Macquarie - AMOLED sector

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					 ASIA
                                                            AMOLED sector
 Samsung’s smartphone shipment vs
 SMD’s AMOLED panel shipment (4.8”)                         Long-waited orders coming through
   500    (m units)                                         Event
   400
                                                             Our channel checks indicate that Samsung is likely to expand its AMOLED
   300                                                        capacity from July 2012 to meet robust demand for AMOLED-based
   200                                                        smartphones. We expect AMOLED equipment vendors to benefit from this
   100                                                        development.
     0                                                      Impact
           2010       2011   2012e        2013e   2014e
                                                             Strong Galaxy S III (GS3) momentum to lead to tight AMOLED supply.
                  Samsung’s smartphone shipment
                                                              We believe Samsung faces tight AMOLED supply through the rest of 2012,
                  4.8" AMOLED panel shipment
                                                              given strong potential sales momentum of the GS3. We expect Samsung’s
 Source: Macquarie Research, May 2012                         smartphone shipment to increase 35% HoH to 129m units in 2H12 from 96m
                                                              units in 1H12, whereas 4.8” AMOLED panel shipments are likely to rise by
 AMOLED supply chain                                          only 25% HoH (101m units in 2H12 from 81m units in1H12), reflecting
                                     TP               Up/     flexible-AMOLED capacity addition of 20K/month.
 Company       Code    Rating     (12M)       CP downside
                                                             A3 order momentum to start kick in early 3Q12. We believe Samsung is
 AP Systems    054620 OP         20,000 13,850       44%
 Cheil         001300 OP        115,000 100,500      14%
                                                              likely to place equipment orders for A3 lines (another 5.5Ge) to ramp up from
 Industries                                                   early 2013. We expect equipment makers to receive orders equivalent to 48K
 ICD           040910 OP         37,000 25,050        48%
 DS Hi-Metal   077360 N          25,500 26,950        -5%
                                                              glasses per month in 2H12. We also expect Korean makers to continue to
 SFA Engg      056190 N          51,000 58,900       -13%     gain market share at Samsung’s AMOLED lines, given increasing penetration
 Source: Macquarie Research, May 2012                         to front-end equipment. The biggest beneficiary from this trend should be AP
                                                              Systems, given its exposure to all three manufacturing processes.
                                                             Targeting 1Q13 for flagship model with bendable AMOLED and higher
                                                              resolution. We believe Samsung is likely to launch a flagship model
                                                              equipped with a more advanced AMOLED panel (plastic substrate, more than
                                                              330ppi, clearer image) in 1Q13, after it has secured enough AMOLED panel
                                                              shipments to meet demand. We estimate flexible AMOLED shipments in 2012
                                                              at only 7.9m units, since the mass line is expected to start from July 2012.
                                                            Outlook
                                                             Weak 1H12 results outlook largely known. AMOLED supply chain vendors
                                                              under our coverage have underperformed the KOSPI by 6–14% YTD due to a
                                                              lack of capacity expansion in 1H12, its impact on 1H12 earnings outlook and
                                                              the limited visibility on Samsung’s capacity expansion plan. AMOLED supply
                                                              chain vendors are likely to report their 1Q12 earnings on 15 May.
                                                             Expect positive earnings momentum from 2H12. We expect the AMOLED
                                                              supply chain to report robust HoH earnings growth in 2H12 due to AMOLED
                                                              capacity expansion from July and increasing installation demand for A3 lines,
                                                              which are expected to ramp up from 2013. We prefer equipment makers at
                                                              this stage of capacity growth. We estimate total equipment capex of around
 Analyst(s)                                                   Won2.3trn for A2 and over Won3.0trn for A3 lines.
 Macquarie Securities Korea Limited
   Soyun Shin                                                We like AP Systems among equipment names and Cheil Industries in
   +822 3705 8659       soyun.shin@macquarie.com
   Daniel Kim
                                                              the material supply chain. Our preferred pick is AP Systems in the
   +82 2 3705 8641    daniel.dw.kim@macquarie.com             equipment supply chain, due to its diversified product portfolio and margin
 Macquarie Capital Securities Limited, Taiwan                 improvement in mobile AMOLED lines, and undemanding valuation. We also
 Branch
   Jeff Su                                                    like Cheil, which posted margin recovery in the tech material division in 1Q12
   +886 2 2734 7512           jeff.su@macquarie.com           on restructuring efforts under new leadership (Cheil Industries: Margin
                                                              recovery to continue in 2Q12, Soyun Shin, 3 May 2012)
 9 May 2012
Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our
website www.macquarie.com.au/disclosures.
Macquarie Research                                                                                                                                                                              AMOLED sector




              AMOLED order momentum to return

              Fig 1 Annual AMOLED panel shipment from SMD vs Samsung smartphone shipments
              (4.8” equivalent)

                  500
                            (m units)

                  400

                                                                             We need A3 lines!
                  300


                  200


                  100


                      0
                                    2010                   2011                        2012e                           2013e                                     2014e

                                     A1            A2-P1/P2                A2-P3             A3                Smartphone shipments of Samsung

              Source: Company data, Macquarie Research, May 2012




              Fig 2        Quarterly AMOLED panel shipment (4.8”) vs Samsung smartphone shipments

                   100       (m units)

                      80                                                            We need more capacity in 2013
                                                                                                !!!

                      60


                      40


                      20


                      0
                             1Q10

                                     2Q10

                                            3Q10

                                                    4Q10

                                                           1Q11

                                                                    2Q11

                                                                             3Q11

                                                                                      4Q11

                                                                                              1Q12e

                                                                                                       2Q12e

                                                                                                                   3Q12e

                                                                                                                               4Q12e

                                                                                                                                            1Q13e

                                                                                                                                                         2Q13e

                                                                                                                                                                      3Q13e

                                                                                                                                                                                   4Q13e




                                                   Smartphone shipments of Samsung                     AMOLED panel shipments

              Source: Company data, Macquarie Research, May 2012




Fig 3 Samsung’s capacity expansion schedule (glasses/month)
SMD        Gen.              Size    2010      2011 2012          2013      2014 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

A1            4G        730*920    50   53  53   53                           53        52        53       53          53              53           53           53           53           53     53    53    53
A2 P1/P2 5.5G         1300*1500     0   56  56   56                           56                  12       24          56              56           56           56           56           56     56    56    56
A2 P3       5.5G      1300*1500     0    0  20   20                           20                                                                                 16           20           20     20    20    20
A3          5.5G      1300*1500     0    0   0   96                          100                                                                                                           24     48    72    96
V1 - Pilot  8.0G      2200*2500     0    8   8    8                            8                               8           8           8            8             8           8             8      8     8     8
V2          8.0G      2200*2500     0    0   0   24                           60                                                                                                                        24    24
Total capacity (based on           50  281 339  814                        1,121        52        88    188         281          281          281           328          339           409       479   745   814
4.5Ge)
                 Q/Q change (%)                                                   4% 69% 114% 49% 0% 0% 17% 4% 21% 17% 56% 9%
                 Y/Y change (%) 108% 462% 21% 140%                          38% 117% 203% 300% 462% 441% 220% 74% 21% 45% 70% 127% 140%
Source: Company data, Macquarie Research, May 2012




9 May 2012                                                                                                                                                                                                    2
Macquarie Research                                                                                                                                    AMOLED sector




Fig 4 Samsung’s AMOLED capex trend                                                       Fig 5 2012 AMOLED capex breakdown

     6.0
            (Won bn)
                                                                                                                                                    Land &
                                                                                                          R&D for                                 buildings for
     5.0
                                                                                                        AMOLED TV                                    A3/V2
                                                                                                           16%                                        20%
     4.0


     3.0

                                                                                                                                                     equipment
     2.0                                                                                                                                            capex for A2-
                                                                                                      equipment
                                                                                                     capex for A3-                                       P3
     1.0                                                                                                P1/P2                                           20%
                                                                                                         44%
     0.0
                   2009              2010              2011            2012e

Source: Company data, Macquarie Research, May 2012                                       Source: Company data, Macquarie Research, May 2012




Fig 6 AMOLED supply chain’s relative price                                               Fig 7 AMOLED supply chain’s 2012 YTD relative
performance in 2011                                                                      price performance

      80%                                                                                       0%


      60%
                                                                                               -4%

      40%
                                                                                               -8%
      20%

                                                                                              -12%
       0%


     -20%                                                                                     -16%
                    AP         SFA Eng        Duksan          Cheil       ICD                           AP           Duksan          Cheil     SFA Eng        ICD
                 Systems                                                                              Systems

Source: Quantiwise, Macquarie Research, May 2012                                         Source: Quantiwise, Macquarie Research, May 2012




