1. KOREA
September 5, 2011 Company Analysis / KOSDAQ
OCI Materials
(036490)
BUY ( initiate)
Earnings Will Tell
Initiating coverage with BUY and fair value of KRW136,000
We initiate coverage on OCI Materials with a BUY rating and a fair value of KRW136,000. The fair value
Ken Park Analyst / IT Components & Equipment is derived by applying a fair PER of 14.3x to the company’s 12 month-forward EPS of KRW9,514. The
82-2-2003-2923 ken.park@hdsrc.com company is the No. 1 player in the global IT-related special gas market and enjoys a virtual monopoly.
Claire Kim RA We believe the stock deserves a fair PER of 14.3x in view of solid profitability indicators (estimated 2011
82-2-2003-2930 claire.kim@hdsrc.com EPS growth rate of 34% and ROE of 24%).
Current price (Aug 31) KRW99,000 OR set to grow at three-year CAGR of 29%
Fair value KRW136,000
OCI Materials’s OR is projected to grow 36%YoY to KRW320.1bn in 2011 and at an impressive CAGR
Reuters code 036490.KQ of 29% during 2011-13, fueled by: 1) continuously tight supply of NF3 (nitrogen trifluoride); 2) growth of
Bloomberg code 036490 KS
the AMOLED industry (a downstream industry); and 3) enhanced market dominance stemming from
Industry/Sector Semicon Materials & Others capacity additions for NF3. Additional earnings momentum may also come from a possible rise in the
Rating NA capacity utilization rate of SiH4 (monosilane).
Market cap USD1.0bn
Ordinary shares issued 10,547,673shrs Outstanding cost competitiveness to drive up 2011 OP by 44%YoY
Free float 50.9% The company’s OP is forecast to jump 44%YoY to KRW113.3bn in 2011, driven by: 1) strong cost
KOSPI 1880.11
competitiveness; 2) market share gains and economies of scale stemming from capacity expansion;
KOSDAQ 493.44
and 3) price markups amid tight supply.
Avg T/O Vol (60d) 53,744shrs
Avg T/O Val (60d) USD5.5mn
Foreign ownership 19.9%
Robust growth potential
3yr CAGR of adj EPS (11~13) 33.9%
Weighed down by the recent stock market tumble, OCI Materials now trade at a 2011 PER of 12.5x,
Market’s 3yr CAGR of adj. EPS NA hinting at a further upside. First, the company is expected to be relatively immune to the stagnation of
52wk high/low KRW151,000 / KRW76,900 the downstream industry and continue growing in 2H11. Second, it will directly benefit from the recovery
Beta (12M, daily return) 0.8 of the downstream industry and the growth of new growth businesses in the future.
Major shareholders OCI 49.1%
Price performance 1M 3M 6M FY-end 12/09A 12/10A 12/11F 12/12F 12/13F
Absolute -24.4% -22.5% -6.4% (Reporting standard) (GAAP-P) (GAAP-P) (IFRS-C) (IFRS-C) (IFRS-C)
Relative -17.1% -23.8% -3.3% OR (KRWbn) 179.8 235.4 320.1 404.2 505.8
% Relative performance (LHS) OP (KRWbn) 61.0 78.7 113.3 144.5 188.2
KRW
20 Stock price (RHS) 160,000 NP (KRWbn) 50.6 59.9 83.6 108.6 143.8
15 140,000 Parent NP (KRWbn) 51 60 84 109 144
10
5 120,000 EPS (KRW) 4,798 5,680 7,931 10,297 13,637
0 100,000
-5 Adj. EPS (KRW) 4,798 5,680 7,931 10,297 13,637
80,000
-10
-15 60,000 PER* (x) 20.8 - 10.9 22.0 - 13.7 12.5 9.6 7.3
-20 40,000 PBR (x) 4.5 3.9 3.0 2.3 1.7
-25
-30 20,000 EV/EBITDA (x) 12.2 9.6 6.7 5.2 4.0
-35 0
9/10 11/10 1/11 3/11 5/11 7/11 ROE (%) 25.7 24.1 23.8 26.8 27.1
Source: Company data, Hyundai Securities
For explanations of equity research ratings and disclosures, please refer to the compliance section at the end of this report.

2. >> OCI Materials
Valuation
Initiating coverage with We initiate coverage on OCI Materials with a BUY rating and a fair value of KRW136,000. The
BUY and fair value of fair value is derived by applying a fair PER of 14.3x to the company’s 12 month-forward EPS of
KRW136,000 KRW9,514. The PER of 14.3x corresponds to a 20% premium to the PER of overseas peers, which
is converted based on domestic market. OCI Materials enjoys a virtual monopoly in the global IT-
related special gas market, and controls the largest share in the global market for NF3, the
company’s flagship products. We believe OCI Materials deserves a 20% premium over rivals in
view of the following: 1) with an adjusted EPS growth rate of 34% and ROE of 24% in 2011, the
company is expected to enjoy stronger profitability (OP margin of 35%) than overseas rivals (Air
Product, Kanto Denka, Air Liquide, Linde, etc.); 2) it is expected to secure a monopolistic market
share and step up market dominance through capacity expansion for NF3; 3) earnings are stable
thanks to the nature of materials industry; and 4) it is exposed to various downstream industries,
such as semiconductors, LCD, AMOLED and rechargeable batteries, among other IT industries.
