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Better positioned for the next up-cycle

Maintain TP of W42,000

Reiterate Buy

• We maintain our Buy rating and target price of W42,000 (25x 2024F EPS) for PI Advanced Materials (PIAM). We expect earnings to gradually recover in the coming quarters.

• While sluggish end-market demand is still weighing on quarterly earnings, PIAM is continuing to expand capacity (unlike global competitors) and diversify end-market applications. We expect utilization to rise sharply once the next up-cycle begins in 2024.


The worst is over


Likely to swing to operating profit in 2Q23

• For 1Q23, PIAM reported revenue of W42.6bn (-19% QoQ) and an operating loss of W11.7bn (turning to loss QoQ). Revenue from heat-resistant sheet PI slumped 60% QoQ to W7.4bn, due to the ongoing weakness of China’s smartphone market. Meanwhile, FPCB PI revenue increased 14% QoQ to W21.8bn, as new applications led to stronger volume QoQ.

• Looking to 2Q23, we foresee revenue of W57.3bn (+35% QoQ) and operating profit of W2.6bn (turning to profit QoQ). Chinese set/device makers’ sell-in volume should begin to grow, though it remains to be seen whether sell-through will recover.

• In 2H23, we see spreads widening on seasonal demand for iPhones and a decline in major raw material prices. We expect revenue and margins to meaningfully improve in 2H23.


2024 could be a rerun of 2017

Still no. 1 globally; accumulate shares from a medium/long-term perspective

• During the 2015-16 down-cycle, PIAM ramped up capacity and pursued application/product diversification (e.g., heat-resistant sheet PI), marking a sharp contrast to global peers. As a result, the company widened its lead over global competitors during the subsequent industry up-cycle in 2017.

• PIAM is following the same playbook amid the current down-cycle. The company has been steadily diversifying its applications to include rechargeable batteries, foldables, 5G, and chip-on-film (COF), while expanding PI film capacity (PI #8 in 2H22 and PI #9 in 2H23). The company is also considering increasing capacity for electric vehicle-use PI varnish.

• As such, we expect the company to see bigger market share gains and stronger earnings growth than global competitors once the OLED up-cycle begins in 2024.