Display AMOLED ReportE 201108 final 1 - OLED Info | OLED TV

Large AMOLED gets a cost edge over

LCD

Large AMOLED to start pilot production in 2012 and enter mass production stage in 2013

Samsung Mobile Display (SMD) and LG Display (LGD) should dip their

toes in the large AMOLED waters in 2012. Both SMD and LGD are

working on 8G AMOLED pilot lines, which should be ready for test runs in

2012. We expect the large-size AMOLED camp to be split between SMD’s

p-Si based TFT substrates and LGD’s a-Si based oxide TFT substrates.

SMD should outperform LGD in terms of substrate functionality but LGD

should deliver greater cost savings than its rival. Samsung Electronics

(Samsung) is reportedly developing oxide TFT technologies but the type of

technology, investment scale, or production timing remains uncertain.

Given the early mover’s advantage in the TV market, we expect the mass

production of large AMOLED panels to start from 2013 or 2014 at the

latest.

LCD capex reduction but ongoing AMOLED capex As the recovery of the LCD market has been delayed, LCD panel makers

are rapidly scaling back capex. The global top four LCD players slashed

their 2011F capex by 30%-50% compared to initial plans (35% YoY).

Investments, however, remain intact in AMOLED and high-end LCD panels.

SMD should go ahead with 5.5G capex and AMOLED pilot lines, while

LGD is gearing up to pilot-run large AMOLED panel lines and Taiwanese

panel makers are shifting to oxide TFT lines.

Cost-competitive oxide TFT to lead large AMOLED

As large panels are more cost-sensitive than small to mid segments, the

large AMOLED panel market is likely to adopt a-Si based oxide TFT

technology, not LTPS technology, to gain cost competitiveness. Oxide TFT

technology allows panel makers to diversify product mix because it is

widely applicable from AMOLED to glass-free 3D LCD panels and ultra-

definition LCD panels. LTPS technology should improve and be

commercially viable over the long term. But we believe oxide TFT will lead

the development of large AMOLED because it reduces initial capex

requirements.

Beneficiaries of large AMOLED

The TV display market is worth 10 times more than the mobile display

market in terms of area surface. As such, if equipment or material vendors

can extend their market reach beyond the small to midsize to large

AMOLEDs, we believe they deserve high valuation. Our top-picks are

Cheil Ind and Duksan Hi-Metal, steadfast materials suppliers, and SFA and

ICD whose equipment can be used on large-size panel lines.

Sector Report / Display

Display

August 16, 2011

Overweight (Maintain)

Company Rating TP (KRW)

Cheil Ind. (001300) BUY 140,000

Duksan Hi-Metal(077360) BUY 37,000

SFA Engineering (056190) BUY 80,000

ICD (040910) BUY 98,000

AP Systems (054620) Not rated NA

Advanced Nano Products (121600) BUY 25,000

Contents

1. Display capex fast shifts from LCD to

AMOLED .....................................................1

2. Large AMOLED manufacturing costs by

technology ..................................................3

3. Material and equipment makers have the

most investment appeal ...........................6

Jay Yoo, CFA 82-2-3276-6178 [email protected]

Moon Sung Kang 82-2-3276-6235 [email protected]

Matthew Yang 82-2-3276-6174 [email protected]

Heuiseok Jeong 82-2-3276-6277 [email protected]

Sector report focus

� What is the report about?

• Analyze large AMOLED capex and market developments

• Examine Samsung Mobile Display’s and LG Display’s cost

structure and technologies and forecast their business directions

• Identify beneficiaries from the expansion of the large-size

AMOLED market and recommend investment strategies

� Key assumptions and valuation

LCD capex by major panel makers (USD mn)

2008 2009 2010 2011F 2012F 2010-2011F

growth 2011-2012F

growth

LG Display 2,667 3,209 4,377 2,759 1,810 -37.0% -34.4%

SEC’s LCD 3,896 1,683 4,109 2,858 1,357 -30.4% -52.5%

AUO 3,081 2,004 2,639 1,714 1,086 -35.0% -36.7%

CMI 3,203 1,423 2,671 1,701 1,086 -36.3% -36.1%

Total 12,846 8,319 13,796 9,032 5,339 -34.5% -40.9%

Source: Company data, Korea Investment & Securities

AMOLED capex by major panel makers ( USD mn)

2009 2010 2011F 2012F 2010-2011F

growth 2011-2012F

growth

LG Display 183 642 452 250.0% -29.5%

SEC’s LCD 257 1,833 4,125 6,829 125.0% 65.6%

AUO - - 452 - -

CMI - - 452 - -

Total 257 2,016 4,766 8,186 136.4% 71.8%


� Sensitivity & scenario analysis

• Large AMOLED TV to debut in 2012 and enter the mass

production stage in 2014 at the latest

Area-based demand for mobile panels and TV panels

0

15,000

30,000

45,000

60,000

75,000

90,000

Panel demand f or handset in terms of area Panel demand f or LCD TV in terms of area

(Km2)

11.8 fold increase


� Risks/opportunities

• AMOLED investments should accelerate when the LCD market recovers.

• If the global economic slowdown drags on, the AMOLED

market faces investment delays or retrenchment.

� Sector highlights

1) Oxide TFT to lead the large AMOLED panel market

• AMOLED market winners should be those who can roll out

products at a faster pace and at a cheaper price than rivals.

• It is important to secure cost competitive in the TFT process,

which is a major cost factor to AMOLED production.

• The Oxide-TFT AMOLED method is 34% more cost effective

than p-Si AMOLED and 28% than LCD a-Si method.

• LG Display and Samsung Electronics are likely to covert its

LCD lines to oxide-TFT AMOLED method.

Cost analysis by AMOLED technology

0

100,000

200,000

300,000

400,000

500,000

600,000

TFT-LCD ELA+FMM ELA+LITI Oxide+FMM

Capex per unit area

Cash cost per unit area

Total cost per unit area

(won/m2 per month)

Source: Market data, Korea Investment & Securities

2) Materials and equipment vendors look attractive if they

can serve large AMOLED

• Order momentum may differ by AMOLED equipment maker as

their clients may change process technologies to produce

large AMOLED panels.

• AMOLED material suppliers should be able to easily extend

their market reach beyond small AMOLED to include large

AMOLED.

• Large AMOLED equipment vendors deserve a PER of 15x,

which is the level that LCD equipment vendors traded at

during the expansion of the large LCD panel market in 2004-

2005.

• Materials suppliers’ high valuation levels are justifiable

because large AMOLED panels need material input.

� Peer comparison

• AMOLED materials and equipment vendors are overvalued to

other players in the display value chain.

• Peer group PER band.

Display

1

1. Display capex fast shifts from LCD to AMOLED

As the LCD panel market remains weak, major panel makers continue to scale

back their LCD capex. During the 2Q11 earnings season, the top five panel

producers, which represent 82% of global LCD panel production capacity,

announced their decision to cut annual LCD capex by 30-50% compared to the

initial plans set in early 2011. As such, LCD capex should decline 35% YoY in 2011

and the pace of capex cuts should accelerate in 2012. But, LCD capex

retrenchment should allow market leaders to spend more on large AMOLED.

Samsung Mobile Display (SMD), which is operating a 5.5G AMOLED line is

expected to start 8G investments in 2012. LG Display (LGD) is also looking toward

the mass production of 8G from 2013.

Unlike Chinese counterparts, Korean and Taiwanese panel makers are passive

LCD investors in China. Major foreign makers were in a hurry to obtain capex

approval from the Chinese government in early 2010. But most of these capex

projects are being delayed due to chronic market oversupply. LGD was the first to

clear the regulatory hurdle but is still sitting on its capex plan. Pending the approval

process, LGD has already secured LCD production capacity domestically, which

makes it unnecessary to rush overseas capex. In contrast, Samsung Electronics

(Samsung) needs additional LCD capacity because the company has not invested

in domestic facilities. Nevertheless, Samsung is likely to chew over its Chinese

capex. Taiwanese panel makers also said they do not plan capex in China in the

near term.

LCD capex by major panel makers (USD mn)

2008 2009 2010 2011F 2012F 2010-2011F

growth 2011-2012F

growth

LG Display 2,667 3,209 4,377 2,759 1,810 -37.0% -34.4%

Samsung LCD 3,896 1,683 4,109 2,858 1,357 -30.4% -52.5%

AUO 3,081 2,004 2,639 1,714 1,086 -35.0% -36.7%

CMI 3,203 1,423 2,671 1,701 1,086 -36.3% -36.1%

Total 12,846 8,319 13,796 9,032 5,339 -34.5% -40.9%


Capex is rapidly shifting

from LCD to

large AMOLED; SMD

leads the transition

Korean and Taiwanese

panel makers are

passive investors in

China

Quarterly LCD capex

1000

2000

3000

4000

5000

1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11 4Q11F

(USD mn)

Capex

retrenchment stage

Source: DisplaySearch, Korea Investment & Securities

Display

2

While LCD capex projects face delays and reductions, the large AMOLED panel

market sees a looming capex race among Korean display makers. As the 8G pilot

line is fully equipped, SMD, which leads the capex race, should be ready for trial

runs. SMD is expected to invest in a mass production line in 1H12 when the pilot

test is complete. LGD scaled back its investments in LCD and small AMOLED but

remains committed to large AMOLED. LGD plans pilot-production of 55” AMOLED

TV panels in 2H12. LGD plans to build 60K-capacity large AMOLED panel lines

from 2013 with a goal to start mass production in 2014. Taiwanese panel makers

have yet to unveil large AMOLED panel capex but are likely to take their cues from

SMD and LGD.

