[Click eStock] "BH, FPCB Profitability Rebound Expected"

Shinhan Financial Investment "BH Target Price Raised from 23,500 KRW to 25,000 KRW"
Quarterly Operating Profit Expected to Improve... Profit Turnaround Anticipated from Q3

Overview of BH's China Factory

[Asia Economy Reporter Gong Byung-sun] Despite the second quarter being a seasonal off-season, an analysis suggests a profitability rebound for BH. The profitability of flexible printed circuit boards (FPCB) has improved, and the financial structure of organic light-emitting diode (OLED) has also significantly improved. Accordingly, Shinhan Financial Investment raised the target price for BH from the previous 23,500 KRW to 25,000 KRW, maintaining a "buy" investment rating.

According to Shinhan Financial Investment on the 31st, BH's deficit is expected to shrink in the second quarter due to improved production efficiency of mid-to-low-end FPCB. Production is increasing at the Chinese factory, where operating rates had declined due to COVID-19. Park Hyung-woo, a researcher at Shinhan Financial Investment, said, "The profitability rebound of mid-to-low-end FPCB for domestic manufacturers has begun," adding, "We need to confirm the recovery of profit margins that will appear from changes in the proportion of R-FPCB for overseas manufacturers and the rise in average selling price (ASP) in the second half of the year."

Accordingly, quarterly operating profit and loss are also expected to show improvement. Shinhan Financial Investment forecasted BH's operating loss to be 15 billion KRW in the first quarter, 8.9 billion KRW in the second quarter, and to turn profitable in the third quarter with an operating profit of 33.1 billion KRW. Researcher Park predicted, "Operating profit could increase for six consecutive quarters starting from the third quarter of this year."

In the OLED sector, the financial structure has greatly improved. The debt ratio decreased from 240% in 2017 to 72% in the first quarter of this year. Researcher Park explained, "The investment capacity has changed compared to the past," and added, "We are paying attention to the direction of future new business expansion and facility expansion." Additionally, demand for OLED displays integrated with touch screen panels (TSP) is also increasing. These displays are expected to include high-value-added R-FPCB.

However, due to a performance shock, BH has been sidelined by overseas and institutional investors over the past year. The foreign ownership ratio fell from 24% in November 2019 to 8% currently. Institutional investors have net sold 10.29 million shares since June 18 of last year.