[Click eStock] "Interflex, Earnings Expected to Increase with Expansion of Foldable Phone Market"

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained a buy rating and a target price of 25,000 KRW for Interflex on the 8th, based on the expectation that earnings will increase due to expanded sales of foldable phones in the second half of the year.

Daishin Securities forecast that Interflex's consolidated operating profit for the second quarter will reach 9.36 billion KRW, surpassing the previous estimate of 8 billion KRW and the market consensus of 7.4 billion KRW. Sales are estimated at 135.7 billion KRW, representing a 66.4% growth compared to the same period last year.

This is because Samsung Electronics' MX (smartphone) division showed weakness in the second quarter, but sales of the Galaxy S22 Ultra performed strongly. The Ultra model adopts the S Pen, so Interflex's digitizer (double-sided flexible PCB) sales are expected to exceed forecasts. Total sales in the first half of this year increased by 64.2% year-on-year due to the rise in Galaxy S22 Ultra sales, and operating profit is estimated to have turned positive at 16.8 billion KRW.

Samsung Electronics has started production of the premium Galaxy Z Fold4 smartphone in the second half of the year. Among foldable phones, the premium Fold4 (3.7 million units) is expected to sell more than twice as much as the Fold3 (1.82 million units). Total sales and operating profit for the second half are predicted to increase by 35.5% and 32.2% year-on-year to 385 billion KRW and 29.7 billion KRW, respectively. Annual sales and operating profit for this year are expected to reach 653.2 billion KRW and 46.5 billion KRW, representing high growth rates of 45.9% and 1354%, respectively.

Daishin Securities analyst Kangho Park said, “The increase in sales of foldable phones with differentiated hardware and the premium Galaxy Z Fold4 plays a pivotal role in expanding the S Pen ecosystem and boosting sales and operating profit,” adding, “Interflex will benefit from the expansion of the foldable phone and S Pen ecosystem.” Sales of the S22 Ultra in the first half are estimated to account for about 60% of total Galaxy S22 sales, indicating that consumers chose the high-end premium model with S Pen functionality.

When sales growth is high in the second half of this year and next year, additional improvements in operating profit margin are expected due to economies of scale. The current operating rate is about 60%, and depreciation expenses for this year are estimated at 14 billion KRW. Some post-processing was completed in Vietnam in the first half of this year, and if quarterly sales approach 200 billion KRW, the reduction in fixed cost burden due to increased sales is expected to lead to higher operating profit. Sales for next year are expected to increase by 22.3% to 798 billion KRW.