Industry update                                                                  Handsets Korea / Handsets                ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com              ...
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
130305 mirae handsets-into the storm
Upcoming SlideShare
Loading in...5
×

130305 mirae handsets-into the storm

1,374

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,374
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

130305 mirae handsets-into the storm

  1. 1. Industry update Handsets Korea / Handsets Into the storm 5 March 2013 OVERWEIGHT We maintain our OVERWEIGHT weighting for Korean handset makers and recommend Samsung Electro-Mechanics (SEMCO; 009150 KS) as our sector top pick. Smartphone demand growth in 2013 will be driven by emerging markets. The recent rapid market share gains by Chinese smartphone makers will lower industry-wide ASPs and margins, but help enhance the average hardware performance of handsets, thus boosting demand for high-end Stocks under coverage components going forward. In addition, the expected market share expansion Company Rating Price Target price by SEC in 2013 should lead to qualitative and quantitative growth of SEMCO, LG Electronics (066570 KS) BUY 78,300 88,000 the largest parts supplier for SEC. SEMCO (009150 KS) BUY 95,500 125,000 LG Innotek (011070 KS) BUY 75,700 83,000 Melfas (096640 KS) BUY 20,550 35,000 Chinese handset makers to expand local market share Silicon Works (108320 KS) BUY 21,300 38,000 Note: Prices are in KRW; price close as of 1 Mar. 2013 Chinese smartphone makers ZTE, Huawei and Lenovo are aiming to expand local market share in 1H13; we expect their combined market share in China Global handset market share in 4Q12 to rise by 3.9ppt YoY to 22.2% in 2013, as a result. At the Mobile World Congress (MWC), we confirmed that the three Chinese handset makers are: 1) Others, 30.4% SEC, 23.6% rapidly advancing, in terms of smartphone hardware competitiveness; 2) competitive against peers, in terms of production costs; and 3) set to see HTC, 1.4% shipment growth, with new smartphones slated for release in early 2Q12 through local telecom carriers (China Mobile, China Unicom and China RIM, 1.6% Nokia, Telecom). We expect the three Chinese smartphone makers to swiftly expand Google, 1.7% 18.3% their market shares in mid- to low-end smartphones and steadily eat into the Sony, 1.7% white-box smartphone market going forward. Apple, Lenovo, 10.1% Huawei, 1.8% 2.9% LGE, 3.3% ZTE, 3.4% Profitability of mid-to-low-end smartphones to decline in 2H13 We expect market competition among handset makers to stiffen further in 2H13, Source: Gartner, Mirae Asset Research with the three Chinese companies set to post rapid growth in 1H13 and new flagship models to be released by Samsung Electronics and Apple in 2Q13. Global smartphone market share in 4Q12 Meanwhile, we believe the increasing size of the Chinese market and the rise in Others, 22.0% Chinese handset makers’ global market share will pull down worldwide SEC, 30.1% smartphone ASP by 13.6% YoY in 2013, driving up the cost burden of Google, 2.2% components for handset makers, as a result. Moreover, the aggressive release of Sony, 3.4% new smartphones in 2H13 should spark subsidy competition, driving down the LGE, 4.1% profitability of mid-to-low-end smartphones even further going forward. We thus Nokia, 3.2% expect the operating margin of SEC’s IM division to decrease by 1.9ppt to 16.0% ZTE, 4.0% Apple, in 2013 and the operating margin of LG Electronics’ MC division to increase to a Huawei, 4.2% 20.9% high of 4.1% in 3Q13, before decreasing to 3.4% in 4Q13. HTC, 3.2% RIM, 3.5% Source: Gartner, Mirae Asset Research Return of smartphone paradigm identity and eco-system At this year’s MWC, we noted that handset suppliers are focusing on building the identities of new flagship models through UX and killer applications, while seeking to develop an independent ecosystem by diversifying platforms beyond the oligopolistic Android (whose smartphone OS market share stood at 64% in 2012) in 2013. Through these efforts, handset makers are seeking to protect the premium of high-margin flagship smartphones, reinforce customer loyalty through the emphasis on differentiation and reduce marketing costs for Jinho Cho, Analyst 82 2 3774 3831 jcho@miraeasset.com mid- to low-end models. Between 2011 and 2012, competition in the handset industry had focused primarily on developing advanced hardware features. Yongjei Jeong However, due to the rapid improvement in flagship smartphone hardware, 82 2 3774 1938 yongjei@miraeasset.com competition to find differentiation points in hardware ceased in 2013, with latecomers closing the gap with top-tiers, in terms of hardware competitiveness.See the last page of this report for important disclosures
