Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

Segyung Hitech Co Ltd / Equity Capital Markets

We have a positive view on the Segyung Hitech IPO. We are including Segyung Hitech in our model portfolio. Our base case valuation of Segyung Hitech is market cap of 631 billion won or 104,000 won per share. This represents 112% higher than the mid-point of the IPO range of 49,000 won. Our base case valuation uses our estimated net profit of 51 billion won in 2019 and P/E of 12.4x. Among the Korean IPOs, sometimes they trade in private markets prior to the IPO, especially the ones with bigger potential demand. Segyung Hitech shares have recently been trading at 62,000 won levels in private markets, which is 27% higher than the mid-point of the IPO range. If the companies' shares trade at higher levels than their initial IPO indicated range in the private markets ahead of the IPO, this is usually, but not always, a good sign. We estimate the company to generate sales of 380.5 billion won (up 48.3% YoY) and operating profit of 60.1 billion won (up 55.7% YoY) in 2019. The company had strong 1Q19 results, with sales of 102.5 billion won (40% of sales in 2018) and operating profit of 17.9 billion won (46% of operating profit in 2018).

We have a positive view on the Segyung Hitech IPO. We are including Segyung Hitech in our model portfolio. Our base case valuation of Segyung Hitech is market cap of 631 billion won or 104,000 won per share. This represents 112% higher than the mid-point of the IPO range of 49,000 won. Our base case valuation uses our estimated net profit of 51 billion won in 2019 and P/E of 12.4x. Among the Korean IPOs, sometimes they trade in private markets prior to the IPO, especially the ones with bigger potential demand. Segyung Hitech shares have recently been trading at 62,000 won levels in private markets, which is 27% higher than the mid-point of the IPO range. If the companies' shares trade at higher levels than their initial IPO indicated range in the private markets ahead of the IPO, this is usually, but not always, a good sign. We estimate the company to generate sales of 380.5 billion won (up 48.3% YoY) and operating profit of 60.1 billion won (up 55.7% YoY) in 2019. The company had strong 1Q19 results, with sales of 102.5 billion won (40% of sales in 2018) and operating profit of 17.9 billion won (46% of operating profit in 2018). 

