jpm research: samsung's supply chain (4 mar)

7/29/2019 JPM Research: Samsung's Supply Chain (4 Mar)

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Asia Pacific Equity Research04 March 2013

Tech Supply Chain 101 (SEC)Samsung supply chains: Finding winning sub-sectorsand companies

Technology - Semiconductors

JJ Park AC

(822) 758-5717

[email protected]

J.P. Morgan Securities (Far East) Ltd, SeoBranch

Jay Kwon AC

(82-2) 758-5725

[email protected]


Masashi Itaya AC

(81-3) 6736 8633

[email protected]

JPMorgan Securities Japan Co., Ltd.

Helaine Kang AC

(82-2) 758- 5712

[email protected]


Yumi Tanaka AC

(81-3) 6736-8603

[email protected]

JPMorgan Securities Japan Co., Ltd.

See page 52 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that tfirm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factormaking their investment decision.

Given Samsung Electronics’ Galaxy S4 launch on March 14th and a series of upcoming tablet PCs, we analyze SEC’s handset/tablet supply chains to

illustrate: (1) supplier relationships between Samsung and major component

makers across smartphones and tablets; (2) supply chains’ financial and stock performance over the years to find winning sectors and companies; (3) finding

the biggest beneficiaries from the upcoming flagship models; and (4) summary of meeting notes with key supply chain names.

Qualitative findings from Samsung supply chain: Given the fast moving product cycle and diversified product mix, SEC prefers local suppliers with prompt response while it is still heavily dependent on Japan componentmakers for high-end components. Hence, SEC tries to maintain long-term

relationships with qualified component suppliers for the timely launch of new products in the market. These qualified names enjoy higher margins,more volumes and receive priority information.

Winners and losers in supply chain heat map: Touch panel, PCB,Electronic components have outperformed Electronic materials and SPE onstrong revenue growth and margin expansion. Like the trend seen in big capnames, we find the trend of “bigger getting stronger” for even SMid namessince downstream companies are also investing in R&D and capacityexpansion to hold their ground in the marketplace. Hence, we recommendinvestors stay with tier 1 names in the respective components.

Component value change in Galaxy S4: We expect ASP for screens toincrease and upgrades in camera modules along with increasing adoption of LTE to benefit related supply chains such as SEC, SEMCO, and Patron.We also recommend SDI and rechargeable battery related component

names on increasing battery capacity.

Tablet opportunity for key vendors: Given the significant growthopportunity in SEC’s tablet PC, we expect touch panel, casing makers, andPCB makers to benefit from meaningful growth in tablets, assuming thesame volume provides larger screen, bigger form-factor and substrate in the

products. Casing players like Intops and KH Vatec and touch panel makersclaim to enjoy higher ASP and margin upon size migration.

Implications for Japan component makers: Since Japanese componentmanufacturers have a high share in markets for high-frequency components,

board connectors, and optical films, major Japanese component supplierscould benefit considerably from SEC's growing share in worldwidesmartphone and tablet markets. Those names include Wacom (which has anexclusive deal to supply styli), Murata, Hirose Electric, and Nitto Denko.

Asia Pacific

Technology

Research

SEC supply chain YTD performanceYTD performance (%)

Source: Bloomberg

60

30%

29%

26%

24%

20%

10%

-2%

-7%

-9%

-30% -10% 10% 30% 50% 70%

Wacom

Nitto

Partron

KH Vatec

Murata

Intops

Hirose

SEC

SEMCO

SSDI


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Asia Pacific Equity Research

04 March 2013JJ Park(822) 758-5717 [email protected]

Table of Contents

Executive Summary .................................................................3Section I: Who does what?......................................................4

Mobile device (handset) ............ ............. .............. ............. ............. ............. ............4

Mobile device (Tablet) ............ ............. ............. .............. ............. ............. ............. .6

Qualitative findings from Samsung supply chain......................................................8

Korea Tech – Small Cap DB constituents ................................................................9

Section II: Supply Chain Heat Map........................................10

Sub-sector performance comparison ............ ............. ............. ............. .............. .....10

Section III: Finding winners within the sub-sectors ............15

Electronic components sector ................................................................................15

PCB sector............................................................................................................17Electronic Materials sector ....................................................................................18

SPE sector.............................................................................................................20

Touch Panel..........................................................................................................21

Section IV: Where is the market heading? ...........................24

Samsung vs. Sub-sectors ............. .............. ............. ............. ............. ............. ........25

Section V: Implication from potential component valuechanges in next Galaxy S-series...........................................28

Galaxy series shipment momentum vs. Market Cap analysis ............. ............. ........29

Section VI: Implications to Japan component makers........31

Section VII: Meeting Note Summary .....................................33Duksan Hi-Metal (NC, 077360.KQ) ............ ............. ............. ............. .............. .....34

Duksan Hi-Metal: Summary of Financials.........................................35

Interflex (NC, 051370.KQ)................... ............. .............. ............. ............. ............ 36

Interflex: Summary of Financials ....................................................37

Partron (NC, 091700.KQ)....................... .............. ............. ............. ............. ..........38

Partron: Summary of Financials .....................................................39

KH Vatec (NC, 060720.KQ) .................................................................................40

KH Vatec: Summary of Financials...................................................41

SFA Engineering (NC, 056190.KS)........ .............. ............. ............. ............. ..........42

SFA Engineering: Summary of Financials ........................................43

AP Systems (NC, 054620.KQ)..............................................................................44

Asia Pacific Systems: Summary of Financials ..................................45

Iljin Display (NC, 020760.KS) ............. ............. .............. ............. ............. ............ 46

Iljin Display: Summary of Financials ...............................................47

S-MAC (NC, 097780.KQ).....................................................................................48

S-MAC: Summary of Financials ......................................................49



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Executive Summary

This is our first intensive report on “Tech supply chain 101 – Samsung supply

chain” and herein we illustrate: (1) Supplier relationships between Samsung and

supply chains across smartphones and tablets; (2) Supply chains’ financial and

share performance over the years to analyze key winning sectors; (3) JPM’s view

and implication on sub-sectors for upcoming new flagship series as well as a

comparison between Samsung and supply chain sub-sectors; and (4) Meeting notes

summary with supply chain companies. We expect this detailed handbook report to

help investors capture key changes and upcoming key trends in Samsung’s supply

chain. As some companies have not disclosed their 4Q12 performance yet, actual financial numbers may change from the one in the report.

Supply chain at a glance

We categorize SEC’s key supply chains in five sub-sectors: (1) Electronic materials,(2) PCB, (3) Electronic components, (4) Touch panels, and (5) SPE. We conduct ananalysis of financial performance, share price performance, and their relative positionin various matrix. Finally, we identify key growth drivers for each sub-sector to findrelative performance to other sub-sectors. Accordingly, we try to provideimplications from component value changes in the next Galaxy S-series (Galaxy S4and Note3) to find winning sub-sectors.

Tablet PC opportunity

As most suppliers in tablet PC overlap and we expect SEC's tablet shipmentmomentum to accelerate, we believe touch panel, casing makers, and PCB makerswill benefit more from strong growth in tablets, assuming the same volume provideslarger screen, bigger form-factor and substrate in the products in terms of top-line

and earnings. In terms of SEC’s Galaxy-series shipment momentum vs. market captrend, touch panel has stronger correlation with tablet PC shipment momentum.

Beneficiaries: Sectors and companies

Increasing value of display continues to benefit Samsung Display (SDC) and OLEDrelated material players– Duksan Hi-Metal and potentially Cheil Industries.Casing players (KH Vatec and Intops) could benefit as larger device form-factor usually incurs higher ASP and better margin (especially for tablet PCs). PCB players(Interflex and Flexcom) will likely benefit as set makers require slimmer substrateand even flexible substrate.

With upgrades in camera modules, SEMCO could be the main supplier along withfront camera suppliers such as Partron, Jawha and Power Logics. Also, emergence

of diverse functional antenna would benefit Partron and Amotech. Finally,Samsung SDI remains the largest battery supplier for SEC's mobile devices.

In Japan, Wacom which has an exclusive deal to supply styli, and Murata, Hirose

Electric and Nitto Denko for high frequency components, board connectors, andoptical films. Also, Ibiden could benefit given SEC is using layer printed circuit

boards for its Galaxy S4.



4



Section I: Who does what?

Mobile device (handset)

Smartphone supply chain: Qualified suppliers with technology edge benefit

As Korea handset makers increase their presence in the smartphone market, keycomponent suppliers from Samsung group (e.g. SEC, Samsung SDI, SEMCO), andnon-Samsung suppliers— Patron (091700 KQ, NC; camera module), Iljin Display

(035720 KQ, NC; Touch panel makers), Intops & KH Vatec (casing players), andother related supply chain would benefit. In this section, we lay out the supplier relationship for each component. Below is a teardown picture of SEC's key flagshipsmartphone–Galaxy Note II.

Figure 1: Smartphone Teardown Figure by components (Samsung Galaxy Note II)

Source: Company data, J.P. Morgan



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Major components are internally supplied across Samsung supply chain

As is well known in the market, key smartphone components (i.e. AP, OLED panel,

mDRAM, MLCC, Camera, and Battery) are supplied by SEC or Samsung groupaffiliates. A large number of chipset components (i.e. baseband, model and network chipset, and sensor components) were supplied externally, however, Samsung hasrecently begun to adopt internally developed components (baseband and modelchipset for new flagship smartphones). According to our BOM cost analysis, totalBOM + manufacturing cost is slightly above $250, which accounts for ~45% of Galaxy S III's retailer price ($550 w/o lock-up discount).

Table 1: Smartphone supplier relationship table (Samsung smartphone)

Components Galaxy S III Detailed Components Supplier Rev. Exposure (FY12)

Memory 30.0NAND Flash 17.4 NAND (Internal Memory) SEC SEC (6%)DRAM 12.6 mobile DRAM SEC SEC (4%)Display & Touch Screen 51.5 OLED panel SDC SDC small mobile (+60%)Display 37.5 OLED material SDC, Duksan hi-metal, Doosan, UDC Duksan (~85%), Doosan (<1%)

LCD panel SDC SDC small mobile (~40%)Mobile BLU SDC, E-litecom SDC small mobile (~40%), E-litecom (~50%)

Touch Screen 14.0 Touch Panel module Iljin Display, S-MAC, Melfas, ELK Iljin (95%), S-MAC (95%), Melfas (85 )Touch Panel sensor Melfas Melfas (85%)Driver IC SDC, Siliconworks Siliconworks (<5%)

Processor 25.3 Application Processor SEC, Qualcomm SEC (2%), Qualcomm (18%)MLCC SEMCO SEMCO (~20%)

Camera(s) 19.6 Camera module SEMCO, Partron SEMCO (~25%), Partron (~80%)Image sensor/components SEC / Sony / Jahwa Elec Jahwa Elec (100%)Camera lens SonyProximity Sensor SEC

Wireless section - 38.0 Baseband chip Qualcomm, Intel, SEC Intel (<1%), Qualcomm (18%)BB/RF/PA Radio Frequency chip Partron Partron (~80%)

Power Amplifier chip SkyworksLTE, HSPA, Modem Chip Qualcomm, SEC Qualcomm (18%)

User Interface & Sensors 6.9 Accelerometer ST Micro ST Micro (~10%)

Gyroscope ST Micro ST Micro (~10%)Pressure sensor Partron Partron (~80%) Audio Interface Wolfson Micro Wolfson Micro (+30%)

WLAN/BT/FM/GPS 6.5 WLAN Broadcom Broadcom (17%)FM transceiver Infineon Infineon (low single %)Bluetooth Broadcom, Murata, Partron, Amotech Partron (~80%), Amotech (~45%)Wi-Fi Broadcom, Murata, Partron Partron (~80%)NFC chipset NXP, Partron, Amotech Partron (~80%), Amotech (~45%)

Power Management 10.0 Power management IC Maxim, TI, Silicon Mitus, Magna ChipBattery 4.5 Battery Pack Samsung SDI Samsung SDI (60%)

Battery Cell Samsung SDI Samsung SDI (60%)Battery Components mater ia l Power Logics, I ljin Mater ials Power Logics (65%), I lj in Mater ia ls (50%)

Mechanical 38.0 PCB / FPCB / FC-CSPDaeduck Electronics, Interflex,Flexcom, Simm Tech, BH

Daeduck (50%), Interflex (+40%), Flexcom(+90%)

/ Electro-mechanical Microphone BSE CM, Partron BSE CM (~70%), Partron (~80%)Speaker receiver BSE CM BSE CM (~70%)

Casing Intops, KH Vatec, Shinyang Intops (~95%), KH Vatec (60%)LCD bracket KH Vatec, Innox KH Vatec (60%)SAW filter Wisol

Box Contents 7.0 Charger RF Tech RF Tech (+40%)BOM Cost 237.1Manufacturing Cost 16.0BOM Cost + Manufact. 253.1Smartphone ASP (US$) 550.0

Source: Gartner, Company data, J.P. Morgan estimates. *Supplier revenue exposure data based on company data. BOM cost based on Galaxy SIII, component supply status based on overall

Samsung smartphone line-ups. Supplier list includes companies above US$ 100mn market cap only. Revenue exposure (%) stands for total Samsung Electronics.



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Mobile device (Tablet)

Tablet supply chain: Similar to smartphone, but less profitable due to higher

BOM

We expect 2013 would be the turning point for the tablet space as Android andWindow-OS based set makers aggressively penetrate into Apple dominated marketwith various pricing points and product features. Although Tablets do not providehealthy margins to set makers compared to smartphones due to higher BOM cost

burden, Samsung is generating a profit from supplying same components and benefits from cost spread effect upon economies of scale.

Samsung SDI (OW, 006400.KS) is our top preferable supply chain name under our coverage thanks to larger battery capacity. For non-Samsung supply chain names,touch panel makers (Iljin Display, NC; 035720.KS, S-MAC, NC; 097780.KQ, and

ELK, NC; 094190.KQ) could benefit thanks to increasing ASP on larger screen size.Also, cost-driven suppliers like PCB/FPCB players (Interflex, NC; 051370.KQ and

Flexcom, NC; 065270.KQ) could benefit from larger substrate components. Casing

players (Intops, NC; 049070.KQ, KH Vatec, NC; 060720.KQ) also claim to enjoyhigher ASP and margin from increasing tablet PC penetration given sophisticatedmanufacturing processes.

Figure 2: Smartphone Teardown Figure by components (Samsung Galaxy Note 10.1”)

Source: ifixit, Company data, J.P. Morgan

No major change from smartphone suppliers, qualified names continue to stay

A comparison of tablet PC supply chain names with smartphone suppliers indicatesthat they have lots of names in common. Although revenue and earnings contributionfrom tablets may be different from smartphones, we believe proliferation of Samsungtablets in the market should be beneficial for the relevant supply chain. Major components are internally supplied (i.e. AP, mDRAM, MLCC, and Battery). Unlikesmartphones, camera exposure from SEMCO is much smaller given tablets usually



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adopt lower-spec camera module. Moreover, due to higher pricing points and tightsupply, OLED panel adoption into tablet PC is at a premature stage. As battery

consumption becomes a critical point, PMIC component becomes more important(but no domestic players have yet made a notable presence). S-Pen (pen-type inputdevice for tablet PC) has been added to tablet PC recently in addition to Galaxy Notesmartphone series (developed by Wacom and manufactured by SEC). According toour BOM cost analysis, total BOM + manufacturing cost is slightly below $280,which accounts for 56% of Galaxy Note 10.1's retailer price (~$499).