The TV market plays by marketing and cost competitiveness, rather than

technology. As such, AMOLED market winners should be those who can roll out

products at a faster pace and at a cheaper price than rivals. We believe SMD and

Samsung will make a faster advance to the AMOLED market than their rivals.

However, SMD still does not have production lines dedicated to large panels. SMD

cannot switch its LCD line to AMOLED, which erodes its cost competitiveness and

requires changes in production technologies. Given SMD’s weak cost

competitiveness, there is a growing possibility for Samsung to enter the large

AMOLED panel business. Samsung can convert its LCD lines to oxide TFT

AMOLED panels just as LGD does. Samsung can sharpen its competitive edge

quickly when its oxide TFT meets SMD’s organic deposition technologies. LGD

faces growing concerns over the large panel business due to its suspension of

small AMOLED panel business. To compensate for its weaker financing capacity

compared to Samsung, LGD will enhance cost competitiveness through line

conversion from LCD to AMOLED.

Large AMOLED technologies adopted by SMD, Samsung, LGD

TFT-Backplane process Deposition process Encapsulation process

Samsung Electronics Oxide TFT SMS (same as SMD) glass/metal type (same as SMD)

SMD poly-Si TFT SMS glass/metal type

LG Display Oxide TFT White OLED glass/metal type

Korean display makers

in an AMOLED capex

race

Major panel makers’ AMOLED timeline

Note: A2 P3 is expected to exclude TFT-process

Source: Korea Investment & Securities

Who can roll out

AMOLED faster and at a

cheaper price?

Display

3

2. Large AMOLED manufacturing costs by technology

We view oxide TFT technology as the most optimal for large AMOLED panel

production. Although the oxide TFT AMOLED panel is technologically inferior to

LPTS AMOLED, it could be the best choice in terms of cost competitiveness, which

is crucial for the large panels used in TVs. In contrast to LTPS, oxide TFT

technology is compatible with the process and equipment of existing LCD-use TFT

lines, which sharply reduces the initial capex burden for AMOLED panel makers.

The technology has not been applied for mass production and thus the production

yield remains uncertain. However, many panel makers are now preparing for mass

production by applying oxide TFT technology to existing LCD lines and will soon

start the pilot test. In addition to AMOLED panels, high-end glassless 3D and ultra-

definition LCD panels can be built on the oxide TFT technology. As such, the oxide

TFT technology will allow panel makers to diversify product lineups.

Manufacturing of AMOLED panels on the existing LCD TFT line using the oxide

TFT technology will cost 34% less than LTPS AMOLED panels or 28% less than

LCD panels. AMOLED panels’ parts cost 40% less than those for LCD panels but,

to remain competitive in terms of total costs, the capex burden needs to be

contained. The area capex for excimer laser annealing (ELA)-based LTPS

AMOLED panels is four times greater than LCDs’. As it offsets cost reduction on

the parts front, the LTPS AMOLED’s total manufacturing costs surpass LCD

panels’ in the end. In contrast, capex increase is limited for oxide TFT AMOLED

panel production and thus its total costs should be 20% less than LCD panels’. As

such, we believe the oxide TFT technology, which uses the existing LCD TFT line,

will be adopted for large AMOLED panel production in the initial phase.

8G TFT technology by company

Company Technology Mobility Uniformity Stability No. of masks

Temperature Cost Technological

complexity

SMD Advanced

ELA 100cm2/Vs Low Very high 7~10 Low High High

SGC 10~40cm2/Vs High High 4~6 High Low Low

Samsung Electronics

Oxide TFT 9cm2/Vs High High 4~5 Low Low Low

LG Display Oxide TFT 9cm2/Vs High High 4~5 Low Low Low


Oxide TFT technology is

optimal for large

AMOLED panels

Evolution of small and midsized AMOLED panel

technology Evolution of large AMOLED panel technology

Source: Industry data, Korea Investment & Securities Source: Industry data, Korea Investment & Securities

Oxide TFT AMOLED

manufacturing costs

34% less than LTPS

AMOLED or 28% less

than LCD panel

Display

4

Unit costs by technology

AMOLED 8G (Oxide+FMM)

AMOLED 8G (ELA+FMM)

AMOLED 8G (ELA+LITI)

LCD 8G line

Panel size (mm) 2,200x2,500 2,200x2,500 2,200x2,500 2,200x2,500

Capex (W trn) 4 10 11 3

Capacity (1,000 sheets per month) 120 120 120 120

Total capacity for 5yrs by area (1,000m2) 39,600 39,600 39,600 39,600

Capex per area (KRW/m2 per month) 95,833 252,525 282,828 75,758

Unit cash cost (KRW/m2 per month) 204,545 204,545 204,545 340,909

Total cost per area (KRW/m2 per month) 300,379 457,071 487,374 416,667

Note: Assuming useful life of five years Source: Industry data, Korea Investment & Securities

Cost analysis: per area

LCD 8G line AMOLED 8G (Oxide+FMM)

Capex per area (KRW/m2 per month) 75,758 Capex per area (KRW/m2 per month) 95,833

TFT backplane process 40,152 TFT backplane process 20,076

CF & cell/module process 35,606 Deposition (evaporation) & encapsulation 75,758

Cash cost per area (KRW/m2 per month) 340,909 Cash cost per area (KRW/m2 per month) 204,545

Total cost per area (KRW/m2 per month) 416,667 Total cost per area (KRW/m2 per month) 300,379

Note: Key assumptions: 1) LCD cash cost per area: 4.5 times capex per area, 2) OLED line cash cost: 60% of LCD line, 3) Oxide OLED line can use the existing LCD line and thus its TFT backplane process costs 50% less than its LCD counterpart

Source: Industry data, Korea Investment & Securities

Cost analysis: per area

AMOLED 8G (ELA+FMM)

AMOLED 8G (ELA+LITI)

Capex per area (KRW/m2 per month 252,525 Capex per area (KRW/m2 per month) 282,828

TFT backplane process 176,768 TFT backplane process 176,768

Deposition (evaporation) & encapsulation 75,758 Deposition (LITI) & encapsulation 106,061

Cash cost per area (KRW/m2 per month) 204,545 Cash cost per area (KRW/m2 per month) 204,545

Total cost per area (KRW/m2 per month) 457,071 Total cost per area (KRW/m2 per month) 487,374

Note: Key assumptions: 1) OLED line cash cost: 60% of LCD line, 2) LITI deposition: 40% greater than FMM method, 2) LITI deposition method costs 40% more in the deposition process than the FMM method Source: Industry data, Korea Investment & Securities

8G AMOLED (oxide) costs vs. 8G LCD

LCD 8G line AMOLED 8G (Oxide+FMM)

Cost reduction or increase

Capex per area (KRW/m2 per month) 75,758 95,833 26.5%

Cash cost per area (KRW/m2 per month) 340,909 204,545 -40.0%

Total cost per area (KRW/m2 per month) 416,667 300,379 -27.9%


Oxide-based 8G AMOLED vs. ELA-based 8G AMOLED

AMOLED 8G (ELA+FMM)

AMOLED 8G (Oxide+FMM)

Cost reduction or increase

Capex per area (KRW/m2 per month) 252,525 95,833 -62.1%

TFT backplane process 176,768 20,076 -88.6%

Deposition & encapsulation 75,758 75,758 0.0%

Cash cost per area (KRW/m2 per month) 204,545 204,545 0.0%

Total cost per area (KRW/m2 per month) 457,071 300,379 -34.3%


Display

5

AMOLED (oxide) costs vs. LCD

0

100,000

200,000

300,000

400,000

500,000

600,000

TFT-LCD ELA+FMM ELA+LITI Oxide+FMM

Capex per area

Total cost per area

Total cost per area

(won/m2 per month)


LCD panel makers’ profitability has continued to fall hit by slowing LCD TV

shipment growth. Their profitability moves up and down as the industry cycle

changes. Panel makers’ operating margin reached 20% in 2H07, the first upcycle

since they entered the full-scale production of LCD panels used in TVs. The

upcycle revisited the industry in 1H10 but the panel producers’ operating margin

averaged 10%, a sharp decline from the past. To shore up the operating margin,

panel makers are considering starting production of large AMOLED panels earlier

than scheduled as it is more cost competitive than LCD panel production. We

believe there will be intense competition to build presence in the market before the

rivals square off because profitability tends to be higher while the market is still

burgeoning.

Global panel makers’ OP margin

-30%

-20%

-10%

0%

10%

20%

30%

40%

1Q03 4Q03 3Q04 2Q05 1Q06 4Q06 3Q07 2Q08 1Q09 4Q09 3Q10 2Q11

Note: Global panel makers refer to Samsung Electronics (LCD business), LG Display, AUO and CMI. Source: Company data, Korea Investment & Securities

Panel makers should

speed up large

AMOLED panel

production to shore up

profitability

Display

6

3. Material and equipment makers have the most

investment appeal

Material suppliers are the most appealing among AMOLED-related companies as

they can continue to benefit from the production of both small and large AMOLED

panels. Although there are differences between the materials used in small and

large AMOLED panels, it does not mean material suppliers have to drastically alter

their product mix. Thus, major material suppliers should continue to supply

products used in the production of small and large panels and their supply volume

should grow rapidly as well when the production area expands. In addition,

companies that can supply indium gallium zinc oxide (IGZO) required for oxide-

TFT processing should be able to benefit from the growth of the large AMOLED

panel industry.