Fig 8 Equipment supply chain of mobile AMOLED at Samsung
            Line          Capacity details                            Backplane      Patterning                             Encapsulation                    Others
        A2 P1/P2 64K (8K of flexible R&D line Tech                  LTPS ELA        1/4 FMM                                 Glass encap                    SFA. Toptek
                 + 56K of glass encap mass Supply chain             AP System, Tera Tokki                                   AP System + LTS + Tera Semicon and Rorze
                 lines)                                             Semicon and ICD                                                                        Systems
        A2 P3    3.5 lines (2.5 lines for flexible Tech             LTPS ELA        Laser patterning with R,G + B thermal   Thin-film encap
Samsung          AMOLED for mobile, one line                                        evaporation
                 for larger-sized products)        Supply chain     AP System, Tera Tokki (or Hitachi high tech) + AP       ULVAC + SNU + AP Systems
                                                                    Semicon and ICD Systems + SFA
            A3            Addition of 24K for each     Tech         LTPS - ELA      Laser patterning with R,G + B thermal   Thin-film encap
                          quarter in 2012                                           evaporation
                                                       Supply chain AP System, Tera Tokki (or Hitachi high or one Korean    ULVAC (or Wonik IPS or Applied
                                                                    Semicon and ICD supplier) + AP Systems + SFA            Materials) + SNU + AP Systems
Source: Company data, Macquarie Research, May 2012




9 May 2012                                                                                                                                                            3
Macquarie Research                                                                                                                            AMOLED sector




             Fig 9       Mobile AMOLED material supply chain
                                                    A2-P1/P2                A2-P3                            A3
             (+)           HTL/HIL                  Duksan HiMetal          Duksan HiMetal and Doosan (CS    Duksan HiMetal and Doosan (CS
                                                                            Elsolar)                         Elsolar)
             Red           Phosphorous dopant       UDC                     UDC                              UDC
                           Phosphorous hopant       Dow Chem                Dow Chem                         Dow Chem
             Green         Phosphorous dopant                                                                UDC
                           Phosphorous hopant                                                                Dow Chem
             Green         Flourescent dopant       Dow Chem                Dow Chem
                           Flourescent host         Doosan (CS Elsolar)     Doosan (CS Elsolar)
             Blue          Flourescent dopant       Sun Fine Chem           Sun Fine Chem                    Sun Fine Chem
                           Flourescent host         Sun Fine Chem           Sun Fine Chem                    Sun Fine Chem
             (-)           ETL/EIL                  LG Chem                 LG Chem and Cheil                LG Chem and Cheil
             Source: Company data, Macquarie Research, May 2012




             Fig 10 Galaxy flagship series
               Model                    Galaxy S                  Galaxy S II               Galaxy Note LTE           Galaxy S III




               Picture




               Dimensions               122.4 x 64.2 x 9 9 mm     125.3 x 66.1 x 8.49 mm    146.8 x 82.9 x 9.65 mm    136.6 x 70.6 x 8.6 mm
               Weight                   118                       116g                      182g                      133g
                                                                  Android 2.3               Android 2.3               Android 4.0
               Embedded OS              Android 2.1 (Eclair)
                                                                  (Ginger Bread)            (Ginger Bread)            (Ice-cream Sandwich)
               CPU                      Samsung Exynos 3110       Samsung Exynos 4210       Qualcomm SnapDragon       Samsung Exynos 4412
                                        single-core               dual-core                 MSM8660 dual-core         quad-core
               CPU clock                1.0GHz                    1.2GHz                    1.5GHz                    1.4GHz
               Battery                  1500mAh                   1650mAh                   2500mAh                   2100mAh
               Memory capacity          8/16GB                    16/32GB + microSD         32GB                      16/32/64GB + microSD
               RAM                      512MB                     1GB                       1GB                       1GB
                                                                  4.3" Super AMOLED         5.30" HD Super            4.80" HD Super
               Display diagonal         4" Super AMOLED
                                                                  plus                      AMOLED                    AMOLED
               Display resolution       400 x 800                 480 x 800                 800 x 1280                720 x 1280
                                                                                                                      802.11 b/g/n, Channel
               Wi-Fi                    802.11 b/g/n              802.11 a/b/g/n            802.11 a/b/g/n
                                                                                                                      Bonding, HT40
               Camera resolution        5 MP / 0.3 MP (front)     8 MP / 2 MP (front)       8MP / 2MP (front)         8MP / 1.9MP (front)

             Source: Company data, Macquarie Research, May 2012




9 May 2012                                                                                                                                               4
Macquarie Research                                                                                                               AMOLED sector




Fig 11    AMOLED supply chain peer valuation – equipment
                                                    Tokyo       Dainippon                                                                   SFA
                                                  Electron         Screen         Nikon          ULVAC AP Systems                ICD Engineering

                             Code               8035 JP          7735 JP         7731 JP      6728 JP      054620 KS      040910 KS      056190 KS
                             Rec              Outperform       Outperform         Neutral Underperform     Outperform     Outperform        Neutral
                             TP                    5620               860           1650            490        20,000         37,000        51,000
                             Price                 4005               670           2288            537        13,850         25,050        58,900
                             Up/down (%)          40.3%            28.4%          -27.9%         -8.8%         44.4%          47.7%         -13.4%
PER (x)                      FY11                   17.9             24.1            24.9           nmf          20.6           12.5           14.0
                             FY12e                  12.8             10.2            15.3           nmf            9.3          11.6           14.9
                             FY13e                    7.6              7.8           23.6          16.0            7.0            8.0          13.3
PBR (x)                      FY11                     1.2              1.8            2.2           0.8            3.6            4.3           3.1
                             FY12e                    1.1              1.5            2.0           0.7            2.6            3.0           2.7
                             FY13e                    1.0              1.3            1.8           0.7            1.9            2.1           2.4
EV/EBITDA (x)                FY11                     6.6              8.1            7.9          47.0            9.5            6.9          10.2
                             FY12e                    4.7              5.1            8.7           9.6            5.1            5.4          10.4
                             FY13e                    3.3              4.0            5.6           9.0            4.5            4.3           9.5
OP margin (x)                FY11                     9.5              6.1            7.5         (3.6)          11.6           22.8           12.2
                             FY12e                  12.0               8.9            6.0           1.4          15.0           23.2           11.3
                             FY13e                  17.0             10.8            10.2           2.5          15.5           22.5           11.6
Net margin (%)               FY11                     5.9              2.7            5.8        (24.8)            5.3          18.0           10.0
                             FY12e                    8.5              5.9            4.0           0.4          10.3           18.4            9.0
                             FY13e                  12.4               7.2            6.7           0.9          11.9           18.3            9.7
ROE (%)                      FY11                     6.9              7.5           14.7        (40.8)          20.6           51.0           24.8
                             FY12e                    9.2            16.2             8.9           1.3          32.7           30.6           19.4
                             FY13e                  14.3             18.1            14.0           4.5          30.9           31.4           19.0
EPS growth (%)               FY11                 (45.9)           (74.3)            63.0           nmf       (169.1)            nmf           94.2
                             FY12e                  39.3            136.9          (35.2)           nmf         172.9           59.9          (6.0)
                             FY13e                  68.9             30.3            72.5        267.0           32.4           46.1           12.0
Source: Macquarie Research, May 2012. Prices as at close of business on 8 May 2012.




Fig 12    AMOLED material supply chain peer valuation in Asia
                                                         Market         Last
Company            Ticker    Analyst         Rating        cap         close       TP       P/E (x)        P/B (x)        ROE (%)       EV/EBITDA
AMOLED                                                                                    12E     13E     12E   13E      12E    13E     12E    13E

Cheil Industries   001300 KS Soyun Shin      OP              4,289   100,500   115,000    17.1    13.4    1.4    1.2      9.0    9.9    12.5   10.1
DS Hi-Metal        077360 KS Soyun Shin      N                 627    26,950    25,500    21.1    18.5    4.5    3.6     24.2   21.4    19.1   17.3
Semiconductor
Shin-Etsu          4063 JP   Damian Thong    OP              2,065     4,340     5,250    13.6    11.7    1.2    1.1      9.0    9.9     5.4    4.5
Chemical
JSR                4185 JP   Damian Thong    OP               426      1,512     2,000    10.3     8.8    1.2    1.1     12.2   12.9     4.0    3.6
LCD business
Konica Minolta     4902 JP   Jeff Loff       N                384        623       590    10.0     9.5    0.8    0.8      7.8    8.2     3.5    3.1
Kuraray            3405 JP   Jeff Loff       N                448      1,111     1,290    10.5    10.1    1.0    1.0      9.9    9.8     2.7    2.3
Nitto Denko        6988 JP   Jeff Loff       UP               579      3,365     3,000    10.1     9.9    1.2    1.1     12.3   11.6     3.0    2.6
Source: Macquarie Research, May 2012. Prices as at close of business on 8 May 2012.