Table 2: Tablet PC supplier relationship table (Samsung Tablet PC)

ComponentsGalaxy

Note 10.1”Detailed Components Supplier Rev. Exposure (FY12)

Memory 30.0NAND Flash 17.4 NAND (Internal Memory) SEC SEC (6%)

DRAM 12.6 mobile DRAM SEC SEC (4%)Display & Touch Screen 100.0 LCD panel SDC SDC small mobile (+60%)Display 60.0 Mobile BLU SDC, E-litecom SDC small mobile (~40%), E-litecom (~50%)Touch Screen 40.0 Touch Panel module Iljin Display, S-MAC, Melfas, ELK Iljin (95%), S-MAC (95%), Melfas (85%)

Touch Panel sensor Melfas Melfas (85%)Driver IC / Controller IC SDC, Siliconworks, Melfas Siliconworks (<5%), Melfas (85%)

Processor 18.8 Application Processor SEC, Qualcomm SEC (2%), Qualcomm (18%)MLCC SEMCO SEMCO (~20%)

Camera(s) 15.0 Camera module Partron, SEMCO SEMCO (~25%), Partron (~80%)Image sensor/components SEC, Sony, Jahwa Elec Jahwa Elec (100%)Camera lens SonyProximity Sensor SEC

User Interface & Sensors 18.0 Accelerometer ST Micro ST Micro (~10%)Gyroscope ST Micro ST Micro (~10%)S-Pen input Wacom, SECPressure sensor Partron Partron (~80%) Audio Interface Wolfson Micro Wolfson Micro (+30%)

WLAN/BT/FM/GPS 15.0 WLAN Broadcom Broadcom (17%)FM transceiver Infineon Infineon (low single %)Bluetooth Broadcom, Murata, Partron, Amotech Partron (~80%), Amotech (~45%)Wi-Fi Broadcom, Murata, Partron Partron (~80%)

Power Management 12.0 Power management IC Maxim, TI, Silicon Mitus, Magna ChipBattery 18.0 Battery Pack Samsung SDI Samsung SDI (60%)

Battery Cell Samsung SDI Samsung SDI (60%)Battery Components mater ia l Power Logics, I ljin Mater ials Power Logics (65%), I lj in Mater ia ls (50%)

Mechanical 35.0 PCB / FPCB / FC-CSPDaeduck Electronics, Interflex,Flexcom, Simm Tech, BH

Daeduck (50%), Interflex (+40%), Flexcom(+90%)

/ Electro-mechanical Microphone BSE CM BSE CM (~70%)Speaker receiver BSE CM BSE CM (~70%)Casing Intops, KH Vatec, Shinyang Intops (~95%), KH Vatec (60%)LCD bracket KH Vatec, Innox KH Vatec (60%)SAW filter Wisol

Box Contents 6.0 Earphone, Charger RF Tech RF Tech (+40%)

BOM cost 267.8Manufacturing Cost 10.0BOM + Manufacturing 277.8

Tablet PC ASP (US$) 499.0

Source: Gartner, Company data, J.P. Morgan estimates. *Supplier revenue exposure data based on company data. BOM cost based on Galaxy Note 10.1”, component supply status based on

overall Samsung tablet PC line-ups. Supplier list includes companies above US$ 100mn market cap only. Revenue exposure (%) stands for total Samsung Electronics.



8



Qualitative findings from Samsung supply chain

1. Which company continues as the top vendor is a major supply chain concern

Samsung did not disclose its supplier list officially to the public before Galaxy SIII.Although names were not provided, the company provided a hint to the market aboutits supplier guideline. Given the fast moving product life-cycle, it is extremelyimportant for set makers to launch new products in the market in a timely fashion.For example, Galaxy SIII experienced casing yield issues at the beginning of itsglobal launch and the company said it solved the issue within three days. This leadsto a continuous relationship between SEC and qualified suppliers. Hence, qualifiednames (Top Vendors) enjoy higher margins, more volumes and receive priorityinformation, which in turn generates positive feedback from SEC.

2. Localization trend continues. SEC prefers local suppliers with prompt

response

There are many suppliers outside Korean (especially from Japan; material, chipset,

and SPE makers). We believe SEC increased its Korean supplier portion from low-10% in early 2000 to high 20% or more in 2011 and this trend is likely to continue.Recently, as Samsung set up a production site outside Korea (i.e. handset productionat Vietnam and China), many supply chain names have kicked in overseas

production to actively deal with SEC. For instance, casing players (KH Vatec and

Intops) have built majority of capacity overseas and this strategy has workedsuccessfully.

3. Level of product differentiation does matter. Is the supplier dominant enough?

Although highly differentiated products are internally supplied, there are few products in which non-Samsung players maintain a dominant position. For OLEDmaterial (HIL/HTL materials), Duksan Hi-Metal (DSHM) has been the major supplier from the beginning. SEC has put OLED upfront to differentiate it from

competitors, and this strategy has worked successfully. Samsung tried to internalizematerial supply from Cheil Industries, but progress is still at the premature stage. Asa result, DSHM has been enjoying good OPM (~30%) for the last 2 years.

4. Are non-Samsung players ready to embrace in-Samsung supplier position?

Given the shortened product life-cycle, SEC and in-Samsung suppliers are efficientlyrestructuring the supply chain system. Key challenges to non-Samsung suppliers arewhether they are ready to take the empty positions and step up to be a part of theinner-circle. SEC merged with Samsung Hainan Fiberoptics-Korea (SEHF) in Sept-2012 and the merger process was completed by end of Dec-2012. Partron took over SEHF's camera module business in the SEC supply chain and Power Logics / Jahwa

Electronics stepped up to directly supply camera image sensor to SEC's handsetdivision. This is a good example of opportunity pursuit from non-Samsung supplychains and we are likely to see more such cases going forward as SEC continues totry outsourcing less profitable components to external parties and focus on corecomponents.



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Korea Tech – Small Cap DB constituents

Table 3: Korea SMid-cap Tech list

Company List with sub-sector Ticker Company List with sub-sector Ticker

Small caps - Electronics Components Small caps - SPEPartron 091700 KQ SFA Engineering 056190 KSJahwa Electronics 033240 KS Nepes 033640 KQSekonix 053450 KQ ICD 040910 KQFoosung 093370 KS AP System 054620 KQIljin Materials 020150 KS Jusung Engineering 036930 KSIntops 049070 KQ SNU Precision 080000 KSKH Vatec 060720 KQ Soulbrain 036830 KQShinyang Engineering 086830 KQ Wonik IPS 030530 KQInnochip Technology 080420 KQ Small caps - Touch PanelWisol 122990 KQ Iljin Display 020760 KS

RFSemi Technologies 096610 KQ S-MAC 097780 KQE-litecom 041520 KQ Melfas 096640.KQBSE CM 045970 KQ ELK 094190 KQ

Crucial Tech 114120 KQ Small caps - Others

Small caps - PCB Silicon Works 108320 KSDaeduck Electronics 008060 KS Anapass 123860 KQInterflex 051370 KQ Power Logics 047310 KQFlexcom 065270 KQ DnF solution 092070 KQSimmTech 036710 KQ Infraware 041020 KQKorea Circuit 007810 KS Barun Electronics 064520 KQBH 090460 KQ ABCO Electronics 036010 KQSmall caps - Electronics Material Sangsin EDP 091580 KQDuksan Himetal 077360 KQ Lumens 038060 KSI-Component 059100 KQ Sapphire Technology 123260 KSSangbo 027580 KQ Od-Tech 080520 KQInnox 088390 KQ Kumho Electric 001210 KS

Source: J.P. Morgan

Table 4: Korea SMid-cap tech supply chain - Asia peer list

Ticker Company Taiwan peers Japan peers

056190 KS SFA Engineering Corp Acter/United Integrated Services Tokki (Canon), ULVAC091700 KQ Partron Co Ltd Foxconn/Chicony/Lite-on Sony/Sharp077360 KQ Duksan Hi-Metal Co Ltd Hodogaya, Idemitsu Kosan036830 KQ Soulbrain Co Ltd Sino-American Silicon SUMCO/Shin Etsu/Hitachi Chemical/JSR051370 KQ Interflex Co Ltd Unimicron/Compeq/Tripod Sumitomo batelite/Ibiden/Meiko020760 KS Iljin Display Co Ltd TPK/WintekYoungfast/Jtouch/Jtouch/CMI Alps Electric/Nissha Printing008060 KS Daeduck Electronics Co Unimicron/Compeq/Tripod Sumitomo batelite/Ibiden/Meiko007810 KS Korea Circuit Co Ltd Unimicron/Compeq/Tripod Sumitomo batelite/Ibiden/Meiko033640 KQ NEPES Corp Acter/United Integrated Services Tokki (Canon), ULVAC030530 KQ Wonik IPS Co Ltd Acter/United Integrated Services Tokki (Canon), ULVAC096640.KQ Melfas Inc TPK/WintekYoungfast/Jtouch/Jtouch/CMI Alps Electric/Nissha Printing033240 KS Jahwa Electronics Co Ltd Foxconn/Chicony/Lite-on Sony/Sharp108320 KS Silicon Works Co Ltd Novatek/Realtek/Himax/Orise/Sitronix/Itlitek Renesas

Source: J.P. Morgan



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Section II: Supply Chain Heat Map

Sub-sector performance comparison

Share price trend – snapshot of performanceWe note that the electronics material/PCB/electronic components sub-sectors haveoutperformed other sub-sectors in terms of share price performance (Jan 2012 -YTD).The PCB sub-sector's impressive performance can be attributed to increasingcompetitiveness of domestic FPCB makers such as Flexcom, Interflex and Korea

Circuit. In addition, proactive capex investments have increased investor hopes for a better topline and bottomline growth in this sub-sector.

The touch panel sector has been riding the smartphone/tablet growth wave asdemand for touch functionality percolates to feature phones. Moreover, with thelaunch of Windows 8 in October 2012, the touch functionality is now being

increasingly adopted in notebooks. These factors have fueled the growth of domestictouch panel module makers and touch sensor chip providers (Melfas).

The electronics components sector thrived under high demand for ever-increasingimage resolution specs and high pixel modules. SPE's poor run is mainly an indicator of negative investor sentiment on the AMOLED sector owing to delays in investment

by SEC and technological glitches which affected yield. Further, high demand for Innox’s FCCL and EMI films and Duksan’s dominant position in OLED materialsupply has fueled growth in the electronics materials sector.

Figure 3: Sub-sector wise share price performance (Market-capweighted); Jan 2012 – YTDJan 2012 = 100

Source: Bloomberg, J.P. Morgan

Figure 4: Sub-sector wise share price (Market-cap weighted)appreciation; Jan 2012 – YTD% change since Jan,2012


Financial performance – Supply chain heat-map

In terms of top-line growth, touch panel sectors presented the strongest growth over years especially during 2009-2012 followed by Electronic materials and Electroniccomponents sectors. Margin-wise, the touch panel sector witnessed the highestmargin expansion. PCB sectors' general performance (both in terms of top-linegrowth and margin expansion) was rather muted compared to top two sectors. Wefind that this is mainly due to Interflex whose share performance heavily appreciatedupon serving Apple in addition to Samsung. While the SPE sector was the biggestrevenue generating sub-sector at the beginning of 2007, now an electroniccomponent has taken over its place.

60

80

100

120

140

160

180

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13

Electronics Components PCB Electronics Material

SPE Touch Panel Others

57% 53%

38%

26% 25%

-10%-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Touch Panel PC B Elec components Elec Materials Ot hers (inclLED/Solar)

SPE



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Table 5: Korea Tech – Revenue and OP growth, margin trend with top two performing sub-sectors

Revenue/OP in US$ mn, Growth/Margin in %

2007 2008 2009 2010 2011 2012

RevenueElectronic Components 1,236 1,348 1,559 1,972 2,620 3,174PCB 1,206 1,209 1,282 1,762 2,226 2,799

Electronic Materials 156 143 189 323 428 512 SPE 1,049 1,095 956 1,629 2,192 1,783Touch Panel 168 206 353 700 1,161 1,406 Others (incl. LED/Solar) 793 862 1,096 1,568 1,821 1,623

Total 4,608 4,862 5,435 7,955 10,447 11,296

Revenue growth Y/Y Electronic Components 25.1% 9.0% 15.7% 26.5 32.8 21.2

PCB 8.0% 0.3% 6.0% 37.4 26.3 25.8 Electronic Materials 27.1% -8.7% 32.9% 70.6 32.4 19.7 SPE -0.1% 4.4% -12.7% 70.4 34.5 -18.7%Touch Panel 40.5% 22.3% 71.6% 98.6 65.7 21.1

Others (incl. LED/Solar) 9.0% 8.7% 27.1% 43.1 16.1 -10.9%

Total 11.7% 5.5% 11.8% 46.4% 31.3% 8.1%OPElectronic Components 70 40 160 176 197 215 PCB 1 38 85 143 154 198 Electronic Materials 23 16 18 32 61 72 SPE 134 100 76 165 217 140

Touch Panel 18 8 26 73 94 114Others (incl. LED/Solar) 67 74 91 168 93 108

Total 319 305 483 813 799 781

OP Margin

Electronic Components 5.7% 2.9% 10.2% 8.9 7.5 6.8 PCB 0.1% 3.1% 6.6% 8.1 6.9 7.1Electronic Materials 14.4% 11.5% 9.7% 9.9 14.4 14.0 SPE 12.8% 9.2% 7.9% 10.1 9.9 7.8

Touch Panel 10.7% 4.0% 7.4% 10.4 8.1 8.1Others (incl. LED/Solar) 8.5% 8.6% 8.3% 10.7 5.1 6.7

Total 6.8% 5.7% 8.4% 9.5% 7.8% 7.5%OP growth Y/Y Electronic Components -17.9% -43.7% 302.4% 10.3 11.8 9.5 PCB -96.0% 4908.6% 126.6% 68.1 7.7 28.9Electronic Materials 43.0% -27.5% 13.0% 73.1 92.3 16.5

SPE -8.4% -25.4% -24.7% 118.8% 31.1 -35.6%Touch Panel 180.1% -54.8% 222.7% 178.7% 28.9 20.6 Others (incl. LED/Solar) -16.7% 9.7% 23.8% 83.2 -44.2% 15.7

Total -11.5% -12.0% 65.4% 65.9% 7.9% 3.7%


Revenue growth

The touch panel sector outperformed other sub-sectors with a CAGR of 59% from2009 - 2012. The success of Korean touch module makers hinges on stable

production yields and increasing technological competitiveness. Also, increasing

penetration of tablet-PCs has fueled the growth of this sector.

Electronic components, PCB and electronic materials have registered revenueCAGR of 27%/30%/39% respectively. PCB sub-sector revenue growth has beenresilient from 2009 - 2012, reflecting the ever changing landscape of the smartphoneand tablet-PC market.

SPE sector's revenue dipped in 2012 owing to yield issues while adopting theAMOLED technology for mid-large sized panels. Of note, Samsung's On cellAMOLED panels for its flagship smartphones is developed internally.



12



Figure 5: Sub-sector wise revenue growthY/Y growth (%)

Source: Bloomberg, J.P. Morgan.

Figure 6: Sub-sector wise revenue growth (CAGR): 2009 – 2012CAGR (%)


Operating Profit/Operating profit marginIn terms of OP CAGR, we find that touch panel, electronic materials, and PCB arethe top three performing sub-sectors within the Korean Tech supply chain. We findcommonalities across three sub-sectors; highly operating leverage as volume driveneconomies of scale provide margin improvement in longer-term. On the other hand,electronic components, SPE, and other sectors reported poor margin growth.

Figure 7: Sub-sector wise 3 yr OP CAGR (2009-2012)CAGR (%)


-40%

-20%

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011 2012

Electronic Components P CB E lectronic M aterials

SPE Touch Panel Others (incl. LED/Solar)

27% 30%39%

23%

59%

14%

0%

20%

40%

60%

80%

100%

ElectronicComponents

PCB ElectronicMaterials

S PE Touc h Panel O th ers (inc l.LED/Solar)

3yr Revenue CAGR (2009-2012)

11%

33%

57%

23%

63%

6%

0%

20%

40%

60%

80%

100%

ElectronicComponents

PCB ElectronicMaterials

SPE Touch Panel Others (incl.LED/Solar)

3yr OP CAGR (2009-2012)



13



On an annual OPM basis, FY12 margin remained flattish Y/Y while the electronicmaterial sub-sector outperformed its peer sub-sectors. We find this is largely due to

level of product differentiation as most electronic materials companies appear tohave secured a dominant position in the niche-segment.