The TV panel market is appealing because its area-based demand is at least 12-

times bigger than that of the mobile display market. At present, AMOLED panels

have less than 5% share in the handset display market. Even if all handsets were

to adopt AMOLED panels (4-inch), the mobile display market’s area-based

demand would still be less than the 8% total demand for LCD TV panels that are

expected to sell in 2011. While mobile displays are more expensive than large

displays in terms of costs per unit area and prices, the TV panel market has much

stronger growth potential.

Area-based demand for mobile panels and TV panels

0

15,000

30,000

45,000

60,000

75,000

90,000

Panel demand f or handset in terms of area Panel demand f or LCD TV in terms of area

(Km2)

11.8 fold increase

Source: DisplaySearch, Korea Investment & Securities

As the TV panel market is enormous, the companies that can supply equipment or

materials used in the production of large AMOLED displays will have a wide

window of opportunity to achieve growth. In particular, as new technologies are

required for the production of large panels, the firms that can supply processing

equipment that satisfies such demand will be afforded fresh opportunities. As for

material suppliers, they are able to supply products for small and large panels

without drastically altering their product mix, which justifies their higher valuation

compared to equipment makers. At present, DS Hi-Metal’s stock trades at a PER

of 25x and 15x 2011F and 2012F EPS, respectively. But when we consider the

large panel market’s area-based demand for materials can grow more than 10-

times bigger than that of the mobile market, DS Hi-Metal’s high valuation is fully

justified.

Material suppliers are

the most appealing

Even if all handsets

were to adopt AMOLED

panels, demand for TV

panels would still be 12-

times more than that for

mobile panels

Material suppliers’

ability to satisfy

demand for both small

and large panels may

justify their high

valuation

Display

7

DS Hi-Metal’s PER band Cheil Ind.’s PER band

x 15.0

x 24.0

x 36.0

x 48.0

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11

(KRW)

x 9.0

x 12.0

x 15.0

x 18.0

x 6.0

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

Jan-03 May-04 Sep-05 Jan-07 May-08 Sep-09 Jan-11

(KRW)

Source: Company data, Korea Investment & Securities Source: Company data, Korea Investment & Securities

SFA’s PER band AP System’s PER band

x 4.0

x 6.0

x 9.0

x 12.0

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000


(KRW)

x 5.0

x 9.0

x 13.0

x 17.0

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000


(KRW)

Source: Company data, Korea Investment & Securities Source: Company data, Korea Investment & Securities

SNU’s PER band Display equipment makers’ PER band

x 8.0

x 11.0

x 14.0

x 17.0

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

(KRW)

x6.0

x9.0

x12.0

x15.0

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Dec-01 Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10

(won bn)


Note: Display equipment makers are SFA, DMS, KC Tech, Jusung Engineering, Top Engineering Source: Company data, Korea Investment & Securities

Display

8

The technology switch at panel makers presents both opportunities and risks to

equipment suppliers. SMD’s technological changes at 5.5G fabs where capacity

additions are taking place have shed a positive light on some, but not all. SMD

plans to adopt the LITI (laser-induced thermal imaging) deposition method on its

5.5G P3 lines in parallel with the conventional fine-metal mask (FMM) method.

This offers fewer chances of orders for FMM-based equipment makers such as

SFA and SNU Precision but more opportunities for AP Systems, a supplier of laser

deposition equipment that is key to the LITI process. SFA has the potential to

offset the negative effect as it also produces equipment necessary for the LITI

process. Like this, technological changes made by panel makers will continue to

be a mixed bag of pros and cons for vendors. If the technology norm shifts from

LTPS to oxide TFT in the TFT backplane process with the heaviest capex burden

across the entire AMOLED panel process, the equipment order momentum should

vary from company to company.

Among equipment vendors, we draw attention to producers of the oxide TFT

process equipment as the process is likely to go mainstream in the large AMOLED

panel market. The necessity of the new processes in addition to the TFT-LCD

substrate manufacturing underlines the need for new equipment such as high-

density plasma etchers or heat treatment equipment. Accordingly, suppliers of

such equipment are worthy of attention.

LCD equipment makers’ PER rose to 15x during 2004-2005 when capex to

produce 40-inch or larger LCD TV panels was underway. We believe the PER of

vendors for large AMOLED panels has the potential to reach the same level as

capex for large AMOLED TV panels should start from 2012 and this will, in turn,

give a boost to equipment makers. As such, we applied a PER of 15x to SFA and

ICD that serve large panel makers.

AMOLED technology by generation and process

5.5G (1,500X1,300) A2 P1-P2 5.5G (1,500X1,300) A2 P3 5.5G (1,500X1,300) A3 8G V1

1) 24K (P1)+40K (P2) 32K 100K 8K

2) ELA (two-scan) ELA (two-scan) ELA (one-scan) Advanced ELA

SGC

A-SPC

Oxide (IGZO)

3) FMM (horizontal, cut a mother glass into 4 units)

LITI (cut mother glass into 4 units, for red, green materials)

LITI (mother glass, for red, green materials)

SMS (horizontal, cut a mother glass into 6 units)

FMM (horizontal, cut a mother glass into 4 units for blue and other materials)

FMM (vertical, mother glass for blue and other materials)

4) Glass-type Glass-type Metal-type Glass-type

Thin-film-type Thin-film-type Metal-type

Note: 1) capacity per month, 2) TFT backplane process, 3) deposition process, 4) encapsulation process


Among equipment

makers, those with

steady order flows are

the most attractive

Producers of oxide TFT

process equipment

merit attention given the

high applicability to

larger panels

LCD equipment makers’

PER peaked at 15x in

2004

Display

9

Oxide flow chart (backplane manufacturing)


LTPS flow chart (backplane manufacturing)


Display

10

AMOLED supply chain

Product Company type Company

AMOLED material

HTL Domestic DS Hi-Metal, Doosan Corp. Electro-Materials, Cheil Ind.

Foreign NSC (Japan)*, Idemitsu Kosan (Japan), Hodogaya (Japan), Merck (Germany), Toyo Ink (Japan), Kodak (US)

HIL Domestic LG Chem., DS Hi-Metal

Foreign NSC(Japan)*, Idemitsu Kosan (Japan), Hodogaya (Japan)

ETL Domestic LG Chem., Cheil Ind.

Foreign NSC (Japan)*, Idemitsu Kosan (Japan), Merck (Germany), Toyo Ink (Japan), DuPont (US)

EIL Domestic LG Chem

Foreign NSC (Japan)*, Cerac (US)*, DuPont (US)

EML (red) Domestic Dow Chemical*

Foreign NSC (Japan)*, Idemitsu Kosan (Japan), Merck (Germany), Kodak (US), DuPont (US)

EML (green) Domestic Doosan Corp. Electro-Materials

Foreign NSC (Japan)*, Idemitsu Kosan (Japan), Eray (Taiwan)*

EML (blue) Domestic SFC*, Dongwoo Fine-Chem*, Daejoo Electronic Materials

Foreign Idemistus Kosan (Japan), Merck (Germany), Kodak (US), DuPont (US)

ITO Domestic Advanced Nano Products

Foreign -

Shadow mask Domestic -

Foreign DNP (Japan), Mitani (Japan)*

Desiccant Domestic -

Foreign Dynic (Japan)*, Gore-tex (US)*, Saes Getters (Italy)

Sealants Domestic -

Foreign Nagase (Japan), Kyoritsu (Japan)*

Encapsulant

Domestic Nanonix*

Foreign NSG (Japan)*

Donor film for laser evaporation Domestic Cheil Ind.

Foreign Kodak (US)

AMOLED equipment makers

ELA Domestic AP System

Foreign -

FMM deposition Domestic SFA, SNU, Avaco, Dong A Eltek, Jusung Engineering, Top Engineering

Foreign Tokki (Japan)*, Hitachi (Japan)*, ULVAC (Japan)

Laser deposition Domestic AP System

Foreign -

Encapsulation Domestic AP System, SFA, SNU, LTS, Avaco, Jusung Engineering

Foreign Miwa MFG (Japan)*, Vitex (US)*, Lantechnical (Japan)*

Etchers Domestic ICD

Foreign Y.A.C. (Japan)*

Sputtering equipment Domestic Avaco

Foreign ULVAC (Japan)

AMOLED material makers

AMOLED polarizer Domestic Cheil Ind.

Foreign Shenzen Sunnypol Optoelecronic (China), Optimax (Taiwan)

AMOLED donor film Domestic Cheil Ind.

Foreign Kodak (US)

AMOLED driver-IC Domestic LDT, Clover Hitech, Silicon Works, Nepes

Foreign -

AMOLED bezel Domestic Sangsin EDP

Foreign -

Note: Non-listed companies are marked with * Source: Industry data, Korea Investment & Securities

Cheil Ind. (001300) ......................................................................................................................................................................12

Duksan Hi-Metal (077360) ...................................................................................................................................................15

SFA Engineering (056190) ..................................................................................................................................................18

ICD (040910) ........................................................................................................................................................................................21

AP Systems (054620) ................................................................................................................................................................24

Advanced Nano Products (121600) .........................................................................................................................25

Company

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12

Cheil Ind. (001300) BUY (Maintain), TP: W140,000 (Maintain)

Hopeful 4Q11 Potential dominant supplier of large AMOLED materials to Samsung: Cheil Ind. (Cheil) should become a dominant supplier of large AMOLED materials to Samsung. Although development and production of materials for large AMOLED panels are behind schedule, we remain confident that the company will ultimately secure a dominant supply share at Samsung. A bright spot is that the company has started developing films suitable for the LITI (laser-induced thermal imaging) method in line with the adoption of the LITI technique. Accordingly, its product portfolio of AMOLED materials is growing more diverse. As Cheil’s forte lies in large panels rather than mobile panels, panel makers’ ongoing shift to large AMOLED panel production hints at more business opportunities going forward. AMOLED materials supply to kick off in Sep upon the completion of mass production lines: The last phase of Cheil’s AMOLED material development is testing the prototypes produced at the mass production lines set for completion in Sep. After Sep, products such as electron transport layer (ETL), pixel defining layer (PDL) and hole transport layer (HTL) should come on stream, in that order. Moreover, as the supply dates fall within a similar timeframe as SMD’s ramp-up of the 5.5G P2 and P3 lines and V1 (8G pilot) lines, shipments should fast increase after decisions are made to supply the products. In 2012, Cheil will also supply one or two new AMOLED materials, polarizer and donor films, which should complete the product mix of 7-8 AMOLED materials.