9 May 2012                                                                                                                                       5
Macquarie Research                                                                                                                               AMOLED Sector




KOREA
                                                                                  Asia Pacific Systems
054620 KS                                        Outperform
Price (at CLOSE#, 08 5 2012)                     Won13,850                        To benefit most from mobile AMOLED
12-month target                                    Won              20,000        Event
Upside/Downside                                      %                44.4
                                                                                   We expect Asia Pacific Systems (AP Systems) to beat consensus 1Q12 OP
Valuation                                          Won              20,000
- Price To Book                                                                     by 8% due to product mix improvement. We believe AP Systems’ strong
GICS sector                                                                         earnings momentum should continue into 2H12. Maintain Outperform.
Semiconductors & Semiconductor
Equipment                                                                         Impact
Market cap             Wonm    299,170                                             HoH OP growth of 48%, the outstanding growth among AMOLED supply
30-day avg turnover    US$m         4.9                                             chain. We expect a HoH OP growth of 48% due to strong AMOLED order
Market cap             US$m        263
                                                                                    momentum and robust double-digits margin in 2H12. We expect total new
Number shares on issue    m      21.60
                                                                                    orders to reach Won190bn in 2H12, more than double compared to 1H12,
Investment fundamentals                                                             mainly for Samsung’s A3/P1-P2 capacity expansion in 2013 (5.5Ge). AP
Year end 31 Dec                      2011A 2012E 2013E 2014E                        Systems should benefit most from mobile AMOLED capacity expansion given
Revenue                      bn       222.4       311.5      357.9       386.0      its exposure to all three manufacturing processes (ELA for backplane, laser
EBIT                         bn        25.8        46.7       55.4        58.5      patterning for evaporation and laser lift off for thin-film encapsulation)
EBIT growth                  %          nmf        81.0       18.5          5.7
Reported profit              bn        14.5        32.0       42.4        45.6     Significant YoY margin improvement on AMOLED technology
Adjusted profit              bn        14.5        32.0       42.4        45.6
EPS rep                     Won         673       1,487      1,970       2,116      development. We expect AP Systems’ OP margin to reach 15% in 2012 from
EPS rep growth               %         40.0       120.9       32.4          7.4     12% in 2011 since equipment for flexible AMOLED with higher resolution
EPS adj                     Won         673       1,487      1,970       2,116
EPS adj growth               %         15.8       120.9       32.4          7.4     should provide higher margin compared to normal AMOLED equipment. We
PER rep                       x        20.6          9.3        7.0         6.5     expect Samsung’s AMOLED panel to be bendable and generate resolution of
PER adj                       x        20.6          9.3        7.0         6.5
Total DPS                   Won            0           0          0           0     340ppi (competing to iPhone’s 330 ppi) by using AP Systems’ equipment.
Total div yield              %           0.0         0.0        0.0         0.0
ROA                          %         13.3        15.9       17.5        15.5     We like equipment makers in 2012. We continue to highlight our positive
ROE                          %         20.6        32.7       30.9        24.2      view on AMOLED equipment makers at this stage of capacity growth as we
EV/EBITDA                     x          9.5         5.1        4.5         4.0
Net debt/equity              %         16.6        13.5      -20.7       -26.9      believe demand for equipment installation should remain robust. We expect
P/BV                          x          3.6         2.6        1.9         1.4     additional 5.5Ge capacity expansion of 28K/m in 2H12 and 48K/month in
054620 KS rel KOSPI performance, &                                                  1H13 from zero capacity expansion in 1H12.
rec history
                                                                                  Earnings and target price revision
                                                                                   We increase our 2012/13 net profit by 23%/21% respectively reflecting margin
                                                                                    improvement driven by product mix changes. We also lift our target price to
                                                                                    Won20,000 from Won18,000 on upward earnings revision. On the other hand,
                                                                                    we cut our ELA shipment forecast by 30% in the period of 1Q13-2Q14, given
                                                                                    increasing possibility for Samsung to adopt oxide TFT backplane for 8.0Ge,
                                                                                    based on our channel checks.
                                                                                  Price catalyst
Note: Recommendation timeline - if not a continuous line, then there was no
Macquarie coverage at the time or there was an embargo period.
                                                                                   12-month price target: Won20,000 based on a Price to Book methodology.
Source: FactSet, Macquarie Research, May 2012
(all figures in Won unless noted)                                                  Catalyst: Increasing visibility of Samsung’s mobile AMOLED capacity
                                                                                    expansion as well as margin expansion on product mix improvement
                                                                                  Action and recommendation
                                                                                   AP Systems is our preferred equipment play in the AMOLED supply chain as
                                                                                    the biggest beneficiary of mobile AMOLED capacity expansion of Samsung.
Analyst(s)                                                                          We expect AP Systems’ strong order momentum to continue into 2H12 and
Soyun Shin
+822 3705 8659                        soyun.shin@macquarie.com                      1H13 on robust installation demand for mobile AMOLED lines.
                                                                                   Despite of our more cautious stance on 8.0Ge order outlook, we maintain
9 May 2012
Macquarie Securities Korea Limited                                                  positive view as near term order momentum looks promising in line with
                                                                                    mobile AMOLED roadmap development.




9 May 2012                                                                                                                                                      6
Macquarie Research                                                                                                                     AMOLED Sector




              Analysis

Fig 1 Quarterly earnings outlook
                  1Q11     2Q11     3Q11    4Q11 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E                                    2011     2012e    2013e

Net sales           42.4    58.6     52.7    68.7      60.6        71.2     82.6     97.1     99.0     107.4     87.1       64.3   222.4     311.5    357.9
  (% yoy)           14%     63%      53%     47%       43%         22%      57%      41%      63%       51%       5%       -34%               40%      15%
 Semi equip          5.8     8.8      3.0    23.4       5.0         5.0      4.8      4.5      5.0       5.1      5.3        5.4    41.0      19.3     20.8
 LCD equip           3.4     3.0      2.5     0.1       0.1         2.5      2.3      2.1      2.0       2.1      2.1        2.2     9.0       7.0      8.4
 AMOLED equip       29.7    43.1     48.3    45.6      53.6        61.7     73.6     88.4     90.1      98.2     77.7       54.7   166.6     277.3    320.7
 LED eqiup           0.0     1.2      0.0     0.0       1.0         1.0      1.0      1.0      1.0       1.0      1.0        1.0     1.2       4.0      4.0
 S/W                 0.9     0.7      0.0     0.0       1.0         1.0      1.0      1.0      1.0       1.0      1.0        1.0     1.6       4.0      4.0
 Satelite            2.6     1.8      0.0     0.0       0.0         0.0      0.0      0.0      0.0       0.0      0.0        0.0     4.4       0.0      0.0
Sales mix - equipment
 Semi equip       14.6%    15.5%     5.5%   33.9%      8.2%     7.0%        5.8%     4.6%     5.0%      4.8%     6.0%      8.4%    18.4%      6.2%     5.8%
 LCD equip         8.6%     5.3%     4.6%    0.1%      0.2%     3.5%        2.8%     2.2%     2.0%      1.9%     2.4%      3.4%     4.0%      2.2%     2.3%
 AMOLED equip 74.6%        75.8%    89.9%   66.0%     88.3%    86.7%       89.0%    91.1%    90.9%     91.5%    89.2%     85.0%    74.9%     89.0%    89.6%
 LED eqiup         0.1%     2.1%     0.0%    0.0%      1.6%     1.4%        1.2%     1.0%     1.0%      0.9%     1.1%      1.6%     0.6%      1.3%     1.1%
 S/W               2.2%     1.2%     0.0%    0.0%      1.6%     1.4%        1.2%     1.0%     1.0%      0.9%     1.1%      1.6%     0.7%      1.3%     1.1%
New orders
Semi Equip           6.9     14.2     0.0     10.0       0.0      0.0         0.0      0.0      0.0       0.0      0.0       0.0    31.1        0.0      0.0
LCD Equip            0.0      5.0     0.0      0.0       0.0      0.0         0.0      0.0      0.0       0.0      0.0       0.0     5.0        0.0      0.0
AMOLED Equip        87.2      9.2    31.0    110.3      44.1     25.6        86.9    104.1     84.6     113.3     39.4      39.4   237.7      260.8    276.6
  ELA               65.0      6.5     6.5     35.8       8.1      8.1        24.4     33.7     33.7      45.5     14.6      14.6   113.8       74.3    108.5
  Encap             22.0      0.0    22.0      0.0       0.0      0.0         0.0      7.9      7.9      24.8     24.8      24.8    44.0        7.9     82.2
  LLO                0.0      0.0     0.0      5.5      22.0      0.0        27.5     27.5     13.8      13.8      0.0       0.0     5.5       77.0     27.5
  LITI               0.0      0.0     0.0     63.0      14.0     17.5        35.0     35.0     26.3      26.3      0.0       0.0    63.0      101.5     52.5
  Parts              0.2      2.7     2.5      6.0       0.0      0.0         0.0      0.0      3.0       3.0      0.0       0.0    11.4        0.0      6.0
LED Equip            0.0      1.2     0.0      0.0       0.0      0.0         0.0      0.0      0.0       0.0      0.0       0.0     1.2        0.0      0.0
S/W                  0.0      0.0     0.0      0.0       0.0      0.0         0.0      0.0      0.0       0.0      0.0       0.0     0.0        0.0      0.0
Operating profit    -0.3      7.5     4.8     13.8       8.5     10.3        12.6     15.3     15.2      18.0     13.7       8.4    25.8       46.7     55.4
  % YoY              T/R   908%       N/A      T/B       T/B     38%       162%       11%      78%       75%       9%      -45%                81%      19%
  % margin        -0.8%    12.8%    9.1%    13.0%     14.1%    14.4%       15.3%    15.8%    15.3%     16.8%    15.8%     13.0%    11.6%     15.0%    15.5%
Source: Company data, Macquarie Research, May 2012