  2. 2. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets SEMCO remains our top pick, LG Electronics our second pick We expect Samsung Electronics’ global market share to continue to grow by 0.4ppt YoY to 23.6% in 2013, benefiting its largest parts supplier, SEMCO (009150 KS). SEMCO remains our top pick, as: 1) parts shipments are set to grow visibly, with Samsung Electronics’ smartphone shipments forecast to rise by 34.4% YoY to 290m units in 2013; 2) backed by 89% YoY growth in Samsung Electronics’ flagship smartphone shipments to 146m units in 2013, product mix improvement should drive up SEMCO’s profitability; and 3) market prices of handsets components are unlikely to decline, despite the recently improved profitability of Japanese parts makers. LG Electronics (066570 KS) is selected as our second top pick, given: 1) the steady improvement in the competitiveness of its flagship smartphones; and 2) forecasts for market share recovery in Korea and Latin America and improvement in profitability in 1H13, backed by a competitive smartphone lineup and its platform-sharing strategy. 22Mirae Asset Securities
  3. 3. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets T a b l e o f c o n t e n t s Ⅰ. Executive Summary 4 1. Summary 4 2. Valuation 6 Ⅱ. Investment Points 13 1. Continued demand growth in emerging markets 13 2. Chinese peers to expand local market share on reinforced competitiveness 15 3. SEC to outshine peers in cost and supply chain competitiveness 22 4. Smartphone industry paradigm returning to identity and ecosystem 26 5. SEMCO (009150 KS) remains our top-pick, LGE is our second pick 32 Ⅲ. Appendix 33 1. 1Q13E smartphone peers’ earnings guidance & consensus 33 2. Handset peers’ shipment portions by country 35 3. Handset market share by vendor in 2012 36 4. Smartphone market share by vendor in 2012 37 5. Tablet PC market share and line-up in 2013 38 Company Analysis 39 Samsung Electro-Mechanics (009150 KS, BUY, TP: KRW125,000) 40 LG Electronics (066570 KS, BUY, TP: KRW88,00) 54 33Mirae Asset Securities
  4. 4. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Ⅰ. Executive summary 1. Summary Demand growth to be driven by emerging markets Demand: Global demand We forecast global demand for handsets and smartphones in 2013 to reach 1.89bn units (+8.7% growth will continue into YoY) and 897m units (+32.4% YoY), respectively. We expect China to drive global demand 2013, driven by China growth in 2013, as demand for handsets and smartphones in China should expand by 21.8% YoY (to 495m units) and 56% YoY (to 270m units), respectively. Notably, China’s contribution to global demand should rise by 4.6ppt YoY to 30.2% in 2013. We see ample upside in demand growth in China, given that: 1) smartphone users’ portion of mobile phone subscribers in China remains relatively low, at 24% (compared with 48% in North America); and 2) the smartphone penetration rate in China is also lower than that of North America (42.6%, versus 65.3%); and 3) the portion of white-box smartphones in China is also high (45.2% in 2012). Top-3 Chinese handset makers to expand local market share Supply: Top-three Chinese The top-three Chinese smartphone makers, ZTE, Huawei and Lenovo, are aiming to expand smartphone makers (ZTE, local market share in 1H13; as a result, we expect their combined market share in China to Huawei and Lenovo) to expand their local market rise by 3.9ppt YoY to 22.2% in 2013. At this year’s Mobile World Congress (MWC), we share confirmed that the three Chinese handset makers are: 1) rapidly advancing, in terms of smartphone hardware competitiveness; 2) competitive against peers, in terms of production costs; and 3) set to see shipment growth, with new smartphones slated for release in early 2Q12 through local telecom carriers (China Mobile, China Unicom and China Telecom). We expect the three Chinese