly from the expansion of OLED applications. Technological advancements to benefit from the emerging market for tech products with OLED screens are: 1) two-stack tandem structure; and 2) hybrid OLED. Adoption of hybrid OLED, in particular, is expected to lead to the expansion of thin-glass operations at Chemtronics's display glass processing business. Even on conservative assumptions, we believe hybrid OLED-related sales will reach up to KRW58.3bn in 2026 and KRW100bn in 2027. Compared with OLED materials/equipment/parts suppliers that saw a boost in growth from the shift to both rigid and flexible OLED, etching companies such as Chemtronics were left out in the transition to flexible OLED. This time, however, we believe Chemtronics will see a relatively stronger boost than OLED materials/equipment/parts suppliers both at home and abroad with the adoption of hybrid OLED to expand OLED applications from low-end smartphones to high-end tech products. Initiate coverage with BUY for a target price of KRW35,000 We initiate coverage of Chemtronics with BUY for a target price of KRW35,000, based on 2024F EPS of KRW1,513 and a target PER of 23x. Our target market cap is KRW520bn. With expectations high for earnings growth in 2024-2026, operating profit from the parent (excluding subsidiaries) is forecast at KRW67bn for 2026. Applying a price-to-operating profit ratio of 10x to 2026F operating profit and assuming the value of subsidiaries at KRW200bn levels, we see further upside to the company's market cap going forward. POPULAR