              Fig 2 Earnings revision of AP Systems
                                                             New                             Old                        Chg (%)
                                                     FY12E          FY13E            FY12E            FY13E         FY12E       FY13E

              Net sales                                312                358          302              350               3.3          2.2
              Gross profit                              67                 77           53               66              26.6         16.2
              Operating profit                          47                 55           36               43              29.8         29.7
              Pre-tax profit                            43                 57           34               49              26.8         16.5
              Net profit                                32                 42           26               35              23.2         21.2
              Profitability (%)
              Gross profit                           21.5%           21.4%           17.6%            18.9%
              Operating margin                       15.0%           15.5%           11.9%            12.2%
              Pre-tax margin                         13.8%           16.0%           11.3%            14.0%
              Net margin                             10.3%           11.9%            8.6%            10.0%
              Source: Macquarie Research, May 2012




9 May 2012                                                                                                                                                7
Macquarie Research                                                                                     AMOLED Sector




             Fig 3 Historical PBR chart

                  24,000

                  20,000

                  16,000

                  12,000

                   8,000

                   4,000

                      0
                      Jan-02          Jan-04           Jan-06          Jan-08       Jan-10    Jan-12
                                 AP (Won)          x0.5         x1.7         x2.9     x4.2   x5.4

             Source: Quantiwise, Macquarie Research, May 2012




9 May 2012                                                                                                         8
Macquarie Research                                                                                                                       AMOLED Sector



Asia Pacific Systems (054620 KS, Outperform, Target Price: Won20,000)
Quarterly Results                         4Q/11A      1Q/12E    2Q/12E    3Q/12E     Profit & Loss                   2011A     2012E       2013E      2014E

Revenue                             m      68,721     60,647    71,197    82,604     Revenue                    m   222,444   311,522     357,879    386,003
Gross Profit                        m      20,270     13,949    14,951    17,347     Gross Profit               m    44,742    67,118      76,665     84,921
Cost of Goods Sold                  m      48,451     46,698    56,246    65,257     Cost of Goods Sold         m   177,702   244,404     281,215    301,082
EBITDA                              m      18,155     12,051    13,808    16,134     EBITDA                     m    40,293    60,807      69,462     77,288
Depreciation                        m         870         72        72        72     Depreciation               m     4,125       288         288      4,983
Amortisation of Goodwill            m           0          0         0         0     Amortisation of Goodwill   m         0         0           0          0
Other Amortisation                  m       3,452      3,452     3,452     3,452     Other Amortisation         m    10,357    13,809      13,809     13,809
EBIT                                m      13,833      8,527    10,283    12,610     EBIT                       m    25,811    46,711      55,366     58,496
Net Interest Income                 m        -503       -530      -325      -426     Net Interest Income        m    -1,111    -1,593        -670        443
Associates                          m      -7,525          0         0         0     Associates                 m    -7,525         0           0          0
Exceptionals                        m           0          0         0         0     Exceptionals               m         0         0           0          0
Forex Gains / Losses                m           0         -1         1         0     Forex Gains / Losses       m         0         0           0          0
Other Pre-Tax Income                m         853       -500      -500      -500     Other Pre-Tax Income       m        60    -2,000       2,400      2,400
Pre-Tax Profit                      m       6,658      7,496     9,459    11,683     Pre-Tax Profit             m    17,235    43,117      57,096     61,339
Tax Expense                         m         819     -1,927    -2,431    -3,003     Tax Expense                m    -2,736   -11,081     -14,674    -15,764
Net Profit                          m       7,477      5,570     7,028     8,681     Net Profit                 m    14,499    32,036      42,422     45,575
Minority Interests                  m           0          0         0         0     Minority Interests         m         0         0           0          0

Reported Earnings                   m       7,477      5,570     7,028     8,681     Reported Earnings          m    14,499    32,036      42,422     45,575
Adjusted Earnings                   m       7,477      5,570     7,028     8,681     Adjusted Earnings          m    14,499    32,036      42,422     45,575

EPS (rep)                                   347.1      258.6     326.3     403.0     EPS (rep)                        673.2     1,487       1,970      2,116
EPS (adj)                                   347.1      258.6     326.3     403.0     EPS (adj)                        673.2     1,487       1,970      2,116
EPS Growth yoy (adj)                %         nmf        nmf      45.1     283.1     EPS Growth (adj)           %      15.8     120.9        32.4         7.4
                                                                                     PE (rep)                   x      20.6        9.3         7.0        6.5
                                                                                     PE (adj)                   x      20.6        9.3         7.0        6.5

EBITDA Margin                       %        26.4       19.9      19.4      19.5     Total DPS                          0.0       0.0         0.0        0.0
EBIT Margin                         %        20.1       14.1      14.4      15.3     Total Div Yield            %       0.0       0.0         0.0        0.0
Earnings Split                      %        51.6       17.4      21.9      27.1     Weighted Average Shares    m       22        22           22        22
Revenue Growth                      %        47.0       43.1      21.5      56.6     Period End Shares          m       22        22           22        22
EBIT Growth                         %         nmf        nmf      37.5     161.5

Profit and Loss Ratios                     2011A      2012E     2013E      2014E     Cashflow Analysis               2011A     2012E       2013E      2014E

Revenue Growth                      %         44.1      40.0      14.9        7.9    EBITDA                     m    40,293    60,807      69,462     77,288
EBITDA Growth                       %        -37.0      50.9      14.2       11.3    Tax Paid                   m    -2,736   -11,081     -14,674    -15,764
EBIT Growth                         %          nmf      81.0      18.5        5.7    Chgs in Working Cap        m   -51,475   -15,294       3,723      5,177
Gross Profit Margin                 %         20.1      21.5      21.4       22.0    Net Interest Paid          m    -1,111    -1,593        -670        443
EBITDA Margin                       %         18.1      19.5      19.4       20.0    Other                      m    38,876   -24,039       2,120    -31,857
EBIT Margin                         %         11.6      15.0      15.5       15.2    Operating Cashflow         m    23,847     8,800      59,962     35,287
Net Profit Margin                   %           6.5     10.3      11.9       11.8    Acquisitions               m         0    -1,259      -1,361     -1,472
Payout Ratio                        %           0.0      0.0       0.0        0.0    Capex                      m   -21,624   -12,000     -14,000    -14,420
EV/EBITDA                           x           9.5      5.1       4.5        4.0    Asset Sales                m         0         0           0          0
EV/EBIT                             x         17.1       6.7       5.6        5.3    Other                      m   -14,950     4,244       4,681      4,925
                                                                                     Investing Cashflow         m   -36,575    -9,015     -10,680    -10,967
Balance Sheet Ratios                                                                 Dividend (Ordinary)        m         0         0           0          0
ROE                                 %         20.6       32.7      30.9      24.2    Equity Raised              m        56         0           0          0
ROA                                 %         13.3       15.9      17.5      15.5    Debt Movements             m    44,936         0     -10,000          0
ROIC                                %         33.7       36.4      31.8      34.1    Other                      m     4,386    -1,593        -670        443
Net Debt/Equity                     %         16.6       13.5     -20.7     -26.9    Financing Cashflow         m    49,378    -1,593     -10,670        443
Interest Cover                      x         23.2       29.3      82.6       nmf
Price/Book                          x          3.6        2.6       1.9        1.4   Net Chg in Cash/Debt       m    36,650    -1,809      38,612     24,763
Book Value per Share                       3,796.4    5,298.1   7,462.4   9,992.3
                                                                                     Free Cashflow              m     2,223    -3,200      45,962     20,867

                                                                                     Balance Sheet                   2011A     2012E       2013E      2014E

                                                                                     Cash                       m    52,321    50,512      89,124    113,886
                                                                                     Receivables                m   115,100   136,243     107,219    151,873
                                                                                     Inventories                m    13,563    21,332      14,146     33,455
                                                                                     Investments                m    15,899    17,160      18,523     19,998
                                                                                     Fixed Assets               m    39,489    47,191      56,453     65,890
                                                                                     Intangibles                m         0         0           0          0
                                                                                     Other Assets               m    36,624    43,137      31,051     51,986
                                                                                     Total Assets               m   272,996   315,575     316,517    437,090
                                                                                     Payables                   m    37,845    51,350      18,809     87,894
                                                                                     Short Term Debt            m    40,405    40,405      40,405     40,405
                                                                                     Long Term Debt             m    25,519    25,519      15,519     15,519
                                                                                     Provisions                 m         0         0           0          0
                                                                                     Other Liabilities          m    87,455    84,185      81,051     78,048
                                                                                     Total Liabilities          m   191,225   201,460     155,784    221,866
                                                                                     Shareholders' Funds        m    82,080   114,116     156,538    202,113
                                                                                     Minority Interests         m         0         0           0          0
                                                                                     Other                      m      -309        -1       4,194     13,110
                                                                                     Total S/H Equity           m    81,771   114,115     160,732    215,224
                                                                                     Total Liab & S/H Funds     m   272,996   315,575     316,517    437,090

All figures in Won unless noted.
Source: Company data, Macquarie Research, 5월 2012




9 May 2012                                                                                                                                                 9
Macquarie Research                                                                                                                                  AMOLED Sector