smartphone makers to rapidly expand their market shares in low-to mid-end smartphones and steadily eat into the white-box smartphone market going forward. SEC to outshine peers in cost and supply chain competitiveness Competitive landscape: SEC We expect market competition among handset makers to stiffen further in 2H13, with the top- to outshine peers in cost three Chinese companies set to post rapid growth in 1H13 and new flagship models to be and supply chain competitiveness released by SEC and Apple in 2Q13. Meanwhile, we believe the increasing weight of the Chinese market in global demand and the rise in Chinese handset makers’ global market share will lower worldwide smartphone ASP by 13.6% YoY in 2013, driving up the cost burden of components for handset makers as a result. Moreover, the aggressive release of new smartphones in 2H13 should spark subsidy competition, driving down the industry’s profitability even further going forward. Nevertheless, we expect SEC to continue to expand its Chinese and global market share in 2013, outpacing market growth with limited fluctuations in profitability. With a relatively high portion of in-house produced components and strict control exerted over its (financially sound) supply chain, we believe SEC still has the scope for additional reductions in components’ portion of total costs. Smartphone paradigm returning to identity and eco-system Industry paradigm At this year’s MWC, we noted that handset suppliers are focusing on building the identities of returning to identity and their new flagship models through UX and killer applications, while seeking to develop an eco-system independent ecosystem by diversifying platforms beyond the oligopolistic Android (whose smartphone OS market share stood at 64% in 2012) in 2013. Through these efforts, handset makers are seeking to preserve the premium of high-margin flagship smartphones, reinforce customer loyalty through the emphasis on differentiation and reduce marketing costs for low-to mid-end models. Between 2011 and 2012, competition in the handset industry had focused primarily on developing advanced hardware features. However, due to the rapid improvement in flagship smartphone hardware, competition to find differentiation points in hardware ceased in 2013, with latecomers closing the gap with top-tiers, in terms of hardware competitiveness. Through efforts to establish a solid identity, handset makers are seeking to: 1) preserve margins for high-margin flagship smartphones; 2) increase customer loyalty and expand market share through the development of an independent ecosystem; 3) reduce marketing costs for low-to mid-end models; and 4) diversify profit models to software/content (after focusing primarily on hardware sales to date). In sharp contrast to Chinese smartphone makers, which continued to emphasize the advanced hardware performance of their flagship models at the 2013 MWC, other smartphone makers (SEC, LG Electronics, Nokia, HTC and Sony) focused on the identity and differentiated UX of their new smartphone models. 44Mirae Asset Securities
  5. 5. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets SEMCO (009150 KS) remains our top-pick; LGE is our second pick SEMCO remains our sector- In light of the likely continued expansion in SEC’s global market share in 2013 (+0.4ppt YoY top pick, with an unchanged to 23.6%), we reiterate our BUY rating and target price of KRW125,000 for SEMCO, as a top- target price of KRW125,000 pick for the sector. We believe that: 1) 34.4% YoY growth in SEC’s smartphone shipments (to 290m units) expected in 2013 should drive up shipments of related components; 2) the expected 89% YoY growth in SEC’s flagship smartphone shipments (to 146m units) should improve SEMCO’s product mix, thus lifting its profitability; and 3) component ASPs are unlikely to decline, despite the recent margin improvement by Japanese component makers. Our second-pick for the sector is LGE, due to: 1) the gradual improvement in the competitiveness of its flagship smartphone models; and 2) the likely recovery in its market shares in both Korea and Latin America in 1H13, backed by its competitive new smartphone lineup and platform-sharing strategy.Figure 1 Handset shipment forecasts by supplier 1Q13E 2Q13E 3Q13E 4Q13E 2011 2012E 2013E 2014E 2015E Population/m 7,022 7,041 7,060 7,079 7,062 