In view of the company’s past five-year average PER of 19x and the current growth potential, there
is no reason for the stock to receive lower valuation than in the past, and, therefore, a fair PER
equivalent to the past five-year average can also be applied for valuation.
Fig 1: Initiating coverage with BUY and fair value of KRW136,000
Company name Code Market cap PER EPS growth PBR ROE OP margin Overseas peers’
(x) (%) (x) (%) (%) PER relative to
(USDmn) 2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F 2011F 2012F their market
Air Product APD.US 17,498 14.3 12.7 14.1 13.0 2.7 2.4 20.6 20.7 16.8 17.4 9.2
Kanto Denka 4047.JP 359 17.1 11.9 (3.2) 43.2 1.4 1.2 8.2 9.9 7.8 9.8 10.2
Air Liquid AI.FR 36,419 16.1 14.7 10.7 9.7 2.6 2.4 16.5 16.5 17.0 17.3 14.2
Linde LIN.DE 25,665 13.7 12.5 11.3 9.8 1.5 1.4 11.2 11.6 13.7 14.2 14.1
Avg. 15.3 12.9 8.2 18.9 2.0 1.8 14.1 14.7 13.8 14.7
OCI Materials 036490.KS 1,096 12.5 9.6 33.9 37.9 3.0 2.3 23.8 26.8 35.4 35.7 11.9
Relative to overseas peers Undervalued Undervalued Stronger Stronger Stronger Stronger Stronger
Avg. of overseas peers’ relative PER (x) 11.9
Premium to fair PER (%)
20.0
Fair PER (x) 14.3
12 month-forward EPS (KRW) 9,514
Fair value (KRW) 135,823
Note: Based on Aug 31 closing prices
Source: Bloomberg, Hyundai Securities
Solid results in 2Q11 OCI Materials posted 2Q11 OR of KRW80.2bn (up 12%QoQ) and OP of KRW28.5bn (up
despite sluggish 18%QoQ). The results were in line with market consensus despite the downturn of the IT
downstream industry industry. First, while NF3 output climbed up 12%QoQ as newly added NF3 lines (1,000 tons) ran
in almost full capacity, NF3 shipments increased as much as 15%QoQ on the addition of new
customers in China and Taiwan. Second, ASP climbed more than 5% due to NF3 supply
shortages. Third, Japanese competitors’ suspension of NF3 lines rendered the market supply
tighter, which hoisted the OCI Materials’s orders and ASP.
HYUNDAI Research 2

3. >> OCI Materials
Annual earnings to remain 3Q11 OR and OP are expected to inch down 1%QoQ to KRW79.2bn and 2%QoQ to KRW28bn,
solid despite downbeat respectively, with LCD panel makers curbing their factory use amid lackluster TV and PC demand
LCD industry outlook in in 3Q11. Nevertheless, with downstream panel makers ramping up production from end-3Q11,
3Q11 OCI Materials’s 4Q11 earnings are expected to rebound. And, its 2011 OR and OP are projected
to jump 36%YoY to KRW320.1bn and 44%YoY to KRW113.3bn, respectively, in view of the
following: 1) effects of capacity additions for NF3, whose supply remains tight, will likely continue
to be reflected in earnest in 2H11; 2) full-fledged operation will begin at AMOLED factories (e.g.,
SMD) in 2H11; and 3) OCI Materials’s capacity utilization rate is expected to recover on the
expansion of its market share.
