OCI Materials
(036490 KQ)
A fresh start
Technology
Positives to outweigh negatives over a medium- to long-term
Company Update
November 24, 2015
Buy
(Maintain)
Target Price (12M, W)
160,000
Share Price (11/23/15, W)
107,800
48%
Expected Return
OP (15F, Wbn)
110
Consensus OP (15F, Wbn)
109
EPS Growth (15F, %)
461.5
Market EPS Growth (15F, %)
P/E (15F, x)
22.3
14.9
Market P/E (15F, x)
KOSDAQ
11.4
688.29
Market Cap (Wbn)
Shares Outstanding (mn)
1,137
11
Free Float (%)
Foreign Ownership (%)
50.9
15.6
Beta (12M)
0.81
52-Week Low
52-Week High
51,000
143,200
(%)
Absolute
1M
26.1
6M
7.8
12M
93.9
Relative
24.9
11.8
53.2
280
OCI Materials
We believe SK Holdings’ acquisition of OCI Materials offers more positives than
negatives from a medium- and long-term perspective. Although OCI Materials might
have achieved greater synergies with an acquisition by a global specialty gas producer,
we believe SK’s acquisition will be positive as well. The deal will provide SK Hynix with
stable materials supply, while allowing OCI Materials to focus on the semiconductor
materials business without making unnecessary investments.
Concerns over capital will likely dissipate. Given the capital-intensive nature of the
specialty gas business, growth requires more than technology and a sales network.
Historically, a specialty gas producer that lacked sufficient capital often became an M&A
target, even if it held stellar technologies.
There are worries of a supply glut arising from semiconductor makers pressuring other
gas producers to further ramp-up NF3 production, due to concerns of supply disruption
from the acquisition of OCI Materials. We believe this is unlikely, as semiconductor
makers have already requested a ramp-up in NF3 production to ensure a smooth supply
(and ramp-ups are already underway).
SK Holdings will likely increase investments at OCI Materials, as the holding company
announced in October that the semiconductor materials business will be one of its five
growth drivers. OCI Materials, a supplier of NF3, disilane and WF6, will likely look to
bolster its semiconductor unit by cooperating with SK Hynix to develop a variety of
other products. We believe the acquisition by SK Holdings will allow OCI Materials to
take off as a semiconductor materials maker.
New beginning: Maintain Buy with TP of W160,000
We maintain our Buy recommendation on OCI Materials with a target price of
W160,000. Although the acquisition price is lower than the current share price, we
believe the deal will be positive for the company in the medium to the long term.
Furthermore, NF3 demand growth will likely continue through 2016, aided by 1) the
development of 3D technology and tech migration in the semiconductor industry, 2)
rising demand for mobile OLED panels, and 3) OLED TV production growth, while
earnings should be solid.
KOSDAQ
230
180
130
80
11.14
3.15
7.15
11.15
Daewoo Securities Co.,
Co., Ltd.
FY (12)
Revenue (Wbn)
[Display/IT Materials]
OP (Wbn)
OP Margin (%)
Young Ryu
+822-768-4138
[email protected]
Chuljoong Kim
+822-768-4162
[email protected]
NP (Wbn)
EPS (W)
ROE (%)
P/E (x)
P/B (x)
12/12
254
12/13
191
12/14
212
12/15F
334
12/16F
397
12/17F
435
50
19.7
7
3.7
26
12.3
110
32.9
142
35.8
156
35.9
29
2,756
0
33
14
1,289
76
7,240
101
9,573
113
10,747
8.6
0.1
4.3
21.4
23.1
21.1
13.9
1.2
891.8
1.0
39.7
1.7
14.9
2.9
11.3
2.4
10.0
1.9
Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests
Source: Company data, KDB Daewoo Securities Research estimates
Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the
the U.S.
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT.
November 24, 2015
OCI Materials
1) Background for disposal
When acquiring OCI Materials, OCI expected synergies with its solar power generation materials
business. Monosilane, which OCI Materials has produced since 2005, is used for thin-film solar cells
as well as intermediate materials for semiconductor and LCD. Due to the solar PV boom which
began in 2008, the global market anticipated to see a monosilane shortage.
To create synergies with OCI’s solar PV business, OCI Materials expanded its monosilane capacity
by 2,000 tonnes in addition to existing 300 tonnes. At that time, other global gas firms also
ramped up their monosilane capacities amid the rosy outlook for the solar PV industry. However,
monosilane prices plunged afterwards due to fierce competition and oversupply. As a result, OCI
failed to achieve synergies with OCI Materials. As for OCI Materials, earnings have continued to
deteriorate weighed down by excessive investments to meet the parent company’s business
target. Currently, global capacity utilization for monosline is expected to stand at just 50-60%.