7,135 7,207 7,279 7,425 Subscriber/m 6,192 6,308 6,424 6,540 5,613 6,120 6,559 6,955 7,319 Shipment/m Total 415 445 489 543 1,776 1,741 1,892 2,026 2,106 Smartphone 201 212 233 251 473 678 897 1,108 1,319 QoQ/YoY (%) Total (12.0) 7.0 10.0 11.0 11.2 (2.0) 8.7 7.1 4.0 Smartphone (3.0) 5.0 10.0 8.0 58.2 43.3 32.4 23.5 19.1 Penetration (%) 48.5 47.6 47.6 46.3 26.6 38.9 47.4 54.7 62.6 Net added 584 506 439 396 365 Replacement 1,191 1,234 1,453 1,629 1,741 Replacement/month 51 55 51 48 48 ASP/US$ 130 149 157 142 139 Market sales/US$ bn 231 260 297 287 294 Shipment/m Total 415 445 489 543 1,776 1,741 1,892 2,026 2,106 Nokia 82 88 97 107 414 335 375 401 417 Samsung 100 108 114 123 328 405 446 536 615 LG Electronics 15 16 18 18 87 56 67 67 68 RIM 9 9 10 10 52 34 38 36 38 Sony 8 9 10 11 33 31 38 41 42 Google 8 8 11 13 41 34 41 48 49 Apple 35 37 43 50 91 134 166 207 259 HTC 9 8 8 12 43 32 36 45 46 ZTE 25 31 37 41 56 68 133 152 158 Huawei 17 22 29 38 41 47 106 142 147 Lenovo 12 13 15 16 16 28 57 61 63 MS (%) Nokia 19.8 19.8 19.8 19.8 23.3 19.2 19.8 19.8 19.8 Samsung 24.1 24.3 23.4 22.7 18.5 23.2 23.6 26.5 29.2 LG Electronics 3.7 3.6 3.6 3.3 4.9 3.2 3.5 3.3 3.2 RIM 2.2 2.1 2.0 1.8 2.9 2.0 2.0 1.8 1.8 Sony 2.0 2.0 2.0 2.0 1.8 1.8 2.0 2.0 2.0 Google 2.0 1.9 2.3 2.3 2.3 1.9 2.1 2.3 2.3 Apple 8.5 8.4 8.8 9.2 5.1 7.7 8.8 10.2 12.3 HTC 2.2 1.7 1.6 2.2 2.4 1.8 1.9 2.2 2.2 ZTE 6.0 7.0 7.5 7.5 3.1 3.9 7.1 7.5 7.5 Huawei 4.0 5.0 6.0 7.0 2.3 2.7 5.6 7.0 7.0 Lenovo 3.0 3.0 3.0 3.0 0.9 1.6 3.0 3.0 3.0 Smartphone shipments Nokia 6.4 6.7 7.4 8.0 85.9 35.0 28.5 35.2 41.9 Samsung 60.1 69.1 76.0 85.1 97.0 216.0 290.3 393.2 483.3 LG Electronics 9.4 10.3 12.4 13.0 19.0 26.2 45.2 51.8 56.5 RIM 9.1 9.3 9.8 9.8 52.7 35.2 38.0 36.5 37.9 Sony 7.7 8.0 8.6 8.8 19.6 24.5 33.1 38.8 42.2 Google 5.6 5.7 6.3 6.5 18.6 19.5 24.2 31.2 46.2 Apple 35.4 37.5 42.8 49.8 90.6 133.8 165.5 207.4 259.2 HTC 9.1 7.6 7.8 11.9 43.6 32.1 36.5 44.6 46.3 ZTE 8.1 8.5 9.3 10.1 10.5 26.8 35.9 44.3 52.8 Huawei 8.4 8.8 9.7 10.5 15.6 27.2 37.4 46.2 55.0 Lenovo 8.1 8.5 9.3 10.1 1.7 21.7 35.9 44.3 52.8Source: Gartner, IMF, Mirae Asset Research 55Mirae Asset Securities
  6. 6. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets 2. Valuation Pure smartphone suppliers Pure smartphone suppliers, such as Apple, HTC and RIM, have traded at an average P/B of have traded within P/B 5.2x (3.6x-9.7x) since 2007, when the smartphone market began to expand significantly. band of 3.6-9.7x since 2007 These companies have enjoyed a price premium to feature-phone suppliers, such as LGE and Nokia, whose shares have traded at an average P/B of 2.1x (0.6x-6.3x) during the same period. Compared with feature-phone suppliers, pure smartphone suppliers: 1) have been able to achieve faster market share gains, thanks to steep increases in smartphone penetration rates; 2) have maintained stronger profitability; and 3) have seen higher BPS growth rate from 2007 to 2012 (+30.6%, compared with +28.2% for feature-phone vendors). Valuation premium versus However, smartphone demand growth began to slow from 1Q12 (when the penetration rate second-tiers should narrow of smartphones in North America exceeded 50%), while the rapid growth of Chinese handset going forward suppliers (ZTE, Huawei and Lenovo) intensified competiton over ASP. Moreover, SEC and Apple confirmed their competitiveness in the smartphone market by increasing their market shares. Handset suppliers’ valuation In 2013, handset suppliers valuations should remain almost unchanged (in 2012, smartphone should remain unchanged in suppliers’ average P/B was 2.3x, while that of feature-phone suppliers was 1.2x). Global 2013 demand should remain relatively strong, as handset and smartphone shipments should increase by 8.7% YoY and 32.4% YoY in 2013. However, the profitability improvement of second-tiers should remain limited, as: 1) the penetration rate of smartphones (+8.5ppt YoY to 47.4%) should increase at a slower pace; and 2) top-tiers SEC and Apple, as well as Chinese vendors, should continue to expand their shipments. China’s top-three smartphone makers should With their cost competitiveness, China’s top-three smartphone makers (ZTE, Huawei and achieve market share gains Lenovo) should rapidly expand their presence in China, as well as emerging markets and thus both in China and emerging markets and thus maintain see a continued increase in shipments in 2013. As such, they should enjoy a valuation valuation premium vs. peers premium to peers in 2013. Figure 2 Smartphone vendors’ (Apple, HTC, RIM) P/B band Figure 3 Handset vendors’ (Nokia, LGE) P/B band (x) (x) 16 7 14 6 12 5 10 High 4 8 3 6 Average Average High 2 4 Low Low 1 2 0 0 2007 2008 2009 2010 2011 2012E 2013E 2007 2008 2009 2010 2011 2012E 2013E Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 66Mirae Asset Securities