TV polarizer film business to normalize: We believe the TV polarizer film

business will normalize because its production yield improved to the normal level

at end-2Q11 and shipment volumes are expected to increase. It is also positive

that Cheil’s organization has stabilized with the completion of the post-merger

integration process after taking over its subsidiary Ace Digitech. Although new

product development and market share growth have been slower than our

expectations due to the lackluster LCD market, top-line growth should gain

momentum in 2H11 or 2012. We estimate polarizer film sales at W660bn in 2011F

but the figure should jump to W1.2trn in 2012F. The bottom line is unlikely to turn

profitable in 2011 but the operating margin should climb to 8% in 2012F.

Maintain BUY and TP of W140,000: The stock lost 19% since early Aug due to

disappointing earnings and the stock market crash. The stock trades at the 2011F

PER of 15x and 2012F PER of 11x, the lowest level since Oct 2009. The supply of

new AMOLED materials has been delayed but the start is a matter of when, not if.

We believe the recent correction offers a long-awaited entry point. We maintain

BUY and our TP of W140,000 (target PE 18x the 2011F-2012F average EPS). The

stock has 44% upside. OP should skyrocket 101% QoQ in 3Q11F. Despite

lingering uncertainties over the global economy and the demand side, we believe

Cheil looks more attractive than other IT plays because of its high earnings stability.

August 12, 2011 / W97,500 won / Mkt cap: USD4,520.2mn, KRW4,520.2bn

Yr to Sales OP EBT NP EPS % chg. EBITDA P/E EV/EBITDA PBR ROE

Dec (W bn) (W bn) (W bn) (W bn) (won) (YoY) (W bn) (x) (x) (x) (%)

2009A 4,261 264 155 127 2,654 (18.5) 395 21.3 8.0 1.4 7.1

2010A 5,019 334 314 259 5,395 103.3 468 20.6 12.3 2.0 10.9

2011F 5,982 384 369 316 6,448 19.5 540 15.1 9.4 1.7 10.9

2012F 7,124 573 558 463 9,172 42.2 767 10.6 6.6 1.5 14.3

2013F 8,549 691 686 569 11,269 22.9 915 8.7 5.6 1.5 16.4


Heuiseok Jeong 82-2-3276-6277

[email protected]

Display

13

Quarterly earnings estimates (W bn, %)

2008 2009 1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q11P 3Q11F 4Q11F 2011F 2012F

Sales 3,728 4,261 1,164 1,309 1,234 1,311 5,019 1,400 1,481 1,519 1,583 5,982 7,124

Electronic materials 815 1,209 321 367 370 351 1,410 382 402 470 488 1,742 2,649

Chemicals 1,774 1,827 519 592 568 551 2,231 621 650 694 675 2,641 2,904

Fashion 1,139 1,142 311 325 273 390 1,298 377 397 355 420 1,547 1,571

CGS 2,610 3,018 820 922 880 913 3,534 998 1,105 1,137 1,183 4,424 5,202

% of sales 70.0 70.8 70.4 70.4 71.3 69.6 70.4 71.3 74.7 74.9 74.7 74.0 73.0

SG&A 878 980 267 285 258 341 1150 299 313 256 306 1174 1,349

% of sales 23.5 23.0 22.9 21.7 20.9 26.0 22.9 21.3 21.1 16.9 19.4 19.6 18.9

Operating profit 240 264 77 103 97 57 334 103 63 126 93 384 573

Electronic materials 95 95 30 41 42 19 131 36 27 81 42 186 290

Chemicals 91 124 23 49 43 27 142 35 23 31 30 119 189

Fashion 47 52 25 13 12 13 63 29 11 14 21 75 94

Operating margin (%) 6.4 6.2 6.7 7.9 7.8 4.4 6.7 7.3 4.2 8.3 5.9 6.4 8.0

Electronic materials 11.7 7.8 9.4 11.1 11.2 5.3 9.3 9.5 6.6 17.2 8.6 10.7 11.0

Chemicals 5.1 6.8 4.5 8.2 7.6 4.8 6.3 5.7 3.5 4.5 4.5 4.5 6.5

Fashion 4.1 4.6 7.9 3.9 4.4 3.4 4.8 7.6 2.8 4.0 5.0 4.8 6.0

EBT 191 155 80 101 79 54 314 110 55 118 86 369 558

EBT margin (%) 5.1 3.6 6.9 7.7 6.4 4.1 6.3 7.8 3.7 7.8 5.4 6.2 7.8

Net profit 157 127 66 83 65 45 259 92 55 98 71 316 463

Net margin (%) 4.2 3.0 5.7 6.3 5.3 3.4 5.2 6.6 3.7 6.5 4.5 5.3 6.5

Note: K-GAAP stand-alone until 2010 and K-IFRS consolidated from 2011. Source: Company data, Korea Investment & Securities

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14

Balance Sheet

Fiscal year ending Dec. (W bn) 2009A 2010A 2011F 2012F 2013F

Current assets 1,146 1,200 1,360 1,620 1,944

Cash & cash equivalent 80 18 22 26 31

Accounts receivable 444 461 479 570 684

Inventory 488 562 670 798 958

Fixed assets 1,972 2,815 3,312 3,951 4,649

Investments 812 1,573 1,730 2,061 2,473

Tangible assets 988 1,104 1,417 1,694 1,941

Intangible assets 61 29 35 42 50

Total assets 3,119 4,015 4,672 5,570 6,593

Current liabilities 607 809 1,125 1,521 2,409

Accounts payable 292 344 410 488 586

Short-term borrowing 50 0 0 0 0

Current portion of LT debt 62 191 191 191 191

Long-term debt 542 444 510 588 685

Debentures 292 100 100 100 100

Long-term borrowings 90 3 3 3 3

Total liabilities 1,149 1,253 1,634 2,109 3,093

Paid-in capital 250 250 262 262 262

Capital surplus 431 429 417 417 417

Capital adjustments (55) (51) (51) (51) (51)

Retained earnings 926 1,149 1,425 1,850 2,379

Shareholders' equity 1,970 2,761 3,038 3,462 3,499

Income Statement


Sales 4,261 5,019 5,982 7,124 8,549

Gross profit 1,244 1,484 1,558 1,922 2,306

SG&A expense 980 1,150 1,174 1,349 1,616

Operating profit 264 334 384 573 691

Non-op. profit 179 176 80 80 83

Interest income 6 2 1 1 1

FX gains 113 74 15 59 59

Equity gains 26 42 42 42 42

Non-op. expense 287 196 95 95 88

Interest expense 41 27 27 27 20

FX losses 116 75 15 60 60

Equity losses 17 20 5 6 6

Earnings before tax 155 314 369 558 686

Income taxes 28 56 53 95 117

Profit from discontinued 0 0 0 0 0

Net profit 127 259 316 463 569

EBITDA 395 468 540 767 915

Key Financial Data

Fiscal year ending Dec. 2009A 2010A 2011F 2012F 2013F

per share data (won)

EPS 2,654 5,395 6,448 9,172 11,269

BPS 39,287 55,682 58,257 66,216 66,774

DPS 750 750 750 750 750

SPS 85,222 104,656 122,165 141,013 169,216

Growth (%)

Sales growth 14.3 17.8 19.2 19.1 20.0

OP growth 9.9 26.7 15.0 49.2 20.5

NP growth (19.4) 103.7 22.0 46.8 22.9

EPS growth (18.5) 103.3 19.5 42.2 22.9

EBITDA growth 11.7 18.6 15.4 42.1 19.3

Profitability (%)

OP margin 6.2 6.7 6.4 8.0 8.1

NP margin 3.0 5.2 5.3 6.5 6.7

EBITDA margin 9.3 9.3 9.0 10.8 10.7

ROA 4.3 7.3 7.3 9.0 9.4

ROE 7.1 10.9 10.9 14.3 16.4

Dividend yield 1.3 0.7 0.8 0.8 0.8

Stability

Net debt (W bn) 403 274 270 266 260

Int. coverage (x) 6.4 12.5 14.5 21.6 34.6

D/E ratio (%) 25.1 10.6 9.6 8.5 8.4

Valuation (x)

PER 21.3 20.6 15.1 10.6 8.7

PBR 1.4 2.0 1.7 1.5 1.5

PSR 0.7 1.1 0.8 0.7 0.6

EV/EBITDA 8.0 12.3 9.4 6.6 5.6

Cash Flow


C/F from operating 457 448 602 773 1,340

Net profits 127 259 316 463 569

Depreciation 112 126 150 187 217

Amortization 19 8 6 7 8

Net incr. in W/C 72 (11) 149 131 559

Others 127 66 (18) (15) (13)

C/F from investing (170) (274) (619) (800) (1,383)

Capex (124) (248) (470) (470) (470)

Decr. in fixed assets 7 1 1 1 1

Net incr. in current assets (8) 16 (0) (0) (0)

Incr. in investment (9) (21) (118) (293) (867)