2) Uncertainty lifts following OCI’s stake sale
Daibeck Advanced Materials is a special gas producer that produced NF3 for the first time in
2001. It changed its name to Sodiff Advanced Materials in 2004, and since then, the company had
been co-managed, as DC Chemical (currently OCI) became the largest shareholder. In 2009, the
OCI Group gained full control of the company following the acquisition of an additional stake (the
company name was changed once again to OCI Materials).
On May 29, 2015, OCI held a BOD meeting to sell its entire 49.1% stake in subsidiary OCI
Materials. OCI appointed Credit Suisse as the lead manager with plans to complete preliminary
bidding, due diligence and bidding by July, and select a buyer in August. However, elevated prices
appear to have made it difficult for OCI to find a buyer. Eventually, SK decided to buy the stake at
W481.6bn on November 24 (W93,000 per share, a 13.7% discount to the stock’s November 23
closing price). Although the price was disappointing, uncertainty over the OCI Materials has lifted.
Table 1. OCI Materials’
Materials’ history and schedule
Issue
1982
Daibeck C&T
1998
Changed name to Daibeck Advanced Materials
1999
Listed on KOSDAQ
2001
NF3 gas localization / Factory construction
2004
Changed name to Sodiff Advanced Materials
2005
WF6, SiH4 fab construction
2008
OCI acquired shares / Joint management system
2009
OCI acquired additional shares
2010
Changed name to OCI Materials
05.2015
11.2015
02.2016
OCI decided to sell OCI Materials’s share (49.1%)
SK aquired OCI Materials’ shares and took over control of company
Payment and transfer of shares will be completed
Source: Press release, Dart, KDB Daewoo Securities Research
KDB Daewoo Securities Research
2
November 24, 2015
OCI Materials
Figure 1. OCI Materials’
Materials’ revenue and OP margin
(Wbn)
100
NF3 (L)
Monosilane (L)
Other (L)
(%)
50
OP margin (R)
80
40
60
30
40
20
20
10
0
0
08
09
10
11
12
13
14
15F
16F
Source: KDB Daewoo Securities Research
Figure 2. 1212-month forward P/E band
Figure 3. 1212-month forward P/B band
(W)
(W)
200,000
37.0x
250,000
4.5x
29.0x
200,000
3.5x
150,000
21.0x
150,000
2.5x
100,000
100,000
13.0x
1.5x
50,000
50,000
5.0x
0.5x
0
0
10
11
12
13
14
15
10
16
Source: KDB Daewoo Securities Research
11
12
13
14
15
16
Source: KDB Daewoo Securities Research
Table 2. Quarterly and annual earnings
(Wbn, %)
1Q15
2Q15
3Q15
4Q15F
1Q16F
2Q16F
3Q16F
4Q16F
2013
2014
2015F
2016F
Revenue
NF3
WF6
Other (incl. SiH4)
Operating profit
Pretax profit
Net profit
75.2
57.1
6.9
11.1
21.7
20.1
15.7
75.3
57.5
6.7
11.0
22.4
21.1
16.8
90.6
70.4
8.0
12.3
32.5
28.5
21.5
92.9
72.0
8.1
12.8
33.5
28.8
22.3
93.2
71.6
8.4
13.2
31.7
29.1
22.6
96.1
74.1
8.5
13.5
34.4
31.6
24.5
98.1
75.8
8.7
13.7
35.0
31.8
24.7
109.4
86.6
8.9
13.9
40.5
37.5
29.1
191.1
151.0
19.1
21.0
7.2
1.2
0.3
211.7
173.1
21.5
16.4
26.4
17.4
13.6
334.0
257.1
29.7
47.2
110.1
98.6
76.4
396.9
308.1
34.4
54.4
141.7
130.0
101.0
OP margin
Net margin
28.9
20.9
29.8
22.4
35.8
23.7
36.0
24.1
34.0
24.3
35.8
25.5
35.7
25.2
37.0
26.6
3.8
0.2
12.5
6.4
33.0
22.9
35.7
25.4
20.9
55.6
131.1
104.2
0.2
3.3
5.1
7.4
20.4
44.8
35.0
27.7
2.5
3.0
0.8
3.9
0.3
-5.2
1.3
1.2
3.1
8.6
8.5
8.5
2.1
1.6
0.6
0.6
11.5
15.8
18.0
18.0
-25.0
-86.4
-96.9
-98.8
10.8
265.4
1,363.0
3,900.0
57.8
317.3
466.2
461.6
18.8
28.7
31.9
32.2
Growth (QoQ/YoY)
Revenue
Operating profit
Pretax profit
Net profit
Source: KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research
3
November 24, 2015
OCI Materials
OCI Materials (036490 KQ/Buy/TP: W160,000)
Comprehensive Income Statement (Summarized)
(Wbn)
Statement of Financial Condition (Summarized)
12/14 12/15F 12/16F 12/17F
(Wbn)
12/14
12/15F
12/16F
119
153
230
312
Cash and Cash Equivalents
