The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. — Ed.




 

In 2021, Partron’s strategic client should see a rapid recovery in its smartphone sales volume on: 1) the benefits of US sanctions against Huawei; and 2) low-base effects stemming from the Covid-19 crisis. As a major camera module supplier to the client, Partron is well situated to benefit from these developments. Thus, currently trading at a 2021F P/E of 7x, Partron’s shares appear undervalued.

Raise TP in light of shipment recovery at client

Reiterating a Buy rating, we raise our TP on Partron from W10,000 to W13,000, reflecting both a change in the base year used for our valuation (2020 → 2021) and a 10% rise in target P/E (8.2x → 9x) in light of an ongoing shipment recovery at the company’s major client.

Partron’s client is forecasted to see record annual sales of around 312mn units (+18% y-y) in 2021, benefitting from both US sanctions against Huawei and pandemic-induced low-base effects. As a major camera module supplier to the client, Partron is well situated to benefit from these developments.




Undervalued despite earnings rebound

We expect Partron to book consolidated 3Q20 OP of W21.6bn (-29.8% y-y, TTP q-q; OPM of 6%), satisfying consensus thanks to top- and bottom-line improvement stemming from an ongoing smartphone shipment recovery at its strategic client.

For full-year 2020, we now forecast sales of W1,113.4bn (-11.3% y-y) and OP of W43.4bn (-58.8% y-y; OPM of 3.9%), believing that Partron’s sales and OPM will fall short of our previous estimates on tepid 1H20 smartphone shipments at its major client, intensified competition between camera module makers, and reduced ASP.

Looking ahead to 2021, Partron’s OP should show a recovery, reaching W87.2bn (+101.2% y-y, OPM of 6.3%) on shipment improvement at the client. Partron’s shares are currently trading at only a 2021F P/E of 7x, the lower end of its historical valuation band. But, its share price is expected to rally in earnest in line with a likely strengthening in the shipment recovery at the client and a resultant improvement in earnings.

 



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