Fig 2: Quarterly earnings forecast
(KRWbn) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11F 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 2010 2011F 2012F 2013F
OR 52.6 58.5 62.3 62.0 71.8 80.2 79.2 88.9 96.5 100.1 101.4 106.2 235.4 320.1 404.2 505.8
NF3 35.3 39.5 40.4 38.6 40.7 45.8 44.9 55.2 57.5 59.7 60.1 63.3 153.8 186.7 240.6 326.2
WF6 2.3 2.4 2.4 2.2 5.3 5.5 5.6 5.6 5.5 5.5 5.7 5.6 9.3 21.9 22.3 27.2
SiH4 13.9 15.4 18.3 20.0 24.8 27.8 27.6 27.0 32.4 33.7 34.4 36.2 67.6 107.3 136.7 147.8
Others 1.1 1.2 1.2 1.2 1.0 1.1 1.1 1.1 1.1 1.1 1.1 1.1 4.7 4.2 4.5 4.7
OP 15.8 22.3 20.8 23.6 24.1 28.5 28.0 32.6 32.4 35.7 37.3 39.0 82.5 113.3 144.5 188.2
NP 16.1 22.3 20.0 18.4 16.8 19.7 21.3 25.8 24.0 26.7 28.3 29.6 76.8 83.6 108.6 143.8
Margin (%)
OP 30.1 38.1 33.4 38.1 33.6 35.6 35.4 36.7 33.6 35.7 36.8 36.7 35.1 35.4 35.7 37.2
NP 30.6 38.1 32.1 29.7 23.4 24.5 26.9 29.0 24.9 26.6 27.9 27.9 32.6 26.1 26.9 28.4
Source: Company data, Hyundai Securities
Excessively undervalued OCI Materials’s share price, which overcame concerns over the slowing downstream industries
after drastic share price (e.g., semiconductors, LCD, PV), has recently been oversold amid the stock market crash and
pullbacks, but share price concerns over deterioration in earnings. Despite the sluggish downstream industries, however, the
likely to rally company has the merits of prospective new businesses (AMOLED materials, rechargeable battery
materials, and new raw materials), increased earnings momentum from capacity expansion, and
a strong OP margin of more than 35%. Therefore, the current valuation, falling below the past five
years’ (2006-10) average PER of 19x, seems attractive. Historically, the company’s PER ascended
to the peak levels of 17-19x when increased NF3 capacity boosted production. In 2Q11, recovered
downstream industries boosted NF3, and increased capacity propelled supplies. If earnings
improve in 4Q11 despite concerns over downstream industries, share price should be able to
rebound.
Fig 3: Recent share price plunge excessive; Time to buy
KRW Based on 12-month forward EPS
150,000 26x 18x
12x
120,000
90,000
7x
60,000
30,000
0
01 02 03 04 05 06 07 08 09 10 11 12
Source: Datastream, Hyundai Securities
HYUNDAI Research 3

4. >> OCI Materials
IT-related Special Gas Maker
Special gas maker with OCI Materials makes special gases used in semiconductors/LCD/AMOLED/solar cell
world-leading manufacturing such as NF3, SiH4, and WF6. NF3 accounted for 65% of 2010 OR, SiH4 25%, and
competitiveness WF6 10%. The company holds the largest share of the global NF3 market. Its NF3 capacity, at 5,500
tons/year as of 2Q11, is expected to increase to 9,500 tons/year in 2013, and its SiH4 capacity stands
at 2,400 tons/year. Major NF3 customers of the company include domestic names such as
Samsung Electronics (SEC), LG Display, and Hynix, which account for 65% OR, and overseas
companies such as Toshiba (Japan), Sharp (Japan), AUO (Taiwan), and CMI (Taiwan) account
for 35%. Competitors include Air Products of the US, Kanto Denka Kogyo (KDK) of Japan, and
Mitsui Chemical of Japan. NF3, the flagship product used in production of semiconductors, LCD
panels, and solar cells, is injected to chambers to chemically remove remnants of chemical vapor
deposition (CVD) process. SiH4 is used in production of semiconductors, LCD panels, AMOLED
display, and solar cells. The gas is also used in silicon-deposition process for semiconductors
(wafer), LCD panels (TFT glass substrate), and thin film solar cells. About 50% of gas sales come
from LCD, 25% from semiconductors, and 25% from solar cells. Competitors in this market
include REC, Denal Silane, and MEMC. REC and MEMC have a limited impact on supply-
demand dynamics, however, because they put 90% of their output into polysilicon production.
WF6 is a by-product of NF3 and used in production of semiconductors and AMOLED display
(wire formation).
Fig 4: Global market share of NF3 (based on production capacity in 2010)
Others 10%
Mitsui 12%
OCI Materials 35%
Air Product 21%
Kanto Denka Kogyo 22%
Source: Industry data, Hyundai Securities
OR to Grow at CAGR of 29% during 2011-13
Flagship product NF3 to OCI Materials’s OR is expected to grow at a CAGR of 29% during 2011-13, fueled by: 1) the
lead growth continuously tight supply of NF3 (flagship product); 2) market share gains and enhanced market
dominance stemming from expanded NF3 capacity; and 3) the growth of the downstream
AMOLED industry, which is a new growth industry. Additional earnings momentum may also
come from a possible rise in the capacity utilization rate of SiH4.
