The author is an analyst of NH Investment & Securities. He can be reached at [email protected]. — Ed.
We raise our earnings estimates and TP for PI Advanced Materials, considering: 1) demand recovery in downstream sectors; and 2) ASP increase for major products following supply-demand imbalance. Believing that its 4Q20 OP will show q-q growth for the first time since IPO, we expect PI Advanced Materials to maintain upward earnings momentum moving ahead.
Raise TP on upwardly revised earnings estimates
Adhering to a Buy rating, we raise our TP on PI Advanced Materials from W40,000 to W48,000 in reflection of an 11.4% boost in 2021F EPS (our target P/E of 27x remains unchanged).
Our main justification for 2021F EPS increase is an expectation for margins improvement stemming from shipment and ASP growth. In detail, shipments should climb going forward thanks to: 1) recovering demand for smartphones, a major downstream industry; and 2) growth in high-tech industries such as 5G antenna materials and rechargeable batteries. Meanwhile, ASPs are anticipated to strengthen on the back of widening supply-demand imbalance.
To achieve record-high earnings on improved demand from downstream industries and higher ASPs
We hike our 2021 sales and OP forecasts for PI Advanced Materials by 7.8% to W300.3bn and by 17.6% to W71.8bn, respectively, versus our previous estimates.
Our change in assumptions is largely attributable to upward adjustment in 2021F OPM by 2%p on: 1) a 3.2% increase in our shipment projection for the firm in light of likely smartphone shipment expansion at global manufacturers; and 2) a 4.4% rise in our ASP prediction in reflection of tight supply and demand.
Of note, we expect the firm’s 4Q20 OP to show the first instance of q-q improvement since IPO. We further expect the company to sustain a healthy earnings growth trend in 1Q21 on the back of product price hikes.