  7. 7. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 4 Handset peers’ valuation table LGE Apple SEC HTC Nokia RIM ZTE Lenovo Price (KRW,US$,HK$,NT$) 78,300 434 1,544,000 280.0 3.6 13.7 12.8 9.0 Market cap.(US$ m) 11,819 407,633 208,594 8,047 13,407 7,165 5,510 12,107 Sales (US$ m) 2010 48,239 65,225 133,789 8,858 56,309 19,907 10,330 21,594 2011 49,021 108,249 149,080 15,849 53,829 18,435 13,348 29,574 2012E 46,327 156,212 183,017 9,991 39,628 11,267 14,262 34,311 2013E 46,477 182,497 195,583 9,495 39,119 12,928 16,677 38,669 2014E 48,763 205,625 211,741 10,100 40,025 12,101 18,825 42,594 OP (US$ m) 2010 76 18,385 14,381 1,402 2,746 4,636 616 369 2011 310 33,790 13,964 2,341 24 1,845 426 594 2012E 1,022 55,252 26,413 661 115 (1,160) (34) 778 2013E 1,299 55,296 31,427 454 1,311 (458) 579 975 2014E 1,377 63,371 35,085 591 1,386 (374) 686 1,112 NI (US$ m) 2010 1,062 14,013 13,670 1,256 2,454 3,411 480 273 2011 (424) 25,922 12,070 2,109 (1,621) 1,164 319 473 2012E 83 41,811 21,677 578 (894) (629) (178) 619 2013E 916 42,016 25,818 438 144 (198) 329 764 2014E 979 47,935 28,805 495 545 (234) 432 885 P/E (x) 2010 48.3 19.3 8.8 18.6 15.5 10.4 22.4 20.1 2011 - 14.6 11.7 6.8 - 3.3 32.4 19.3 2012E 174.2 9.8 9.7 14.3 - - - 19.3 2013E 12.5 9.8 8.3 17.7 60.0 - 17.4 15.7 2014E 11.7 8.6 7.3 14.2 21.7 - 13.2 13.5 P/B (x) 2010 1.4 5.6 1.9 9.7 2.0 3.9 3.3 3.1 2011 1.0 4.9 1.8 4.1 1.2 0.7 2.8 3.9 2012E 1.0 3.5 2.2 2.7 1.2 0.8 1.5 4.5 2013E 1.0 2.8 1.8 2.6 1.3 0.8 1.4 3.7 2014E 1.0 2.3 1.5 2.4 1.2 0.8 1.3 3.3 EV/EBITDA (x) 2010 16.3 11.2 5.0 14.4 6.4 5.8 16.4 5.2 2011 11.5 8.3 5.3 4.6 6.9 1.6 17.2 7.0 2012E 7.2 4.8 4.6 7.9 10.7 8.5 195.6 8.5 2013E 6.6 4.6 3.7 10.5 4.4 4.2 10.4 6.4 2014E 6.3 3.9 3.0 9.3 3.3 6.3 8.7 5.2 ROE (%) 2010 11.3 35.3 21.2 56.3 13.5 41.2 16.3 15.9 2011 (3.7) 41.7 15.0 70.4 (8.9) 12.2 8.7 22.5 2012E 0.5 40.5 22.0 17.8 (15.2) (8.1) (4.9) 24.1 2013E 7.8 31.8 21.3 15.2 0.5 (2.3) 8.4 26.0 2014E 7.7 28.2 19.8 16.0 7.0 (2.8) 10.2 25.8Source: Bloomberg, Mirae Asset ResearchNote: Mirae Asset estimates for LGE and SEC (share price data as of 1 March 2013) 77Mirae Asset Securities
  8. 8. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 5 Handset peers’ historical valuations 2007 2008 2009 2010 2011 2012E 2013E 2014E LGE (066570 KS) EPS KRW 7,625 2,717 14,197 7,612 (3,132) 422 6,249 6,678 BPS KRW 49,289 57,223 81,014 87,280 71,303 70,220 75,590 81,343 P/E (x) 13.1 27.5 8.6 48.3 - 174.2 12.5 11.7 high 73.2 27.5 54.7 48.3 50.8 174.2 low 13.1 9.2 8.6 6.5 22.3 13.5 P/B (x) 2.0 1.3 1.5 1.4 1.0 1.0 1.0 1.0 high 2.7 3.3 2.6 1.6 1.4 1.6 low 1.3 1.3 1.2 1.1 0.6 0.7 ROE (%) 31.5 14.7 30.2 11.3 (3.7) 0.5 7.8 7.7 Apple (AAPL US) EPS US$ 4.0 6.9 9.2 15.4 28.1 44.3 44.5 50.7 BPS US$ 16.7 25.1 35.2 52.2 82.4 124.6 154.2 192.2 P/E (x) 39.1 18.9 20.1 19.3 14.6 10.0 10.0 8.8 high 88.0 49.6 31.2 35.8 27.9 25.4 low 36.7 12.6 11.5 21.2 14.6 12.1 P/B (x) 9.2 5.1 5.2 5.6 4.9 3.6 2.9 2.3 high 17.1 11.7 8.4 9.3 8.1 8.5 low 7.1 3.4 3.1 5.5 4.9 4.2 ROE (%) 28.5 33.2 30.5 35.3 41.7 40.5 31.8 28.2 HTC (2498 TT) EPS US$ 1.0 1.0 0.8 1.5 2.5 0.7 0.5 0.7 BPS US$ 2.0 2.1 2.4 3.0 4.0 3.6 3.6 3.9 P/E (x) 11.9 8.6 12.8 18.6 6.8 14.2 17.5 14.1 high 11.9 17.6 14.1 31.8 26.8 14.9 low 6.9 5.4 8.2 9.7 6.8 2.6 P/B (x) 6.1 4.0 4.4 9.7 4.1 2.7 2.6 2.4 high 7.1 9.1 6.6 11.0 14.1 5.5 low 4.1 2.8 3.8 3.3 4.1 1.6 ROE (%) 58.7 49.1 35.8 56.3 70.4 17.8 15.2 16.0 Nokia (NOK US) EPS US$ 2.5 1.6 0.3 0.7 (0.4) (0.3) 0.1 0.2 BPS US$ 5.4 5.4 5.1 5.2 4.1 2.9 2.5 3.0 P/E (x) 14.3 10.4 37.1 15.5 - - 62.5 22.6 high 27.0 13.9 37.1 48.7 16.8 - low 13.8 5.4 6.5 15.5 6.9 - P/B (x) 7.1 2.9 2.5 2.0 1.2 1.3 1.3 1.3 high 9.8 7.0 3.1 3.3 2.2 1.4 low 5.0 2.7 1.8 1.9 0.9 0.4 ROE (%) 53.9 27.5 6.5 13.5 (8.9) (15.2) 0.5 7.0 RIM (BBRY US) EPS US$ 2.3 3.3 4.3 6.4 2.2 (1.2) (0.3) (0.4) BPS US$ 7.0 10.4 13.6 17.1 19.3 17.5 17.2 17.1 P/E (x) 46.3 12.2 16.6 10.4 3.3 - - high 71.3 65.3 26.0 17.8 11.0 4.2 low 23.3 12.3 10.7 9.1 2.0 1.5 P/B (x) 15.0 3.9 5.2 3.9 0.7 0.8 0.8 0.8 high 17.7 21.1 8.3 5.6 4.1 0.9 low 5.8 3.9 3.4 3.1 0.7 0.3 ROE (%) 40.3 38.6 36.5 41.2 12.2 (8.1) (2.3) (2.8) ZTE (763 HK) EPS US$ 0.1 0.1 0.1 0.1 0.1 (0.1) 0.1 0.1 BPS US$ 0.5 0.7 0.7 1.0 1.1 1.1 1.2 1.3 P/E (x) 30.4 14.4 30.2 22.4 32.4 (0.0) 18.0 13.7 high 57.9 34.8 35.4 33.6 32.4 33.1 low 30.4 7.9 13.5 14.1 12.2 12.4 P/B (x) 3.1 1.7 4.6 3.3 2.8 1.6 1.5 1.3 high 4.1 3.6 4.6 5.1 3.8 2.9 low 2.5 0.8 1.6 2.1 1.8 1.1 ROE (%) 10.9 12.6 15.8 16.3 8.7 (4.9) 8.4 10.2Source: Bloomberg, Mirae Asset Research 88Mirae Asset Securities