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

<a href="https://www.smartkarma.com/entities/25496" target="_blank" data-smartkarma-citation="entities:25496:1">UTI Korea Co., Ltd. (179900 KS)</a> is a very unique company. Its founder and current CEO Park Deok-young is an engineer by training (Yonsei Univ. graduate with a degree in Ceramic Engineering - Yonsei Univ. engineering school is generally considered as one of Korea's top tier engineering schools). His first job was fiber engineer at Daewoo Communications in 1985. Several years later, he joined Samsung's R&amp;D hub, Samsung Advanced Institute of Technology. So, we can safely say that Park is also a product of Samsung heritage. Park is basically a tempered glass expert. He majored in this field and he had worked as a tempered glass engineer throughout his professional career. As a result, when he co-founded his first own company (called 'Neowinsys'), he successfully developed and patented Korea's first tempered glass for mobile phones. But due to several reasons, his first venture didn't go very well, so he had to leave this company in 2009. The following year, he founded his second company called 'UTI Korea'. He became interested in the development/production of touch screen panels (TSP), which isn't really different from his expertise (tempered glass). Not long after the foundation of his second company, he developed an integrated type of TSP, which was again Korea's first. During this time, he got fundings from Korea Technology Finance Corp, Mirae Asset Venture Fund and Cube Venture Partners.In the early phase, this TSP got some success. <a href="https://www.smartkarma.com/entities/391" target="_blank" data-smartkarma-citation="entities:391:1">Sharp Corp (6753 JP)</a>, which back then supplied TSP module to <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony Corp (6758 JP)</a>, became UTI's first major client in 2012. Sales wise, this TSP made ₩20.9bil in sales in 2012 and ₩50.1bil in 2013. Buoyed by this success, UTI made its first attempt of IPO in late 2013. Many of its major clients (Sony and Samsung) struggled in the global smartphone market back then. In addition, a large number of new TSP makers (mostly, low-cost makers from China) quickly emerged in the market and beat Korean/Taiwan TSP makers on price. 2014 became a disastrous year for UTI as its full year sales were only ₩1.9bil and recorded a huge loss, ₩16.4bil in net loss. So, Park decided to get out of TSP business. Instead, he turned his eyes to camera window business, which is again basically based on his expertise, tempered glass. What is amazing is that Park again made another great achievement. This time again, he successfully developed a substantially superior camera window that has a much higher production yield at a much lower production cost. Well, I won't go much into much detail in terms of the technological side of UTI's camera window. But what I can say is that this is no fluke at all. Basically, Park applied the same technique that used for his TSP to the production of his camera window. This technique is called 'GDP (glass direct patterning)', which UTI patented. GDP makes it possible to cut sheets instead of going deeper into cells. This is the key secret behind UTI's amazing high production yield and low production cost. With this camera window, the company made an amazing turnaround in 2015 with ₩15.3bil in sales and ₩38.9bil in sales in 2016 with ₩13.0bil in earnings. Net margin in 2016 was a whopping 33.57%.<div class="content-caption">(This is UTI's crown jewel, smartphone camera window - Courtesy UTI Korea)</div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/033/069/original/1.png?1504880389" class="editor-image img-responsive" data-smartkarma-image-id="33069"></figure>UTI makes a couple of other products based on tempered glass (such as sensor glass and cover glass). But the only thing that matters is camera window, which accounts for nearly all (98.45%) of its current sales. In addition, <a href="https://www.smartkarma.com/entities/191" target="_blank" data-smartkarma-citation="entities:191:1">Samsung Electronics Co Ltd (005930 KS)</a> is virtually its only client now. SamE is responsible for 98.61% of UTI's total sales last year.<table class="table table-striped"><colgroup></colgroup><tbody><tr><td style="width: 106px;">(₩ mil)</td><td colspan="2" style="width: 123px;">2014</td><td colspan="2" style="width: 137px;">2015</td><td colspan="2" style="width: 144px;">2016</td><td colspan="2" style="width: 135px;">1H17</td></tr><tr><td style="width: 106px;"></td><td style="width: 63px;">Unit</td><td style="width: 60px;">Amount</td><td style="width: 52px;">Unit</td><td style="width: 85px;">Amount</td><td style="width: 72px;">Unit</td><td style="width: 72px;">Amount</td><td style="width: 67.6px;">Unit</td><td style="width: 67.4px;">Amount</td></tr><tr><td style="width: 106px;">Camera window</td><td style="width: 63px;">-</td><td style="width: 60px;">-</td><td style="width: 52px;">14,559</td><td style="width: 85px;">11,785</td><td style="width: 72px;">66,499</td><td style="width: 72px;">38,068</td><td style="width: 67.6px;">62,974</td><td style="width: 67.4px;">26,682</td></tr><tr><td style="width: 106px;">Sensor glass</td><td style="width: 63px;">114</td><td style="width: 60px;">1,140</td><td style="width: 52px;">46</td><td style="width: 85px;">460</td><td style="width: 72px;">-</td><td style="width: 72px;">-</td><td style="width: 67.6px;">-</td><td style="width: 67.4px;"></td></tr><tr><td style="width: 106px;">Cover glass</td><td style="width: 63px;">151</td><td style="width: 60px;">453</td><td style="width: 52px;">944</td><td style="width: 85px;">2,834</td><td style="width: 72px;">234</td><td style="width: 72px;">609</td><td style="width: 67.6px;">34</td><td style="width: 67.4px;">155</td></tr><tr><td style="width: 106px;">Others</td><td style="width: 63px;">-</td><td style="width: 60px;">299</td><td style="width: 52px;">209</td><td style="width: 85px;">180</td><td style="width: 72px;">809</td><td style="width: 72px;">205</td><td style="width: 67.6px;">5</td><td style="width: 67.4px;">266</td></tr><tr><td style="width: 106px;">Total</td><td style="width: 63px;">265</td><td style="width: 60px;">1,895</td><td style="width: 52px;">15,758</td><td style="width: 85px;">15,259</td><td style="width: 72px;">67,542</td><td style="width: 72px;">38,882</td><td style="width: 67.6px;">63,013</td><td style="width: 67.4px;">27,103</td></tr><tr><td colspan="9" style="width: 106px;">Source: DART</td></tr></tbody></table>So, the key question that many investors must have is the company's true ability to maintain the current sales growth and high profitability (30+% OPM). Currently, it is extremely dependent on SamE, which has long known for exerting cost reduction pressure to its suppliers. How long would SamE allow UTI to reap enormous profits? This is a question of whether and how long UTI's proprietary technique (GDP) will continue to be so powerful as to prevent SamE from exerting cost reduction pressure.

