[Click eStock] "Seoul Semiconductor, Production Disruptions and Demand Slowdown Reflect 23% Target Price Cut"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on Seoul Semiconductor on the 25th and set a target price of 20,000 KRW, down 23%. This is based on the expectation that demand for LED home appliances will slow and automobile production disruptions will have an impact in the first half of the year.

Seoul Semiconductor is expected to see only a 2% increase in sales this year compared to the previous year due to a slowdown in demand for high-performance LED-equipped home appliances and continued disruptions in automobile production in the first half. Reflecting increased costs such as transportation and a decline in profit margins due to price competition, the estimated EPS for this year has been revised down by 27% from the previous estimate.

However, a profit rebound is expected in the second half. There are many factors that will increase the installation volume of Seoul Semiconductor's WICOP LED products this year. An increase in the number of high-end TV models based on Mini LED backlight units and specification upgrades such as electric vehicle headlamps are expected to drive higher usage of high-performance LEDs. Jeonghwan Kim, a researcher at Korea Investment & Securities, said, “LED products for vehicle displays continue to evolve toward smaller LED sizes,” adding, “This means an increase in the number of high-performance WICOP LEDs, so the average product unit price and profit margin will gradually rise.”

In the second half, an increase in Mini LED shipments by global TV manufacturers such as Samsung Electronics is also expected to boost Seoul Semiconductor’s premium home appliance LED sales. Due to the sluggish TV market last year, Samsung Electronics’ Mini LED TV sales reached only 1 million units, falling far short of market expectations (22 million units). The rise in TV prices due to soaring costs was also a factor.

Accordingly, operating profit in the first half is expected to decrease by 26% year-on-year to 33.2 billion KRW, but a profit rebound in the second half is expected to increase annual operating profit by 24% over the same period. Researcher Kim analyzed, “This year, the sharp decline in LCD panel prices that began in the second half of last year reflects a recovery in TV demand and sustained strong IT set demand. In the second half, Seoul Semiconductor’s cost burdens such as transportation costs will ease, leading to a rebound in profit margins.”