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5. >> OCI Materials
Fig 5: NF3 the biggest contributor to OR growth
KRWbn
NF3 WF6 SiH4 Others
160
140
120
100
80
60
40
20
0
1Q10 3Q10 1Q11 3Q11F 1Q12F 3Q12F 1Q13F 3Q13F
Source: Company data, Hyundai Securities
1) Unprecedented price The supply-demand dynamics of NF3 are expected to become tight in earnest from 2011 because,
rises amid tight supply- while growth in production capacity will be limited, demand is expected to be solid, despite the
demand dynamics slowing downstream industries. Due to the current supply shortage of NF3, NF3 prices are forecast
to increase by about 10%YoY in 2011, pointing to strong chances of a continued supply shortage.
Fig 6: Supply of NF3 still tight
ton Supply (LHS) Demand (LHS) %
20,000 35
Oversupply rate (RHS)
30
16,000 25
20
12,000
15
10
8,000
5
4,000 0
-5
0 -10
2000 2002 2004 2006 2008 2010 2012F
Source: DisplaySearch, Hyundai Securities
Demand for NF3 to be As of 2011, LCD is expected to account for 50% and semiconductors for about 38% of total
continuously solid demand for NF3. The company plans to add production capacity (500 tons each in 1H12 and
2H12) in Jiangsu Province, China. The capacity expansion in China should contribute to the
company’s OR growth given the prospects of major LCD manufacturers in China being added to
its customer list, in addition to existing major customers SEC and LG Display. Demand for NF3 is
forecast to grow 20%YoY to 13,000 tons in 2011 and post a solid CAGR of 15% during 2011-13
in light of the following: 1) application of NF3 for new products, such as AMOLED displays, is
expected to continue; 2) despite a drop in LCD demand, demand for NF3 to be used in LCD
manufacturing will remain flat as the size of LCD panels increases; and 3) volume of NF3
consumption is expected to increase from 4Q11, when the production of LCD panels recovers.
Demand for NF3 is projected to grow at a CAGR of 20% in the LCD industry, at about 120% in
the AMOLED display industry and at about 20% in the PV industry during 2011-13.
HYUNDAI Research 5

6. >> OCI Materials
Fig 7: Demand for NF3 still solid
ton Demand (LHS) Growth rate (RHS) %
18,000 80
15,000
60
12,000
9,000 40
6,000
20
3,000
0 0
2000 2002 2004 2006 2008 2010 2012F
Source: DisplaySearch, Hyundai Securities
NF3 supply not to increase Compared to brisk demand, NF3 supply is expected to be limited. Although the global NF3 market
much is continuing to grow fast (at a 15% rate a year), competitors such as Air Product and Kanto
Denka Kogyo seem to be planning only a 10% increase in their capacity from 2011 levels due to
weaker cost competitiveness. Also, there seems to be little chances of new entrants coming in.
First, it takes more than a year to reach mass production. Second, economies of scale are essential
given a heavy fixed-cost burden associated with the capital-intensive nature of the business. Third,
new entrants, if any, are unlikely to have cost advantages over existing players. In a similar context,
even if existing players increase their capacity, it will be just in a small scale aimed at processing
improvement.
Fig 8: Slowed increase in NF3 supply
ton %
Supply (LHS) Growth rate (RHS)
20,000 60
50
16,000
40
12,000
30
8,000
20
4,000 10
0 0
2000 2002 2004 2006 2008 2010 2012F
Source: DisplaySearch, Hyundai Securities
2) Capacity expansion to In addition to tight NF3 supply, capacity expansion is expected to help OCI Materials expand its
lead to stronger market market share and further tighten its grip over the market. The company’s NF3 capacity is expected
position and earnings to increase from 4,500 tons to 6,500 tons at end-2011, after a 1,000-ton addition each in Mar and
Sep 2011. Currently, the company accounts for 45% of the NF3 market, but the share is expected
to expand to 48%, aided by capacity nearly doubling from the current level to 9,500 tons by 2013.
HYUNDAI Research 6

7. >> OCI Materials
Fig 9: NF3 capacity expansion to lead to stronger market position
ton
NF3 production capacity
10,000
8,000
6,000
4,000
2,000
0
2004 2005 2006 2007 2008 2009 2010 2011F 2012F 2013F
Source: Company data, Hyundai Securities
Fig 10: OCI Materials’s market share increasing faster than competitors’
% Air Products KDK Mitsui
60 Central Glass OCI Materials Linde
50 Others
40
30
20
10
0
2002 2004 2006 2008 2010 2012F
Source: Hyundai Securities
3) AMOLED to drive NF3 Since NF3 and SiH4 are used in the deposition process of AMOLED and solar cell production as
demand well, the expected growth in solar cell and AMOLED output going forward is expected to rapidly
boost demand for NF3. First, AMOLED fabrication requires 1.5 times more NF3 than LCD.
Second, the company has Samsung Mobile Display (SMD), which currently accounts for more
than 95% of global AMOLED output, as its key customer of AMOLED-use NF3. Third, SMD and
LG Display, two major AMOLED makers in Korea, are expected to invest more than KRW20tr in
AMOLED over the next five years. As a result, OCI Materials’s 2011 NF3 and SiH4 shipments are
expected to jump more than 60%YoY.