Figure 8: Sub-sector wise Annual OPM trendOPM (%)


Big fishes becoming even bigger

We note that the market cap of the top 5 companies in the Korean supply chain as a %of the total market cap of all the companies has steadily grown from 2009 to 2012.This theory especially holds true in case of touch panel makers where the degree of vertical integration is crucial. Also, in an environment of changing technologicallandscape, it is important for downstream tech companies to invest in R&D andcapacity expansions in order to hold their ground in the marketplace. We note that

the total contribution of the top 5 companies has steadily increased both in terms of topline and bottomline from 2009 onwards. Like the trend in large cap Asian Technames, we find the trend of big fishes becoming even bigger even among Small Captech names ( Asia-Pacific Tech Database: Finding winning sector and country,

published in Sep. 2012).

Figure 9: Top 5 market cap trendPortion (%)

Source: Bloomberg, J.P. Morgan. *Note: Top 5 Market Cap companies refer toSFA, Partron, DSHM, Soulbrain and Interflex

Figure 10: Korean tech: Top-5 revenue and OP contributionPortion (%)

Source: Bloomberg, J.P. Morgan. *Note: Top 5 Market Cap companies refer toSFA, Partron, DSHM, Soulbrain and Interflex

3%

10%9%

8% 7%

3%

7%8%

7% 7%

11%10% 10%

14% 14%

9%8%

10% 10%8%

4%

7%

10%8% 8%9% 8%

11%

5%7%

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012Electronic Components PCB Electronic MaterialsSPE Touch Panel Others (incl. LED/Solar)

Average

17%15%

21%

25%22%

19%

25% 26%28%

0%

5%

10%

15%

20%

25%

30%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Major Top 5 Market Capitalization % over total Korea Tech small cap

10%

15%

20%

25%

30%

35%

40%

2007 2008 2009 2010 2011 2012

T op 5 r ev en ue c on tr ib ut io n ( %) T op 5 O P c on tr ib ut io n ( %)

https://mm.jpmorgan.com/PubServlet?action=open&doc=GPS-943481-0.pdf






14



The following table presents the market cap, revenue, OP and OPM for small capcompanies in the Korean tech supply chain, ranked in decreasing order of market cap.

Table 6: Korean tech supply chain (small cap)Market cap, Revenue and OP in USD millions, OPM (%)

Name Market Cap 2012 Rev 2012 OP 2012 OPM

SFA Engineering Corp 975 429 51 12%Partron Co Ltd 843 707 76 11%Duksan Hi-Metal Co Ltd 694 132 38 29%Soulbrain Co Ltd 627 525 88 17%Interflex Co Ltd 581 685 41 6%Iljin Display Co Ltd 555 527 58 11%Daeduck Electronics Co 506 657 49 7%Korea Circuit Co Ltd 373 393 31 8%Foosung Co Ltd 368 199 8 4%NEPES Corp 362 254 35 14%Melfas Inc 341 317 24 8%Wonik IPS Co Ltd 339 225 15 7%

Iljin Materials Co Ltd 333 310 (3) -1%Jahwa Electronics Co Ltd 329 268 28 10%Silicon Works Co Ltd 319 420 42 10%Lumens Co Ltd 312 400 24 6%CrucialTec Co Ltd 271 122 (8) -7%Simm Tech Co Ltd 265 559 40 7%ELK Corp/Korea 264 163 4 2%KH Vatec Co Ltd 264 215 16 7%S-MAC Co Ltd/Korea 260 399 27 7%Flexcom Inc 256 304 21 7%INTOPS Co Ltd 254 494 21 4%Innox Corp 219 126 19 15%Kumho Electric Co Ltd 214 54 5 10%Jusung Engineering Co Ltd 203 68 (52) -77%Infraware Inc 201 39 9 22%Sapphire Technology Co Ltd 198 28 (7) -27%ICD Co Ltd 195 47 2 4%

Sangbo Corp 189 225 15 7%e-LITECOM Co Ltd 183 448 30 7%BH Co Ltd 183 201 16 8%Innochips Technology Inc 174 68 12 18% Asia Pacific Systems Inc 174 197 9 4%Sekonix Co Ltd 157 131 14 11%Power Logics Co Ltd 148 227 5 2%WiSoL Co Ltd 141 76 13 17%ShinYang Engineering Co Ltd 136 97 2 2% Anapass Inc 124 99 11 11%Opto Device Technology Co Ltd 124 83 7 8%SNU Precision Co Ltd 119 39 (8) -20%RFsemi Technologies Inc 95 38 7 18%DNF Co Ltd 82 24 2 9%BSE Holdings Co Ltd 82 2 -0 3%i-Components Co Ltd 64 29 (0) -1%Barun Electronics Co Ltd 52 139 7 5% ABco Electronics Co Ltd 49 30 1 3%Sangsin Energy Display Precisi 40 82 4 4%Total 13,235 11,301 849 8%Source: Bloomberg; J.P. Morgan; Note: The aggregate OPM is calculated on a market-cap weighted basis



15



Section III: Finding winners within the sub-

sectorsIn the below section, we categorize five sub-sectors, (1) Electronic components; (2)PCB; (3) Electronic materials; (4) SPE; and (5) Touch panel and analyze share pricetrend, financial performance, and key growth drivers of each sub sector.

Electronic components sector

Share performance

Recent share price trend (Jan 2012 – YTD) clearly shows the impressive share price performance of camera module maker Partron and camera component makers suchas Jahwa Electronics and Sekonix. Sekonix has been chosen as a supplier of 13MPcamera lenses for SEC’s flagship smartphone, Galaxy S IV. In addition, Sekonix has

been enjoying healthy production yield on its high-end lens business. Partron

maintains a dominant position in the 3-MP segment and this has translated to higher margins compared to its peers. Casing makers such as Shinyang and Intops alsodelivered a healthy share price appreciation thanks to SEC’s robust smartphonegrowth. Iljin Materials’ share price slump can be attributed to the delayed recoveryof profits in its PCB-elec foil business.

Figure 11: Electronic Components: Share price appreciation: Jan 2012 – YTD% change since Jan, 2012


Figure 12: Electronic Components: Share price trend: Jan 2012 – YTDJan 2012 = 100


256%

193%

112% 109% 103%78% 65%

41% 38%9%

-17% -18% -41% -47%-100%-50%

0%50%

100%150%200%250%300%

S h i n Y a n g

S e k o n i x

J a h w a E l e c

P a r t r o n

K H V a t e c

B S E H o l d i n g s

I N T O P S

R F s e m i T e c h

I n n o c h i p s

e - L I T E C O M

C r u c i a l T e c h

W i S o L C o

F o o s u n g

I l j i n M a t e r i a l s

Electronic components index

50

100

150

200

250

300

350

400


Partron Co L td Jahwa Electron ics C o L td ShinYang Engineering Co Ltd

Innochips Technology Inc Sekonix Co Ltd



16



Financial performanceAs highlighted above, Partron’s dominant position in the 3MP segment has translated

to higher margins compared to its peers. Also, the migration to higher pixels has ledto increase in OP for camera module makers. Iljin materials recorded a slump in itsOP in 2012 on account of its PCB-electric foil business.

Figure 13: Electronic components: Revenue trend 2008 - 2012USD, millions


Figure 14: Electronic components: OP trend 2008 – 2012USD, millions


Figure 15: Electronic components: Financial snapshot 2007 - 2012Revenue and OP in USD millions; OPM (%)


Key growth driversAs smartphone makers are increasingly looking towards adopting hardwaredifferentiation strategies, demand for high pixel modules (8+MP) and enhancedresolution will gain momentum on the back of high-end smartphone launches slatedfor 2Q13. Camera module makers should also benefit from the technology shift fromstandalone cameras to handset cameras. In addition, video calling and other enhancedfeatures such as "motion recognition" should boost the specs for front cameras.

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2008 2009 2010 2011 2012

Partron Jahwa Electronics Sekonix

Iljin Materials Intops E-litecom

-10.0

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2008 2009 2010 2011 2012

Partron Jahwa Electronics Sekonix

Intops Iljin Materials E-litecom

0%

2%

4%

6%

8%

10%

12%

0

500

1,0001,500

2,000

2,500

3,000

3,500

2007 2008 2009 2010 2011 2012

Revenue OP OPM (RHS)



17



PCB sector

Share performance

Flexcom, an established supplier of FPCB products to SEC, has been riding thesuccess of SEC's Galaxy Note 10.1 and Galaxy Note 2 after it began supplying itsdigitizer products, for use in these models, in 3Q12. Of note, Korea Circuit owns32% stake in Interflex, which is Korea's top FPCB maker. BH's share price ralliedduring Jan 2012-YTD owing to its capacity expansion in 2012 which is expected to

boost its bottomline.

Figure 16: PCB: Share price appreciation: Jan 2012 – YTDChange since Jan, 2012 (%)


Figure 17: PCB: Share price Trend: 2008 - 2012Jan 2012 = 100


Financial performance

The PCB sector enjoyed a healthy growth during 2009 - 2010, both in terms of OPMand revenue. However, the growth appears to have slowed down during 2010 – 2012.Korea Circuit has enjoyed higher operating margins, thanks to stable production

yields for PCB, and it is gaining increasing competitiveness in the PCB domain. Of note, Simm Tech’s revenue and OP both declined in 2012.

Figure 18: PCB: Financial snapshot: 2007 – 2012Revenue and OP in USD millions; OPM (%)


179%

158%

104%

20%

-6%

-27%-50%

0%

50%

100%

150%

200%

Flexcom Korea Circuit BH Co Ltd Interflex Daeduck Simm Tech

PCB sector index

50

100

150

200

250

300


Daeduck Electronics Co Interflex Co Ltd Flexcom Inc

Simm Tech Co Ltd Korea Circuit Co Ltd BH Co Ltd

0%

1%2%3%4%5%6%7%8%9%

0

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011 2012




18



Figure 19: PCB: Revenue trend: 2008 – 2012USD millions


Figure 20: PCB: OP trend: 2008 – 2012USD millions


Key growth drivers

Migration towards slimmer and lighter mobile devices will continue to boost thePCB sector (high-density wiring). We expect demand for FPCB will grow in linewith the smartphone and tablet-market growth as FPCB links the smartphone/tabletcomponents to the main substrate. On an average, around five FPCBs are used per handset and around 10 FPCBs are used per tablet-PC. FPCB sector is largelyimpacted by economies of scale and yield. Higher economies of scale and high yieldtranslate to higher margins. Increase in capacity expansion spending is also a keydriver for this sector.

Electronic Materials sector

Share performanceThe tepid performance of Duksan Hi-Metal is primarily due to negative investor sentiment owing to delays in AMOLED TV launches, uncertainties in facilityinvestment and doubts regarding marketability of AMOLED panels. As panel makersfocus on producing large sized panels, the demand for multi-functional sheets(protection + prism) developed by Sangbo is gaining momentum, which hastranslated to positive share price movement. Further, high demand for Innox’s EMIfilms and flexible copper clad laminate (FCCL) films has fueled its growth.

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2008 2009 2010 2011 2012

Daeduck Electronics Interflex Flexcom

SimmTech Korea Circuit BH

-20.0

-

20.0

40.0

60.0

80.0

2008 2009 2010 2011 2012

Daeduck Electronics Interflex

Flexcom SimmTech

Korea Circuit BH



19



Figure 21: Electronic Materials: Share price appreciation: Jan 2012 – YTD% change since, Jan 2012


Figure 22: Electronic Materials: Share price rend: Jan 2012 – YTDJan 2012 = 100



We note that revenue growth of this sector has slowed in recent years. Primaryreason for Duksan’s muted response in 2011-12 was the delay in OLED investment

by SEC. However, both Innox and Sangbo have posted increasing revenue and OP inrecent years.

Figure 23: Electronic Materials: Revenue trend: 2008 – 2012USD millions


Figure 24: Electronic Materials: OP trend: 2008 – 2012USD millions


Figure 25: Electronic Materials: Financial performance: 2007-2012Revenue and OP in USD millions, OPM (%)


49%

40%

-5%

-23%-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Innox Sangbo D uksan Hi Metal i-Component

Electronic materials index

40

60

80

100

120

140

160


Duksan Hi-Met al Co Ltd i-Com ponents Co Ltd

Sangbo Corp Innox Corp

-

50.0

100.0

150.0

200.0

250.0

2008 2009 2010 2011 2012

Duksan Himetal I-Component Sangbo Innox

-5.0

-

5.0

10.015.0

20.0

25.0

30.0

35.0

40.0

45.0

2008 2009 2010 2011 2012

Duksan Himetal I-Component Sangbo Innox

0%

2%

4%

6%

8%10%

12%

14%

16%

0

100

200

300400

500

600

2007 2008 2009 2010 2011 2012




20



Key growth driversStronger AMOLED panel demand fueled by strong sales of SEC's AMOLED

smartphones and technological development to enable economical shift to AMOLED panels in tablet-PCs, monitors and TVs should be key growth drivers for companiessuch as Duksan Hi-Metal and SFA Engineering. Continued focus on lighter,smaller and multi-functional mobile devices should be a key driver for Innox'ssmartflex division. Success of Sangbo's CNT (carbon nanotube) transparentelectrode film could be a key swing factor.

SPE sector

Share performanceNEPES share prices tumbled starting in 3Q12 on account of negative investor sentiment based on speculation that Apple will diversify its AP chips procurementfrom SEC to include TSMC. Overhang concerns dragged on Soulbrain’s share price

performance in 2012. Share price performances of SFA, AP Systems, SNU and ICD

were all impacted due to negative investor outlook on the AMOLED sector.

Figure 26: SPE: Share price appreciation: Jan 2012 – YTD% change since Jan 2012


Figure 27: SPE: Share price rend: Jan 2012 – YTDJan 2012 = 100

Source: Bloomberg; J.P. Morgan


We note a decline in the revenue and OP, primarily on account of delay in OLEDinvestment by SEC. Further, yield issues with adopting OLED technology to mid-large sized panels has led to a further squeeze in OPM. Of note, NEPES has postedan increase in revenue and OP on the back of growth in smartphone shipments fromcustomers using SEC foundries.

9%

0%

-6%

-36%-42%

-49% -50% -50%-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

NEPES Soulbrain SFA Engg AP Sys tem SNUPrecision

ICD Co Ltd JusungEngg

Wonik IPS

SPE sector index

20

40

60

80

100

120

140


SFA Engineering Corp NEPES CorpICD Co Ltd Asia Pacific Systems Inc

SNU Precision CoLtd Soulbrain Co Ltd



21



Figure 28: SPE: Financial performance: 2007 – 2012Revenue and OP in USD millions, OPM (%)


Figure 29: SPE: Revenue trend: 2008 – 2012

USD millions


Figure 30: SPE: OP Trend: 2008 – 2012

USD millions


Key growth drivers:SPE sector should benefit from technological development that will enable usage of AMOLED panels in tablet PCs, monitors and TVs in an economical way. Order momentum from panel makers should boost the topline for this sector. In addition,rapid growth of the tablet PC market should help packaging firms such as NEPES.

Touch Panel

Share performance

The leading names in the Korean touch panel sector, except Melfas, have all performed well as can be seen from the share price appreciation from Jan 2012 – YTD.

0%

2%

4%

6%

8%

10%

12%

14%

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011 2012


-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2008 2009 2010 2011 2012

SFA Engineering Nepes ICD

AP System SNU Precision Soulbrain

-20.0

-

20.0

40.0

60.0

80.0

100.0

2008 2009 2010 2011 2012

SFA Engineering Nepes ICD

AP System SNU Precision Soulbrain



22



Figure 31: Touch panel: Share price appreciation: Jan 2012 – YTDChange since Jan, 2012 (%)


Figure 32: Touch panel: Share price rend: Jan 2012 – YTDJan 2012 = 100



The touch panel sector has posted solid top line and bottom line growth on increasingsmartphone and tablet shipments. Key beneficiaries of SEC's growth in handset andtablet PC markets have been Iljin Display, S-MAC and Melfas. Note that, IljinDisplay, whose production yield is stable and high, has outperformed others in thissector.

