[Click eStock] Hankook Computer, Entering Second Growth Cycle, 'Stock Price Re-rating'

On the 18th, SK Securities evaluated that Korea Computer is expected to undergo a valuation rerating following its full-scale entry into the second growth cycle. However, no investment opinion or target price was provided.

Korea Computer, established in 1994 and listed on the KOSDAQ market in 2002, is a specialist in surface mounting. Surface mounting refers to the process of assembling key components onto a contracted PCB by fixing (soldering) them into a PBA (PCB Ass’y) form. Korea Computer primarily produces OLED-PBA used in Apple iPhones through Samsung Display, and also undertakes contract manufacturing of QD/LCD modules for Samsung TV/PC and industrial inverters for LS Electric. As of 2022, the sales composition by product was 64% OLED-PBA, 23% QD/LCD modules, and 13% industrial inverters and others.

Researcher Heo Seon-jae of SK Securities stated, "The reason to focus on Korea Computer now is that Apple’s OLED application products are expanding from the existing iPhone to the iPad (Pro) next year for the first time in seven years, which is expected to offset the previously discounted low profitability issue through significant sales growth in the future," adding, "A valuation rerating is expected to occur following the full-scale entry into the second growth cycle."

Starting with the OLED application in the iPad Pro scheduled for release in 2024 (annual 10 million units), it is expected that the OLED application models will expand to the general iPad models in 2025?2026 (annual 40 million units), and then to Apple’s entire product lineup including iPad/iPhone foldables and MacBook in 2026?2027. Accordingly, Korea Computer is projected to record meaningful performance growth for at least 3 to 4 years.

In fact, as of 2022, the OLED penetration rate for IT devices such as tablets and laptops was only about 2%, and the annual IT OLED shipment volume is estimated to grow rapidly at an average annual rate of 32%, reaching 7.9 million units in 2023, 18.8 million in 2024, 22.6 million in 2025, 26.9 million in 2026, and 30.3 million in 2027.

Based on display area estimates, the mounting sales per unit for the iPad (foldable) are expected to be at least about 3 to 4 times (5 to 6 times) higher than those for the iPhone, indicating significant growth potential. Additionally, it is positive that Samsung Display, the company’s main client, is steadily increasing its OLED share within Apple due to the poor performance of major competitors. Notably, it is understood that mass production approval for OLED-PBA for the iPad Pro by two companies including Korea Computer is imminent, with product mass production expected to begin by the first quarter of 2024 at the latest.

Korea Computer’s performance for this year is forecasted at KRW 456.1 billion in sales (+7.7%) and KRW 19.4 billion in operating profit (+3.1%). For 2024, sales are estimated at KRW 493.3 billion (+8.2%) and operating profit at KRW 25.4 billion (+30.9%). Researcher Heo Seon-jae noted, "With the start of OLED-PBA supply for iPhone next year, applying a simple price-to-earnings ratio (PER) of 8 times, which was the level in 2017 when the first growth cycle of surface mounting began, the expected market capitalization is about KRW 180 billion."