Others (36) (22) (32) (38) (47)

C/F from financing (224) (235) 20 31 48

Incr. in equity 0 0 0 0 0

Incr. in debts (189) (200) (0) (1) (1)

Dividends (36) (36) (36) (39) (39)

Others 1 1 57 71 89

Increase in cash 64 (61) 3 4 5

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15

Duksan Hi-Metal (077360) BUY (Maintain), TP: W37,000 (Maintain)

OLED materials to keep thriving backed by larger AMOLED

Ample upside despite demanding valuation: Duksan Hi-Metal (Duksan) currently trades at a high 2011F PE 25x, which we view as tenable on the back of strong growth potential for its AMOLED materials business. We have an upbeat outlook due to the following. 1) As AMOLED panels get larger, the materials market will fast expand. 2) Given rivals’ delayed entry to the HTL (hole transport layers) market, Duksan should be able to hold on to its large share at Samsung Mobile Display (SMD) after 2011. We peg the 2011F EPS at W1,056, up 116% YoY, and expect a decent rise of 67% for 2012F. We maintain BUY and a TP of W37,000 that equals a target PE 25x the 2011-2012F average EPS W1,412 (2012F earnings growth potential priced in). We applied the current PE 25x as the target multiple given the company’s good earnings visibility. Larger AMOLED spurs materials market growth: As AMOLED formats get larger, we expect the OLED materials market to grow rapidly as well. An 8G AMOLED substrate requires OLED materials 2.8-fold more than a 5.5G substrate. As AMOLED panel makers make full-fledged investment in 8G lines from 2012, the HTL market’s growth would get into high gear at the same time. In particular, Duksan can offer a steady supply of OLED materials regardless of possible technology changes to the deposition process at 5.5G and 8G lines. Unlike AMOLED equipment vendors whose orders momentum can slow with the technology shift, materials suppliers including Duksan face limited risk to sales.

Large presence at SMD to remain intact: Duksan is an exclusive supplier of HTL

to SMD. There is concern that it will face a threat from emerging rivals but we

believe chances of its vendor share shrinking are remote. SMD’s 5.5G phase 2 line

ready to be operational in 2H11 will use the same materials as phase 1 and thus

chances are good that it will continue to use Duksan’s products. It is difficult for a

manufacturer to change a supplier of materials used at the current production line.

Given this, Duksan being equipped with the most stable mass-production lines

should keep the upper hand over rivals. The company’s vendor share could shrink

from the current level when large-size AMOLED panels are made at the phase 3

line as major rivals will pose competitive threats at that time. However, its supply

volume would expand thanks to larger panels. We estimate OLED materials sales

to jump 119% YoY to W74.1bn in 2011F and gain 114% YoY to W158.3bn in 2012F.

August 12, 2011 / W26,700 won / Mkt cap: USD727.7mn, KRW727.7bn



2009A 32 5 6 5 251 NM 8 52.0 35.4 5.1 8.7

2010A 72 13 13 10 489 94.8 22 41.5 22.6 6.7 12.4

2011F 125 33 34 31 1,055 115.7 43 25.3 17.7 6.7 28.4

2012F 213 56 57 52 1,766 67.4 67 15.1 11.0 4.7 34.4

2013F 261 66 67 61 2,084 18.0 78 12.8 9.1 3.5 29.5



[email protected]

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16

OLED materials sales

0

10

20

30

40

50

1Q10 3Q10 1Q11 3Q11F 1Q12F 3Q12F

(won bn)

Ramp-up of A2 P1 at

8G line

Ramp-up of A2

P2

Ramp-up of A2

P3 and A3


Quarterly earnings estimates (W bn)

2009 2010 1Q11 2Q11F 3Q11F 4Q11F 2011F 1Q12F 2Q12F 3Q12F 4Q12F 2012F

Sales 32.1 72.5 23.3 29.9 34.3 37.9 125.3 46.0 53.0 53.5 60.1 212.6

OLED 18.1 33.9 10.7 16.9 21.3 25.2 74.1 33.3 39.7 39.4 45.9 158.3

Semiconductor materials 25.7 38.6 12.6 13.0 13.1 12.6 51.3 12.7 13.4 14.1 14.2 54.3

COGS 19.7 42.7 14.8 18.2 20.8 23.1 76.9 28.0 32.4 32.9 37.3 130.7

(% of sales) 61.3% 59.0% 63.5% 61.1% 60.7% 60.8% 61.3% 60.9% 61.2% 61.5% 62.1% 61.5%

OP 4.7 13.1 5.6 8.0 9.4 10.3 33.3 12.4 14.2 14.1 15.5 56.3

OP margin (%) 14.6% 18.1% 24.3% 26.9% 27.3% 27.2% 26.6% 27.0% 26.7% 26.4% 25.9% 26.5%

EBT 5.7 12.5 5.8 8.1 9.5 10.4 33.8 12.5 14.3 14.2 15.6 56.6

EBT margin (%) 17.7% 17.3% 24.9% 27.3% 27.6% 27.4% 27.0% 27.2% 26.9% 26.6% 26.0% 26.6%

NP 4.7 10.1 5.3 7.5 8.7 9.5 31.0 11.5 13.1 13.0 14.3 51.9

NP margin (%) 14.7% 14.0% 22.9% 25.0% 25.3% 25.2% 24.7% 24.9% 24.7% 24.4% 23.8% 24.4%

Note: 1) Accounting changes from K-GAAP to K-IFRS as of 2011. 2) OLED sales figures until 2009 are based on Ludis prior to the merger with Duksan Hi-Metal. Source: Company data, Korea Investment & Securities

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Balance Sheet


Current assets 26 22 47 90 136



Inventory 4 7 12 20 26

Fixed assets 66 90 103 121 135

Investments 15 16 19 22 25

Tangible assets 18 44 52 60 69


Total assets 92 112 150 211 271

Current liabilities 16 11 13 19 15




Long-term debt 6 7 12 15 18

Debentures 3 1 1 2 2


Total liabilities 21 18 25 34 33

Paid-in capital 5 6 6 6 6



Retained earnings 21 31 62 114 175

Shareholders' equity 70 93 125 177 238

Income Statement


Sales 32 72 125 213 261

Gross profit 12 30 48 82 97

SG&A expense 8 17 15 26 31


Non-op. profit 5 2 2 2 2


FX gains 1 0 0 0 1


Non-op. expense 4 2 1 1 1


FX losses 0 1 0 0 0



Income taxes 1 2 3 5 6


Net profit 5 10 31 52 61

EBITDA 8 22 43 67 78

Key Financial Data



EPS 251 489 1,055 1,766 2,084

BPS 2,558 3,048 3,993 5,628 7,639

DPS 0 0 0 0 0

SPS 1,702 3,494 4,264 7,233 8,864

Growth (%)

Sales growth 41.8 125.5 73.0 69.6 22.5

OP growth (4.4) 179.2 154.1 68.7 17.5

NP growth NM 114.0 205.6 67.4 18.0

EPS growth NM 94.8 115.7 67.4 18.0

EBITDA growth 37.1 164.3 98.4 56.0 16.4

Profitability (%)

OP margin 14.6 18.1 26.6 26.5 25.4

NP margin 14.7 14.0 24.7 24.4 23.5

EBITDA margin 25.5 29.9 34.3 31.6 30.0

ROA 6.1 10.0 23.7 28.8 25.4

ROE 8.7 12.4 28.4 34.4 29.5

Dividend yield 0.0 0.0 0.0 0.0 0.0

Stability

Net debt (W bn) (7) 6 (3) (22) (56)

Int. coverage (x) 3.1 19.1 114.1 153.6 184.1

D/E ratio (%) 15.8 11.8 12.7 11.8 8.5

Valuation (x)

PER 52.0 41.5 25.3 15.1 12.8

PBR 5.1 6.7 6.7 4.7 3.5

PSR 7.7 5.8 6.3 3.7 3.0

EV/EBITDA 35.4 22.6 17.7 11.0 9.1

Cash Flow


C/F from operating 10 10 30 47 59

Net profits 5 10 31 52 61

Depreciation 1 2 3 4 4


Net incr. in W/C 4 (12) (10) (16) (14)

Others (2) 4 (0) 0 (0)

C/F from investing (10) (28) (22) (28) (26)

Capex (7) (28) (11) (12) (13)


Net incr. in current assets (3) 3 (0) (0) (0)

Incr. in investment 1 1 (2) (3) (1)

Others (0) (4) (9) (13) (11)

C/F from financing 0 9 6 5 (0)


Incr. in debts (12) 2 6 5 (0)

Dividends 0 0 0 0 0

Others 12 0 0 0 0

Increase in cash 0 (9) 14 24 33

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18

SFA Engineering (056190) BUY (Maintain), TP: W80,000 (Maintain)