Figure 33: Touch panel sector: Financial performance (2007-2012)Revenue and OP in millions, OPM (%)

Source: Bloomberg

Figure 34: Touch panel: Revenue trend: 2008 - 2012USD millions

Source: Bloomberg

Figure 35: Touch panel: OP trend: 2008 – 2012USD millions

Source: Bloomberg

80% 80%

49%

-22%-40%

-20%

0%

20%

40%

60%

80%

100%

S-MAC Iljin Display Elk Corp Melfas

ouch panel sector index

50

70

90

110

130

150

170

190

210


Iljin Display Co Ltd S-MAC Co Ltd/Korea

Melfas Inc ELK Corp/Korea

0%

2%

4%

6%

8%

10%

12%

0

200

400600

800

1,000

1,200

1,400

1,600

2007 2008 2009 2010 2011 2012


-

100.0

200.0

300.0

400.0

500.0

600.0

2008 2009 2010 2011 2012

Iljin Display S-MAC Melfas ELK

-10.0

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2008 2009 2010 2011 2012

Iljin Display S-MAC Melfas ELK



23



Key growth driversRising smartphone/tablet shipments and increased touch screen adoption in feature

phones remains the top growth driver. In addition, with the launch of Windows 8,touch screen notebooks are likely to become an attractive option for consumers,though the market for touch screen notebooks is still in its infancy. The key growthfactors for companies in this sector are the ability to adapt to new technologies,stable (high) yield and the degree of vertical integration. Given the tight supply of ITO film, established players, with stable production yields, such Iljin Display,Melfas and S-Mac should continue to bag more orders from SEC as SEC seeks todiversify its touch panel suppliers to prepare for potential demand increases in 2013.



24



Section IV: Where is the market heading?

To identify opportunities and challenges in sub-sectors, we conducted a comparisonanalysis vs. SEC from the past and project which respective sectors will benefit

based on our current estimate. Also, we provide which data points to follow in near-

term to identify direction of share performance.

Smartphone continues to post strong growth into 2013

According to JPM Tech team’s estimates, global smartphone market is expected toreach 922M units in 2013 posting 37% Y/Y growth followed by another amplegrowth of 17% Y/Y to 1.8 billion units in 2014. We expect SEC’s penetration intosmartphone in terms of unit shipment would be faster than market penetration. SEC'ssmartphone business is projected to post 40% Y/Y growth in 2013 to 301M followed

by 27% Y/Y growth in 2014.

Figure 36: Global handset shipment breakdown and penetrationtrendUnit millions, %

Source: IDC, Company data, J.P. Morgan estimates

Figure 37: SEC – Handset shipment breakdown and penetrationtrendUnit millions, %

Source: Company data, J.P. Morgan estimates

Robust earnings driven by strong smartphone business upon flagship models

SEC’s handset business earnings have improved significantly in 2012 achieving 21%operating margin vs 15% in 2011. We maintain a positive stance on SEC’s handset

business thanks to its momentum in high-end flagship models and full line-upstrategy serving low-to-mid segment as well.

Figure 38: Samsung Electronics – Handset revenue and margin trendWon billions, OPM (%)


763949 1,086 1,201 1,177 1,318 1,309

1,066834 720

5480

123155 172

299 473671

922 1,079

7% 8% 10% 11% 13%18%

27%

39%

52%

60%

0%

10%

20%

30%

40%

50%

60%

70%

0200400600800

1,0001,2001,4001,6001,8002,000

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Global - Fe ature phone Global - S martp ho ne Sm artphon e penetration

103 118161 197 222 256 234

186130

42

- --

-6

24 98 214 301382

0% 0% 0% 0% 2%9%

30%

54%

70%

90%

0%10%

20%

30%

40%

50%

60%70%

80%

90%

100%

050

100

150

200

250

300350

400

450

500

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

SEC - Feature phone SEC - Smartphone Smartphone penetration

13%10%

11%9%

11% 11%

15%

21% 21% 20%

0%

5%

10%

15%

20%

25%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2 014E

Revenue OPM



25



Tablet: The growth driver for SEC’s handset division onward

As highlighted in our SEC tablet report ( “New growth engine for SEC and key

supply chains on 01 November, 2013" ), we expect its shipment momentum toaccelerate this year to 43M (+143% Y/Y growth, Y% M/S of global tablet marketdemand) followed by another growth into 2014E (64M, 50+% Y/Y growth). During2012, tablet revenue only contributed 9% of total handset revenue, but we expect its

portion to increase up to 16% by 2014. In terms of margin, we estimate tablet togenerate high-single digit margin in 2013.

Figure 39: SEC tablet revenue and tablet shipment trendWon billions, Unit millions


Figure 40: SEC tablet revenue and % of total handset sales trendWon billions, % of total revenue


Samsung vs. Sub-sectors

We note an inverse correlation between SEC’s handset division’s OPM and Koreantech's top 5 companies' OPM. This is expected, since the top 5 companies have ahealthy revenue exposure to SEC. Another key point to note here is that the averageOPM (total OP/total sales) for the top 5 companies in the Korean SMid-cap techsupply chain outperforms the average OPM for the entire supply chain.

Figure 41: SEC handset OPM v/s Korean SMid-cap tech OPMOPM (%)

Source: Bloomberg

26

17

43

64

-

10

20

30

40

50

60

70

0

5,000

10,000

15,000

20,000

25,000

2010 2011 2012 2013E 2014E

S EC t ab le t r ev en ue S EC ta bl et s hi pm en t [ RHS]

3%

6%

9%

14%16%

0%

2%

4%

6%8%

10%

12%

14%

16%

18%

0

5,000

10,000

15,000

20,000

25,000

2010 2011 2012 2013E 2014E

S EC t ab le t r ev en ue T ab le t r ev en ue % of to ta l ha nd set [ RHS]

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010 2011 2012

SEC Handset OPM Top 5 OPM Korean Tech OPM









26



Margin trendTouch panel and PCB sub-sectors usually incur high fixed costs and hence their

operating margins are more sensitive to sales compared to other sub-sectors.Again, we note here that the operating margins of the SPE sub-sector dipped inthe last two years as the companies within the sector faced increasing cost

pressure to come up with a viable AM-OLED solution amid fluctuating yields.

Figure 42: SEC handset operating margin vs. margin by sub-sectorsOPM (%)

Source: Company data, Bloomberg actual data for sub-sectors. *Note: Actual FY12 sub-sector number may be different as some

companies have yet introduced their annual performance.

Figure 43: SEC handset OPM vs. Electronic materials OPMWon billions, Sales growth Y/Y (%)

Source: Company data, Bloomberg actual data for sub-sectors. *Note: Actual FY12 sub-sector

number may be different as some companies have yet introduced their annual performance

Figure 14: SEC handset OPM vs. PCB OPMWon billions, Sales growth Y/Y (%)



Figure 45: SEC handset OPM vs. Touch panel OPMWon billions, Sales growth Y/Y (%)



Figure 46: SEC handset OPM vs. Electronic components OPMWon billions, Sales growth Y/Y (%)



0%

5%

10%

15%

20%

25%

-10%

-5%

0%

5%

10%

15%

20%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

Electronic components OPM PCB OPM Electronic materials OPMTouch Panel OPM SPE OPM SEC handset OPM [RHS]

0%

5%

10%

15%

20%

25

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

S EC h an ds et O PM [RH S] E le ct ro ni c mater ia ls O PM

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

SEC handset OPM [RHS] PCB OPM

-10%

-5%

0%

5%

10%

15%

20%

25

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

SEC handset OPM [RHS Touch Panel OPM

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

SEC handset OPM [RHS] Electronic components OPM



27



Quick Snapshot of sub-sector tone toward Samsung

According to our research and discussion with sub-sector companies, ~60% of

companies guided their revenue exposure to Samsung would go up Y/Y and ~30% pointed out that their exposure will remain flat. While margin guidance is notdisclosed at this stage, given strengthened supplier-set maker confidential policy, weexpect qualified non-Samsung suppliers will continue to achieve margin expansionon strong customers' order momentum.

Table 7: Revenue exposure guidance for FY12 and FY13 by sub-sector companies

Revenue Exposure to Samsung (%)

Detailed Components Rev. Exposure (FY12) Rev. Exposure (FY13)

NAND (Internal Memory) SEC (6%) YoY slight downmobile DRAM SEC (4%) YoY slight downOLED panel SDC small mobile (+60%) YoY upOLED material Duksan (~85%), Doosan (<1%) Duksan (YoY up)LCD panel SDC small mobile (~40%) YoY upMobile BLU SDC small mobile (~40%), E-litecom (~50%) YoY latTouch Panel module Iljin (95%), S-MAC (50%), Melfas (85%), ELK Iljin (YoY lat), S-MAC (YoY lat), Melfas (YoY flat)Touch Panel sensor Melfas (85%) YoY latDriver IC Siliconworks (<5%) YoY down Application Processor SEC (2%) YoY upMLCC SEMCO (~20%) YoY upCamera module SEMCO (~25%), Partron (~80%) SEMCO (YoY up), Partron (YoY up)Image sensor/components Jahwa Elec (100%) YoY latCamera lens SonyProximity Sensor SECBaseband chip Intel (<1%), Qualcomm (18%) Qualcomm (YoY up)Radio Frequency chip Partron (~80%) YoY upPower Amplifer chip SkyworksLTE, HSPA+ 21Mbps Modem Chip Qualcomm (18%) YoY up Accelerometer ST Micro (~10%) YoY downGyroscope ST Micro (~10%) YoY down

Pressure sensor Partron (~80%) YoY up Audio Interface Wolfson Micro (+30%) YoY up (50%)WLAN Broadcom (17%) YoY upFM transceiver Infineon (low single %) YoY flatBluetooth Partron (~80%), Amotech (~45%) Partron (YoY up), Amotech (YoY up)Wi-Fi Partron (~80%) YoY upNFC chipset Partron (~80%), Amotech (~45%) Partron (YoY up), Amotech (YoY up)Power management IC Maxim, Texas Instruments, othersBattery Pack Samsung SDI (60%) YoY upBattery Cell Samsung SDI (60%) YoY upBattery Components material Power Logics (65%), Iljin Materials (50%) Power Logics (YoY up), Iljin Materials (YoY slightly up)PCB / FPCB / FC-CSP Daeduck (50%), Interflex (+40%), Flexcom (+90%) Daeduk (YoY slight up), Interflex (YoY up), Flexcom (YoY flat)Microphone BSE CM (~70%), Partron (~80%) BSE (YoY up), Partron (YoY up)Speaker receiver BSE CM (~70%) BSE (YoY up)Casing Intops (~95%), KH Vatec (60%) Intops (YoY flat), KH Vatec (YoY up)LCD bracket KH Vatec (60%), Innox KH Vatec (YoY up)SAW filter Wisol

Charger RF Tech (+40%) RF Tech (YoY slightly up)

Source: Company data, Gartner, Company data, J.P. Morgan estimates. *Supplier revenue exposure data based on company data. BOM cost based on Galaxy SIII, component supply status

based on overall Samsung smartphone line-ups. Supplier list includes companies above US$ 100mn market cap only. Revenue exposure (%) stands for total Samsung Electronics.

As most suppliers in tablet PC overlap, we have not included the list of names for tablet PC supply chain separately. However, we expect touch panel, casing makers,and PCB makers to benefit more from tablets assuming same volume provided larger screen, bigger form-factor and substrate in the products in terms of top-line andearnings.



28



Section V: Implication from potential

component value changes in next GalaxyS-series

What are we hearing about Galaxy S IV?

As we move through mid-1Q13, we have begun to hear about potential productspecification and component changes in SEC's next flagship handset, Galaxy S IV(Source: Bloomberg). Herein, we lay out plausible product changes and identifywhich company and sub-sector could benefit from the change. Of note, we estimateGalaxy S IV to post ~100M unit shipment on cumulative basis since its launch.

Table 8: Potential BOM cost change comparison (Galaxy S III; previous version vs. Galaxy S IV)

US$

Components Galaxy S III Galaxy S IV

BOM + Manufacturing 253.1 Slight upManufacturing Cost 16.0 FlattishBOM Cost 237.1 Slight up

Memory 30.0 DownNAND Flash 17.4 DownDRAM 12.6 DownDisplay & Touch Screen 51.5 Slight up

Display 37.5 Slight upTouch Screen 14.0 Slight upProcessor 25.3 Flattish or slight upCamera(s) 19.6 Slight up

Wireless section - BB/RF/PA 38.0 Flattish or slight upUser Interface & Sensors 6.9 Flattish or slight upWLAN/BT/FM/GPS 6.5 Flattish or slight upPower Management 10.0 Up

Battery 4.5 UpMechanical / Electro-mechanical 38.0 FlattishBox Contents 7.0 Flattish

Source: Gartner, iSuppli, Company data, J.P. Morgan estimates

1. No major change in form-factor except for Display side

The market is expecting form-factor of next Galaxy S/Note-series to be similar to the previous versions. We agree with this view and expect a larger screen. However,given the tight supply at OLED capacity and yield issues, we will likely see the firstform of flexible (unbreakable) display adoption from the next Note-series (to belaunched during 3Q13 time-line). Accordingly, ASP for panel screen is expected toincrease and the relevant supply chain will likely benefit (mostly SDC and OLEDrelated material players; Duksan Hi-Metal and potentially Cheil industries). For casing players (KH Vatec, Intops, and others), companies claim size mix migration

could benefit them as larger device form-factor usually incurs higher ASP and better margin (especially for tablet PCs). PCB players (Interflex and Flexcom) will likely

benefit as set makers require slimmer substrate, even flexible substrate to come upwith fully-flexible handset in the future.

2. Higher camera pixel; 13MPx is high likely be online

We have already witnessed 13MPx camera module adoption into new smartphonesdisclosed at beginning of the year (over 9 models from different handset makers). We

believe 13MPx is likely to be adopted for SEC’s next flagship smartphone andSEMCO would be the main supplier, in our view. Accordingly, we will likely seeincreasing higher camera module adoption (8MPx) especially for back-end from low-



29



mid end cameras. Partron, Jawha Electronics, and Power Logics could be the keysuppliers.

3. Increasing adoption of LTE and emergence of diverse functional antenna

JPM analyst, Rod Hall, forecasts 2013 LTE smartphone to be 243M (up 180% Y/Y)and 2014 LTE smartphone to be 487M (up 100% Y/Y). This implies LTE

penetration within smartphone of 26%/45% in 2013/2014. SEC guided LTE handsetto drive its high-end line-up growth this year and we estimate SEC's LTE handsetshipment to top over 75M in 2013. Currently, a large portion of LTE components issupplied by Qualcomm, but we could likely see SEC coming up with its own LTEsolution this year given its product roadmap while absolute amount will have a bigimpact hit in 2014. Partron and Amotech are the major Korean suppliers for antenna components (i.e. DMB, NFC, Bluetooth, GPS, Wi-Fi, and others).

4. Battery, all about increasing capacity and power efficiency

Due to increasing complexity of handset functions and ongoing power consumptionfrom OLED panel, it is inevitable that battery capacity will be increased over modeldevelopment. Galaxy SIII's battery capacity has increased from 1,500 mAh (4”screen) to 2,100 mAh (4.8” screen). Samsung SDI is the sole vendor for SEC'sflagship smartphone line-ups and the largest battery supplier for SEC's mobiledevices (incl. tablet PC). Power Logics is currently supplying rechargeable batteryPCM (Power Circuit Module) for smartphones' BMS (Battery Management System).

5. Further potential changes; new functionality like S-Pen?

Based on various newsflow recently (Bloomberg), we have yet to discover anysurprising functionality in next Galaxy S IV. However, if anything comes up, weview it should come from different hardware features from user interface or sensors(e.g. S-Pen from first Galaxy Note version).