  9. 9. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 6 SEC handset division’s OP vs. stock price Figure 7 LGE MC division’s OP vs. stock price (KRW bn) (000 KRW) (KRW 100m) (KRW) 6,000 1,800 8,000 180,000 1,600 5,000 160,000 6,000 1,400 140,000 4,000 1,200 4,000 120,000 1,000 100,000 3,000 2,000 800 80,000 0 60,000 2,000 600 40,000 400 (2,000) 1,000 20,000 200 (4,000) 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 OP(LHS) KRW(RHS) OP(LHS) Price(RHS) Source: SEC, Bloomberg, Mirae Asset Research Source: LGE, Bloomberg, Mirae Asset Research Figure 8 Apple ( AAPL US) iPhone OP vs. stock price Figure 9 HTC (2498 TT) OP vs. stock price (US$ bn) (US$) (NT$ bn) (NT$) 14 800 25 1,400 12 700 1,200 20 600 10 1,000 500 15 8 800 400 6 600 300 10 4 400 200 5 2 100 200 0 0 0 0 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 OP(LHS) Pirce(RHS) OP(LHS) Price(RHS) Source: Apple, Bloomberg, Mirae Asset Research Source: HTC, Bloomberg, Mirae Asset Research Figure 10 Nokia (NOK US) handset division’s OP vs. stock price Figure 11 RIM (RIMM US) OP vs. stock price (US$ bn) (EUR) (US$ m) (US$) 5 30 1,400 160 1,200 140 4 25 1,000 120 3 800 20 600 100 2 15 400 80 1 200 60 10 0 0 40 (200) (1) 5 (400) 20 (2) 0 (600) 0 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013 OP(LHS) Price(RHS) Price(RHS) OP(LHS) Source: Nokia, Bloomberg, Mirae Asset Research Source: RIM, Bloomberg, Mirae Asset Research 99Mirae Asset Securities
  10. 10. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 12 SEC P/E band Figure 13 SEC P/B band (KRW 000) (KRW 000) 2,000 14x 2,500 1,800 12x 1,600 2,000 2.5x 1,400 10x 1,200 Share price 1,500 8x Share price 2.0x 1,000 1.0x 800 1,000 600 0.5x 400 500 200 0 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 14 LGE P/E band Figure 15 LGE P/B band (KRW 000) (KRW 000) Share price 500 180 400 Share price 160 140 2.0x 300 120 40x 200 100 1.5x 30x 100 20x 80 1.0x 10x 60 0 40 0.5x (100) 20 (200) 0 2002 2004 2006 2008 2010 2012 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 16 Apple (AAPL US) P/E band Figure 17 Apple (AAPL US) P/B band (US$) (US$) 1,200 1,200 9x 25x 1,000 1,000 20x 7x 800 800 15x Share price 600 5x 600 Share price 400 10x 400 3x 200 200 0 0 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 10 10Mirae Asset Securities
  11. 11. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 18 Nokia (NOK US) P/E band Figure 19 Nokia (NOK US) P/B band (US$) (US$) 120 70 100 Share price 60 Share price 80 50 60 40 40 30 20 10x 20 0 20x 6.0x 30x 4.5x (20) 10 40x 3.0x (40) 0 1.5x 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 20 RIM (RIMM US) P/E band Figure 21 RIM (RIMM US) P/B band (US$) (US$) 160 160 Share price 140 140 Share price 120 120 100 100 80 5.0x 80 60 60 3.5x 40 40 20 2.0x 20 0 5x 0.5x (20) 10x 0 15 2000 2002 2004 2006 2008 2010 2012 (40) 20x 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 22 HTC (2498 TT) P/E band Figure 23 HTC (2498 TT) P/B band (NT$) (NT$) 1,600 1,400 1,400 1,200 Share price 1,200 Share price 1,000 1,000 8x 800 800 6x 20x 600 600 15x 4x 400 400 10x 5x 200 2x 200 0 0 2003 2005 2007 2009 2011 2003 2005 2007 2009 2011 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 11 11Mirae Asset Securities
  12. 12. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Figure 24 ZTE (763 HK) P/E band Figure 25 ZTE (763 HK) P/B band Share price (HK$) (HK$) 45 35 Share price 4x 40 30 35 25 3x 30 20 25 40x 2x 20 15 30x 15 10 20x 10 1x 5 5 10x 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research Figure 26 Sony (6758 JP) P/E band Figure 27 Sony (6758 JP) P/B band (JPY) (JPY) Share price 20 18 15 16 14 10 Share price 12 5 40x 10 0 30x 8 20x 3.5x (5) 10x 6 2.5x (10) 4 1.5x (15) 2 0.5x 0 (20) 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg, Mirae Asset Research Source: Bloomberg, Mirae Asset Research 12 12Mirae Asset Securities