Large AMOLED capex projects need SFA

Changes in TFT backplane and deposition technology to have limited effect: SFA Engineering’s (SFA) wide product mix gives the equipment maker a sharper competitive edge over domestic rivals. Moreover, SFA is capable of adapting to the technological changes that occur when panel makers shift their capex from LCD to AMOLED or when the production of small and midsize panels expands to include large panels. In 2011, SFA’s overall new orders for equipment are expected to reach W834.2bn, of which LCD-related equipment should be a mere W200bn. Given that SFA’s AMOLED-related equipment orders already amount to W400bn, the company boasts strong product competitiveness. To supply deposition equipment to A3 line: In 2H11, SFA will likely receive new orders worth W200bn from SMD, which is expanding the deposition process for its A2 lines. In addition to the existing orders for logistic systems, the company should supply new equipment required for the newly implemented laser-induced thermal imaging (LITI) method. SFA was preparing to supply vertical deposition equipment for 5.5G lines but technological changes have delayed their application in A3 lines. Instead, SFA is now supplying blank deposition equipment and donor handlers, which minimizes the effect caused by the supply delay of vertical deposition equipment. At present, SFA is making plans to supply vertical deposition equipment for the FMM method used in A3 lines in 2012. Equipment for 8G oxide-TFT and deposition methods: SFA is also preparing equipment for the oxide-TFT method when it is adopted for 8G AMOLEDs. As for front-end equipment, the company already has experience with supplying plasma-enhanced chemical vapor deposition (PECVD) equipment and it is currently developing equipment for the oxide deposition process. In addition to the vertical deposition equipment for the FMM method currently in development, SFA is developing equipment for the SMS method that could be applied to 8G AMOLEDs. Although it is premature to say whether every piece of equipment will be successfully developed and supplied, the company faces limited risk from failing to supply equipment due to its a wide product mix. Maintain BUY and TP of W80,000: We maintain BUY and our TP of W80,000 on SFA, which has been shifting its sales portion from LCD to AMOLED equipment and from logistics systems to front-end equipment. We derived the TP by applying the AMOLED equipment suppliers’ target PE of 15x the 2011F and 2012F average EPS. SFA should see its overall new orders for equipment used in AMOLED panel production jump from the mid-40% level in 2011 to more than 70% in 2012 when new orders flow in from SMD’s A3 lines and 8G lines. Even if Samsung Electronics starts investing in the oxide-TFT method for 8G AMOLEDs, it would not greatly affect SFA’s equipment orders.




2008A 431 54 69 50 5,570 20.7 58 9.9 6.5 2.1 23.4

2009A 307 15 25 18 2,038 (63.4) 20 16.4 9.9 1.2 8.0

2010A 423 38 50 39 2,192 7.6 42 22.4 16.1 3.1 16.0

2011F 790 103 106 85 4,731 115.8 108 11.7 7.5 2.8 28.1

2012F 975 136 139 111 6,206 31.2 141 8.9 5.5 2.2 28.5



[email protected]

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19


2008 2009 1Q10 2Q10 3Q10 4Q10 2010 1Q11 2Q12F 3Q11F 4Q11F 2011F

Sales 430.8 307.1 48.8 91.8 98.9 183.5 423.0 134.1 204.9 213.5 237.3 789.8

Growth (% YoY) 40.4 (28.7) 3.9 45.8 32.5 49.8 37.8 174.8 123.2 115.9 29.3 86.7

COGS 355.1 270.4 41.0 77.2 85.2 149.4 352.8 109.0 170.0 175.3 192.2 646.5

Operating profit 53.5 15.2 1.5 7.1 5.6 23.6 37.8 17.3 25.0 27.2 33.6 103.1

OP margin (%) 12.4 4.9 3.0 7.7 5.7 12.9 8.9 12.9 12.2 12.7 14.2 13.1

Non-OP gains 14.9 9.9 3.1 0.0 3.9 5.3 12.3 0.7 0.8 0.8 0.8 3.1

EBT 68.5 25.1 4.5 7.1 9.5 28.9 50.0 18.1 25.8 28.0 34.4 106.2

Net profit 49.8 18.0 3.5 5.5 7.4 22.9 39.4 14.4 20.6 22.4 27.5 84.9

Net margin (%) 11.6 5.9 7.2 6.0 7.5 12.5 9.3 10.7 10.1 10.5 11.6 10.8

New orders 409.5 254.4 143.0 197.0 240.7 158.4 743.4 114.2 210.0 240.0 270.0 834.2

Backlog 228.7 176.0 270.2 379.3 521.5 496.4 496.4 235.4 240.5 267.0 299.7 540.8

Note: Figures up to FY2010 based on K-GAAP; Figures from FY2011 and onward based on K-IFRS Source: Company data, Korea Investment & Securities

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20

Balance Sheet

Fiscal year ending Dec. (W bn) 2008A 2009A 2010A 2011F 2012F

Current assets 274 167 494 361 445



Inventory 109 27 216 69 85

Fixed assets 143 143 136 161 184




Total assets 417 310 630 521 629














Income Statement


Sales 431 307 423 790 975

Gross profit 76 37 70 143 180

SG&A expense 22 22 32 42 44




FX gains 6 1 1 1 1




FX losses 1 3 3 3 3





Net profit 50 18 39 85 111

EBITDA 58 20 42 108 141

Key Financial Data

Fiscal year ending Dec. 2008A 2009A 2010A 2011F 2012F


EPS 5,570 2,038 2,192 4,731 6,206

BPS 26,302 26,916 15,615 19,877 25,583

DPS 1,400 400 500 500 500

SPS 47,291 33,707 23,559 43,991 54,304

Growth (%)

Sales growth 40.4 (28.7) 37.7 86.7 23.4

OP growth 21.4 (71.6) 148.6 173.0 32.0

NP growth 18.4 (63.8) 118.3 115.8 31.2

EPS growth 20.7 (63.4) 7.6 115.8 31.2

EBITDA growth 21.0 (65.9) 115.0 154.0 30.7

Profitability (%)

OP margin 12.4 4.9 8.9 13.1 14.0

NP margin 11.6 5.9 9.3 10.8 11.4

EBITDA margin 13.5 6.4 10.0 13.7 14.5

ROA 12.5 5.0 8.4 14.8 19.4

ROE 23.4 8.0 16.0 28.1 28.5

Dividend yield 4.2 1.2 1.0 0.9 0.9

Stability

Net debt (W bn) (110) (91) (179) (169) (208)

Int. coverage (x) NM NM NM NM NM

D/E ratio (%) 0.0 0.0 0.0 0.0 0.0

Valuation (x)

PER 5.9 16.4 22.4 11.7 8.9

PBR 1.3 1.2 3.1 2.8 2.2

PSR 0.7 1.0 2.1 1.3 1.0

EV/EBITDA 3.0 9.9 16.1 7.5 5.5

Cash Flow


C/F from operating 31 (3) 85 29 76

Net profits 50 18 39 85 111



Net incr. in W/C (25) (26) 33 (87) (50)

Others 1 0 8 26 10

C/F from investing 27 6 (46) (22) (52)

Capex (12) (5) (8) (15) (15)


Net incr. in current assets 46 12 (30) 8 (25)

Incr. in investment (5) (1) (4) (8) (9)

Others (2) (0) (3) (6) (3)

C/F from financing (30) (12) 1 (10) (10)


Incr. in debts 0 0 0 (1) (1)

Dividends (13) (12) (4) (9) (9)

Others (17) 0 4 0 0

Increase in cash 28 (10) 40 (3) 15

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21

ICD (040910) BUY (Maintain), TP: W98,000 (Maintain)

8G oxide-TFT needs HDP etchers

Supplying HDP etchers to SMD’s 5.5G: The 2011F sales should hit W156.8bn and the operating margin jump to 23.6% with the sharp increase in high-density plasma (HDP) etcher sales. Japan’s TEL and YAC met most of SMD’s equipment demand until 4.5G but ICD supplies more than 90% of the equipment for the 5.5G line. We expect ICD to retain its dominant supply share at SMD as it will be difficult for rivals to match ICD’s large-area plasma source technology in the short-term. We estimate ICD’s HDP etcher sales to jump from W7.4bn in 2010 to a whopping W120.7bn in 2011F. Supply to A3 line to boost 2012F sales and OP 83% and 84%, respectively: We estimate 2012F sales at W286.4bn and OP at W68bn. Our decent YoY growth outlook is attributed to the start of SMD’s order placements for its 5.5G A3 lines in early 2012. The A3 lines have a monthly capacity of 100Kcps, 56% greater than 64Kcps at the current A2 lines and this will fuel ICD’s equipment supply growth.

Additional orders momentum when 8G oxide-TFT technique is adopted: We expect the oxide-TFT method to become the trendsetter in the 8G technology evolution as it costs 28% and 34% less than the current TFT-LCD and AMOLED excimer-laser annealing (ELA) and fine-metal mask (FMM) methods, respectively. Despite the technology shift, we believe ICD can continue to supply HDP etchers as oxides have more than 68% greater bond energy than hydrogenate amorphous silicone (a-Si:H) and thus, oxides require a more elaborate etching process. We estimate ICD’s HDP etcher sales to jump 26% YoY to W314.9bn in 2013F. We believe related sales will likely exceed our estimate when capex projects for 8G mass-production lines get underway from 2H12F in full force.

Maintain BUY and TP of W98,000: We maintain BUY and a 12M TP of W98,000

using 15x 2012F EPS. We applied the peak multiple LCD equipment makers

received in 2004-2005 when LCD capex was aggressive. We considered: 1)

potential benefits from greater AMOLED capex given its sales structure being

skewed toward the panels (89% of total in 2011F, a sector-high), 2) strong sales

growth in 2011F (+342% YoY) and 2012F (+83% YoY) on its HDP etcher sales to

SMD’s 5.5G production line, and 3) further orders backlog growth with the adoption

of the oxide-TFT method for 8G AMOLED. Our price target implies 40% upside.




