Global TMT, Consumer, Korea, Deep Fundamental

Julian Yoon

Equity Bottom-Up

<ul><li>In sweet spot of semiconductor equipment spending. More than 50% of wafer fabrication equipment ('WFE') spending is in deposition and etch, which are the company's core segments.   <a href="https://www.smartkarma.com/entities/1116" target="_blank" data-smartkarma-citation="entities:1116:1">Lam Research Corp (LRCX US)</a> is a key beneficiary of explosive NAND memory demand.  </li><li>Long term secular industry growth.  Company is leveraged to exponential growth in semiconductor content including mobile, cloud, IoT/5G, automotive, virtual/augmented reality, robotics and machine learning/artificial intelligence.</li><li>Large and growing market.  The total market size for wafer fabrication equipment ('WFE') was $36 billion in 2016 according to Gartner and is expected to grow at a CAGR of 5% through 2019.  While overall industry growth is expected to remain strong, LRCX also benefits from increasing share of the overall WFE spending pie.  Company's servable addressable market ('SAM') as a percent of overall WFE spending has increased from 26.5% in 2013 to 34% in 2016.  This is due to the increasing complexity of making ever smaller transistors which is increasing the demand for the company's products.        </li><li>Increasing capital intensity.  Moore's Law states that number of electronic components which can be crammed into an integrated circuit doubles every two years.  However, as Moore's law reaches its limitation as we approach atomic level scale, capital intensity is increasing in order to achieve ever smaller microchips benefitting semiconductor equipment players, especially those with good technology.         </li><li>Track record of top-line growth and margin expansion.   Company has grown revenue at a CAGR of 23% from 2012 to 2015 and expanded operating margin by 11.5%p during the same time period.  </li><li>Substantial excess cash balance / foreign cash repatriation.  Company has significant excess cash that can be utilized to enhance shareholder return.    </li><li>Upside from capital management.  Company's commitment to enhanced shareholder return supported by high free cash flow yield.    </li><li>Attractive relative valuation.  Discount to peers and overall market on both forward P/E and P/E ex-cash basis.  </li></ul>

In sweet spot of semiconductor equipment spending. More than 50% of wafer fabrication equipment ('WFE') spending is in deposition and etch, which are the company's core segments.   Lam Research Corp (LRCX US) is a key beneficiary of explosive NAND memory demand.  Long term secular industry growth.  Company is leveraged to exponential growth in semiconductor content including mobile, cloud, IoT/5G, automotive, virtual/augmented reality, robotics and machine learning/artificial intelligence.Large and growing market.  The total market size for wafer fabrication equipment ('WFE') was $36 billion in 2016 according to Gartner and is expected to grow at a CAGR of 5% through 2019.  While overall industry growth is expected to remain strong, LRCX also benefits from increasing share of the overall WFE spending pie.  Company's servable addressable market ('SAM') as a percent of overall WFE spending has increased from 26.5% in 2013 to 34% in 2016.  This is due to the increasing complexity of making ever smaller transistors which is increasing the demand for the company's products.        Increasing capital intensity.  Moore's Law states that number of electronic components which can be crammed into an integrated circuit doubles every two years.  However, as Moore's law reaches its limitation as we approach atomic level scale, capital intensity is increasing in order to achieve ever smaller microchips benefitting semiconductor equipment players, especially those with good technology.         Track record of top-line growth and margin expansion.   Company has grown revenue at a CAGR of 23% from 2012 to 2015 and expanded operating margin by 11.5%p during the same time period.  Substantial excess cash balance / foreign cash repatriation.  Company has significant excess cash that can be utilized to enhance shareholder return.    Upside from capital management.  Company's commitment to enhanced shareholder return supported by high free cash flow yield.    Attractive relative valuation.  Discount to peers and overall market on both forward P/E and P/E ex-cash basis.  

Semi-Equipment Top Pick:  Long Term Secular Winner

South Korea

APTC Co.,Ltd manufactures and distributes semiconductor processing equipment. The Company produces dry etch and light emitting diode etcher equipment, plasma etching systems, and doping. APTC markets its products throughout South Korea.

Wooree ETI Co., Ltd. manufactures Cold Cathode Fluorescent Lamp (CCFL) used as material for back light unit of Thin Film Transistor-Liquid Crystal Display. The Company also produces parts for lighting products.  WOOREE ETI is subsidiary company of Wooree Lighting.

Asiana Airlines, Inc. provides air cargo and passenger transportation services throughout South Korea and overseas.  The Company also offers airline catering and on-flight duty free shopping services and operates aircraft leasing business.

IS Dongseo Co., Ltd. manufactures and markets construction materials, such as tiles, concrete made products, PC pipes, and piles.  The Company also produces sanitary ceramic fixtures and structural wood products.

