[Click eStock] "Deoksan Neolux, Bleak Business Environment in the Second Half"

Cape Investment & Securities Report

[Asia Economy Reporter Minji Lee] Cape Investment & Securities maintained a buy rating on Duksan Neolux on the 23rd and set a target price of 45,000 KRW, down 11%.

In the second quarter, the company's sales amounted to 39.3 billion KRW, down 5% from the previous quarter, and operating profit decreased by 12% to 10.9 billion KRW. This was due to an 18% decline in sales to China caused by weak mobile demand in the Greater China region. Although Samsung Display's OLED utilization rate remained solid, inventory adjustments for some materials occurred.

Seongsun Park, a researcher at Cape Investment & Securities, explained, "Along with the decrease in sales volume, sales in the Greater China region, which has relatively high margins, declined. Despite one-time costs, the operating profit margin was favorable due to the exchange rate effect from the rise in the KRW-USD exchange rate."

Due to weak IT demand, a challenging business environment is expected to continue in the second half of the year. Although the third quarter enters the usual seasonal peak, weak smartphone demand is expected to negatively impact the company's performance. The strength of demand for the iPhone 14 is a key point to watch closely.

While robust demand for the iPhone 14 is anticipated in the second half, considering the uncertain market consumption environment, customers are expected to adopt a conservative inventory policy. Accordingly, the concentration effect of iPhone OLED panel demand in the third quarter is expected to ease compared to the previous year. Annual expected sales are 182 billion KRW, and operating profit is expected to be 51.3 billion KRW, with sales projected to decrease by about 5% compared to the same period last year.

However, in the mid to long term, diversification of OLED application and black PDL are expected to act as new growth engines. Researcher Seongsun Park explained, "OLED is expanding into laptops and tablets," adding, "Black PDL and others are seeing increased demand alongside the expansion of the foldable smartphone market, and application expansion to tablets is expected."