KOREA
                                                                                  Duksan Hi-Metal
077360 KS                                           Neutral
Price (at 06:00, 08 May 2012 GMT)                Won26,950                        Outlook not exciting
12-month target                                    Won              25,500        Event
Upside/Downside                                      %                 -5.4                                                              th
                                                                                   Duksan Hi-Metal will report its 1Q12 earnings on 15 May. We expect
Valuation                                          Won              25,500
- PER                                                                               Duksan’s 1Q12 OP to miss consensus by 5%. We maintain our Neutral rating
GICS sector                                                                         with a slight downward revision in the target price revision, from Won26,000 to
Semiconductors & Semiconductor                                                      Won25,500.
Equipment
Market cap             Wonm    792,124                                            Impact
30-day avg turnover    US$m         5.2
Market cap             US$m        696                                             Lack of AMOLED capacity expansion negative for sales growth in 1H12.
Number shares on issue    m      29.39                                              We expect a QoQ decline in Duksan’s sales of AMOLED material by 9% and
                                                                                    5% in 1Q12 and 2Q12, respectively, given lack of capacity growth and loss of
Investment fundamentals                                                             ~20 percentage points of market share to a domestic competitor in 1Q12.
Year end 31 Dec                      2011A 2012E 2013E 2014E
                                                                                   Limited AMOLED sales growth in 2H12. We expect Duksan to register
Revenue                      bn       129.4       154.5      181.6       215.0
EBIT                         bn        34.7        39.5       43.7        48.6      relatively weak HoH sales growth in 2H12 compared to the equipment supply
EBIT growth                  %        164.6        13.6       10.8        11.2      chain, because of persistent pricing pressure and continuing vendor
Reported profit              bn        34.6        37.4       42.7        48.4
Adjusted profit              bn        35.2        38.2       43.4        49.2      diversification by Samsung. Overall, we cut our 2012 AMOLED sales
EPS rep                     Won       1,177       1,274      1,453       1,648      estimates by 10.9%.
EPS rep growth               %        191.9          8.2      14.1        13.4
EPS adj                     Won       1,198       1,301      1,480       1,674
EPS adj growth               %         91.8          8.6      13.8        13.2     Semi materials earnings momentum to stay solid. We increase our 2012
PER rep                       x        22.9        21.1       18.5        16.4      solder-ball material sales forecast by 3.5%. This is to factor in an increase in
PER adj                       x        22.5        20.7       18.2        16.1
Total DPS                   Won            0           0          0         20      the portion of Samsung’s LSI business from 50% of Duksan’s sales in 2011 to
Total div yield              %           0.0         0.0        0.0         0.1     65% in 2012E, leading to QoQ sales growth for the rest of 2012, with a stable
ROA                          %         26.4        23.1       20.6        18.6
ROE                          %         30.3        24.2       21.7        19.9      OP margin of 16%.
EV/EBITDA                     x        20.2        19.1       17.3        15.6
Net debt/equity              %        -13.3       -28.5      -31.8       -37.3     Potential technology roadmap change at mobile AMOLED is not positive.
P/BV                          x          5.7         4.5        3.6         2.9     We expect the AMOLED material supply chain to continue to evolve, as
077360 KS rel KOSPI performance, &                                                  AMOLED panel vendors seek to minimise power consumption. For example,
rec history                                                                         we expect increasing usage of materials from UDC or Novaleds at mass
                                                                                    production lines in 2013 (A3 lines). We believe this would result in further
                                                                                    pricing pressure on the common material supply chain.

                                                                                  Earnings and target price revision
                                                                                   We cut our 2012 net profit forecast by 4.1% on lower AMOLED material sales.
                                                                                    We also cut our target price to Won25,500 from Won26,000

                                                                                  Price catalyst
Note: Recommendation timeline - if not a continuous line, then there was no        12-month price target: Won25,500 based on PER methodology.
Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, May 2012
                                                                                   Catalyst: Any change in SMD’s material supply chain for upcoming A3 lines.
(all figures in Won unless noted)

                                                                                  Action and recommendation
                                                                                   We believe that as the AMOLED material market has grown more crowded
                                                                                    and Duksan has lost its position as sole vendor, the stock’s valuation premium
                                                                                    versus peers is no longer justifiable. We maintain our Neutral rating with a
Analyst(s)                                                                          reduced target price of Won25,500, based on a 2012e target PER of 19.7x.
Soyun Shin
+822 3705 8659                        soyun.shin@macquarie.com                     Potential technology roadmap changes at 8.0Ge (adoption of white OLED for
                                                                                    low-end AMOLED TVs) could spur further demand for common materials.
9 May 2012                                                                          However, we do not factor in this potential impact in our forecast, as the
Macquarie Securities Korea Limited                                                  8.0Ge technology roadmap is not yet clear.




9 May 2012                                                                                                                                                        10
Macquarie Research                                                                                                                          AMOLED Sector




              Analysis

Fig 1 Quarterly earnings outlook
(Won bn)                  1Q11     2Q11   3Q11    4Q11 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E                                    2011 2012E 2013E

Net sales                   23.3   33.9    35.4    37.0      35.9     36.5       43.7      38.3     40.4    43.0      49.8        48.4   129.4    154.5   181.6
  (% yoy)                   86%    99%     62%     75%       54%       8%        24%        4%      13%     18%       14%         26%              19%     18%
AMOLED materials            10.7   18.6    19.3    21.5      19.6     18.6       23.1      19.4     19.9    20.5      23.9        24.5    70.1     80.6    88.8
Solder ball                 12.0   15.8    16.4    15.1      16.3     17.9       20.6      19.0     20.5    22.6      25.9        23.9    59.3     73.9    92.9
Sales mix
AMOLED materials            46%    55%     55%     58%       55%      51%        53%       50%      49%     48%       48%         51%     54%      52%     49%
Solder ball                 51%    47%     46%     41%       45%      49%        47%       50%      51%     52%       52%         49%     46%      48%     51%
Duksan's market share in HTL materials
A1                        100% 100%       100%     95%       80%      80%        70%       65%      65%     65%       65%      65%        95%      65%      65%
A2                        100% 100%       100%     95%       80%      80%        70%       65%      65%     65%       65%      65%        95%      65%      65%
A3                                                                                                  60%     60%       60%      60%                          60%
8.0Ge                                                                                                                 30%      30%                          30%
Operating profit             5.6    8.3      9.8   10.9        9.3      9.4     11.0        9.8   9.4  10.4           11.8     12.1       34.7   39.5       43.7
  % YoY                  408.4% 173.9%    88.6% 190.8%      65.4%    12.3%    11.4%     -10.0% 1.2% 10.6%            7.4%    23.8%               14%        11%
% margin                  24.3% 24.7%     27.8% 29.5%       26.0%    25.7%    25.0%      25.6% 23.4% 24.1%          23.6%    25.1%       26.8% 25.5%      24.1%
  Solder ball             14.0% 16.0%     16.5% 17.0%       14.0%    16.0%    15.0%      17.0% 14.0% 16.0%          15.0%    17.0%       16.0% 15.5%      15.5%
  AMOLED material         35.0% 34.5%     36.0% 38.0%       36.0%    35.0%    34.0%      34.0% 33.0% 33.0%          33.0%    33.0%       36.1% 34.7%      33.0%
Source: Company data, Macquarie Research, May 2012




              Fig 2 Earnings revision - Duksan
              (Won bn)                                      New                                   Old                           Chg (%)
                                                  FY12E              FY13E              FY12E           FY13E              FY12E        FY13E

              Net sales                              155               182                162              179               -4.6           1.7
               AMOLED materials                       81                89                 91               93              -10.9          -4.5
               Semicon materials                      74                93                 71               86                3.5           8.4
              Gross profit                            65                77                 65               74               -0.1           4.0
              Operating profit                        39                44                 41               43               -3.7           1.7
              Pre-tax profit                          40                46                 42               45               -4.7           1.4
              Net profit                              37                43                 39               42               -4.1           1.6
              Profitability (%)
              Gross profit                           42.0             42.4               40.1              41.4
              Operating margin                       25.5             24.1               25.3              24.1
              Pre-tax margin                         25.9             25.1               25.9              25.2
              Net margin                             24.2             23.5               24.1              23.5
              Source: Macquarie Research, May 2012




              Fig 3 Historical PBR chart

                     50,000


                     40,000


                     30,000


                     20,000


                     10,000


                         0
                         Oct-05                   Oct-07                          Oct-09                          Oct-11
                                   Duksan (Won)             x0.6          x2.3             x4.0            x5.7            x7.3
              Source: Bloomberg, Macquarie Research, May 2012


              Stocks mentioned:
              Samsung Electronics (005930 KS, Won1,341,000, Outperform, TP: Won1,900,000)



9 May 2012                                                                                                                                                   11
Macquarie Research                                                                                                                         AMOLED Sector



Duksan Hi-Metal (077360 KS, Neutral, Target Price: Won25,500)
Quarterly Results                          4Q/11A     1Q/12E     2Q/12E     3Q/12E     Profit & Loss                   2011A     2012E       2013E     2014E