AR & Other Receivables
18
47
23
71
81
84
156
85
Inventories
46
47
51
56
8
471
12
507
14
535
15
560
Revenue
212
334
397
435
Current Assets
Cost of Sales
Gross Profit
164
48
195
139
223
174
243
192
12/17F
SG&A Expenses
21
29
32
36
Operating Profit (Adj)
Operating Profit
26
26
110
110
142
142
156
156
Other Current Assets
Non--Current Assets
Non
NonNon-Operating Profit
Net Financial Income
Net Gain from Inv in Associates
-9
-9
-1
-11
-6
-1
-12
-3
-1
-10
-1
-1
Investments in Associates
2
2
3
3
Property, Plant and Equipment
Intangible Assets
450
3
484
3
513
2
538
2
Pretax Profit
17
99
130
146
Total Assets
590
659
765
872
Income Tax
Profit from Continuing Operations
4
14
22
76
29
101
33
113
Current Liabilities
AP & Other Payables
105
31
100
46
111
55
113
55
Profit from Discontinued Operations
Net Profit
Controlling Interests
0
0
0
0
14
14
76
76
101
101
113
113
Short-Term Financial Liabilities
63
36
36
36
Other Current Liabilities
Non--Current Liabilities
Non
11
161
18
169
20
170
0
0
0
0
Long-Term Financial Liabilities
157
163
163
22
170
163
Total Comprehensive Profit
Controlling Interests
11
11
78
78
101
101
113
113
Other Non-Current Liabilities
Total Liabilities
4
267
6
269
7
282
7
283
Non-Controlling Interests
EBITDA
0
76
0
162
0
194
0
211
Controlling Interests
Capital Stock
323
5
390
5
483
5
589
5
Non-Controlling Interests
FCF (Free Cash Flow)
EBITDA Margin (%)
Operating Profit Margin (%)
Net Profit Margin (%)
23
44
68
83
68
68
68
68
35.8
12.3
48.5
32.9
48.9
35.8
48.5
35.9
Retained Earnings
Non--Controlling Interests
Non
249
0
315
0
408
0
513
0
6.6
22.8
25.4
26.0
Stockholders' Equity
323
390
483
589
12/14
39.7
6.5
12/15F
14.9
7.2
12/16F
11.3
6.1
12/17F
10.0
5.6
1.7
9.6
2.9
8.1
2.4
6.4
1.9
5.5
Cash Flows (Summarized)
(Wbn)
Cash Flows from Op Activities
Net Profit
Non-Cash Income and Expense
Depreciation
Amortization
Others
Chg in Working Capital
Chg in AR & Other Receivables
Chg in Inventories
Chg in AP & Other Payables
Income Tax Paid
Cash Flows from Inv Activities
Chg in PP&E
Capital Surplus
Forecasts/Valuations (Summarized)
12/14 12/15F 12/16F 12/17F
54
126
148
163
14
76
101
113
69
49
81
51
84
52
88
54
P/E (x)
P/CF (x)
P/B (x)
EV/EBITDA (x)
1
1
0
0
EPS (W)
1,289
7,240
9,573
10,747
19
-18
29
-7
32
-5
34
-5
CFPS (W)
BPS (W)
7,833
30,604
14,910
36,995
17,565
45,819
19,126
55,815
-13
-15
-9
-1
DPS (W)
1,000
750
750
750
2
-5
1
24
-5
3
-5
0
Payout ratio (%)
Dividend Yield (%)
77.6
2.0
10.4
0.7
7.8
0.7
7.0
0.7
11.0
57.5
18.9
9.6
20.6
271.4
113.2
323.1
19.8
29.1
8.8
9.9
3,806.1
461.7
32.2
12.3
7.8
4.7
8.0
7.2
7.3
8.1
7.3
8.1
13.3
11.9
10.5
10.4
2.3
4.3
12.2
21.4
14.2
23.1
13.9
21.1
20.4
-1
-18
-29
-33
Revenue Growth (%)
-26
-19
-85
-82
-82
-80
-80
-80
EBITDA Growth (%)
Operating Profit Growth (%)
Chg in Intangible Assets
0
0
0
0
EPS Growth (%)
Chg in Financial Assets
Others
-7
0
-3
0
-2
0
0
0
Accounts Receivable Turnover (x)
Inventory Turnover (x)
Cash Flows from Fin Activities
-29
-34
-8
-8
Accounts Payable Turnover (x)
Chg in Financial Liabilities
Chg in Equity
-23
0
-21
0
0
0
0
0
ROA (%)
ROE (%)
Dividends Paid
-5
-11
-8
-8
ROIC (%)
Others
-1
-2
0
0
Liability to Equity Ratio (%)
Increase (Decrease) in Cash
0
6
58
75
18
18
18
23
23
81
81
156
Beginning Balance
Ending Balance
Current Ratio (%)
Net Debt to Equity Ratio (%)
Interest Coverage Ratio (x)
4.0
16.3
19.6
82.7
68.9
58.2
48.1
112.5
152.9
206.7
276.7
60.6
2.8
42.4
11.6
21.9
13.8
5.3
16.4
Source: Company data, KDB Daewoo Securities Research estimates
KDB Daewoo Securities Research
4
November 24, 2015
OCI Materials
APPENDIX 1
Important Disclosures & Disclaimers
2-Year Rating and Target Price History
Company (Code)
OCI Materials(036490)
Date
Rating
07/01/2015
Buy
Target Price
160,000
04/19/2015
Buy
150,000
04/12/2015