Fig 11: Start-up plans at new AMOLED production line
1Q11 2Q11 3Q11F 4Q11F 1Q12F 2Q12F 3Q12F 4Q12F 1Q13F 2Q13F 3Q13F 4Q13F
4.5G LGD
(730x920mm) AUO
CMI
5.5G SMD
(1300x1500mm) AUO
CMI
8G SMD
(2200x2500mm) LGD
Source: DisplaySearch, Hyundai Securities
HYUNDAI Research 7

8. >> OCI Materials
Fig 12: SMD’s AMOLED shipments to rise drastically from 2011
KRWtr
12 SMD's AMOLED sales
9.7
10
2010~2012F
CAGR 125%
8
6.2
6
4 3.1
2 1.4
0.6
0
2009 2010 2011F 2012F 2013F
Source: DisplaySearch, Hyundai Securities
4) Increased capacity The price of SiH4, another core product for the company, is expected to slide 10% in 2011 due to
utilization rates for SiH4 to the slumping downstream PV industry, but SiH4 output volume has climbed steadily. As a result,
offer additional earnings the company’s SiH4 capacity use rate has been on an uptrend. If the company’s capacity utilization
momentum rate for SiH4 increases from 50% in 2Q11 to 60% at end-2011 and 80% in 2012, additional
earnings momentum is expected. OCI Materials’s ramp-up of its SiH4 capacity use has been
delayed, because: 1) its capacity expansion for SiH4, unlike NF3, is carried out at one time, which
led to a relatively slow increase in the capacity utilization rate; 2) it would not be easy for clients
to change vendors, so OCI Materials’s market share is steadily rising; and 3) market demand for
thin-film solar cells (major consumption source) has contracted. Nevertheless, the company
expects the SiH4 factory use rate to recover to the 70-80% level in the long run given the following.
First, SiH4 is also used in most IT product deposition processes (e.g., LCD, semiconductors, solar
cells). Second, major LCD downstream clients are expected to invest in China. Third, OCI
Materials stands to benefit from its core client SMD’s additional investment in AMOLED. Lastly,
REC and MEMC, two global SiH4 makers, are internally consuming more than 90% of their SiH4
output to produce polysilicon. If the bulk solar cell market expands following the earthquake in
Japan, their increasing in-house consumption of SiH4 should benefit OCI Materials. Against this
backdrop, OCI Materials’s capacity utilization growth for SiH4 is expected to reduce fixed cost
burden and thereby limit earnings deterioration amid the slowed SiH4 industry.
Fig 13: SiH4’s capacity utilization to increase despite supply gluts
ton Supply (LHS) Demand (LHS) %
7,000 35
Oversupply rate (RHS)
6,000 30
5,000 25
20
4,000
15
3,000
10
2,000
5
1,000 0
0 -5
2007 2008 2009 2010 2011F 2012F 2013F
Source: DisplaySearch, Hyundai Securities
HYUNDAI Research 8

9. >> OCI Materials
5) Still more benefits to Despite the lackluster downstream industries (LCD and semiconductors), the supply-demand
come from earthquake in dynamics of NF3 remains tight and the ASP of NF3 is rising due to decreased supply in the aftermath
Japan of the earthquake in Japan. In manufacturing NF3 and SiH4, a stable supply of a large volume of
electricity is essential for the key electrolysis process. A prolonged disruption to electricity supply in
the wake of the earthquake has caused continued production disruptions at rival Kanto Denka
Kogyo (KDK: the third largest NF3 manufacturer in the world). Against this backdrop, the global
market share of OCI Materials expanded to 45% contributing to 2Q11 earnings.
6) Electrolyte for OCI Materials is expected to secure mid-/long-term growth engines through new businesses and
rechargeable batteries continue OR growth. The new businesses include rechargeable battery-use electrolytes (lithium
and AHF to serve as salt) and Anhydrous Hydrofluoric Acid (AHF). When it comes to the electrolyte business, the
mid-/long-term growth company is highly likely to be successful in light of the following: 1) competitors (KDK, Foosung,
engines etc.) in the global NF3 market are currently focusing on nurturing electrolyte as their key growth
item; and 2) the rechargeable battery industry is growing in full force, by more than 35% per
annum, amid the growth of the smart device and electric vehicle industries. For the AHF business,
OCI Materials is expected to set up a joint venture in Liaoning Province, China, in partnership
with Yingpeng Chemical, a Taiwanese chemicals company in China. The joint venture will
produce 20,000 tons of AHF annually from end-2012. AHF, all of which OCI Materials imported
from China in the past, is an essential raw material for manufacturing NF3 and it is processed by
using fluorspar, among the rare earth elements. The company is establishing the joint venture to
secure a stable supply of AHF as well as cost competitiveness. The in-house production of AHF
through the joint venture should help the company save on raw materials costs and should also
lay the foundation for the company’s foray into the fluoride compound market in the future. AHF
costs are estimated to account for more than 20% of raw materials costs for NF3, and annual AHF
shipments of about 10,000 tons from the joint venture from end-2012 will meet most of the
company’s AHF needs. Also, since AHF is the key raw material of various fluoride compounds,
synergies can be expected if the company picks a fluoride compound as its new item later.