Revenue                              m     36,955     35,889     36,525     43,743     Revenue                    m   129,440   154,502     181,650   215,045
Gross Profit                         m     17,725     14,557     15,184     18,651     Gross Profit               m    53,160    64,952      76,955    91,227
Cost of Goods Sold                   m     19,229     21,331     21,341     25,091     Cost of Goods Sold         m    76,281    89,550     104,694   123,818
EBITDA                               m     12,037      9,563      9,607     11,184     EBITDA                     m    38,211    40,396      44,656    49,543
Depreciation                         m        939         38         38         38     Depreciation               m     2,886       153         153       153
Amortisation of Goodwill             m        195        195        195        195     Amortisation of Goodwill   m       599       780         780       780
Other Amortisation                   m          0          0          0          0     Other Amortisation         m         0         0           0         0
EBIT                                 m     10,902      9,330      9,373     10,950     EBIT                       m    34,726    39,463      43,723    48,610
Net Interest Income                  m        100         45        103        196     Net Interest Income        m       232       590       1,956     3,183
Associates                           m        -37          0          0          0     Associates                 m       134       -41         -45       -48
Exceptionals                         m          0          0          0          0     Exceptionals               m         0         0           0         0
Forex Gains / Losses                 m          0          0          0          0     Forex Gains / Losses       m         0         0           0         0
Other Pre-Tax Income                 m        -88         -0          0         -0     Other Pre-Tax Income       m       -27         0          -0        -0
Pre-Tax Profit                       m     10,877      9,375      9,476     11,147     Pre-Tax Profit             m    35,065    40,012      45,634    51,745
Tax Expense                          m        -37       -609       -616       -725     Tax Expense                m      -498    -2,601      -2,966    -3,363
Net Profit                           m     10,839      8,766      8,860     10,422     Net Profit                 m    34,568    37,411      42,668    48,382
Minority Interests                   m          0          0          0          0     Minority Interests         m         0         0           0         0

Reported Earnings                    m     10,839      8,766      8,860     10,422     Reported Earnings          m    34,568    37,411      42,668    48,382
Adjusted Earnings                    m     11,034      8,961      9,055     10,617     Adjusted Earnings          m    35,167    38,191      43,448    49,162

EPS (rep)                                    369.2     298.6      301.8      355.0     EPS (rep)                        1,177     1,274       1,453     1,648
EPS (adj)                                    375.8     305.2      308.4      361.6     EPS (adj)                        1,198     1,301       1,480     1,674
EPS Growth yoy (adj)                 %       103.7      68.5        1.9        7.0     EPS Growth (adj)           %      91.8        8.6       13.8      13.2
                                                                                       PE (rep)                   x      22.9      21.1        18.5      16.4
                                                                                       PE (adj)                   x      22.5      20.7        18.2      16.1

EBITDA Margin                        %        32.6       26.6       26.3       25.6    Total DPS                          0.0       0.0         0.0      20.0
EBIT Margin                          %        29.5       26.0       25.7       25.0    Total Div Yield            %       0.0       0.0         0.0       0.1
Earnings Split                       %        31.4       23.5       23.7       27.8    Weighted Average Shares    m       29        29           29       29
Revenue Growth                       %        74.6       54.3        7.9       23.7    Period End Shares          m       29        29           29       29
EBIT Growth                          %       190.8       65.4       12.3       11.4

Profit and Loss Ratios                      2011A      2012E      2013E      2014E     Cashflow Analysis               2011A     2012E       2013E     2014E

Revenue Growth                       %        78.6       19.4       17.6       18.4    EBITDA                     m    38,211    40,396      44,656    49,543
EBITDA Growth                        %        76.3        5.7       10.5       10.9    Tax Paid                   m      -498    -2,601      -2,966    -3,363
EBIT Growth                          %       164.6       13.6       10.8       11.2    Chgs in Working Cap        m    -7,821    -1,042      -2,536    -1,174
Gross Profit Margin                  %        41.1       42.0       42.4       42.4    Net Interest Paid          m       232       590       1,956     3,183
EBITDA Margin                        %        29.5       26.1       24.6       23.0    Other                      m     6,196      -258      -4,559    -3,587
EBIT Margin                          %        26.8       25.5       24.1       22.6    Operating Cashflow         m    36,321    37,085      36,550    44,602
Net Profit Margin                    %        26.7       24.2       23.5       22.5    Acquisitions               m     8,495       -43         -41       -40
Payout Ratio                         %         0.0        0.0        0.0        1.2    Capex                      m   -22,088   -11,117     -28,000   -28,560
EV/EBITDA                            x        20.2       19.1       17.3       15.6    Asset Sales                m         0         0           0         0
EV/EBIT                              x        22.2       19.6       17.7       15.9    Other                      m    -1,140     5,678       9,450    11,764
                                                                                       Investing Cashflow         m   -14,733    -5,482     -18,591   -16,836
Balance Sheet Ratios                                                                   Dividend (Ordinary)        m         0         0           0         0
ROE                                  %        30.3       24.2       21.7       19.9    Equity Raised              m       101        -7           0         0
ROA                                  %        26.4       23.1       20.6       18.6    Debt Movements             m    -8,600    -2,406           0         0
ROIC                                 %        34.6       30.7       32.2       30.0    Other                      m     2,207       590       1,956     3,183
Net Debt/Equity                      %       -13.3      -28.5      -31.8      -37.3    Financing Cashflow         m    -6,292    -1,823       1,956     3,183
Interest Cover                       x         nmf        nmf        nmf        nmf
Price/Book                           x          5.7        4.5        3.6        2.9   Net Chg in Cash/Debt       m    15,296    29,781      19,915    30,950
Book Value per Share                       4,718.3    6,052.7    7,566.9    9,276.0
                                                                                       Free Cashflow              m    14,233    25,968       8,550    16,042

                                                                                       Balance Sheet                   2011A     2012E       2013E     2014E

                                                                                       Cash                       m    20,851    50,632      70,547   101,497
                                                                                       Receivables                m    10,505    10,554      10,605    10,657
                                                                                       Inventories                m    12,610    14,287      18,235    20,114
                                                                                       Investments                m     3,509     3,604       3,701     3,800
                                                                                       Fixed Assets               m    65,155    70,533      89,021   105,754
                                                                                       Intangibles                m    28,569    28,569      28,569    28,569
                                                                                       Other Assets               m    10,630    11,064      14,437    16,064
                                                                                       Total Assets               m   151,829   189,242     235,115   286,455
                                                                                       Payables                   m     4,574     5,209       6,621     7,326
                                                                                       Short Term Debt            m     2,406         0           0         0
                                                                                       Long Term Debt             m         0         0           0         0
                                                                                       Provisions                 m         0         0           0         0
                                                                                       Other Liabilities          m     6,321     6,328       6,335     6,789
                                                                                       Total Liabilities          m    13,300    11,536      12,956    14,115
                                                                                       Shareholders' Funds        m   159,111   196,516     239,183   287,062
                                                                                       Minority Interests         m         0         0           0         0
                                                                                       Other                      m   -20,583   -18,810     -17,024   -14,723
                                                                                       Total S/H Equity           m   138,528   177,706     222,160   272,340
                                                                                       Total Liab & S/H Funds     m   151,829   189,242     235,115   286,455

All figures in Won unless noted.
Source: Company data, Macquarie Research, May 2012




9 May 2012                                                                                                                                                12
Macquarie Research                                                                                                                                   AMOLED Sector




KOREA
                                                                                  SFA Engineering
056190 KS                                           Neutral
Price (at CLOSE#, 08 5 2012)                     Won58,900                        Limited growth outlook
12-month target                                    Won              51,000        Event
Upside/Downside                                      %               -13.4
                                                                                   SFA Engineering is likely to report its 1Q12 earnings on Friday. We expect
Valuation                                          Won              51,000
- Price To Book                                                                     SFA’s 1Q12 OP to be in line with our estimates and Bloomberg consensus at
GICS sector                                                                         Won16bn. We maintain our Neutral rating but lowered our target price to
Technology Hardware & Equipment                                                     Won51,000 from Won55,000.
Market cap             Wonb     1,058
                           n                                                      Impact
30-day avg turnover    US$m        2.2
Market cap             US$m       929                                              Limited YoY sales and new order growth for the full year of 2012. We
Number shares on issue    m     17.95                                               expect SFA to report YoY sales growth of 4.4% and a new order growth of 5.7%
                                                                                    for 2012, which is the lowest YoY growth for AMOLED supply chains under
Investment fundamentals                                                             our coverage. We attribute this mainly to increasing competition in the back-
Year end 31 Dec                      2011A 2012E 2013E 2014E                        end equipment (Toptek and Rorze Systems in Korea) market for Samsung as
Revenue                      bn       753.4       786.5      817.2       877.7      well as continuous pricing pressure.
EBIT                         bn        92.1        88.8       95.0       111.0
EBIT growth                  %        144.0         -3.6        7.0       16.7     YoY margin improvement unlikely. We expect SFA to report full year 2012
Reported profit              bn        75.6        70.8       79.3        92.8
Adjusted profit              bn        75.6        71.2       79.9        93.4      operating margin of 11.3% from 12.5% in 2011 without product mix
EPS rep                     Won       4,212       3,945      4,418       5,171      improvement to front-end equipment. Our checks indicate that SFA is one of
EPS rep growth               %         94.2         -6.3      12.0        17.1
EPS adj                     Won       4,212       3,964      4,448       5,202      the participants in developing evaporators of 8.0Ge AMOLED lines. However,
EPS adj growth               %         92.6         -5.9      12.2        16.9      it is not likely to be materialized in earnings for 2012 and uncertainty on order
PER rep                       x        14.0        14.9       13.3        11.4
PER adj                       x        14.0        14.9       13.2        11.3      visibility is still too high, given the undecided 8.0Ge technology and capacity
Total DPS                   Won       1,280       1,200      1,400       1,600      expansion roadmap of Samsung.
Total div yield              %           2.2         2.0        2.4         2.7
ROA                          %         15.5        15.3       15.0        15.6
ROE                          %         24.8        19.4       19.0        19.4     What would make us turn more positive on SFA? We would turn more
EV/EBITDA                     x        10.2        10.4         9.5         8.2     positive on SFA if the company was able to diversify its vendors outside of
Net debt/equity              %        -21.9       -22.2      -23.8       -26.4
P/BV                          x          3.1         2.7        2.4         2.1
                                                                                    Korea or enter the front-end equipment market. However, our checks indicate
                                                                                    that AUO (2409 TT, NT$13.4, OP, TP:NT$20) is likely to source its AMOLED
056190 KS rel KOSPI performance, &                                                  equipment from Japanese vendors. Also, we do not expect a substantial
rec history
                                                                                    vendor transition in the near term, which would be not positive on SFA’s
                                                                                    earnings momentum in 2012 and 2013.