UTI Korea Co., Ltd. (179900 KS) is a very unique company. Its founder and current CEO Park Deok-young is an engineer by training (Yonsei Univ. graduate with a degree in Ceramic Engineering - Yonsei Univ. engineering school is generally considered as one of Korea's top tier engineering schools). His first job was fiber engineer at Daewoo Communications in 1985. Several years later, he joined Samsung's R&amp;D hub, Samsung Advanced Institute of Technology. So, we can safely say that Park is also a product of Samsung heritage. Park is basically a tempered glass expert. He majored in this field and he had worked as a tempered glass engineer throughout his professional career. As a result, when he co-founded his first own company (called 'Neowinsys'), he successfully developed and patented Korea's first tempered glass for mobile phones. But due to several reasons, his first venture didn't go very well, so he had to leave this company in 2009. The following year, he founded his second company called 'UTI Korea'. He became interested in the development/production of touch screen panels (TSP), which isn't really different from his expertise (tempered glass). Not long after the foundation of his second company, he developed an integrated type of TSP, which was again Korea's first. During this time, he got fundings from Korea Technology Finance Corp, Mirae Asset Venture Fund and Cube Venture Partners.In the early phase, this TSP got some success. Sharp Corp (6753 JP), which back then supplied TSP module to Sony Corp (6758 JP), became UTI's first major client in 2012. Sales wise, this TSP made ₩20.9bil in sales in 2012 and ₩50.1bil in 2013. Buoyed by this success, UTI made its first attempt of IPO in late 2013. Many of its major clients (Sony and Samsung) struggled in the global smartphone market back then. In addition, a large number of new TSP makers (mostly, low-cost makers from China) quickly emerged in the market and beat Korean/Taiwan TSP makers on price. 2014 became a disastrous year for UTI as its full year sales were only ₩1.9bil and recorded a huge loss, ₩16.4bil in net loss. So, Park decided to get out of TSP business. Instead, he turned his eyes to camera window business, which is again basically based on his expertise, tempered glass. What is amazing is that Park again made another great achievement. This time again, he successfully developed a substantially superior camera window that has a much higher production yield at a much lower production cost. Well, I won't go much into much detail in terms of the technological side of UTI's camera window. But what I can say is that this is no fluke at all. Basically, Park applied the same technique that used for his TSP to the production of his camera window. This technique is called 'GDP (glass direct patterning)', which UTI patented. GDP makes it possible to cut sheets instead of going deeper into cells. This is the key secret behind UTI's amazing high production yield and low production cost. With this camera window, the company made an amazing turnaround in 2015 with ₩15.3bil in sales and ₩38.9bil in sales in 2016 with ₩13.0bil in earnings. Net margin in 2016 was a whopping 33.57%.(This is UTI's crown jewel, smartphone camera window - Courtesy UTI Korea)UTI makes a couple of other products based on tempered glass (such as sensor glass and cover glass). But the only thing that matters is camera window, which accounts for nearly all (98.45%) of its current sales. In addition, Samsung Electronics Co Ltd (005930 KS) is virtually its only client now. SamE is responsible for 98.61% of UTI's total sales last year.(₩ mil)2014201520161H17UnitAmountUnitAmountUnitAmountUnitAmountCamera window--14,55911,78566,49938,06862,97426,682Sensor glass1141,14046460---Cover glass1514539442,83423460934155Others-2992091808092055266Total2651,89515,75815,25967,54238,88263,01327,103Source: DARTSo, the key question that many investors must have is the company's true ability to maintain the current sales growth and high profitability (30+% OPM). Currently, it is extremely dependent on SamE, which has long known for exerting cost reduction pressure to its suppliers. How long would SamE allow UTI to reap enormous profits? This is a question of whether and how long UTI's proprietary technique (GDP) will continue to be so powerful as to prevent SamE from exerting cost reduction pressure.

UTI IPO Summary - Unconventional History But Arouses Much Interest Among Investors

South Korea

MOBASE Co., Ltd. manufactures hard cases for mobile phones and laptop computers and provide its products to Samsung Electronics.

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Mobase Co Ltd (101330 KS)

Segyung Hitech IPO Valuation Analysis

We have a positive view on the Segyung Hitech IPO. We are including Segyung Hitech in our model portfolio. Our base case valuation of Segyung...

Douglas Kim

UTI IPO Summary - Unconventional History But Arouses Much Interest Among Investors

UTI Korea Co., Ltd. (179900 KS) is a very unique company. Its founder and current CEO Park Deok-young is an engineer by training (Yonsei Univ....

Sanghyun Park

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