2011 OP to Surge 44%YoY on Cost Competitiveness
2011 OP to surge 41% The company’s OP is forecast to jump 44%YoY to KRW113.3bn in 2011, driven by: 1) strong cost
competitiveness; 2) market share gains and economies of scale stemming from capacity
expansion; and 3) price markups amid tight supply. We also expect a higher capacity utilization
rate for SiH4 and a profitability improvement based on the internal procurement of AHF.
Fig 14: Achieving high OP margin
KRWbn %
OP (LHS) OP margin (RHS)
250 45
200
30
150
100
15
50
0 0
2000 2002 2004 2006 2008 2010 2012F 2014F
Source: Datastream, Hyundai Securities
HYUNDAI Research 9

10. >> OCI Materials
Strong cost OCI Materials has increased its capacity consistently, but its competitors including Air Product,
competitiveness secured Kanto Denka Kogyo, and Mitsui have been unable to follow because OCI Materials’s outstanding
cost competitiveness makes larger capacity disadvantageous for competitors. Based on its cost
competitiveness, OCI Materials has kept its OP margin high at around 35%. Its cost
competitiveness lies in the following: 1) it can increase capacity for only half the cost compared to
competitors; 2) with 65% of its revenues coming from domestic customers, the company incurs
smaller logistical expenses than competitors; and 3) the strong yen adds to its price merits.
Tight supply ensures Due to tight supply, NF3 prices gained 10%YoY in early 2011, which are expected to offset the
stronger ASP and margins effects of the won’s appreciation and bolster profitability. The tight NF3 supply is expected to
continue for some time, and help defend the company’s profitability in the mid/long-term even
in times of sluggish IT demand. The company has displayed an outstanding capability to protect
earnings: its OP margin stayed above 30% even during the 2008-09 global financial crisis and
economic recession.
Market share gains to OCI Materials’s capacity expansion is expected to lead to market share growth and profitability
spawn profitability gains gains. At present, the company’s NF3 market share (based on output) stands at 35%. As the
company plans to raise its NF3 capacity by 2,000 tons in 2011, 2,000 tons in 2012, and 1,000 tons
in 2013, its total capacity is expected to reach 9,500 tons in 2013, which would correspond to a
48% global market share. Such capacity additions will widen an output gap further between OCI
Materials and its competitors with lower profitability. As a result, the company’s cost
competitiveness and pricing power will strengthen, and the profitability gaps with the competition
will widen further.
Growth in SiH4 capacity OCI Materials’s SiH4 capacity use rate currently stands at 50%, and the company holds a 25%
utilization to present share of the SiH4 market. As of now, the SiH4 OP margin is on par with that of NF3 (over 30%).
additional catalyst for But the ramp-up of the SiH4 facility use is forecast to hoist the company’s overall OP margin,
earnings because: 1) sales growth of SiH4, whose price is more than twice that of NF3, will elevate the
company’s overall profitability markedly; and 2) growth in the capacity utilization rate for SiH4
may translate into market share gains.
New raw materials OCI Materials’s joint venture for AHF is expected to lead to: 1) stable supply of core raw materials
businesses to buttress for flagship NF3 and new electrolyte products; and 2) enhanced cost competitiveness (AHF
robust OP margin accounts for more than 23% of total costs). Therefore, the joint venture will boost OCI Materials’s
OP margin going forward. AHF, which is processed by using fluorspar, is being used as the core
raw material not only for NF3, but also electrolyte (lithium salt), a raw material used in
rechargeable batteries. If the joint venture begins full-fledged mass-production of AHF at end-
2012, most of the initial output (20,000 ton/year) should be used to produce NF3 (AHF
requirements: 10,000 ton/year) and therefore hoist the company’s OP margin significantly due to
the effects of cost reduction.