                                                                                  Earnings and target price revision
                                                                                   We cut our 2012/2013 net profit by 11.2%/16.4%, respectively, reflecting
                                                                                    margin deterioration driven by increasing competition in the back-end
                                                                                    equipment market for Samsung.

                                                                                  Price catalyst
Note: Recommendation timeline - if not a continuous line, then there was no
Macquarie coverage at the time or there was an embargo period.                     12-month price target: Won51,000 based on a Price to Book methodology.
Source: FactSet, Macquarie Research, May 2012
(all figures in Won unless noted)                                                  Catalyst: 2012 guidance revision at the earnings conference this Friday

                                                                                  Action and recommendation
                                                                                   Among AMOLED equipment makers, we prefer front-end equipment makers
                                                                                    (AP Systems and ICD) to SFA Engineering.
Analyst(s)                                                                         We expect shares to be range-bound, considering a weak earnings
Soyun Shin                                                                          contribution from stalled mix improvement. We would pay attention to any
+822 3705 8659                        soyun.shin@macquarie.com
                                                                                    meaningful developments (yield rate improvements) of its front-end equipment
9 May 2012                                                                          or customer diversification, which we think would be a re-rating catalyst for
Macquarie Securities Korea Limited                                                  SFA shares.




9 May 2012                                                                                                                                                         13
Macquarie Research                                                                                                                               AMOLED Sector




               Analysis

Fig 1 Quarterly earnings outlook
(Won bn)             1Q11       2Q11     3Q11      4Q11 1Q12E 2Q12E 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E                                      2011      2012E    2013E

Net sales            134.1   209.1       152.1     258.1     146.5      239.8     164.0    236.3     186.9    232.4     138.0     259.9     753.4      786.5    817.2
  (% yoy)            175%    128%         54%       41%        9%        15%        8%      -8%       31%     -3%       -16%       10%       78%         4%       4%
 Fine glass           24.1    41.8        18.3      46.5      74.1       53.2      45.8     18.5      56.5     21.3      15.6      12.0     130.7      191.7    105.4
 Front-end             5.4     4.2         3.0      28.4      21.1        9.9       7.3     53.3      37.2     17.2      11.3      67.6      41.0       91.7    133.3
 Modulation           18.8    27.2        30.4      20.6      27.5       41.4      37.1     28.5      26.1     31.7      26.9      20.2      97.0      134.4    104.9
 Logistics            85.8   135.9       100.4     162.6      23.8      135.3      73.8    135.9      67.1    162.2      84.1     160.1     484.7      368.8    473.6
Sales mix
 Fine glass           18%       20%       12%       18%       51%        22%       28%       8%       30%       9%       11%           5%    17%        24%      12%
 Front-end             4%        2%        2%       11%       14%         4%        4%      23%       20%       7%        8%          26%     5%        12%      16%
 Modulation           14%       13%       20%        8%       19%        17%       23%      12%       14%      14%       19%           8%    13%        17%      13%
 Logistics            64%       65%       66%       63%       16%        56%       45%      58%       36%      70%       61%          62%    64%        47%      58%
New orders
 Fine glass           34.3    31.4        13.4      97.0      23.4       21.4       9.2     66.1      17.5     16.0       6.9      49.6     176.0      120.0     90.0
 Front-end             2.1     0.0         3.4      58.2       3.9        0.0       6.3    109.8       4.8      0.0       7.9     137.2      63.6      120.0    150.0
 Modulation           22.8    35.9        21.3      12.9      35.2       55.2      32.8     19.9      23.7     37.3      22.1      13.4      92.9      143.1     96.6
 Logistics            55.0   156.9        73.9     155.1      47.5      135.4      63.7    133.9      57.7    164.4      77.4     162.6     440.9      380.5    462.0
OP – IFRS             17.3    27.1        14.9      32.7      16.2       25.0      18.3     29.3      20.1     25.3      15.9      33.7      92.1       88.8     95.0
 % YoY                       282%        166%       39%       -6%        -8%       23%     -10%       24%       1%      -13%       15%      151%         0%       7%
 % OPM                13%     13%         10%       13%       11%        10%       11%      12%       11%      11%       12%       13%       12%        11%      12%
Source: Company data, Macquarie Research, May 2012




               Fig 2 Earnings revision chart for SFA Eng
                                                                    New                              Old                        Chg (%)
                                                           FY12E          FY13E             FY12E            FY13E         FY12E        FY13E

               Net sales                                     787                817           859              949              -8.4           -13.9
               Gross profit                                  152                159           172              190             -11.5           -16.5
               Operating profit                               89                 95           101              117             -12.1           -18.7
               Pre-tax profit                                 95                107           108              128             -11.3           -16.5
               Net profit                                     71                 79            80               95             -11.2           -16.4
               Profitability (%)
               Gross profit                                  19.3               19.4          20.0            20.0
               Operating margin                              11.3               11.6          11.8            12.3
               Pre-tax margin                                12.1               13.1          12.5            13.5
               Net margin                                     9.0                9.7           9.3            10.0
               Source: Macquarie Research, May 2012




Fig 3 Historical PER trend                                                             Fig 4 Historical PBR trend

    100,000                                                                               100,000


     80,000                                                                                80,000


     60,000                                                                                60,000


     40,000                                                                                40,000


     20,000                                                                                20,000


           0                                                                                    0
           Jan-02   Jan-04      Jan-06    Jan-08    Jan-10     Jan-12                           Jan-02     Jan-04     Jan-06     Jan-08     Jan-10     Jan-12
                    SFA (Won)            x2.0                   x8.0                                  SFA (Won)                x0.5                    x1.5
                    x13.9                x19.8                  x25.8                                 x2.4                     x3.4                    x4.3

Source: Macquarie Research, May 2012                                                   Source: Macquarie Research, May 2012




9 May 2012                                                                                                                                                        14
Macquarie Research                                                                                                                            AMOLED Sector



SFA Engineering (056190 KS, Neutral, Target Price: Won51,000)
Quarterly Results                         4Q/11A      1Q/12E      2Q/12E      3Q/12E     Profit & Loss                    2011A     2012E       2013E      2014E

Revenue                            m      258,066    146,489     239,751     164,006     Revenue                    m   753,374    786,501     817,192    877,718
Gross Profit                       m       52,291     27,817      45,706      32,350     Gross Profit               m   142,997    151,966     158,609    170,539
Cost of Goods Sold                 m      205,775    118,672     194,045     131,657     Cost of Goods Sold         m   610,377    634,535     658,584    707,179
EBITDA                             m       33,929     17,520      26,365      19,774     EBITDA                     m    96,701     94,858     103,277    119,179
Depreciation                       m        1,198      1,253       1,346       1,440     Depreciation               m     4,551      5,683       7,685      7,685
Amortisation of Goodwill           m            0         60          30          30     Amortisation of Goodwill   m         0        336         543        543
Other Amortisation                 m            0          0           0           0     Other Amortisation         m         0          0           0          0
EBIT                               m       32,731     16,206      24,989      18,304     EBIT                       m    92,150     88,839      95,050    110,951
Net Interest Income                m          889      1,751       1,767       1,393     Net Interest Income        m     3,136      6,519      11,717     14,034
Associates                         m            0          0           0           0     Associates                 m         0          0           0          0
Exceptionals                       m            0          0           0           0     Exceptionals               m         0          0           0          0
Forex Gains / Losses               m            0          0           0           0     Forex Gains / Losses       m         0          0           0          0
Other Pre-Tax Income               m         -170         -0           0           0     Other Pre-Tax Income       m       559          0          -0          0
Pre-Tax Profit                     m       33,449     17,957      26,755      19,697     Pre-Tax Profit             m    95,845     95,358     106,767    124,985
Tax Expense                        m       -8,601     -4,617      -6,880      -5,065     Tax Expense                m   -20,222    -24,519     -27,453    -32,137
Net Profit                         m       24,849     13,340      19,876      14,633     Net Profit                 m    75,623     70,839      79,314     92,848
Minority Interests                 m            0          0           0           0     Minority Interests         m         0          0           0          0