2009A 8 (0) (1) (1) (178) 0.0 1 0.0 12.0 0.0 (11.7)

2010A 35 4 3 3 504 0.0 6 0.0 1.5 0.0 29.6

2011F 157 37 36 28 3,668 627.8 40 19.1 13.1 5.9 54.9

2012F 286 68 66 50 6,526 77.9 70 10.7 7.5 3.8 43.0

2013F 344 72 71 54 6,938 6.3 74 10.1 6.7 2.8 31.7

Matthew Yang 82-2-3276-6174

[email protected]


Display

22


FY10 1Q11 2Q11 3Q11F 4Q11F FY11F 1Q12F 2Q12F 3Q12F 4Q12F FY12F

Sales 35.5 12.2 28.1 52.5 64.2 156.8 76.7 54.5 74.7 80.5 286.4

QoQ, YoY (%) 325% 71% 131% 87% 22% 342% 19% -29% 37% 8% 83%

AMOLED 10.4 12.2 28.1 52.3 46.7 139.3 68.3 54.1 74.3 80.2 276.9

HDP etcher 7.4 10.5 24.7 47.5 37.9 120.7 60.5 47.0 67.9 74.5 249.9

Plasma asher 3.0 1.7 3.4 4.8 8.7 18.6 7.8 7.1 6.4 5.7 27.0

TFT-LCD 23.9 0.0 0.0 0.0 17.5 17.5 8.0 0.0 0.0 0.0 8.0

OP 4.3 1.8 6.4 14.1 14.7 37.0 18.0 12.7 18.3 19.0 68.0

QoQ, YoY (%) NM 1% 263% 120% 4% 764% 23% -29% 43% 4% 84%

AMOLED 0.0 1.8 6.4 14.1 12.3 34.7 17.2 12.7 18.3 19.0 67.2

TFT-LCD 1.1 0.0 0.0 0.0 2.1 2.1 0.8 0.0 0.0 0.0 0.8

OP margin (%) 12.1% 14.6% 22.8% 26.9% 22.9% 23.6% 23.5% 23.4% 24.4% 23.6% 23.8%

AMOLED 0.0% 14.6% 22.8% 27.0% 26.5% 24.9% 25.2% 23.5% 24.6% 23.7% 24.3%

TFT-LCD 4.6% 12.0% 12.0% 12.0% 12.0% 12.0% 10.0% 10.0% 10.0% 10.0% 10.0%

EBT 2.9 1.5 6.3 14.0 14.6 36.4 17.7 12.3 17.9 18.6 66.5

EBT margin (%) 8.2% 12.1% 22.3% 26.7% 22.7% 23.2% 23.0% 22.6% 23.9% 23.1% 23.2%

NP 2.8 1.5 5.2 10.6 11.1 28.3 13.4 9.4 13.5 14.1 50.4

NP margin (%) 8.0% 12.1% 18.4% 20.2% 17.2% 18.1% 17.4% 17.2% 18.1% 17.5% 17.6%

Source: Company data , Korea Investment & Securities

SMD equipment orders and ICD’s HDP etcher sales

0

10

20

30

40

50

60

70

80

90

1Q11 2Q11 3Q11F 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F

(W bn)

A2 5.5G phase 1,2,3 (96Kcps/month)

A3 5.5G (100Kcps/month)


Bond energy by technology

0

100

200

300

400

500

600

Poly cry stalline silicon

(P-Si)

Hy drogenate amorphous

silicon (a-Si:H)

Oxide-TFT (IGZO)

Bond energy

(kJ/mol)


Display

23

Balance Sheet





Inventory 2 10 45 83 99

Fixed assets 13 19 26 36 41




Total assets 25 47 155 250 326











Capital adjustments 0 0 0 0 0



Income Statement


Sales 8 35 157 286 344


SG&A expense 2 6 16 10 10


Non-op. profit (0) 4 37 68 72


FX gains 0 0 0 0 0



Interest expense (0) (0) (0) (2) (2)

FX losses 0 0 0 0 0

Equity losses (1) 3 36 66 71

Earnings before tax (0) 0 8 16 17

Income taxes (1) 3 28 50 54


Net profit (1) 3 16 73 313

EBITDA 1 6 40 70 74

Key Financial Data


per share data (KRW)

EPS (178) 504 3,668 6,526 6,938

BPS 1,440 1,970 11,924 18,450 25,388

DPS 0 0 0 0 0

Growth (%)

Sales growth (49.6) 324.7 342.0 82.7 20.0

OP growth 0.0 0.0 763.7 83.9 6.2

NP growth 0.0 0.0 900.5 77.9 6.3

EPS growth 0.0 0.0 627.8 77.9 6.3

EBITDA growth (69.4) 472.7 584.6 75.4 6.0

Profitability (%)

OP margin (2.1) 12.1 23.6 23.8 21.0

NP margin (12.0) 8.0 18.1 17.6 15.6

EBITDA margin 12.2 16.5 25.5 24.5 21.6

ROA (3.7) 7.8 28.0 24.9 18.6

ROE (11.7) 29.6 54.9 43.0 31.7

Dividend yield 0.0 0.0 0.0 0.0 0.0

Stability

Net debt (W bn) 12 9 (16) (14) (47)

Debt/equity ratio (%) 159.0 113.2 8.9 5.8 4.2

Valuation (X)

PER 0.0 0.0 19.1 10.7 10.1

PBR 0.0 0.0 5.9 3.8 2.8

PSR 0.0 0.0 3.4 1.9 1.6

EV/EBITDA 12.0 1.5 13.1 7.5 6.7

Cash Flow


C/F from operating (0) 10 (11) 11 40

Net profit (1) 3 28 50 54



Net incr. in W/C (1) 1 (47) (42) (16)

Others 1 5 5 1 0


CAPEX (0) (7) (7) (10) (5)


Incr. in investment (0) 0 0 0 0

Net incr. in intangible assets

(1) (0) 0 0 0

Others 0 0 (8) (2) (2)

C/F from financing 1 (0) 46 0 0


Incr. in debts 1 (0) (6) 0 0

Dividends 0 0 0 0 0

Others 0 0 0 0 0

C/F from others 0 0 0 0 0

Increase in cash (0) 3 21 (2) 33

Display

24

AP Systems (054620) Not rated

Momentum to boom for SMD’s 5.5G capex but burst for 8G

SMD AMOLED equipment supplier: AP Systems supplies Samsung Mobile

Display (SMD) with AMOLED equipment such as ELA (excimer laser annealing)

and glass-type encapsulation. AMOLED panels must feature a high level of

brightness and uniformity and thus go through the LTPS (low temperature

polysilicon) process that converts a-Si backplane to poly-Si. ELA equipment

formulates poly-Si during the TFT LTPS process. AP Systems exclusively supplies

ELA equipment to SMD’s AMOLED line. Moreover, the company sells SMD

encapsulation equipment that applies a glass cap to prevent oxidation and

moisture deformation in OLED materials.

Largest beneficiary of SMD’s 5.5G capex: SMD is ready to apply LTPS

technology for the AMOLED 5.5G A3 line to increase brightness and uniformity of

substrates. We believe AP Systems will exclusively supply ELA equipment to

SMD’s 5.5G line (up to A3) as SMD has no other ELA equipment vendors. Besides,

AP Systems is likely to win laser deposition equipment orders for the 5.5G line.

SMD plans to partly introduce LITI (laser-induced thermal imaging) technology for

the organic materials deposition process at the 5.5G A2 P3 line. AP Systems

should be SMD’s exclusive supplier of laser deposition equipment as it is the only

Korean company with the technology.

Orders momentum likely to weaken for 8G AMOLED: The stock gained 114%

from the trough in Dec 2010 on mounting orders momentum where AP Systems

would sell ELA and laser deposition equipment for SMD’s 5.5G. But we expect

orders momentum to slow as SMD is shifting toward large-size AMOLED panels.

Chances are SMD will introduce more cost-competitive technologies, not capital-

intensive LTPS and LITI, for its large AMOLED segment. SMD is likely to introduce

oxide method to the backplane process starting with 8G, departing from LTPS that

5.5G and earlier generations used. While 5.5G partly uses laser deposition

technology, the 8G process is likely to introduce non-laser SMS (small-mask

system) deposition. As such, AP Systems’ front-end equipment orders momentum

will likely fizzle out after 5.5G. The stock’s 2011F PE stands at 17x compared to the

average 14x among AMOLED equipment vendors. Given high earnings volatility or

sensitivity to orders momentum inherent to equipment makers, we believe the

stock is overvalued. Its orders momentum remains intact for 5.5G but we call for a

prudent approach to AP System. The company is less likely to win new orders for

8G as large AMOLED panels go mainstream.




2008A 20 1 3 4 466 NA 3 10.8 1.0 1.5 9.5

2009A 92 4 0 2 124 (73.4) 10 42.2 2.9 1.7 3.2

2010A 145 4 1 (4) NA (260.0) 16 NA 16.5 0.0 (6.2)

2011F 251 20 20 18 823 NA 33 17.0 9.0 4.0 26.4

2012F 406 39 37 34 1,589 93.2 49 8.8 6.2 2.4 33.9



[email protected]

Display

25

Advanced Nano Products (121600) BUY (Maintain), TP: W25,000 (Maintain)

Biggest gainer from probable adoption of oxide

semiconductor in display technology

Transparent conductive oxide (TCO) target maker: Having a source technology

for nano-sized powder, Advanced Nano Products (ANP) makes electronic

materials targeting TCO (transparent-conductive oxides), CMP (chemical

mechanical planarization) slurries and silver pastes. TCO target is now used

mainly to make transparent electrodes for solar cells, flat panel displays such as

LCD and touch panels, and its application will expand when oxide TFT technology

enters the industry. CMP slurries are used to polish semiconductor wafers. ANP

sells intermediate materials to Cabot Microelectronics, the leading supplier of

polishing slurries and CMP pads in the world. Silver pastes are used in the

formation of electrodes for crystalline silicon solar cells and product testing is

ongoing at Chinese and Taiwanese companies. ANP’s sales break down to 56%

TCO target for solar cells, 20% TCO target for displays and 9% CMP slurries.