Galaxy series shipment momentum vs. Market Cap analysis

In this part, we compared SEC's Galaxy-series shipment momentum vs. Market Capof Korean Small Tech market cap and by individual sub-sectors. In conclusion,overall market cap trend was largely in-line with flagship models’ shipment volumechanges. By sub-sector comparison, Electronic components, Electronic materials andPCB sub-sector market cap performance were generally in-line with shipment whilemagnitude of momentum varied. Touch panel sub-sector had stronger correlationwith tablet PC shipment momentum. Overall touch panel market cap began toincrease since late 2Q12 as the market captured visibility on SEC’s tablet PCmomentum. However, SPE sector market performance was not highly correlated

since the key indicator to SPE sector was negative investment sentimental due todelay in OLED investment and limited LCD capacity supply growth.



30



Figure 47: Flagship smartphone shipment volume vs. Small Cap Tech Market Cap performanceUnit millions, US$ million [RHS]

Source: Bloomberg, Company data, J.P. Morgan estimates. Market Cap as of Feb 25 closes.

Figure 48: Flagship smartphone shipment volume vs. ElectronicComponents Market Cap performanceUnit millions, US$ million [RHS]


Figure 49: Flagship smartphone shipment volume vs. PCB MarketCap performanceUnit millions, US$ million [RHS]


Figure 50: Flagship smartphone shipment volume vs. Electronicmaterials Market Cap performanceUnit millions, US$ million [RHS]


Figure 51: SEC’s tablet PC shipment volume vs. Touch Panel MarketCap performanceUnit millions, US$ million [RHS]


3 7 10 812

2417 16 20

3526

1 54

310 11

8

8

16

0

2,000

4,000

6,000

8,000

10,000

12,000

14,00016,000

05

101520253035404550

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13A 2Q13E 3Q13E 4Q13E

Galaxy S-series Galaxy Note-series KR Total Market Cap [RHS]

3 7 10 8 12

2417 16 20

3526

1 54

310 11

8

8

16

0

500

1,000

1,5002,000

2,500

3,000

3,500

4,000

4,500

05

101520253035404550


Ga la xy S -s er ie s G al ax y N ot e- se ries E le ctr on ic C omp on en ts Market Cap [RH S]

- 3 7 10 8 12

2417 16 20

3526

--

-1 5

4

310 11

8

8

16

0

500

1,000

1,500

2,000

2,500

05

101520253035404550


Galaxy S-s eries Galax y Note-series PCB Market Cap [RHS]

- 3 7 10 812

2417 16

20

3526

--

-1 5

4

310 11

8

8

16

0

200

400

600800

1,000

1,200

1,400

05

101520253035404550


G ala xy S- se rie s G ala xy No te- series E le ctr on ic M ate rials m ark et ca p [R HS]

1 12 2 2 2

5

89

10

12 12

0

200

400

600

8001,000

1,200

1,400

1,600

1,800

0

2

4

68

10

12

14


S am su ng T ab le t T ou ch Pa nel ma rke t c ap [RHS]



31



Section VI: Implications to Japan

component makersWith application growth differences becoming clear, Samsung's share gains in thegrowing smartphone and tablet markets are substantially affecting Japaneseelectronic component manufacturers because these companies often compete againstSouth Korean companies to supply components to Samsung. The situation is unlikethe case involving Apple, which likes to use cutting-edge components, whereasSamsung tends to use components based on cost considerations. The result is thatcomponent suppliers need to deal with these two companies differently. Samsung'sgrowing demand for components, though, presents major business opportunities for Japanese component manufacturers, which not only have outstanding products butalso can stay with evolving technology trends. Major Japanese component suppliersthat we think will benefit considerably from Samsung's growing share of the

worldwide smartphone and tablet markets include Wacom (which has exclusivedeals to supply styli), Murata Manufacturing, Hirose Electric, and Nitto Denko.

High-frequency components

In this product market, Wisol (South Korea) is gaining share as a supplier of SAWdevices. However, Japanese suppliers have a solid advantage in terms of moduleadaptations stemming from the growing complexity of high-frequency components.Taiyo Yuden supplies a high proportion of the duplexer banks that Samsung uses inits Galaxy S3 phones. However, FEMiDs, which feature a duplexer and an antennaswitch module in one unit, are likely to be the main front-end design for the GalaxyS4. Thus Murata Manufacturing, a leading supplier of these modules, could have ahigh share of the business. Also, with Wi-Fi module designs to become morecomplex as a result of a switch to a fifth-generation standard, 802.11ac, featuring

speeds in excess of 1Gbps, Murata Manufacturing is likely to gain share at theexpense of competitor SEMCO.

Mechanisms

Panasonic, Kyocera, and Hirose Electric are competing Japanese suppliers of boardconnectors to Samsung. Hirose Electric had been developing a joint venture with alocal company and made the joint venture, Hirose Korea, a subsidiary in November 2010. The move bolstered Hirose Electric's market share gain. The company's largest

buyer of cell phone connectors is Samsung; this business has been driving its salesgrowth.

Passive components

SEMCO supplies a majority of Samsung's MLCCs. However, Murata Manufacturing

still supplies a majority of high-frequency inductors; the number of thesecomponents per end product is rising with the transition to multiband. Meanwhile,there is currently a clear shift from ferrite power inductors to metallic ones becauseof demands for low power consumption relative to AP performance. Toko, whichhas a leading share in metallic conductors (Murata Manufacturing has alreadyannounced a tender offer to acquire the company and make it a subsidiary), couldlikely benefit.

Substrates

SEMCO has a high share of the market for flip-chip chip scale packages for printedcircuit boards and APs. However, Ibiden and SEMCO share the market for flip-chip



32



chip scale packages, the value-add of which continues to rise as APs become more powerful. Samsung is likely to use any-layer printed circuit boards for its Galaxy S4.

Thus Ibiden, which has a leading share of this product market, could benefit.

Optical films

Smartphones and tablets need thin polarizing films to help reduce power consumption. Nitto Denko, which has a high share of this product market, has beengetting more and more business from Samsung as the latter's global market sharegrow. Also, Nitto Denko's supplies of ITO film for tablets have been growing sharplythanks to Apple's use of film sensors for the iPad Mini. With glass-film-filmtouchscreen technology likely to become the dominant one in Samsung's tablets, thecompany's supplies of optical film to Samsung are also likely to grow.



33



Section VII: Meeting Note Summary

In section VII, we have enclosed meeting note summaries with Samsung supplychain companies based on our latest discussion via company visit, conference call,and JPM 2013 conference. JPM does not hold any coverage of below companies andall write-ups are based on our discussion with companies and guidance. Additionally,we have included brief financials at the back of each meeting note for your reference.As a majority of Korean companies have yet to disclose their full-year 2012financials, we have included data for last 4 years from 2008-2011 only.

List of companies

1. Duksan Hi-Metal

2. Interflex

3. Partron

4. KH Vatec

5. SFA Engineering

6. AP Systems

7. Iljin Display

8. S-MAC



34



Duksan Hi-Metal (NC, 077360.KQ)

Company description

DSHM (Duksan Hi-Metal) supplies BGA/CSP solder-ball products for semiconductor package substrate and produces OLED materials (HIL, HTL) toSamsung Display. DSHM's major customers include Samsung Electronics and SK Hynix. The company was established in 1999 and merged with Ludis in 2009.DSHM was listed on KOSPI in 2005.

FY12 results

DSHM reported 2012 total revenue of W145bn with OP of W42bn (operating marginof 29%). Semiconductor material division reported W65bn of top-line (+9% Y/Y)and OLED material related revenue marked W80bn (+14% Y/Y). For 4Q12, DSHMshipped total OLED material amount of 700kg/month.

FY13 guidance

Heading into 2013, DSHM guided its top line to increase 15-20% while margin toshow slight decline in the range from 27-28%. Company expects its shipmentvolume to increase 40% Y/Y, but pricing to come down 20-25% level. DSHMguided its FY13 capex to remain flattish YoY (FY12 capex: W7bn).

Update on SDC’s OLED line ramp-up

Company plans to supply additional 100kg/month to A2-Phase 3 line (16K/month)starting from March this year. From July-2013, DSHM expects another 32K/monthcapacity ramping up at A2-Phase extension line which will provide additional200kg/month OLED material supply opportunity. Company expects its dominant

position in HTL is likely to remain solid.

Valuation

Duksan shares are currently trading at 15.5x/12.1x FY13E/FY14E on Bloombergconsensus EPS estimates at 3.3x/2.6x FY13E/FY14E on Bloomberg consensus P/Bestimates. There are currently 19 Buys, 1 Hold, and 1 Sell recommendations as per Bloomberg. The shares underperformed KOSPI by 3% for last 1 year.

Key datapoint to watch

Company hinted that faster-than-expected ramp up at 8G TV line from Samsungwould benefit Duksan both in terms of share price and fundamental earnings.Although the company expects 8G line to start ramp-up at the earliest in 2014,earlier-than-expected mass volume roll-out should benefit Duksan given larger material consumption.

NOTE: THIS DOCUMENT IS

BASED SOLELY ON PUBLICLYAVAILABLE INFORMATION.

THIS REPORT IS INTENDED AS

INFORMATION ONLY AND NOT

AS RECOMMENDATION FOR

ANY STOCK. J.P. MORGAN

EQUITY RESEARCH DOES NOT

PROVIDE RESEARCH

COVERAGE OR RATING FOR

THIS COMPANY.



35



Duksan Hi-Metal: Summary of Financials

Profit and loss statement

Won in billions, year-end December

FY08 FY09 FY10 FY11

Revenues 23 32 72 129COGS -14 -20 -43 -76Depreciation -1 -1 -2 -3Gross Profit 9 12 30 53EBIT 5 5 13 39EBITDA 6 6 15 42

Net Interest Income 1 2 1 1Pre- ax Profit -2 6 13 35Tax Credit/(Expense) 0 -1 -2 -1Net Income -2 5 10 35Shares outstanding (MM) 17 18 21 21EPS (Won) -112 194 351 1,176Sequential GrowthRevenues 24% 42 125% 79%Gross Profit -8% 37 139% 79%EBIT -10% -4 179% 200%Pre- ax Profit -118% NM 120% 180%EPS -110% NM 81% 235%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11

Cash and Cash Equivalents 14 15 5 21 Accounts receivable 2 4 7 9Inventories 2 4 7 13Others current assets 2 4 2 4Current assets 20 26 22 46LT investments 34 19 18 12Net fixed assets 6 15 44 58Other long term assets 3 31 28 35Total Assets 63 92 112 152ST Debt and CPLTD 15 6 2 0 Account Payables 1 1 3 5Other current liabilities 6 8 7 7Total current liabilities 22 16 11 11Long term debt 3 5 7 0Other Long term liabilities 0 0 1 2

Total liabilities 25 21 18 13Shareholder's equity 38 71 93 139Total Liabilities and Equity 63 92 112 152BVPS (Won) 1,961 2,882 3,228 4,713

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11

Net Income -2 5 10 35Depreciation & amort. 1 1 2 3Other non-cash items 0 0 0 0Change in working capital -3 4 -12 -7Cash flow from operations 3 10 10 36Purchase of PP&E -24 -18 -8 -8

Disposal/ (purchase) 2 8 -21 -7Cash flow from investing -21 -10 -28 -15

Free Cash Flows -20 -8 3 28Equity raised/(repaid) -3 -2 -1 0Debt raised/(repaid) 18 -6 -3 -8Other charges -1 33 16 12Cash dividends -6 -4 -2 0Cash flow from Financing 18 0 9 -6Net Effect of F/X changes 0 0 0 0Net Changes in Cash 0 0 -9 15Beginning cash 14 14 15 5Ending cash 14 15 5 21DPS (Won) 154 82 35 0

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11

Gross Margin (%) 40.1% 38.7% 41.0% 41.1%EBIT Margin (%) 21.7% 14.6% 18.1% 30.4%EBITDA Margin (%) 26% 19% 21% 33%Net profit margin (%) -10% 15% 14% 27%COGS/sales (%) -59.9% -61.3% -59.0% -58.9%SG&A/sales (%) -7.6% -6.0% -4.3% -3.8%Sales per share growth (%) -50.4% 12.8% 90.9% 75.5%Sales growth (%) 24.1% 41.8% 125.5% 78.6%EBIT growth (%) -9.9% -4.5% 179.1% 199.8%Net profit growth (%) -123.8% 317.4% 113.9% 240.9%EPS growth (%) -109.5% 273.1% 81.1% 235.1%Inventory Turnover (x) 6.6x 5.4x 6.4x 6.0xNet Debt to total Capital (%) 6% -4% 3% -15%Net debt to equity (%) 9% -5% 3% -15%

Sales/Assets (%) 36% 35% 65% 85% Assets/Equity (%) 166% 130% 120% 110%ROE (%) -11% 5% 11% 30%

Source: Company.



36



Interflex (NC, 051370.KQ)

Company description

Interflex designs, manufacturers, and markets flexible printed circuit boards (FPCB)for electronic parts used in a variety of products such as cellular phones, notebook computers, and other digital products. The company markets its products to thedomestic and international markets. Key customers include Samsung Electronics andApple, Motorola, and others.

FY12 review

Interflex reported 2012 total revenue of W765bn with OP of W47bn (operatingmargin of 6.1%). Double side revenue continued to increase in 2012 to 64% whileMulti and R/F portion declined to 14% in 2012 from 25% in 2011 (vs. R/F portion upfrom 18% in 2011 to 21% in 2012). Company said it spent W130bn of capex for

FY12 (W80+bn to FPCB and W50bn to TSP). Total capacity in terms of squaremeter has increased from 135,000 m2 in 2011 to 185,000 m2 in 2012 (+37% Y/Y).

FY13 outlook

Heading into 2013, Interfelx guided its FPCB revenue to be W900bn and Touchsolution revenue to be ~W200bn, summing total revenue guidance of W1.2 trn with

blended margin at mid-single digit. Company hinted revenue from touch solution to be in a wide range given uncertainties of order amount. Interflex is planning tosupply touch sensor to SDC’s next Unbreakable Display touch panel. Newtechnology (sputter + exposure type patterning.) is claimed to present narrower bezeland higher penetration ratio vs. existing print type, according to the company.Interflex believes touch solution business to be the kicker for 2H13 accordingly.

On customer breakdown-wise, the company roughly guided Samsung and Apple portion to be almost similar while exact number may change on a quarterly base. For FPCB capacity, designed capacity at full ramp-up will reach 200,000 m2, however,company does not consider expansion plan in the near term. Accordingly, FY13capital expenditure will decline significantly on Y/Y base to W30bn mainly for maintenance related capex.

Valuation

Interflex shares are currently trading at 9.0x/6.9x FY13E/FY14E on Bloombergconsensus EPS estimates at 1.7x/1.3x FY13E/FY14E on Bloomberg consensus P/Bestimates. There are currently 16 Buys, 1 Holds, and 1 Sell recommendations as per Bloomberg. The shares underperformed KOSPI by 6% for last 1 year.


Company views sell-through numbers from SEC and Apple’s smartphones and tabletPC to be a positive key driver for the share price. JPM views total SEC’s smartphoneto be 301M in 2013 (+40% Y/Y) and tablet to be 43M in 2013 (+146% Y/Y). For Apple, covering analyst Mark Moskowitz expects 2013 smartphone shipment to be165M (+22% Y/Y) and tablet to be 91M (+39% Y/Y).