HYUNDAI Research 10

11. >> OCI Materials
Fig 15: Cost structure
New raw materials business to cut raw materials costs
Others 14%
Raw materials costs 23%
Electricity costs 13%
SG&A expenses 17%
D&A expenses 33%
Source: Company data, Hyundai Securities
HYUNDAI Research 11

12. >> OCI Materials
Profit & Loss Statement of financial position
(KRWbn) 12/09A 12/10A 12/11F 12/12F 12/13F (KRWbn) 12/09A 12/10A 12/11F 12/12F 12/13F
(Reporting standard) (GAAP-P) (GAAP-P) (IFRS-C) (IFRS-C) (IFRS-C) (Reporting standard) (GAAP-P) (GAAP-P) (IFRS-C) (IFRS-C) (IFRS-C)
Operating revenue 179.8 235.4 320.1 404.2 505.8 Cash and cash equivalents 5.9 8.0 32.8 94.3 183.8
Cost of sales 99.8 137.7 181.1 226.4 278.0 Current financial assets 0.4 0.6 0.6 0.6 0.6
Gross profit 80.0 97.7 139.1 177.8 227.8 Trade receivables 22.3 28.8 45.0 52.0 52.0
SG&A expenses 19.0 19.0 25.8 33.3 39.7 Inventories 36.3 37.8 35.0 36.0 36.0
Other operating income 0.0 0.0 0.0 0.0 0.0 Other current assets 11.1 6.5 4.5 4.2 4.2
Operating profit 61.0 78.7 113.3 144.5 188.2 Current assets 75.9 81.7 117.9 187.1 276.6
EBITDA 95.5 132.3 177.3 216.5 260.2 Investment assets 2.2 4.2 4.2 4.2 4.2
Non-operating accounts (5.6) (5.4) (8.0) (8.7) (6.1) Property, plant and equipment 379.1 435.8 490.6 545.0 599.4
Net financing income (5.2) (6.0) (7.5) (5.6) (5.1) Intangible assets 4.7 4.2 4.2 4.2 4.2
Profit on equity method 0.0 0.0 0.0 0.0 0.0 Deferred tax assets 0.7 2.7 0.0 0.0 0.0
Net other non-operating income (0.4) 0.6 (0.5) (3.1) (0.9) Other non-current assets 2.5 2.4 2.4 2.4 2.4
Profit before tax 55.4 73.3 105.3 135.8 182.1 Non-current assets 389.2 449.4 501.5 555.9 610.3
Income tax expense 4.8 13.4 21.6 27.2 38.2 Total assets 465.1 531.1 619.4 743.0 886.8
Net profit 50.6 59.9 83.6 108.6 143.8
Profit attributable to owners of parent 50.6 59.9 83.6 108.6 143.8 Trade payables 5.8 6.8 11.0 13.0 13.0
Total comprehensive income 50.6 59.9 83.6 108.6 143.8 Short-term financial liabilities 98.5 88.4 88.4 88.4 88.4
TCI, attributable to owners of parent 50.6 59.9 83.6 108.6 143.8 Current provisions 0.0 0.0 0.0 0.0 0.0
Net exceptionals 0.0 0.0 0.0 0.0 0.0 Other current liabilities 66.0 51.0 62.0 75.0 75.0
Adj. net profit 50.6 59.9 83.6 108.6 143.8 Current liabilities 170.3 146.2 161.4 176.4 176.4
Non-current financial liabilities 71.6 106.8 106.8 106.8 106.8
Non-current provisions 0.0 0.0 0.0 0.0 0.0
Cash Flow Provisions for employee benefits 4.5 5.3 0.0 0.0 0.0
(KRWbn) 12/09A 12/10A 12/11F 12/12F 12/13F Deferred tax liabilities 0.0 0.0 0.0 0.0 0.0
Net profit 50.6 59.9 83.6 108.6 143.8 Other non-current liabilities (2.1) (2.6) 0.0 0.0 0.0
Depreciation & amortization 34.5 53.6 64.0 72.0 72.0 Non-current liabilities 73.9 109.5 106.8 106.8 106.8
Other non-cash adjustments 1.1 2.9 22.8 28.4 39.4 Total liabilities 244.3 255.6 268.2 283.2 283.2
Investments in working capital 17.4 (21.4) 3.8 7.3 0.0
Other operating cash flow 0.0 0.0 (18.9) (27.2) (38.2) Issued capital 5.3 5.3 5.3 5.3 5.3
Cash flow from operating activities 103.6 95.1 155.4 189.1 217.0 Share premium 67.7 67.7 67.7 67.7 67.7
Capital expenditure (121.3) (112.9) (120.0) (128.0) (128.0) Other equity interest 0.0 0.0 0.0 0.0 0.0
Investments in intangibles (0.1) (0.5) 0.0 0.0 0.0 Accumulated other comprehensive income 0.0 0.0 0.0 0.0 0.0
Changes in current financial assets 0.7 (0.1) 0.0 0.0 0.0 Retained earnings 147.9 202.5 278.2 386.8 530.7
Changes in investment assets (0.5) (2.2) 0.0 0.0 0.0 Equity attributable to owners of parent 220.8 275.5 351.2 459.8 603.6
Other investment cash flow 0.0 2.5 0.0 0.0 0.0