  13. 13. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets Ⅱ. Investment points 1. Continued demand growth in emerging markets Global demand growth will We forecast global demand for handsets and smartphones in 2013 to reach 1.89bn units continue to be driven by (+8.7% YoY) and 897m units (+32.4% YoY), respectively. We expect China to drive global China in 2013 demand growth in 2013, as demand for handsets and smartphones in China should expand by 21.8% YoY (to 495m units) and 56% YoY (to 270m units), respectively. Notably, China’s contribution to global demand should rise by 4.6ppt YoY to 30.2% in 2013. We see ample upside in demand growth in China, given that: 1) smartphone users’ portion of mobile phone subscribers in China remains relatively low, at 24% (compared with 48% in North America); and 2) the smartphone penetration rate in China is also lower than that of North America (42.6%, versus 65.3%); and 3) the portion of white-box smartphones is high (45.2% in 2012). Figure 28 Global handset demand (new + replacement) and Figure 29 Smartphone users by country and portion YoY growth (m units) (%) (m people) (%) 2,500 35 300 70 30 250 60 2,000 25 50 200 20 40 1,500 150 15 30 100 1,000 10 20 50 10 5 500 0 0 0 il a y a UK Ge ce a n A ea 0 -5 an az si di in pa US an r ne Ch In Br rm Ko Ja 2006 2007 2008 2009 2010 2011 20122013E 2014E 2015E Fr do In New(LHS) Replacement(LHS) YoY(RHS) Smartphone Portion Source: Gartner, Mirae Asset Research Source: KPCB Mary Meeker, Mirae Asset Research Capex by China Mobile to Meanwhile, as of end-2012, 3G’s portion of mobile telecom network in Asia (including China) drive demand growth in stood at 19.9%, far lower than the 89.1% in North America. Given the sharp expansion of China handset demand in North America, buoyed by network upgrades resulting from massive investments in CDMA (2000) and 3G (2007), we believe that China’s smartphone demand growth in 2013 should also be driven by 3G coverage expansion and investments in TD-LTE by China Mobile (66.1% of total mobile subscribers in China, as of end-2012). Figure 30 China handset demand in 2012 Figure 31 China handset supply market share trend Mid-smartphone: (%) Low smartphone, CNY1,000~2,000 100 Others 16.6% 90 Ginoee 80 TCL 70 Yulong Mid 60 Lenovo smartphone, 50 Huawei 15.3% Feature, ZTE 40 57.4% HTC 30 20 Apple High LGE 10 smartphone, SEC 10.7% 0 Nokia 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 Source: Mirae Asset Research Source: Gartner, Mirae Asset Research 13 13Mirae Asset Securities
  14. 14. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets China’s top-three We expect demand growth in China in 2013 to be led by demand increases for low-to mid-end smartphone suppliers (ZTE, smartphones (mid-end: RMB1,000-2,000, low-end: RMB1,000 or below). We forecast demand Huawei and Lenovo) to eat for mid-end and low-end smartphones in China to jump by 58.5% YoY (to 98.9m units) and rapidly into low-to mid-end market share in 2013 66.8% YoY (112.7m units), respectively. Chinese local smartphone suppliers plan to offer new high-end smartphone models, with specifications comparable to SEC’s Galaxy S series and Apple’s iPhone, for ASPs of RMB2,000 or below, thus stimulating demand for mid-end models. In addition, their aggressive lineup expansion should lower the ASP for low-end smartphones to the levels of feature-phones, thus boosting low-end demand. Figure 32 China-based makers’ shipments by price Figure 33 China-based makers’ shipment portions by price (m units) (%) 600 100 90 500 80 400 70 60 300 50 200 40 30 100 20 0 10 2011 2012 2013 2014 2015 2016 0 2011 2012 2013 2014 2015 2016 Less than $50 $51-$100 $101-$150 More than $150 Less than $50 $51-$100 $101-$150 More than $150 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research High-end smartphone Notably, high-end smartphone demand in China should remain solid in 2013, as its high-end demand in China to remain demand growth (YoY) should reach 35.6%, outpacing the global market grwoth (32.4% YoY). solid Likely continued concentration of mobile carriers’ subsidies in high-end smartphone models should keep gross margins for high-end models higher than those of low-to mid-end models. Figure 34 China handset supply market share in 4Q12 Figure 35 China smartphone supply market share in 4Q12 (%) (%) SEC, 10.7 ZTE, 5.0 SEC, 15.9 Huawei, 5.5 Apple, 8.7 Others, 44.1 Lenovo, 7.5 ZTE, 8.2 Others, 66.6 Apple, 4.6 Huawei, 9.4 Lenovo, 13.6 Source: Gartner, Mirae Asset Research Source: Gartner, Mirae Asset Research 14 14Mirae Asset Securities