Korea Electric Terminal Co., Ltd. specializes in manufacturing a wide range of connectors used in automobiles, home appliances, and telecommunications devices, The Company also produces fiber-optic products, such as jumper cord assemblies, attenuators, couplers, and multiplexers.

Korea Line Corporation (KLC) owns and operates a fleet of vessels that carry bulk cargo, such as iron core, coal, hot coils, and liquefied natural gas (LNG). The Company provides exclusive lines for Pohang Iron & Steel, Korea Gas, and Korea Electric under long term contracts.  KLC also offers tramp services, and transports grain, sugar, logs, minerals, and steel products.

Heung-A Shipping Co., Ltd. provides shipping trade services.  The Company also provides chemical tankers to transport petrochemicals in areas that includes Japan, Taiwan, China, and Southeast Asian regions.

Satrec Initiative Co Ltd. manufactures and supplies satellite platforms and its components.  The Company products includes satellite systems, subsystems of satellite, optical payload, and image processing equipments.  Satrec also provides consulting and training for satellite system.

Kyung Dong Navien Co., Ltd. manufactures oil and gas boilers for both domestic and commercial purposes.  The Company also produces absorption type chillers and heaters, pipes, sinks, and gas detectors.  Kyung Dong exports its products to China, Russia, Netherlands, Greece, Uruguay, Chile, and Brazil.

SPG Co., Ltd, manufactures various types of industrial motors.  The Company's main products are induction motors, reversible motors, electromagnetic motors, shaded pole motors, and condenser run motors.

Shenzhen Jufei Optoelectronics Company Ltd. develops, manufactures, and sells optoelectronic products. The Company's major products include backlight LED and lighting LED devices. Shenzhen Jufei Optoelectronics Company distributes their products to customers globally.

Shenzhen Jufei Optoelectronics (300303 CH)

Manz AG manufactures and sells high-tech equipment for displays and touch sensors, and printed circuit boards in Germany and internationally. The company operates through Electronics, Solar, Energy Storage, and Contract Manufacturing segments. The Electronics segment offers production systems for the manufacture of displays for LCD and OLED flat screens, as well as touch sensors; and production systems for printed circuit boards and chip carriers, as well as smartphones, tablet computers, notebooks, and other consumer electronics. The Solar segment provides production solutions for crystalline solar cells and thin-film solar modules. The Energy Storage segment offers production equipment for lithium-ion battery cells and battery systems, as well as for capacitors, which are used in the field of consumer electronics, e-mobility, and stationary power storage. The Contract Manufacturing segment provides contract manufacturing services comprising mechanical and systems engineering, assembly, and parts manufacturing services for the automotive and semiconductor industries. Manz AG also provides equipment for the packaging industry. The company was formerly known as Manz Automation AG and changed its name to Manz AG in June 2011. Manz AG was founded in 1987 and is headquartered in Reutlingen, Germany.

Wuxi Taiji Industry Co., Ltd manufactures and markets woolen textiles, chemical fibers, cigarette filters, apparel products, and textile machinery.

GWA Group Ltd. manufactures building fittings for households and commercial premises.  The Company designs, manufactures, imports and distributes domestic and commercial bathroom, kitchen and laundry products; manufactures and imports hot water and ducted heating and cooling systems; and designs, manufactures, imports and distributes door hardware and fittings and garage doors and openers.

Tianjin Port Development Holdings Limited operates container terminals in China.  The company provides container handling operations, stacking and warehousing services and non-containerized cargo services.

MATSUDA SANGYO Co., Ltd. primarily wholesales precious metals and electronic materials.  The Company also produces and wholesales foods such as fish paste and fresh groceries.

NICHIREKI CO., LTD. produces and sells asphalt emulsions.  The Company provides road paving and water proofing work with asphalt emulsions.  Nichireki also wholesales landscaping materials.

Frencken Group Limited designs, develops, and produces complex and advanced modules and systems, based on precision mechanics, hardware and software.

METAWATER Co. Ltd. is mainly specialized in manufacturing and selling water treatment equipment.  The Company also offers designing and construction services.

Shenzhen Jasic Technology Company Limited develops, produces and sells welding and cutting equipment.  The Company's main products are inverter welding machine, diesel welding machine and complete welding and cutting equipment.

Doosan Tesna Inc. provides wafer probe test, final test and backend service supporting a full range of semiconductor testing.

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Doosan Tesna Inc. (131970 KS)

Semi-Equipment Top Pick: Long Term Secular Winner

In sweet spot of semiconductor equipment spending. More than 50% of wafer fabrication equipment ('WFE') spending is in deposition and etch, which...

Julian Yoon

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