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Interflex: Summary of Financials



FY08 FY09 FY10 FY11

Revenues 254 279 419 518COGS -243 -255 -380 -465Depreciation -16 -11 -13 -18Gross Profit 11 24 39 53EBIT 2 16 31 40EBITDA 18 27 44 59Net Interest Income 4 3 3 7Pre- ax Profit 1 25 36 39Tax Credit/(Expense) 0 -3 -4 -8Net Income 1 22 32 31Shares outstanding (MM) 12 12 12 14EPS (Won) 41 915 1,096 1,057

Sequential GrowthRevenues 32% 10 50% 24%Gross Profit NM 125 62% 34%EBIT NM 718 92% 30%Pre- ax Profit NM 2350 45% 8%EPS NM 2126 20% -3%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11

Cash and Cash Equivalents 4 4 6 24 Accounts receivable 46 61 55 130Inventories 23 24 43 58Others current assets 44 44 62 72

Current assets 116 132 167 285LT investments 102 115 120 105Net fixed assets -31 -38 8 100Other long term assets 1 1 1 2Total Assets 189 211 295 492ST Debt and CPLTD 31 19 27 91 Account Payables 43 52 89 101Other current liabilities 11 12 22 42Total current liabilities 84 83 137 233Long term debt 0 0 0 0Other Long term liabilities 3 4 4 8Total liabilities 88 87 142 242Shareholder's equity 101 124 154 250Total Liabilities and Equity 189 211 295 492BVPS (Won) 5,188 5,056 5,322 8,518

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11

Net Income 1 22 32 31Depreciation & amort. 16 11 13 18Other non-cash items 0 0 0 0Change in working capital -28 -6 13 -6Cash flow from operations -9 27 53 48Purchase of PP&E -24 -1 -14 -14Disposal/ (purchase) 10 -14 -42 -69Cash flow from investing -14 -16 -56 -83Free Cash Flows -33 26 38 34Equity raised/(repaid) 0 0 0 1Debt raised/(repaid) 25 -12 8 64Other charges 3 0 -2 67

Cash dividends 0 2 0 2Cash flow from Financing 24 -11 6 52Net Effect of F/X changes 0 0 0 0Net Changes in Cash 2 0 3 18Beginning cash 2 4 4 6Ending cash 4 4 6 24DPS (Won) 0 -76 0 -71

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11

Gross Margin (%) 4.2% 8.7% 9.4% 10.2%EBIT Margin (%) 0.8% 5.8% 7.4% 7.8%EBITDA Margin (%) 7% 10% 10% 11%

Net profit margin (%) 0% 8% 8% 6%COGS/sales (%) -95.8% -91.3% -90.6% -89.8%SG&A/sales (%) -0.9% -0.9% -0.7% -0.8%Sales per share growth (%) -47.1% -12.4% 27.0% 21.4%Sales growth (%) 32.2% 10.1% 50.0% 23.5%EBIT growth (%) 109.9% 718.3% 92.4% 30.2%Net profit growth (%) 105.0% 2696.3% 41.5% -1.8%EPS growth (%) 102.0% 2125.7% 19.8% -3.5%Inventory Turnover (x) 10.5x 10.6x 8.7x 8.0xNet Debt to total Capital (%) 21% 11% 11% 20%Net debt to equity (%) 27% 12% 13% 27%Sales/Assets (%) 135% 133% 142% 105% Assets/Equity (%) 187% 170% 192% 196%ROE (%) 1% 20% 23% 15%

Source: Company.



38



Partron (NC, 091700.KQ)

Company description

Partron (Partron Co., Ltd.) is an electronic component supplier of Semiconductor /RF / Sensor business. Key products include Antenna, Dielectric Filter, Isolator,Camera module, Optical Finger Mouse, Various Sensors, Vibration Motor, andothers. The company was established in 2003 and listed on KOSDAQ in 2006. Major customers are Samsung Electronics, Motorola, Pantech, and other handset makers.

FY12 business review

Partron reported their 2012 total revenue of W781bn with OP of W87bn (operatingmargin of 11%). Camera module division reported W593bn of top-line (+168% Y/Y)and Antenna related revenue marked W120bn (+43% Y/Y). Two core businessesaccounted over 90% of total revenue. The antenna business and Isolator/Dielectric

Filter presented ~20% operating margins while camera module marked 9-10%.

Takeaways from J.P. Morgan conference

Most investors’ questions were focused on earnings outlook on its camera module business. Partron guided its 1Q13 camera module margin to be in the range of 10-11%as (vs. 9-10% in FY12). For full-year 2013, Partron guided rather conservativeguidance of total revenue; W1.24 trillion (camera module ~W900bn, Antenna~W220bn, new business +W60bn). Another area which investors focused on was itsnew business potential. Provided sensor could be used in several new applications(i.e. appliance, automobile accessories) beyond smartphones, Partron expects thisnew business to be another growth driver in next 3 years (contributing +30% of totalrevenue by 2015-2016).

Changes in camera module competition dynamics

According to the company, SEC mainly sources higher specification modules(13MPx or above) from SEMCO and Samsung Fiberoptics while lower specificationmodules (mainly 5MPx) from Partron. The company began supplying back-endcamera module since end-2012 and expects its shipment volume portion to increasefrom 3% in FY12 (150M total shipments) to ~25% in FY13 (230-250M totalshipments), leading to resolution migration as Partron only supplied relatively front-end cameras (mostly 2MPx or 1.3MPx).

Valuation

Partron shares are currently trading at 10.1x/8.2x FY13E/FY14E on Bloombergconsensus EPS estimates at 3.1x/2.3x FY13E/FY14E on Bloomberg consensus P/Bestimates. There are currently 15 Buys and 1 Sell recommendations as per Bloomberg. The shares outperformed KOSPI by 127% for last 1 year.


Company views sell-through numbers from SEC and Apple’s smartphones and tabletPC to be a positive key driver for the share price. JPM views total Galaxy SIVshipment for 2013 to be over 60M with its peak expected to be in 3Q13.








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Partron: Summary of Financials



FY08 FY09 FY10 FY11

Revenues 117 192 233 360COGS -76 -134 -171 -291Depreciation -4 -4 -2 -3Gross Profit 41 58 62 69EBIT 20 33 36 37EBITDA 24 37 39 40Net Interest Income 1 1 1 1Pre- ax Profit 21 29 30 37Tax Credit/(Expense) -4 -4 -6 -5Net Income 17 24 24 32Shares outstanding (MM) 0 0 0 0

EPS (Won) 1,067 1,206 1,183 1,081Sequential GrowthRevenues 70% 64 21% 55%Gross Profit 52% 41 6% 11%EBIT 65% 64 9% 3%Pre- ax Profit 75% 39 5% 25%EPS 15% 13 -2% -9%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11

Cash and Cash Equivalents 4 11 12 3 Accounts receivable 10 21 33 62Inventories 15 13 21 33

Others current assets 10 9 12 17Current assets 39 53 78 116LT investments 52 62 78 133Net fixed assets 2 3 8 13Other long term assets 1 1 1 2Total Assets 93 119 164 264ST Debt and CPLTD 0 3 7 32 Account Payables 8 13 22 54Other current liabilities 11 10 13 17Total current liabilities 19 26 43 102Long term debt 3 1 2 3Other Long term liabilities 3 2 3 5Total liabilities 24 29 48 111Shareholder's equity 69 90 116 153Total Liabilities and Equity 93 119 164 264BVPS (Won) 4,452 4,511 5,803 5,122

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11

Net Income 17 24 24 32Depreciation & amort. 4 4 2 3Other non-cash items 0 0 0 0Change in working capital 4 -6 -11 -9Cash flow from operations 28 30 24 26Purchase of PP&E -16 -24 -46 -38Disposal/ (purchase) 0 3 15 -16Cash flow from investing -16 -21 -31 -54Free Cash Flows 12 6 -22 -12Equity raised/(repaid) -3 -2 -1 0Debt raised/(repaid) -4 2 5 26

Other charges 11 2 7 7Cash dividends -6 -4 -2 0Cash flow from Financing -9 -2 8 20Net Effect of F/X changes 0 0 0 0Net Changes in Cash 2 7 1 -8Beginning cash 1 4 11 12Ending cash 4 11 12 3DPS (Won) 193 100 50 0

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11

Gross Margin (%) 35.1% 30.2% 26.6% 19.1%EBIT Margin (%) 17.3% 17.3% 15.6% 10.3%

EBITDA Margin (%) 21% 19% 17% 11%Net profit margin (%) 14% 13% 10% 9%COGS/sales (%) -64.9% -69.8% -73.4% -80.9%SG&A/sales (%) -3.0% -2.0% -1.7% -1.3%Sales per share growth (%) 13.7% 27.3% 21.1% 3.6%Sales growth (%) 69.7% 63.7% 21.1% 54.7%EBIT growth (%) 65.2% 64.2% 8.8% 2.7%Net profit growth (%) 71.2% 45.3% -1.9% 36.5%EPS growth (%) 14.7% 13.1% -1.9% -8.6%Inventory Turnover (x) 5.2x 10.4x 8.1x 8.9xNet Debt to total Capital (%) -2% -7% -2% 17%Net debt to equity (%) -2% -7% -2% 21%Sales/Assets (%) 126% 162% 142% 136% Assets/Equity (%) 135% 132% 142% 172%ROE (%) 24% 30% 22% 24%

Source: Company.



40



KH Vatec (NC, 060720.KQ)

Company description

KH Vatec designs, manufacturers, and sells electronic components. The companyspecializes in dies casting of zinc-based components for application intelecommunication parts. KH Vatec’s products include casing frame for mobilehandsets, electro magnetic interference (EMI) shields, antenna brackets, andnotebook hinges. The company was established in 1999 and listed on KOSDAQ in2002. Key customer is Samsung Electronics.


KH Vatec reported 2012 total revenue of W241bn with OP of W14bn (operatingmargin of 6%). Decline in margin on Y/Y base is mainly due to poor result fromoverseas subsidiary. Moreover, decline in Nokia order volume has negatively

impacted (increasing fixed cost burden) Tianjin subsidiary's performance. However,according to the company, the worst has passed since 3Q12 and they expectoperations to normalize going forward. Of note, KH Vatec accounted for 60% of smartphone and 50% of tablet in LCD bracket supply to Samsung.

FY13 guidance

For 2013, KH Vatec is guiding its top-line to be at low W500bn with operatingmargin around 7%. The company expects 60% of its revenue to come from Samsungand rest of the business from overseas customers. Especially, KH Vatec expectsupside could come from growing tablet PC opportunity given the company is themain supplier for Samsung and Amazon tablet PC. Regarding the competitiondynamics in relation to other casing makers (i.e. Intops, Shinyang, and others), mostcasing makers are in client relationship with KH Vatec as the company supplies part

of their products and has little exposure directly to the emission business.

Valuation

KH Vatec shares are currently trading at 10.3x/8.0x FY13E/FY14E on Bloombergconsensus EPS estimates at 1.2x/1.1x FY13E/FY14E on Bloomberg consensus P/Bestimates. There are currently 4 Buys recommendations as per Bloomberg. Theshares outperformed KOSPI by 89% for last 1 year.


Company views sell-through numbers from SEC and Apple’s smartphones and tabletPC to be a positive key driver for the share price. JPM views total Galaxy SIVshipment for 2013 to be over 60M with its peak expected to be in 3Q13. For tabletPC, stronger-than-expected tablet PC shipment momentum at SEC should provideuptick in casing demand for KH Vatec.








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KH Vatec: Summary of Financials



FY08 FY09 FY10 FY11

Revenues 242 519 351 316COGS -199 -411 -307 -279Depreciation -11 -11 -9 -11Gross Profit 44 108 45 37EBIT 26 82 23 10EBITDA 37 93 33 21Net Interest Income 4 4 5 5Pre- ax Profit 39 76 18 16Tax Credit/(Expense) -9 -18 -5 -6Net Income 30 58 13 10Shares outstanding (MM) 8 8 16 16EPS (Won) 1,540 2,383 450 340

Sequential GrowthRevenues 59% 114 -32% -10%Gross Profit 305% 147 -59% -17%EBIT NM 218 -71% -57%Pre- ax Profit NM 93 -76% -12%EPS NM 55 -81% -24%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11


Current assets 104 215 163 200LT investments 36 49 72 -40Net fixed assets 42 24 36 199Other long term assets 3 3 3 8Total Assets 185 290 275 366ST Debt and CPLTD 24 23 31 0 Account Payables 23 63 44 44Other current liabilities 20 35 17 95Total current liabilities 67 121 92 139Long term debt 19 6 5 28Other Long term liabilities 1 1 0 3Total liabilities 86 127 98 171Shareholder's equity 99 163 176 196Total Liabilities and Equity 185 290 275 366BVPS (Won) 5,088 6,660 6,105 6,655

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11

Net Income 30 58 13 10Depreciation & amort. 11 11 9 11Other non-cash items 0 0 0 0Change in working capital -14 -43 45 19Cash flow from operations 30 34 71 44Purchase of PP&E -4 -87 -253 -301Disposal/ (purchase) -8 55 168 240Cash flow from investing -12 -33 -85 -61Free Cash Flows 26 -54 -183 -257Equity raised/(repaid) 0 0 4 0Debt raised/(repaid) 3 -14 7 -8Other charges 0 5 -4 12

Cash dividends 0 0 0 0Cash flow from Financing 3 -8 15 30Net Effect of F/X changes 0 0 0 0Net Changes in Cash 22 -7 0 14Beginning cash 2 14 11 13Ending cash 24 7 11 26DPS (Won) 0 0 0 0

Source: Company

Ratio analysis


FY08 FY09 FY10 FY11


Net profit margin (%) 12% 11% 4% 3%COGS/sales (%) -81.9% -79.2% -87.3% -88.3%SG&A/sales (%) -1.5% -1.2% -1.3% -2.4%Sales per share growth (%) -36.5% 70.5% -42.7% -11.6%Sales growth (%) 58.7% 114.2% -32.3% -10.0%EBIT growth (%) 1330.1% 217.8% -71.3% -57.0%Net profit growth (%) 928.2% 94.4% -77.7% -23.0%EPS growth (%) 431.2% 54.8% -81.1% -24.3%Inventory Turnover (x) 6.6x 10.8x 9.6x 6.5xNet Debt to total Capital (%) 20% 10% 11% 0%Net debt to equity (%) 29% 11% 14% 0%Sales/Assets (%) 131% 179% 128% 86% Assets/Equity (%) 187% 178% 156% 187%ROE (%) 36% 46% 8% 5%

Source: Company.



42



SFA Engineering (NC, 056190.KS)

Company description

SFA Engineering Corp. manufactures factory automation and logistics systems. Thecompany's products include manufacturing system used for producing a picture tube.SFA Engineering also produces stacker cranes, sorter, conveyor, and loader systemfor automated distribution center.


Company reported 2012 total revenue of W481bn with OP of W64bn on parent base(operating margin of 13%). Especially in 4Q12, margin came above market estimatesmainly due to reduction in production cost after streamlining its production line withmodule base (i.e. infra restructuring) and cost saving from cheaper-than-expectedraw material cost.

FY13 guidance and order outlook

SFA provided wide range of top-line guidance in the range of high-W500bn to low-700bn for 2013 with its margin around 12-13% level.

In terms of order outlook, the company provided order book value guidance in therange from low-W600bn to mid-W700bn depending on 8G SMS deposition order (likely be over W100bn worth). While capacity is expected to be in range of W20-30K, SFA expects to benefit from 8G mass production and additional mobile AM-OLED equipment orders. However, actual orders may differ from the company'scurrent guidance given Samsung is likely to decide its investment plan by end of 1Q13. Management expects 1H13 will be slow, but 2H13 should be better Y/Y.

Valuation

SFA Engineering shares are currently trading at 12.2x/9.7x FY13E/FY14E onBloomberg consensus EPS estimates and at 2.3x/1.9x FY13E/FY14E on Bloombergconsensus P/B estimates. There are currently 18 Buys, 4 Holds, and 1 Sellrecommendations as per Bloomberg. The shares underperformed KOSPI by 4% for last 1 year.


Company hinted at faster-than-expected ramp up at 8G TV line from Samsung would benefit AP Systems. Company views order momentum to be visible once SDC’sstrategic decision toward TV line-ups becomes clear.