Buy
133,000
02/11/2015
Buy
92,500
01/23/2015
Buy
78,000
No Coverage
09/01/2014
(W)
150,000
100,000
50,000
Buy
62,000
07/20/2014
Buy
52,000
11/01/2013
Hold
-
0
Nov 13
Stock Ratings
Industry Ratings
Buy
: Relative performance of 20% or greater
OCI Materials
200,000
Nov 14
Nov 15
Overweight
: Fundamentals are favorable or improving
Trading Buy : Relative performance of 10% or greater, but with volatility
Neutral
: Fundamentals are steady without any material changes
Hold
: Relative performance of -10% and 10%
Underweight : Fundamentals are unfavorable or worsening
Sell
: Relative performance of -10%
Ratings and Target Price History (Share price (─), Target price (▬), Not covered (■), Buy (▲), Trading Buy (■), Hold (●), Sell (◆))
* Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months.
* Although it is not part of the official ratings at Daewoo Securities, we may call a trading opportunity in case there is a technical or short-term material
development.
* The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of
future earnings.
* The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic
conditions.
Equity Ratings Distribution
Buy
Trading Buy
Hold
Sell
72.77%
13.86%
13.37%
0.00%
* Based on recommendations in the last 12-months (as of September 30, 2015)
Disclosures
As of the publication date, Daewoo Securities Co., Ltd and/or its affiliates do not have any special interest with the subject company and do not own 1% or
more of the subject company's shares outstanding.
Analyst Certification
The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean
securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws and regulations thereof. Opinions
expressed in this publication about the subject securities and companies accurately reflect the personal views of the Analysts primarily responsible for this
report. Daewoo Securities Co., Ltd. policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s
area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified
herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been
promised the same in connection with this report. No part of the compensation of the Analysts was, is, or will be directly or indirectly related to the specific
recommendations or views contained in this report but, like all employees of Daewoo Securities, the Analysts receive compensation that is impacted by
overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and
private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of
the Analyst or Daewoo Securities Co., Ltd. except as otherwise stated herein.
Disclaimers
This report is published by Daewoo Securities Co., Ltd. (“Daewoo”), a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange.
Information and opinions contained herein have been compiled from sources believed to be reliable and in good faith, but such information has not been
independently verified and Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or
correctness of the information and opinions contained herein or of any translation into English from the Korean language. If this report is an English
translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this
report. Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising from the use hereof. This
report is for general information purposes only and it is not and should not be construed as an offer or a solicitation of an offer to effect transactions in any
securities or other financial instruments. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of
the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any
laws and regulations or subject Daewoo and its affiliates to registration or licensing requirements in any jurisdiction should receive or make any use hereof.
