[Company Insight] Sekyung Hightech, Exclusive Supplier of Special Films to Samsung... Lower Half Operating Profit Revival Expected

Samsung Electronics' recently released foldable phones, the ‘Galaxy Z Fold4’ and ‘Galaxy Z Flip4,’ are gaining worldwide popularity, raising expectations that the foldable phone product line will surpass the ‘10 million units’ milestone for the first time. According to global market research firm IDC, foldable phone shipments reached 7.1 million units last year, a 264.3% increase compared to 2020. The foldable phone market is expected to maintain a high growth rate of around 70% annually until 2025. In addition to Samsung Electronics, Chinese smartphone companies such as Xiaomi, Oppo, TCL, and Vivo have also actively entered the foldable phone market. As the foldable ecosystem enters a growth trajectory, related parts and materials companies are also experiencing rapid growth. Asia Economy analyzed KH Vatec, which produces hinges for the folding parts of foldable phones, and Sekyung Hi-Tech, a company producing protective films for foldable displays.

[Asia Economy Reporter Park So-yeon] Sekyung Hi-Tech has been exclusively supplying special foldable films to Samsung Display since 2019. Its main business sectors are divided into deco films applied to the surfaces of smart device products, optical films applied to displays, and protective films applied to internal smartphone modules. Major customers for deco films include Samsung Electronics, Oppo, Xiaomi, and Realme, while Samsung Display is the main customer for optical films, and Samsung Electronics for protective films. As of the second quarter of this year, deco film sales amounted to 18.1 billion KRW (16.55%), optical films 53.4 billion KRW (48.81%), and protective films 35.1 billion KRW (32.1%), with optical films used in foldable displays accounting for more than half of the sales revenue.

The company operates domestic facilities in Suwon, Gyeonggi Province, including Plant 1 (headquarters) and Plant 2 (research center), and established a subsidiary (Sekyung Vina) in Vietnam in 2013. It also operates a Japanese corporation (SGJ) and a Chinese corporation (Dongguan Design Center). The company has been steadily investing in facilities, with capital expenditures of 58.1 billion KRW in 2019, 38.5 billion KRW in 2020, and 29.4 billion KRW in 2021. In the second half of 2018, it constructed Building C at its Vietnam Plant 1 to expand the deco film business, and in the first half of 2019, it purchased approximately 20,000 pyeong of land for Plant 2 in Vietnam to secure production capacity for new businesses such as foldables, completing Sekyung Vina Plant 2 in December of the same year.

Over the past three years, the company has spent 35.2 billion KRW on research and development. Since R&D and technology acquisition are core, Sekyung Hi-Tech proactively participated in developing protective films for foldable phones using its accumulated special film and composite material processing technologies. As a result, it has secured a favorable position compared to competitors as the foldable phone market develops. With domestic foldable phone display manufacturers planning to expand product supply to the Greater China region, a trickle-down effect is expected for Sekyung Hi-Tech. Additionally, the release of foldable tablets and laptops is anticipated to cause a surge in demand for protective films.

The only domestic mass producer of ultra-thin tempered glass

Sales expansion expected due to new phone effects

Operating profit margin forecasted to be in the mid-teens in the second half

Trickle-down effect expected from Greater China market expansion

Sekyung Hi-Tech has consistently recorded sales between 220 billion and 280 billion KRW over the past three years. The forecast is for 280 billion KRW this year and 330 billion KRW next year, indicating sustained growth. Operating profit sharply declined from 23.4 billion KRW in 2019 to the 2 billion KRW range in 2020 but recovered to 17.4 billion KRW in 2021. Securities firms forecast operating profit of 22.5 billion KRW this year, showing higher expectations than last year. The first half of this year was challenging, with sales underperforming market consensus due to sluggish smartphone sales from domestic and Chinese clients. Operating losses of 1.1 billion KRW in Q1 and 3.2 billion KRW in Q2 were recorded. However, in the second half, foldable smartphone shipments are expected to accelerate, and optical film sales are projected to expand, enabling favorable performance. From Q3, special protective film deliveries will ramp up with the launch of new foldable smartphones by domestic clients, and optical film sales will increase with new product launches by North American smartphone companies. As shipments of high-margin products expand, the operating profit margin in the second half is expected to reach the mid-teens percentage range. Last year’s operating profit margin was 6.47%, and the average forecast for this year is 7.83%.

Since the company’s products are traded in a B2B (business-to-business) format, there is no need for separate advertising strategies, dealerships, or distribution organizations such as sales companies. Product development is conducted in collaboration with clients’ developers and designers. Product concepts and specifications are determined based on client requests or proposals before delivery. Based on R&D and standardized specifications, the company has maintained long-term relationships and strong trust with current clients. There are three clients accounting for more than 10% of sales each. Sekyung Hi-Tech’s largest shareholder is CEO Lee Young-min, who holds 3.75 million shares, representing 31.82% of the stake. Including related parties, the total ownership is 34.9%.