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SFA Engineering: Summary of Financials



FY08 FY09 FY10 FY11

Revenues 431 307 423 753COGS -355 -270 -353 -610Depreciation -4 -5 -5 -6Gross Profit 76 37 70 143EBIT 54 15 38 95EBITDA 58 20 42 101Net Interest Income 8 5 5 4Pre- ax Profit 69 25 50 96Tax Credit/(Expense) -19 -7 -11 -20Net Income 50 18 39 76Shares outstanding (MM) 9 9 18 18EPS (Won) 2,557 737 1,362 2,573

Sequential GrowthRevenues 40% -29 38% 78%Gross Profit 21% -52 91% 104%EBIT 21% -72 149% 151%Pre- ax Profit 19% -63 100% 92%EPS -53% -71 85% 89%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11


Current assets 274 167 494 400LT investments 65 73 66 67Net fixed assets 74 67 68 76Other long term assets 4 2 1 15Total Assets 417 310 630 559ST Debt and CPLTD 0 0 0 0 Account Payables 41 30 104 85Other current liabilities 137 39 253 110Total current liabilities 178 69 357 194Long term debt 0 0 0 0Other Long term liabilities 16 12 9 20Total liabilities 194 81 366 214Shareholder's equity 223 228 264 345Total Liabilities and Equity 417 310 630 559BVPS (Won) 11,439 9,333 9,139 11,726

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11

Net Income 50 18 39 76Depreciation & amort. 4 5 5 6Other non-cash items 0 0 0 0Change in working capital -25 -26 33 -3Cash flow from operations 31 -3 85 112Purchase of PP&E -86 -121 -274 -378Disposal/ (purchase) 112 127 229 282Cash flow from investing 27 6 -46 -96Free Cash Flows -55 -125 -189 -266Equity raised/(repaid) 0 0 4 0Debt raised/(repaid) 0 0 0 0Other charges -45 -20 -11 -7

Cash dividends 12 4 0 23Cash flow from Financing -30 -12 1 -9Net Effect of F/X changes 0 0 0 0Net Changes in Cash 28 -10 40 7Beginning cash 10 37 28 68Ending cash 37 28 68 75DPS (Won) -636 -145 0 -770

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11


Net profit margin (%) 12% 6% 9% 10%COGS/sales (%) -82.4% -88.0% -83.4% -81.0%SG&A/sales (%) -3.0% -3.7% -4.1% -2.5%Sales per share growth (%) -43.8% -43.3% 16.6% 75.1%Sales growth (%) 40.4% -28.7% 37.7% 78.1%EBIT growth (%) 21.4% -71.6% 148.5% 150.8%Net profit growth (%) 18.5% -63.8% 118.2% 92.2%EPS growth (%) -52.6% -71.2% 84.7% 88.9%Inventory Turnover (x) 3.2x 10.1x 1.6x 86.5xNet Debt to total Capital (%) -17% -12% -26% -22%Net debt to equity (%) -17% -12% -26% -22%Sales/Assets (%) 103% 99% 67% 135% Assets/Equity (%) 187% 136% 238% 162%ROE (%) 23% 8% 16% 25%

Source: Company.



44



AP Systems (NC, 054620.KQ)

Company description

AP Systems (Asia Pacific Systems) is concentrating on the related manufactureindustry based on semiconductor and LCD manufacturing equipment business. Thecompany was established in 1994 (spin-off from ETRI, Electronics andTelecommunications Research Institute). Key customer is Samsung Electronics.


AP System reported 2012 total revenue of W229bn with OP of W19bn (operatingmargin of 8%). OLED equipment sales marked W208bn of top-line (+25% Y/Y)contributing over 90% of total revenue while rest of top-line came from TFT-LCDand Semiconductor equipment. ELA and Encapsulation equipment each contributed50-60%/20-30% of total revenue.

FY13 guidance and technology outlook

For 2013, the company provided wide range of top-line outlook; sales of W240-320bn (OLED equipment 90+% of total revenue) with OP margin reaching ~11%.Such a big variance is mainly due to uncertainties surrounding A3-line and order amount from overseas customers (China panel makers) as well as flexible displayinvestment. Regarding recent LGD's OLED investment, the company believes Oxide

backplane + W-RGB type OLED TV could target more mass-market segment whileSDC's LTPS backplane + RGB type OLED TV will be more appealing to the

premium segment.

Pricing and margin comparison across equipments

Company disclosed its equipment pricing to be in the range of W6-7bn/unit during2010-2012 for A2-line and pricing in order as follows: LLO > ELA > LITI >Encapsulation. On margin-wise, LLO has the highest margin (~15%) while ELA hasthe least margin (~10%) and rest of LITI and Encapsulation's profitability comes inthe middle range of two equipment.

Valuation

AP Systems shares are currently trading at 7.4x/5.8x FY13E/FY14E on Bloombergconsensus EPS estimates and at 1.4x/1.1x FY13E/FY14E on Bloomberg consensusP/B estimates. There are currently 7 Buys and 4 Holds recommendations as per Bloomberg. The shares underperformed KOSPI by 38% for last 1 year.


Company hinted that faster-than-expected ramp up at 8G TV line from Samsungwould benefit AP Systems. Company views order momentum to be visible onceSDC’s strategic decision toward TV line-ups becomes clear.








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45



Asia Pacific Systems: Summary of Financials



FY08 FY09 FY10 FY11

Revenues 20 92 154 222COGS -13 -74 -141 -178Depreciation -1 -5 -8 -4Gross Profit 7 18 13 45EBIT 1 4 -1 26EBITDA 2 8 7 31Net Interest Income 1 2 1 4Pre- ax Profit 3 0 -16 17Tax Credit/(Expense) 2 2 -1 -3Net Income 4 2 -17 12Shares outstanding (MM) 17 18 21 21EPS (Won) 390 115 -904 625

Sequential GrowthRevenues -52% 353 68% 44%Gross Profit 3157% 167 -27% 236%EBIT NM 287 -137% NMPre- ax Profit NM -84 -3812% NMEPS NM -71 -888% NM

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11

Cash and Cash Equivalents 9 13 16 55 Accounts receivable 27 41 39 57Inventories 20 21 16 14Others current assets -2 5 4 89

Current assets 53 79 73 214LT investments 5 4 8 22Net fixed assets 40 27 23 32Other long term assets 29 23 11 5Total Assets 126 134 116 273ST Debt and CPLTD 36 18 21 40 Account Payables 10 21 14 23Other current liabilities 5 24 20 100Total current liabilities 52 62 55 163Long term debt 11 0 0 26Other Long erm liabilities 3 4 2 2Total liabilities 66 66 57 191Shareholder's equity 61 68 59 82Total Liabilities and Equity 126 134 116 273BVPS (Won) 5,681 3,816 3,140 4,354

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11

Net Income 4 2 -17 12Depreciation & amort. 1 5 8 4Other non-cash items 0 0 0 -3Change in working capital -9 12 -19 -13Cash flow from operations -1 26 -6 26Purchase of PP&E 0 7 -6 -18Disposal/ (purchase) -12 -6 4 -19Cash flow rom investing -12 1 -2 -37Free Cash Flows -1 33 -12 8Equity raised/(repaid) 0 0 0 0Debt raised/(repaid) 19 -29 3 45Other charges 30 6 6 9

Cash dividends 0 0 0 0Cash flow from Financing 13 -24 11 49Net Effect of F/X changes 0 0 0 0Net Changes in Cash 1 4 3 39Beginning cash 1 9 13 16Ending cash 2 13 16 55DPS (Won) 0 0 0 0

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11

Gross Margin (%) 33.7% 19.9% 8.6% 20.1%EBIT Margin (%) 4.5% 3.9% -0.9% 11.9%EBITDA Margin (%) 10% 9% 4% 14%

Net profit margin (%) 20% 2% -11% 7%COGS/sales (%) -66.3% -80.1% -91.4% -79.9%SG&A/sales (%) -8.7% -3.5% -2.3% -2.3%Sales per share growth (%) -54.6% 170.7% 59.7% 44.1%Sales growth (%) -52.2% 353.2% 67.8% 44.1%EBIT growth (%) 113.2% 287.0% -137.4% 2085.0%Net profit growth (%) 148.7% -50.7% -928.3% 185.4%EPS growth (%) 146.3% -70.6% -888.2% 169.1%Inventory Turnover (x) 0.7x 3.6x 9.1x 13.1xNet Debt to total Capital (%) 35% 6% 7% 8%Net debt o equity (%) 63% 8% 9% 14%Sales/Assets (%) 16% 68% 133% 81% Assets/Equity (%) 208% 197% 196% 334%ROE (%) 9% 3% -27% 17%

Source: Company.



46



Iljin Display (NC, 020760.KS)

Company description

Iljin Display develops and manufactures touch screen modules for mobile phones,navigators, security information terminals, tablet PC, and monitors. The companyalso produces substrate for surface acoustic wave (SAW) filter and substrate for substrate for light emitting diode (LED). Company was established in 1994 and listedto KOSDAQ in 2002. Key customer is Samsung Electronics.

4Q12 and FY12 business review

Iljin Display reported 2012 total revenue of ~W597bn with OP of W64bn (operatingmargin of 11%). Company reported to have shipped 2.6M of tablet touch panelmodule shipment and 3.35M in 4Q12 adding total touch panel module shipment of 27.4M in 2012 (tablet 8.6M and smartphone 18.8M). On 4Q12 sales breakdown wise,

tablet accounted 76% of total revenue while smartphone contributed 24% of totaltouch panel revenue. Iljin’s market share within Samsung is around 50% as of 4Q12-end and the company guided 2013 market share to decline YoY to 40+% level whileabsolute volumes to increase.

FY13 guidance

Due to macro uncertainties, the company did not provide full-year guidance for FY13. For 1Q13, Iljin Display expects to record slightly above W170bn revenuewith flattish margin on Q/Q base (100% UTR). Despite seasonal slow demand,company guided its top-line and earnings to remain healthy thanks to strong demandfrom Samsung Electronics. Company views education B2B market to be the mostimportant segment for tablet PC players and their upside at Touch panel businessdepends on which extent Samsung penetrates into B2B education tablet PC segment

onward.

Capacity expansion plan

Iljin’s touch panel business model is to provide one-stop solution from sensor tomodule. Company’s printing type sensor capacity is 10M/month (3.5” base) and

photo capacity is 2.5M/month (3.5”) as of 2012-end. Iljin plans to increase its photocapacity to 6M/month by 1H13 and its design capacity at full ramp-up is expected to

be 10M/month. Reasons for moving into photo-type are; 1) superior visual as photo-type does not incur blur spreading; 2) narrow-bezel form factor; and 3) better throughput.

Valuation

Iljin Display shares are currently trading at 8.6x/7.7x FY13E/FY14E on Bloombergconsensus EPS estimates and at 2.7x/2.0x FY13E/FY14E on Bloomberg consensusP/B estimates. There are currently 13 Buys, 1 Holds, and 1 Sell recommendations as

per Bloomberg. The shares outperformed KOSPI by 52% for last 1 year.


Company views sell-through numbers from SEC's mass-tier smartphones and tabletPC to be a positive key drive for the share price. JPM views total SEC’s smartphoneto be 301M in 2013 (+40% Y/Y) and tablet to be 43M in 2013 (+146% Y/Y).


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Iljin Display: Summary of Financials



FY08 FY09 FY10 FY11

Revenues 10 34 114 324COGS -11 -28 -93 -275Depreciation -1 -2 -4 -7Gross Profit -1 6 21 50EBIT -4 1 13 36EBITDA -3 3 17 44Net Interest Income 1 2 3 3Pre- ax Profit -32 1 10 31Tax Credit/(Expense) 0 0 0 0Net Income -32 1 10 31Shares outstanding (MM) 5 26 26 27EPS (Won) -1,623 21 351 1,043

Sequential GrowthRevenues 83% 241 238% 185%Gross Profit NM NM 251% 139%EBIT NM NM 2238% 178%Pre- ax Profit NM NM 1823% 201%EPS NM NM 1549% 198%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11


Current assets 8 32 69 96LT investments 10 7 12 0Net fixed assets 3 12 45 64Other long term assets 20 19 18 21Total Assets 41 70 144 181ST Debt and CPLTD 8 12 16 46 Account Payables 2 11 33 20Other current liabilities 11 6 38 13Total current liabilities 22 28 88 79Long term debt 3 2 3 10Other Long term liabilities 0 1 1 2Total liabilities 25 31 92 91Shareholder's equity 15 38 51 90Total Liabilities and Equity 41 70 144 181BVPS (Won) 786 1,565 1,778 3,055

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11

Net Income -32 1 10 31Depreciation & amort. 1 2 4 7Other non-cash items 0 0 0 0Change in working capital 2 0 -12 -29Cash flow from operations -1 3 7 17Purchase of PP&E -6 -12 -28 -13Disposal/ (purchase) 6 -4 -8 -5Cash flow from investing 0 -16 -36 -19Free Cash Flows -7 -9 -21 4Equity raised/(repaid) 10 -14 0 1Debt raised/(repaid) 1 2 6 36Other charges 20 37 3 5

Cash dividends 0 0 0 3Cash flow from Financing 1 17 33 14Net Effect of F/X changes 0 0 0 0Net Changes in Cash 1 4 4 12Beginning cash 0 1 5 10Ending cash 1 5 10 21DPS (Won) 0 0 0 -92

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11

Gross Margin (%) -12.2% 17.5% 18.2% 15.3%EBIT Margin (%) -41.2% 1.7% 11.5% 11.2%EBITDA Margin (%) -30% 7% 15% 13%

Net profit margin (%) -319% 2% 9% 9%COGS/sales (%) -112.2% -82.5% -81.8% -84.7%SG&A/sales (%) -6.2% -4.6% -1.8% -0.8%Sales per share growth (%) -26.8% 171.4% 185.8% 179.9%Sales growth (%) 83.0% 241.0% 237.5% 184.8%EBIT growth (%) 13.0% 113.7% 2237.5% 177.8%Net profit growth (%) -39.3% 101.6% 1848.1% 202.8%EPS growth (%) 44.3% 101.3% 1549.5% 197.6%Inventory Turnover (x) 4.9x 4.0x 3.3x 9.9xNet Debt to total Capital (%) 40% 16% 14% 24%Net debt to equity (%) 69% 22% 19% 38%Sales/Assets (%) 24% 49% 79% 179% Assets/Equity (%) 265% 182% 280% 202%ROE (%) -191% 2% 23% 43%

Source: Company.



48



S-MAC (NC, 097780.KQ)

Company description

S-MAC Co designs, manufactures, and supplies touch screen module for mobilehandsets / tablet PC, ITO sensors / and other key modules. S-MAC also has overseasubsidiaries located at Tianjin and Dongguan in China in addition to its productionfacilities in Pyungtaek and Cheonan. Company was established in 2004 and listed toKOSDAQ in 2008. Key customers include Samsung Electronics, Sharp, SonyEricsson, and others.


S-MAC reported 2012 total revenue of ~W450bn with OP of W28bn (operatingmargin of 6.4%). For C-type (GFF touch functionality) embedded devices, S-MACtook 28% within SEC’s shares out of total +130M unit shipments. On sales

breakdown-wise, smartphone contributed 74% and tablet accounted for 26%.

FY13 outlook

For 2013, the company provided top-line revenue of W600bn with margins around 6-7% level as their guidance. Smartphone will continue to be major portion of revenue(~62% of total revenue) while Tablet portion will increase to 38% from 26% in 2012.Revenue exposure to Samsung will likely remain ~95% (flat YoY base) in 2013. For capex, the company is guiding for annual capex of W10bn (down from W20bn fromlast year as FY12 capex was spent to buy land-related utilities).

Margin expansion upon sensor internalization

To improve the overall margin and mitigate risks from ITO sensor shortage, S-MAChas introduced ITO sensor internalization. As of 4Q12, the company internalized 40%of ITO sensor for smartphone touch panel (4” base, 4M unit/month) and 20% of tablet touch panel (10” base, 1.2M unit/month). Moving into 2013, the company

plans to increase sensor capacity to 100% comparable to module capacity for smartphones and 70% for tablet capacity. Once the company fully internalizes thesensor capacity, margin is likely to improve 1~2% from current level thanks toincrease in throughput.