Cash flow from investing activities (121.2) (113.2) (120.0) (128.0) (128.0) Non-controlling Interests 0.0 0.0 0.0 0.0 0.0
Proceeds from (repayments of) debt 13.5 25.7 0.0 0.0 0.0 Total equity 220.8 275.5 351.2 459.8 603.6
Changes in equity 0.0 0.0 0.0 0.0 0.0
Dividends paid (2.6) (5.3) (7.9) 0.0 0.0 Total Liab. and equity 465.1 531.1 619.4 743.0 886.8
Other financing cash flow 0.0 (0.2) (2.7) 0.4 0.4
Cash flow from financing activities 10.8 20.2 (10.6) 0.4 0.4 Per-share Performance
Other cash flow 0.0 0.0 0.0 0.0 0.0
Increase/decrease in cash (6.7) 2.2 24.8 61.5 89.4 (KRW) 12/09A 12/10A 12/11F 12/12F 12/13F
Cash and cash equivalents at FYB 12.6 5.9 8.0 32.8 94.3 EPS 4,798 5,680 7,931 10,297 13,637
Cash and cash equivalents at FYE 5.9 8.0 32.8 94.3 183.8 Adj. EPS 4,798 5,680 7,931 10,297 13,637
BPS 20,935 26,115 33,295 43,592 57,230
Gross operating cash flow 89.1 115.6 156.5 187.2 220.4 SPS 17,042 22,317 30,350 38,321 47,957
Free cash flow (15.1) (19.6) 42.9 66.5 92.4 GCFPS 8,445 10,959 14,834 17,748 20,900
Net cash flow (18.2) (22.7) 24.8 61.5 89.4 DPS 500 750 0 0 0
Net cash (net debt) (163.9) (186.6) (161.8) (100.3) (10.8) 3yr CAGR of adj. EPS 25.1 29.0 33.9 37.9 28.0
Operating Statistics & Ratios Shareholder Value & Financial Structure
(%) 12/09A 12/10A 12/11F 12/12F 12/13F (%) 12/09A 12/10A 12/11F 12/12F 12/13F
OR growth 15.4 31.0 NA 26.3 25.1 ROE 25.7 24.1 23.8 26.8 27.1
OP growth 1.2 29.0 NA 27.5 30.3 ROA 12.8 13.0 14.5 16.6 18.2
EBITDA growth 2.9 38.6 NA 22.1 20.2 ROIC 15.5 14.6 18.2 21.6 25.5
NP growth of parent 35.1 18.4 39.6 29.8 32.4 WACC 7.8 7.0 8.4 8.3 8.6
Adj. NP growth 35.1 18.4 39.6 29.8 32.4 ROIC/WACC (x) 2.0 2.1 2.2 2.6 2.9
OP margin 33.9 33.4 35.4 35.7 37.2 Economic profit (KRWbn) 29.7 35.0 53.8 72.8 100.4
EBITDA margin 53.1 56.2 55.4 53.6 51.4 Total liab./equity 110.6 92.8 76.4 61.6 46.9
NP margin 28.2 25.5 26.1 26.9 28.4 Net debt/equity 74.2 67.7 46.1 21.8 1.8
Adj. NP margin 28.2 25.5 26.1 26.9 28.4 Interest coverage (x) 17.3 21.1 22.8 36.9 44.4
Note: Adj. EPS = [(Adjusted NP - preferred share dividends) + (after-tax dilution adjustment)] / (diluted avg. number of total ordinary shares outstanding)
Adjusted NP = (Parent NP) - [discontinued operation gains + (net exceptional gains) × (1 - marginal tax rate)]
Net exceptional gains: Pre-tax exceptional gains (exceptional gains attributable to parent including FX gains, derivatives gains, valuation gains, and one-off gains)
Source: Company data, Hyundai Securities
Hyundai Securities has not disclosed the material contained in this report to any institutional investor or third party prior to its publication. The author(s) confirms that the material contained herein KRW OCI Materials Rating
correctly represents his/her/their opinion and that it has been prepared without any undue influences or interventions. Hyundai Securities Co., Ltd. or any of its affiliates has not taken part in 160,000 4
public offerings of the company(ies) covered in this report for the past 12 months. The author(s) of this report does not have any interest in the company(ies) covered herein. 140,000
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Rating: Sector: Overweight (+10% or more), Neutral (-10 - +10%), Underweight (-10% or more) 120,000
Company: Strong BUY (+30% or more), BUY (+10 - +30%), Marketperform (-10 - +10%), Underperform (-10% or more) 2
100,000
Strong BUY = 4, BUY = 3, Marketperform = 2, Underperform = 1, Blackout/Universe Exclusion = 0 (Share price —, Fair value , Rating —)
80,000 1
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