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Valuation to normalize

4Q24 review: Another weak fourth quarter

For 4Q24, BH reported consolidated revenue of W487.8bn (-5.6% YoY) and an operating loss of W5.3bn (swinging to red YoY), missing the consensus by a wide margin. High fixed cost pressures (exacerbated by weak IT-use OLED revenue and cost reduction efforts by the company’s key North American customer) weighed on earnings, and soft sales of new products likely increased channel inventory pressures. We expect these negative factors to persist through 1H25. Meanwhile, revenue from mobile-use FPCBs supplied to domestic customers remained relatively solid, supported by early orders ahead of the release of new models. BH EVS posted revenue of W83bn (flat QoQ).

1Q25 preview: Earnings to normalize

For 1Q25, we look for revenue of W300.4bn (+0.5% YoY) and operating profit of W4.1bn (-51.7% YoY). While FPCB revenue from the key North American customer is likely to increase YoY, continued fixed cost pressures in the IT segment should limit profitability improvement. Meanwhile, mobile-use FPCB sales to domestic customers will likely decline due to reduced Galaxy A series shipments (though Galaxy S series shipments are likely to be robust). For automotive-use wireless charging modules, we expect revenue to contract YoY due to weak shipments by customers.

Encouragingly, BH’s North American customer is expected to see a meaningful sales recovery in China. The customer has partnered with Alibaba to develop AI features tailored to the Chinese market (which have been submitted for regulatory approval); this, together with the customer’s broader efforts to strengthen its AI positioning in China, should help boost investor sentiment. The Siri update scheduled for May should also contribute to sales and earnings growth.

Cut TP, but maintain Buy rating

We cut our target price for BH to W22,000 (from W30,000) but maintain our Buy rating. In deriving our target price, we applied a P/E of 9.55x―the 2021 average multiple―to our 2025 EPS estimate of W2,292. While the stock lacks earnings momentum in the near term due to seasonally weak demand, we expect momentum to build over the medium to long term thanks to an expanded new product lineup at the North American customer in 3Q25 (and the potential addition of foldable models in 2026). In addition, Chinese panel suppliers still lack competitiveness in low-temperature polycrystalline oxide (LTPO) panel technology, presenting an opportunity for BH and other domestic panel makers to gain market share. The potential adoption of IT-use OLED panels by MacBook models could also help boost revenue and ease fixed cost pressures.