Valuation

S-MAC shares are currently trading at 7.4x/6.2x FY13E/FY14E on Bloombergconsensus EPS estimates and at 1.6x/1.0x FY13E/FY14E on Bloomberg consensusP/B estimates. There are currently 7 Buys recommendations as per Bloomberg. Theshares outperformed KOSPI by 30% for last 1 year.


Company views sell-through numbers from SEC's mass-tier smartphones and tabletPC to be a positive key drive for the share price. JPM views total SEC’s smartphoneto be 301M in 2013 (+40% Y/Y) and tablet to be 43M in 2013 (+146% Y/Y).








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S-MAC: Summary of Financials



FY08 FY09 FY10 FY11

Revenues 142 143 205 470COGS -130 -140 -189 -427Depreciation -1 -2 -3 -3Gross Profit 12 3 16 43EBIT 8 -2 9 33EBITDA 9 0 12 36Net Interest Income 0 1 1 1Pre- ax Profit 8 -1 12 38Tax Credit/(Expense) -2 0 0 -5Net Income 6 -1 12 34Shares outstanding (MM) 6 6 7 8EPS (Won) 311 -58 403 1,144

Sequential GrowthRevenues 85% 1 43% 129%Gross Profit 51% -74 398% 169%EBIT 59% -122 NM 259%Pre- ax Profit 49% -119 NM 231%EPS -44% -119 NM 184%

Source: Company.

Balance sheet


FY08 FY09 FY10 FY11


Current assets 24 27 78 122LT investments -2 6 9 10Net fixed assets 19 19 18 22Other long term assets 1 0 0 1Total Assets 42 52 106 155ST Debt and CPLTD 1 3 6 7 Account Payables 7 10 45 49Other current liabilities 3 11 5 15Total current liabilities 12 24 56 71Long term debt 3 3 6 2Other Long term liabilities 1 0 1 1Total liabilities 15 27 63 74Shareholder's equity 26 25 43 80Total Liabilities and Equity 42 52 106 155BVPS (Won) 1,352 1,019 1,476 2,736

Source: Company.

Cash flow statement


FY08 FY09 FY10 FY11

Net Income 6 -1 12 34Depreciation & amort. 1 2 3 3Other non-cash items 0 0 0 0Change in working capital -4 -10 6 -55Cash flow from operations 5 -8 25 -14Purchase of PP&E -7 0 -1 -1Disposal/ (purchase) -2 -9 -5 -5Cash flow from investing -10 -10 -5 -6Free Cash Flows -2 -8 24 -16Equity raised/(repaid) 1 0 1 0Debt raised/(repaid) 4 2 6 -3Other charges 4 0 5 2

Cash dividends 1 0 1 2Cash flow from Financing 8 12 4 2Net Effect of F/X changes 0 0 0 0Net Changes in Cash 4 -5 23 -18Beginning cash 4 8 2 26Ending cash 8 2 26 7DPS (Won) -31 0 -38 -83

Source: Company.

Ratio analysis


FY08 FY09 FY10 FY11

Gross Margin (%) 8.6% 2.2% 7.8% 9.1%EBIT Margin (%) 5.8% -1.3% 4.5% 7.1%EBITDA Margin (%) 6% 0% 6% 8%

Net profit margin (%) 4% -1% 6% 7%COGS/sales (%) -91.4% -97.8% -92.2% -90.9%SG&A/sales (%) -0.8% -0.8% -1.0% -0.5%Sales per share growth (%) -26.0% -19.8% 21.4% 125.0%Sales growth (%) 85.0% 0.8% 43.4% 128.9%EBIT growth (%) 58.9% -122.0% 613.9% 259.5%Net profit growth (%) 40.0% -123.6% 913.3% 189.2%EPS growth (%) -44.0% -118.8% 788.6% 184.2%Inventory Turnover (x) 29.8x 14.6x 12.2x 39.2xNet Debt to total Capital (%) -13% 12% -24% 2%Net debt to equity (%) -15% 15% -32% 2%Sales/Assets (%) 342% 275% 194% 304% Assets/Equity (%) 158% 209% 248% 192%ROE (%) 30% -6% 34% 55%

Source: Company.



50


JJ Park(822) 758-5717 [email protected]

Appendix I: Korea Tech – Turnover tracker

Table 9: Korea Tech – Turnover Tracker (1)

Local currencies (Won) for share price, Chg (%), Market Cap (Won billions), T.Value = Trading Value (Won bn)

No Company Ticker Price RatingChg

(1D)

Chg

(5D)

Chg

(3M)

Chg

(6M)

Chg

(1YR)

Chg

YTD

Market

Cap

T.Value

(5D)

T.Value

(20D)

T.Value

(3M)

T.Value

(6M)Tech Upstream

1 Samsung Electronics 005930 KS 1,546,000 OW 0.1 1.0 8.1 26.9 30.8 1.6 227,725 330 316 403 3792 SK Hynix 000660 KS 26,400 N -0.4 0.0 8.0 22.8 -13.3 2.5 18,326 86 92 112 1143 LG Display 034220 KS 30,000 OW -1.8 -2.6 -13.2 12.8 1.5 -3.4 10,734 56 59 76 764 LG Electronics 066570 KS 78,400 OW 0.1 1.8 3.4 15.0 -8.0 6.5 12,830 76 73 82 98

Tech Downstream5 Samsung Elto. Mech 009150 KS 94,300 OW -1.3 -1.2 -11.9 -1.0 0.5 -4.9 7,044 24 30 47 536 Samsung SDI 006400 KS 140,000 OW 0.7 -1.4 -10.3 -5.1 -0.7 -7.3 6,378 22 18 23 297 LG Innotek 011070 KS 73,600 OW -2.8 -3.7 -12.4 -18.6 -22.5 -10.6 1,485 8 9 9 108 Cheil Industries 001300 KS 88,400 OW 0.2 -1.6 -7.1 -17.8 -9.4 -6.2 4,635 19 19 21 279 OCI 010060 KS 170,500 UW -1.7 -0.9 14.0 -11.0 -36.4 3.0 4,066 24 27 41 37

10 Seoul Semiconductor 046890 KS 29,750 OW 2.9 1.9 29.6 44.4 14.2 22.9 1,735 19 23 20 17Small caps - Electronics Components

11 Partron 091700 KQ 24,900 NC 5.5 1.2 27.7 116.5 136.3 27.4 965 10.7 12.2 12.0 10.812 Jahwa Electronics 033240 KS 20,400 NC 2.0 2.3 7.4 61.9 92.5 12.1 364 4.2 3.7 4.1 4.613 Sekonix 053450 KQ 23,950 NC 2.8 3.5 7.3 94.2 114.5 13.0 175 5.1 4.3 3.8 4.114 Foosung 093370 KS 4,650 NC -1.2 -2.6 -10.4 -29.7 -34.5 -4.4 394 1.6 2.1 2.8 6.015 Iljin Materials 020150 KS 9,390 NC 1.8 1.3 14.5 -13.9 -42.0 4.3 368 1.5 1.4 1.3 1.916 Intops 049070 KQ 33,400 NC 4.4 0.1 18.7 84.5 77.2 19.5 287 2.9 2.6 2.0 1.817 KH Vatec 060720 KQ 18,350 NC 2.5 6.4 19.2 151.0 101.9 27.0 294 6.5 5.2 4.4 4.4

18 Shinyang Engineering 086830 KQ 20,700 NC -1.4 -1.0 -6.5 191.5 274.3 -3.3 145 0.7 0.5 0.6 1.119 Innochip Technology 080420 KQ 12,650 NC 0.0 -3.1 -15.7 18.2 15.5 -5.9 189 4.2 2.9 2.3 2.120 Wisol 122990 KQ 13,550 NC 0.0 -0.4 14.7 22.1 -9.1 7.5 153 1.5 1.4 1.7 2.821 RFSemi Technologies 096610 KQ 12,550 NC -0.8 -0.8 6.8 17.8 19.5 4.6 102 1.8 1.5 1.3 1.422 E-litecom 041520 KQ 16,250 NC 0.0 9.8 -12.6 -1.5 -10.0 -2.1 198 3 .4 2 .3 2 .5 3.123 BSE CM 045970 KQ 6,400 NC -4.5 -3.9 -21.0 -12.8 27.2 -17.9 85 0.0 0.0 0.0 0.024 Crucial Tech 114120 KQ 12,400 NC -0.8 0.8 30.5 18.1 -16.5 21.6 292 25.4 12.0 6.2 6.3

Small caps - PCB25 Daeduck Electronics 008060 KS 11,250 NC 0.0 8.2 0.4 8.2 -5.1 5.1 549 5.8 3.7 4.1 4.326 Interflex 051370 KQ 45,750 NC 1.4 10.2 -33.1 -34.4 -4.8 -15.0 640 18.6 14.7 13.6 11.927 Flexcom 065270 KQ 22,600 NC 0.9 0.0 5.4 151.4 107.3 2.0 280 16.3 14.0 15.2 13.728 SimmTech 036710 KQ 8,800 NC -1.3 0.3 -14.1 -17.0 -39.7 -14.6 283 2.6 3.5 3.7 4.529 Korea Circuit 007810 KS 21,850 NC 1.2 -1.4 -9.1 32.8 98.6 1.2 409 2.8 2.2 2.8 3.030 BH 090460 KQ 13,400 NC 1.9 0.0 11.2 103.3 83.8 11.7 202 4.7 5.5 6.0 5.2

Source: Bloomberg, J.P. Morgan, All data as of March 4, 2013close.



51


JJ Park(822) 758-5717 [email protected]

Table 10: Korea Tech – Turnover Tracker (2)

Local currencies (Won) for share price, Chg (%), Market Cap (Won billions), T.Value = Trading Value (Won bn)

No Company Ticker Price RatingChg(1D)

Chg(5D)

Chg(3M)

Chg(6M)

Chg(1YR)

Chg YTD

MarketCap

T.Value(5D)

T.Value(20D)

T.Value(3M)

T.Value(6M)

Small caps - Electronics Material31 Duksan Himetal 077360 KQ 26,950 NC 5.3 3.7 29.6 21.4 0.2 26.5 792 7.5 8.8 6.8 6.632 I-Component 059100 KQ 11,250 NC -2.6 -3.0 2.7 1.4 -18.2 0.0 68 3.0 3.0 3.8 3.1

33 Sangbo 027580 KQ 14,450 NC -0.3 7.0 14.2 16.5 7.8 20.4 204 4.7 2.7 1.6 2.134 Innox 088390 KQ 26,850 NC 3.7 2.9 19.1 29.4 21.2 38.4 246 3.0 3.9 4.5 4.0

Small caps - SPE35 SFA Engineering 056190 KS 59,400 NC 0.8 2.6 32.0 26.9 -1.2 25.8 1,066 2.5 5.6 4.1 3.636 Nepes 033640 KQ 18,300 NC 1.7 4.6 25.8 9.6 -1.1 31.2 399 9.7 7.5 6.3 6.437 ICD 040910 KQ 13,700 NC 0.4 5.4 5.4 -10.2 -54.8 24.5 213 11.0 5.3 5.6 5.238 AP System 054620 KQ 8,720 NC 0.0 2.5 24.6 -16.2 na 19.8 189 6.2 4.5 5.4 7.439 Jusung Engineering 036930 KS 5,340 NC -0.2 2.5 21.6 -17.9 -51.3 17.4 220 1.4 1.6 2.7 2.240 SNU Precision 080000 KS 6,560 NC 3.5 -4.2 57.5 -3.5 -43.9 36.1 134 1.9 1.6 1.7 1.341 Soulbrain 036830 KQ 41,650 NC -0.8 0.0 -15.0 6.7 7.5 -10.9 675 3.4 2.9 3.1 3.442 Wonik IPS 030530 KQ 4,960 NC -1.4 -2.7 9.6 -12.5 -48.4 6.3 363 4.4 3.3 4.6 4.5

Small caps - Touch Panel43 Iljin Display 020760 KS 21,150 NC -0.5 5.0 -7.4 28.6 56.7 -4.3 599 7 .8 8 .0 7 .8 8 .644 S-MAC 097780 KQ 16,350 NC -0.3 1.2 0.4 46.7 23.5 -2.7 282 3.4 3.8 5.7 7.545 Melfas 096640.KQ 20,750 NC 1.0 4.0 -28.3 7.5 -21.8 -23.3 373 12.1 11.7 15.8 14.846 ELK 094190 KQ 21,100 NC 2.4 5.0 -3.0 33.1 31.9 5.5 294 19.8 11.4 7.6 8.0

Small caps - Others47 Silicon Works 108320 KS 21,350 NC 0.2 3.9 -19.3 -29.2 -40.0 -4.5 347 4.6 3.7 4.9 6.148 Anapass 123860 KQ 13,450 NC 1.1 1.1 4.3 11.2 12.6 11.6 136 3.5 1.8 2.3 1.749 Power Logics 047310 KQ 5,680 NC 0.5 0.9 48.1 26.2 3.8 41.1 161 3.2 3.4 1.8 1.550 DnF solution 092070 KQ 9,390 NC -0.8 -1.7 -32.4 7.3 14.5 -27.8 89 0.7 0.9 1.7 1.851 Infraware 041020 KQ 12,450 NC 4.6 6.4 32.9 54.3 -12.6 31.7 228 9.6 7.4 7.8 8.352 Barun Electronics 064520 KQ 1,590 NC -0.3 -0.6 6.7 50.7 4.3 16.1 57 1.1 1.5 2.8 3.053 ABCO Electronics 036010 KQ 4,455 NC -2.7 -7.4 1.3 6.2 -13.5 1.9 52 1.1 0.7 0.5 0.454 Sangsin EDP 091580 KQ 3,800 NC -1.0 -1.7 7.2 -3.8 -12.0 3.0 43 0.1 0.1 0.1 0.255 Lumens 038060 KS 8,580 NC 3.5 2.6 11.1 27.7 13.8 22.2 351 11.2 12.8 11.7 10.156 Sapphire Technology 123260 KS 27,900 NC 5.1 5.1 -22.5 -45.3 -54.5 1.5 225 1.6 1.9 2.9 2.657 Od- ech 080520 KQ 14,850 NC 0.0 3.5 25.8 31.4 74.7 17.4 135 1.2 0.8 0.8 1.158 Kumho Electric 001210 KS 34,150 NC 1.9 -4.1 46.3 81.6 21.5 59.2 236 3.3 4.1 2.4 1.6

Source: Bloomberg, J.P. Morgan, All data as of March4, 2013 close.



52



Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research

analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the documentindividually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report.

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Electronics within the past 12 months.

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Coverage Universe: Park, JJ: LG Display (034220.KS), LG Electronics (066570.KS), SK Hynix (000660.KS), Samsung Electronics(005930.KS)

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mailto:[email protected]








53



Itaya, Masashi: Alps Electric (6770) (6770.T), Anritsu (6754) (6754.T), Hirose Electric (6806) (6806.T), Ibiden (4062) (4062.T),Kyocera (6971) (6971.T), Mabuchi Motor (6592) (6592.T), Minebea (6479) (6479.T), Murata Manufacturing (6981) (6981.OS), NGK

Spark Plug (5334) (5334.T), NHK Spring (5991) (5991.T), NOK (7240) (7240.T), Nidec (6594) (6594.OS), Nitto Denko (6988) (6988.T),Rohm (6963) (6963.OS), Sanken Electric (6707) (6707.T), Shinko Electric Industries (6967) (6967.T), TDK (6762) (6762.T), TaiyoYuden (6976) (6976.T)

Kang, Helaine: Cheil Industries (001300.KS), KT Corp. (030200.KS), LG Innotek Co., Ltd (011070.KS), LG Uplus (032640.KS), OCI(010060.KS), SK Telecom (017670.KS), Samsung Electro-Mechanics (009150.KS), Samsung SDI (006400.KS), Seoul Semiconductor (046890.KQ)

J.P. Morgan Equity Research Ratings Distribution, as of January 1, 2013

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 44% 44% 12%

IB clients* 53% 46% 34%

JPMS Equity Research Coverage 42% 49% 9%IB clients* 71% 62% 51%

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