[Click eStock] "Silicon Works, Q2 Earnings Surprise Expected"

Korea Investment & Securities Report, Target Price Up 12.5%
Expected Increase in Sales to Chinese Panel Companies

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on Silicon Works on the 29th and raised the target price by 12.5% to 63,000 KRW.

Silicon Works' second-quarter sales and operating profit are expected to exceed market estimates by 9% and 13%, respectively, reaching 215.2 billion KRW and 10.2 billion KRW. This is due to the accumulation of BOE parts inventory in the first quarter, resulting in high shipment volumes of IT panel products including iPads and strong demand for mobile OLED products.

Researcher Jongwoo Yoo of Korea Investment & Securities said, "After the first-quarter results significantly surpassed consensus expectations, the performance is expected to exceed the already elevated expectations again. However, the sales proportion of LCD products is higher than in the first quarter, so the operating profit margin is expected to fall by 0.7 percentage points from the previous quarter to 4.8%."

Researcher Yoo added, "Although LG Display, a major customer, is reducing LCD production capacity and concerns remain about the increasing number of OLED panel suppliers for iPhones, Silicon Works is turning risks into growth opportunities by increasing sales to Chinese panel companies based on product competitiveness."

The decrease in LCD panel volume from domestic panel companies is offset by increased sales to BOE and CSOT and increased sales for OLED TV panels. In the first quarter, LG Display's LCD TV panel shipments fell 47% year-on-year, but Silicon Works' TV product sales increased 33% year-on-year to 108.4 billion KRW due to increased sales to Chinese panel companies.

Researcher Jongwoo Yoo said, "Unlike the panel market where share competition for iPhone driver-ICs is a concern, potential supplier BOE also uses Silicon Works' products, so there is no concern about volume decline," adding, "Expanding the customer base will reduce valuation discount factors compared to Taiwan's Novatek."