Hansol Chemical (014680) Memory If the industry is

Hansol Chemical (014680) Memory If the industry is in a good shape,
Stock Research | Hanhwa Investment | 2017-11-01 15:41:17

The company laughed and cried for the quantum dot business this year.
At the beginning of the year, expectations for Quantum Dot boosted share prices, but related TVs did not sell well and had a significant impact on earnings and share prices. We now need to pay attention to the growth of cash cow hydrogen peroxide and new business, precursor, in the absence of much share price. We maintain BUY on semiconductor materials companies because they are undervalued.

Hydrogen peroxide continues to grow Hydrogen peroxide, the company's main business, has been steadily growing every year, and will remain unchanged in the future. Although the company has delayed capacity additions, the company is currently expanding capacity to 7,000 tons this year, and is considering further capacity expansion. Samsung Electronics is pushing for large-scale memory line expansion every year in Pyeongtaek. In 2018, hydrogen peroxide sales are projected to grow 18% YoY to W174bn, which is expected to serve as a cash cow for the company.

Profitability to improve thanks to precursor sales growth We expect the precursor business to become a new growth engine in 2017.
In 2018, precursor sales should reach W45bn, up 27% from 2017, and profitability should improve sharply thanks to sales growth in the electronic materials business. As such, we expect operating profit to grow to W10bn per year thanks to precursor sales growth.

Maintain BUY with TP of W100,000 We maintain our target price and recommendation on the company. The biggest reason for the company's share price rally this year is the lack of sales of Quantum Dot materials. However, these negative factors have already been reflected in the share price, and expectation for quantum dot earnings in the next year has also declined significantly. On the other hand, hydrogen peroxide and precursor business should continue to grow as expected. We believe the stock is undervalued, as its current share price is only 12x 2018F earnings.

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Maybe QMCs commercial entry into the emerging qdot market isn't so bad?

If DowDupont licenses QMC's production of qdots for film application, Samsung and others should be able to produce the film and displays at a lower price. This would help increase market share of qdot displays.