  15. 15. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com Handsets 2. Chinese peers to expand local market share on reinforced competitivenessChinese smartphone makers Based on developments witnessed at this year’s MWC, we expect China’s top-threeto expand local market smartphone makers, i.e. ZTE, Huawei and Lenovo, to show visible progress in 1H13, as theyshare in 1H13, backed by:1) reinforced hardware aim to expand their local market shares. With the three Chinese companies (ZTE, Huawei, andcompetitiveness; Lenovo) quickly catching up to global peers, in terms of hardware competiveness, existing players are finding it increasingly difficult to differentiate their products through enhancement of hardware features. ZTE’s flagship smartphone, Grand Memo, slated for release in 1Q13, employs Qualcomm Snapdragon 600, the fastest AP on the market, offering a 40% improvement in performance, compared with its predecessor, the Qualcomm S4 Pro. The Grand Memo model also adopts a 5.7”, 1280x720, 288ppi HD display, on par with other display-focused smartphone models, such as LG Electronics’ Optimus G Pro (5.5”, 1920x1080, 400ppi display) and Sony’s Xperia Z (5”, 1920x1080, 441ppi display). Moreover, ZTE’s new model runs on the latest version of the Android platform (4.1.2), demonstrating the company’s advancement, in terms of software competitiveness.…2) cost competitiveness; In addition to reinforcing hardware competitiveness, China’s top-three smartphone makers are seeking to cut ASP to improve price competitiveness, backed by lower production costs. ZTE’s Grand S, scheduled for market release in 1Q13, has an estimated bill of materials (BOM) of US$178, 16.7% lower than Galaxy S3’s BOM of US$213.5. In addition, it is forecast to sell for an ASP of US$499.99, US$100 cheaper than Galaxy S3. We do not expect the Chinese companies to see rapid growth in sell-through of their smartphone models within 1H13, given their absence of competitive brand images or differentiation points (setting their products apart from the flagship models of existing companies). However, due to expanded marketing spending, on the back of steady growth in shipments and reduction of materials costs, we believe Chinese smartphone makers will gradually eat into the high-end market shares of other second-tiers from 2H13.Figure 36 Chinese makers’ flagship smartphone line-up Vendor ZTE Huawei Lenovo Meizu OPPO Picture Name Grand S Ascend D2 K900 Meizu MX2 OPPO Find 5 Core Qualcomm S4 1.7GHz Hi-silicon K3V2 1.5GHz Intel Atom 2.0GHz 1.6GHz Quad core Qualcomm S4 1.5GHz OS Android 4.1 Android 4.1.2 Android 4.2 Android 4.1 Android 4.1.2 Display 5.5" (1920x1080), 5" (1920x1080),441ppi 5" (1920x1080),441ppi 4.4" (1280x800), 343ppi 5" (1920x1080), 441ppi 400ppi Size 142x69x6.9mm 140x71x9.4mm thickness: 6.9mm 124.9x64.9x10.2mm 141.8x68.8x8.9mm Weight TBA 170g 162g 142g 165g Memory 2GB RAM 2GB 2GB 2GB RAM 2GB RAM Storage 16GB 32GB 16GB 64GB 16GB Battery 1780mAh 3000mAh TBA 1800mAh 2500mAh Release 2013.1Q 2013.01 2013.04 2012-11-27 2012-12-12Source: Company data, PhoneArena, Mirae Asset Research 15 15Mirae Asset Securities
  16. 16. Jinho Cho, Analyst, 82 2 3774 3831, jcho@miraeasset.comYongjei Jeong, 82 2 3774 1938, yongjei@miraeasset.com HandsetsFigure 37 Global handset makers’ smartphone line-up in 1Q13 Vendor Samsung LGE Apple RIM Sony Picture Name Galaxy S3 LTE Optimus G Pro iPhone 5 BlackBerry Z10 Xperia Z Core Exynos 4412 1.4GHz Qualcomm 600 1.7GHz A6 Qualcomm S4 1.5GHz Qualcomm S4 1.5GHz OS Android 4.1 Android 4.1 iOS 6 BlackBerry 10 Android 4.1.2 Display 4.8" (1280x720), 306ppi 5.5" (1920x1080) 4" (1136x640), 326ppi 4.2" (1280x768),355ppi 5" (1920x1080), 441ppi Size 136.6x70.6x9.0mm 150.2x76.1x9.4mm 123.8x58.6x7.6mm 130x65.6x9mm 139x71x7.9mm Weight 138.5g 172g 112g 138g 146g Memory 2GB RAM 2GB RAM 1GB RAM 2GB RAM 2GB RAM Storage 32GB 32GB 16GB~ 16GB 16GB Battery 2100mAh 3140mAH 1440mAh 1,800mAh 2330mAh Release 2012.05.29 2013.02.20 2012.09.21 2013.01.31 2013.02.09Source: Company data, PhoneArena, Mirae Asset Research 16 16Mirae Asset Securities

×