TCO target is sluggish for solar cells but promising for displays: ANP’s 1H11

sales and operating profit came in at W15bn and W4bn, respectively. The figures

met 39% and 36% of the company’s full-year guidance (W39bn sales and W11bn

operating profit) due to poorer-than-expected sales of its flagship TCO target for

solar cells. Chances are the sluggishness will continue given the unfavorable solar

PV industry conditions. Nonetheless, we believe the full-year guidance is easily

achievable backed by seasonally strong demand in 2H and likely substantial

growth of TCO target sales for displays. More and more manufacturers of displays

and touch panels are adopting sputters loaded with AKT’s rotary-type target, which

should benefit ANP, a vendor to AKT. We expect the positive changes to become

visible in 2H11 and in 2012, the display TCO target should emerge as a main sales driver.

To benefit from probable adoption of oxide semiconductor in display

backplane technology: Oxide semiconductor is gradually being adopted in

display backplane technology as LCD goes high-definition and AMOLED grows

larger. Oxide semiconductor is known to be crucial for flexible display fabrication.

As such, we believe the use of oxide semiconductor in the display process is a

matter of when, not if. The adoption of oxide semiconductor in the backplane

would lead to a significant increase in demand for TCO target using indium gallium

zinc oxide (IGZO) as a material. When adopted, consumption of the IGZO target

will be multiple times greater than for ITO target.


Yr to Sales OP EBT NP EPS % chg. EBITDA P/E EV/EBITDA P/B ROE


2009A 20 5 5 5 900 72.9 7 NM NM NM 31.1

2010A 28 9 8 7 1,311 45.7 10 NM NM NM 31.7

2011F 40 12 11 9 1,327 1.2 13 14.3 11.5 3.8 29.2

2012F 57 17 17 14 1,872 41.1 19 10.1 7.5 2.8 30.7

2013F 77 22 22 17 2,410 28.8 25 7.9 5.5 2.1 29.3

Moonsung Kang 82-2-3276-6235

[email protected]

Display

26

Maintain BUY with TP W25,000: We maintain BUY with a price target of

W25,000(TP equals target PE 17x 12 fwd EPS). The stock trades at 2011F PE of

14x that is a premium to the market average. The premium is justified by

expectations for sustainable growth fueled by: 1) display targets growth, 2) probable

adoption of oxide semiconductor in the display backplane process, and 3) diverse growth

drivers such as silver pastes. We peg the company’s earnings CAGR at 37% over the

next three years and give a target PE of 17x.

Display

27

Balance Sheet





Inventory 16 16 19 25 32

Fixed assets 15 21 28 28 29




Total assets 38 49 62 75 90











Capital adjustments 0 0 0 0 0



Income Statement


Sales 20 28 40 57 77


SG&A expense 4 5 8 10 13




FX gains 1 1 0 0 0




FX losses 1 1 0 0 0





Net profit 5 7 9 14 17

EBITDA 7 10 13 19 25

Key Financial Data



EPS 900 1,311 1,327 1,872 2,410

BPS 3,231 4,676 4,976 6,796 9,138

DPS 0 0 0 0 0

SPS 38,677 5,295 5,674 7,937 10,686

Growth (%)

Sales growth 63.4 39.3 42.0 45.3 34.6

OP growth 46.3 67.7 33.3 47.9 29.0

NP growth 171.1 48.2 34.1 46.5 28.8

EPS growth 72.9 45.7 1.2 41.1 28.8

EBITDA growth 40.0 54.0 30.1 48.4 30.1

Profitability (%)

OP margin 25.9 31.1 29.2 29.8 28.5

NP margin 23.3 24.8 23.4 23.6 22.6

EBITDA margin 32.8 36.3 33.2 33.9 32.8

ROA 15.3 15.8 16.5 19.7 21.1

ROE 31.1 31.7 29.2 30.7 29.3

Dividend yield NM NM 0.0 0.0 0.0

Stability

Net debt (W bn) 16 16 14 9 2

Int. coverage (x) 8.9 12.3 15.9 25.7 39.1

D/E ratio (%) 98.2 72.4 47.2 30.7 18.4

Valuation (x)

PER NM NM 14.3 10.1 7.9

PBR NM NM 3.8 2.8 2.1

PSR NM NM 3.3 2.4 1.8

EV/EBITDA NM NM 11.5 7.5 5.5

Cash Flow


C/F from operating (2) 7 8 8 10

Net profits 5 7 9 14 17



Net incr. in W/C (8) (2) (3) (8) (11)

Others 0 1 0 0 0


Capex (6) (7) (8) (2) (3)


Net incr. in current assets 0 0 (0) (0) (0)

Incr. in investment (0) 0 (0) (0) (0)

Others (1) (1) 0 (1) (1)

C/F from financing 8 3 1 (2) (3)


Incr. in debts 8 1 0 (2) (3)

Dividends 0 0 0 0 0

Others 0 (0) 0 0 0

Increase in cash 0 2 1 3 3

Display

28

Changes to recommendation and price target

Company (Code) Date Recommendation Price target Company (Code) Date Recommendation Price target

Cheil Ind. (001300) 10-09-09 BUY W63,000 SFA Engineering 08-31-09 BUY W52,000

01-14-10 BUY W75,000 (056190) 11-08-09 BUY W45,000

04-11-10 BUY W89,000 10-14-10 BUY W58,000

05-05-10 BUY W101,000 01-16-11 BUY W75,000

07-18-10 BUY W115,000 02-14-11 BUY W80,000

01-26-11 BUY W130,000 Duk San Hi Metal 03-20-11 BUY W31,500

05-29-11 BUY W165,000 (077360) 07-20-11 BUY W37,000

08-04-11 BUY W140,000

ICD (040910) 08-11-11 BUY W98,000 Advanced Nano Products (121600)

05-04-11 BUY W25,000

Cheil Ind.(001300) ICD(040910)

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Aug-09 D ec-09 Apr-10 Aug-10 D ec-10 Apr-11 Aug-11

0

20,000

40,000

60,000

80,000

100,000

120,000

Aug-09 D ec-09 Apr-10 Aug-10 D ec-10 Apr-11

SFA Engineering(056190) Duk San Hi Metal(077360)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000


Advanced Nano Products(121600)

0

5,000

10,000

15,000

20,000

25,000

30,000


Display

29

■ Guide to Korea Investment & Securities Co., Ltd. stock ratings based on absolute 12-month forward share price performance

� BUY: Expected to give a return of +15% or more

� Hold: Expected to give a return between -15% and +15%

� Underweight: Expected to give a return of -15% or less

■ Guide to Korea Investment & Securities Co., Ltd. sector ratings for the next 12 months

� Overweight: Recommend increasing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market

capitalization.

� Neutral: Recommend maintaining the sector’s weighting in the portfolio in line with its respective weighting in the Kospi (Kosdaq) based on market capitalization.

� Underweight: Recommend reducing the sector’s weighting in the portfolio compared to its respective weighting in the Kospi (Kosdaq) based on market

capitalization.

■ Analyst Certification

I/We, as the research analyst/analysts who prepared this report, do hereby certify that the views expressed in this research report accurately reflect my/our personal

views about the subject securities and issuers discussed in this report. I/We do hereby also certify that no part of my/our compensation was, is, or will be directly or

indirectly related to the specific recommendations or views contained in this research report.

■ Important Disclosures

As of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent

month if the publication date is less than 10 calendar days after the end of the most recent month), Korea Investment & Securities Co., Ltd., or its affiliates does

not own 1% or more of any class of common equity securities of the companies mentioned in this report.

There is no actual, material conflict of interest of the research analyst or Korea Investment & Securities Co., Ltd., or its affiliates known at the time of publication of

the research report or at the time of the public appearance.

Korea Investment & Securities Co., Ltd., or its affiliates has not managed or co-managed a public offering of securities for the companies mentioned in this report

in the past 12 months;

Korea Investment & Securities Co., Ltd., or its affiliates has not received compensation for investment banking services from the companies mentioned in this

report in the past 12 months; Korea Investment & Securities Co., Ltd., or its affiliates does not expect to receive or intends to seek compensation for investment

banking services from the companies mentioned in this report in the next 3 months.

Korea Investment & Securities Co., Ltd., or its affiliates was not making a market in securities of the companies mentioned in this report at the time that the research

report was published.

Korea Investment & Securities Co., Ltd. does not own over 1% of Cheil Ind.,ICD,SFA Engineering,Duk San Hi Metal,Advanced Nano Products shares as of August

12, 2011.

Korea Investment & Securities Co., Ltd. has not provided this report to various third parties.

Neither the analysts covering these companies nor their associates own any shares of as of August 12, 2011.

Korea Investment & Securities Co., Ltd. has issued ELW with underlying stocks of Cheil Ind. and is the liquidity provider.

Korea Investment & Securities Co., Ltd. has lead-managed an initial public offering of the companies mentioned in this report in the past 12 months.

Prepared by: Jay Yoo, CFA, Heuiseok Jeong

This report was written by Korea Investment & Securities Co., Ltd. to help its clients invest in securities. This material is copyrighted and may not be copied, redistributed,

forwarded or altered in any way without the consent of Korea Investment & Securities Co., Ltd. This report has been prepared by Korea Investment & Securities Co., Ltd.

and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy. We make no

representation as to its accuracy or completeness and it should not be relied upon as such. The company accepts no liability whatsoever for any direct or consequential

loss arising from any use of this report or its contents. The final investment decision is based on the client’s judgment, and this report cannot be used as evidence in any

legal dispute related to investment decisions.

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