Reported Earnings                  m       24,849     13,340      19,876      14,633     Reported Earnings          m    75,623     70,839      79,314     92,848
Adjusted Earnings                  m       24,849     13,400      19,906      14,663     Adjusted Earnings          m    75,623     71,175      79,857     93,391

EPS (rep)                                   1,384       743.0       1,107       815.0    EPS (rep)                        4,212      3,945       4,418      5,171
EPS (adj)                                   1,384       746.3       1,109       816.7    EPS (adj)                        4,212      3,964       4,448      5,202
EPS Growth yoy (adj)               %           8.3       -7.0       -19.3        25.4    EPS Growth (adj)           %      92.6        -5.9       12.2       16.9
                                                                                         PE (rep)                   x      14.0       14.9        13.3       11.4
                                                                                         PE (adj)                   x      14.0       14.9        13.2       11.3

EBITDA Margin                      %         13.1        12.0        11.0        12.1    Total DPS                        1,280      1,200       1,400      1,600
EBIT Margin                        %         12.7        11.1        10.4        11.2    Total Div Yield            %        2.2        2.0         2.4        2.7
Earnings Split                     %         32.9        18.8        28.0        20.6    Weighted Average Shares    m         18        18           18        18
Revenue Growth                     %         40.6         9.2        14.6         7.9    Period End Shares          m         18        18           18        18
EBIT Growth                        %         38.6        -6.5        -8.0        22.5

Profit and Loss Ratios                     2011A       2012E       2013E       2014E     Cashflow Analysis                2011A     2012E       2013E      2014E

Revenue Growth                     %         78.1         4.4         3.9         7.4    EBITDA                     m     96,701    94,858     103,277    119,179
EBITDA Growth                      %        128.2        -1.9         8.9        15.4    Tax Paid                   m    -20,222   -24,519     -27,453    -32,137
EBIT Growth                        %        144.0        -3.6         7.0        16.7    Chgs in Working Cap        m    165,648    -9,748      -7,716       -860
Gross Profit Margin                %         19.0        19.3        19.4        19.4    Net Interest Paid          m      3,136     6,519      11,717     14,034
EBITDA Margin                      %         12.8        12.1        12.6        13.6    Other                      m   -132,894   -10,087     -19,091     -8,620
EBIT Margin                        %         12.2        11.3        11.6        12.6    Operating Cashflow         m    112,370    57,022      60,734     91,596
Net Profit Margin                  %         10.0         9.0         9.7        10.6    Acquisitions               m    -59,135   -14,462     -15,647    -16,930
Payout Ratio                       %         30.4        30.3        31.5        30.8    Capex                      m    -23,661   -24,607     -25,591    -26,615
EV/EBITDA                          x         10.2        10.4         9.5         8.2    Asset Sales                m          0         0           0          0
EV/EBIT                            x         10.7        11.1        10.3         8.8    Other                      m    -13,529     7,992      10,084     10,746
                                                                                         Investing Cashflow         m    -96,324   -31,077     -31,154    -32,799
Balance Sheet Ratios                                                                     Dividend (Ordinary)        m     -8,844   -21,227     -21,227    -24,764
ROE                                %         24.8        19.4        19.0        19.4    Equity Raised              m          0         0           0          0
ROA                                %         15.5        15.3        15.0        15.6    Debt Movements             m          0         0           0          0
ROIC                               %         37.0        24.5        23.3        24.1    Other                      m          0     6,519      11,717     -5,966
Net Debt/Equity                    %        -21.9       -22.2       -23.8       -26.4    Financing Cashflow         m     -8,844   -14,708      -9,510    -30,730
Interest Cover                     x          nmf         nmf         nmf         nmf
Price/Book                         x           3.1         2.7         2.4         2.1   Net Chg in Cash/Debt       m     7,202     11,237      20,070     28,067
Book Value per Share                     19,196.5    21,742.6    25,029.5    28,499.7
                                                                                         Free Cashflow              m    88,709     32,415      35,143     64,981

                                                                                         Balance Sheet                    2011A     2012E       2013E      2014E

                                                                                         Cash                       m    75,614     86,851     106,921    134,989
                                                                                         Receivables                m   141,786    107,463     117,716    134,275
                                                                                         Inventories                m     7,059     47,540      52,356     60,114
                                                                                         Investments                m   180,446    194,957     210,655    227,636
                                                                                         Fixed Assets               m   107,073    123,454     138,720    154,341
                                                                                         Intangibles                m         0          0           0          0
                                                                                         Other Assets               m    46,715     39,946      40,808     42,209
                                                                                         Total Assets               m   558,694    600,211     667,176    753,564
                                                                                         Payables                   m   120,970    116,014     123,177    146,437
                                                                                         Short Term Debt            m         0          0           0          0
                                                                                         Long Term Debt             m         0          0           0          0
                                                                                         Provisions                 m         0          0           0          0
                                                                                         Other Liabilities          m    93,063     93,821      94,611     95,432
                                                                                         Total Liabilities          m   214,033    209,836     217,788    241,870
                                                                                         Shareholders' Funds        m   361,568    411,181     465,730    530,277
                                                                                         Minority Interests         m         0          0           0          0
                                                                                         Other                      m   -16,908    -20,805     -16,342    -18,582
                                                                                         Total S/H Equity           m   344,661    390,376     449,389    511,695
                                                                                         Total Liab & S/H Funds     m   558,694    600,211     667,176    753,564

All figures in Won unless noted.
Source: Company data, Macquarie Research, May 2012




9 May 2012                                                                                                                                                    15
Macquarie Research                                                                                                                                       AMOLED sector
Important disclosures:
 Recommendation definitions                                  Volatility index definition*                            Financial definitions
 Macquarie - Australia/New Zealand                           This is calculated from the volatility of historical    All "Adjusted" data items have had the following
 Outperform – return >3% in excess of benchmark return       price movements.                                        adjustments made:
 Neutral – return within 3% of benchmark return                                                                      Added back: goodwill amortisation, provision for
 Underperform – return >3% below benchmark return            Very high–highest risk – Stock should be                catastrophe reserves, IFRS derivatives & hedging,
                                                             expected to move up or down 60–100% in a year           IFRS impairments & IFRS interest expense
 Benchmark return is determined by long term nominal         – investors should be aware this stock is highly        Excluded: non recurring items, asset revals, property
 GDP growth plus 12 month forward market dividend            speculative.                                            revals, appraisal value uplift, preference dividends &
 yield                                                                                                               minority interests
 Macquarie – Asia/Europe                                     High – stock should be expected to move up or
 Outperform – expected return >+10%                          down at least 40–60% in a year – investors should       EPS = adjusted net profit / efpowa*
 Neutral – expected return from -10% to +10%                 be aware this stock could be speculative.               ROA = adjusted ebit / average total assets
 Underperform – expected return <-10%                                                                                ROA Banks/Insurance = adjusted net profit /average
                                                             Medium – stock should be expected to move up            total assets
 Macquarie First South - South Africa                        or down at least 30–40% in a year.                      ROE = adjusted net profit / average shareholders funds
 Outperform – expected return >+10%                                                                                  Gross cashflow = adjusted net profit + depreciation
 Neutral – expected return from -10% to +10%                 Low–medium – stock should be expected to                *equivalent fully paid ordinary weighted average
 Underperform – expected return <-10%                        move up or down at least 25–30% in a year.              number of shares
 Macquarie - Canada
 Outperform – return >5% in excess of benchmark return       Low – stock should be expected to move up or            All Reported numbers for Australian/NZ listed stocks
 Neutral – return within 5% of benchmark return              down at least 15–25% in a year.                         are modelled under IFRS (International Financial
 Underperform – return >5% below benchmark return            * Applicable to Australian/NZ/Canada stocks only        Reporting Standards).
 Macquarie - USA                                             Recommendations – 12 months
 Outperform (Buy) – return >5% in excess of Russell          Note: Quant recommendations may differ from
 3000 index return                                           Fundamental Analyst recommendations
 Neutral (Hold) – return within 5% of Russell 3000 index
 return
 Underperform (Sell)– return >5% below Russell 3000
 index return


 Recommendation proportions – For quarter ending 31 March 2012
                      AU/NZ         Asia      RSA            USA       CA           EUR
 Outperform           53.90%      60.60%     57.50%        43.59%    66.67%       46.89% (for US coverage by MCUSA, 10.86% of stocks covered are investment banking clients)
 Neutral              31.56%      23.00%     32.50%        51.09%    30.00%       32.60% (for US coverage by MCUSA, 9.50% of stocks covered are investment banking clients)
 Underperform         14.54%      16.40%     10.00%        5.32%     3.33%        20.51% (for US coverage by MCUSA, 1.36% of stocks covered are investment banking clients)


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