Information and opinions contained herein are subject to change without notice and no part of this document may be copied or reproduced in any manner or
form or redistributed or published, in whole or in part, without the prior written consent of Daewoo. Daewoo, its affiliates and their directors, officers,
employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a
purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or
agents. Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment
KDB Daewoo Securities Research
5
November 24, 2015
OCI Materials
banking, market-making or other financial services as are permitted under applicable laws and regulations. The price and value of the investments referred to
in this report and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide to
future performance. Future returns are not guaranteed, and a loss of original capital may occur.
Distribution
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Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”), and (ii) high net worth companies and other
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thereof represent and warrant that they are a major institutional investor and have not received this report under any express or implied understanding that
they will direct commission income to Daewoo or its affiliates. Any U.S. recipient of this document wishing to effect a transaction in any securities discussed
herein should contact and place orders with Daewoo Securities (America) Inc., which accepts responsibility for the contents of this report in the U.S. The
securities described in this report may not have been registered under the U.S. Securities Act of 1933, as amended, and, in such case, may not be offered or
sold in the U.S. or to U.S. persons absent registration or an applicable exemption from the registration requirements.
Hong Kong: This document has been approved for distribution in Hong Kong by Daewoo Securities (Hong Kong) Ltd., which is regulated by the Hong Kong
Securities and Futures Commission. The contents of this report have not been reviewed by any regulatory authority in Hong Kong. This report is for
distribution only to professional investors within the meaning of Part I of Schedule 1 to the Securities and Futures Ordinance of Hong Kong (Cap. 571, Laws
of Hong Kong) and any rules made thereunder and may not be redistributed in whole or in part in Hong Kong to any person.
All Other Jurisdictions: Customers in all other countries who wish to effect a transaction in any securities referenced in this report should contact Daewoo or
its affiliates only if distribution to or use by such customer of this report would not violate applicable laws and regulations and not subject Daewoo and its
affiliates to any registration or licensing requirement within such jurisdiction.
KDB Daewoo Securities International Network
Daewoo Securities Co. Ltd. (Seoul)
Head Office
34-3 Yeouido-dong, Yeongdeungpo-gu
Seoul 150-716
Korea
Tel: 82-2-768-3026
Daewoo Securities (Hong Kong) Ltd.
Two International Finance Centre
Suites 2005-2012
8 Finance Street, Central
Hong Kong, China
Tel: 85-2-2845-6332
Daewoo Securities (America) Inc.
320 Park Avenue
31st Floor
New York, NY 10022
United States
Tel: 1-212-407-1000
Daewoo Securities (Europe) Ltd.
41st Floor, Tower 42
25 Old Broad St.
London EC2N 1HQ
United Kingdom
Tel: 44-20-7982-8000
Daewoo Securities (Singapore) Pte. Ltd.
Six Battery Road #11-01
Singapore, 049909
Tel: 65-6671-9845
Tokyo Branch
7th Floor, Yusen Building
2-3-2 Marunouchi, Chiyoda-ku
Tokyo 100-0005
Japan
Tel: 81-3- 3211-5511
Beijing Representative Office
2401A, 24th Floor, East Tower, Twin Towers
B-12 Jianguomenwai Avenue
Chaoyang District, Beijing 100022
China
Tel: 86-10-6567-9299
Shanghai Representative Office
Room 38T31, 38F SWFC
100 Century Avenue
Pudong New Area, Shanghai 200120
China
Tel: 86-21-5013-6392
Ho Chi Minh Representative Office
Suite 2103, Saigon Trade Center
37 Ton Duc Thang St,
Dist. 1, Ho Chi Minh City,
Vietnam
Tel: 84-8-3910-6000
Daewoo Investment Advisory (Beijing) Co., Ltd.
Daewoo Securities (Mongolia) LLC
PT. Daewoo Securities Indonesia
2401B, 24th Floor, East Tower, Twin Towers
B-12 Jianguomenwai Avenue,
Chaoyang District, Beijing 100022
China
#406, Blue Sky Tower, Peace Avenue 17
1 Khoroo, Sukhbaatar District
Ulaanbaatar 14240
Mongolia
Equity Tower Building Lt.50
Sudirman Central Business District Jl.
Jendral Sudirman Kav. 52-53, Jakarta Selatan
Indonesia 12190
Tel: 86-10-6567-9699
Tel: 976-7011-0807
Tel: 62-21-515-1140
KDB Daewoo Securities Research
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