Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<ul>
<li>
We believe SK Materials is the biggest winner from SK Group's efforts to vertically integrate the sourcing of semiconductor-related gases and materials. After the political feud between Japan and South Korea in the summer of 2019, SK Group has determined that it reduce risks associated with relying too much on the Japanese suppliers on various semiconductor materials. As such, over the next several years, SK Materials will play a key role in the entire SK Group's increasing vertical integration of numerous semiconductor materials.</li>
<li>Valuation - The valuation levels of SK Materials have been wide-ranging in the past four years. The P/E range has been from 10.2x to 18.6x in the past four years. The P/B multiples have ranged 2.2x to 4.7x in the past four years. Currently, it is trading at 3.6x P/B, using its book value of 489 billion won at the end of 3Q19. The consensus currently estimates the company's equity to be 634 billion won at the end of 2020, which would be a 30% increase in equity from the end of 3Q19. If we apply the same P/B multiple of 3.6x and apply to next year's book value, the would suggest an implied market cap of 2.3 trillion won or 216,402 won per share (30% higher than current levels).</li>
<li>
Tuck-In Acquisitions of Attractive Industrial Gases and Materials Businesses - Since 2016, SK Materials has made several acquisitions &amp; JVs including the acquisition of SKC Airgas (2016), SK Showa Denko (2017), Hanyu Chemical (2019), and Kumho Petrochem's photoresist business (2020). These tuck-in acquisitions have added to the company's revenues and the company has been able to maintain high operating margins. From 2015 to 2019, SK Materials generated an average operating margin of 30%, which is one of the highest among Korean companies with more than $1 billion in market cap.</li>
</ul>



We believe SK Materials is the biggest winner from SK Group's efforts to vertically integrate the sourcing of semiconductor-related gases and materials. After the political feud between Japan and South Korea in the summer of 2019, SK Group has determined that it reduce risks associated with relying too much on the Japanese suppliers on various semiconductor materials. As such, over the next several years, SK Materials will play a key role in the entire SK Group's increasing vertical integration of numerous semiconductor materials.
Valuation - The valuation levels of SK Materials have been wide-ranging in the past four years. The P/E range has been from 10.2x to 18.6x in the past four years. The P/B multiples have ranged 2.2x to 4.7x in the past four years. Currently, it is trading at 3.6x P/B, using its book value of 489 billion won at the end of 3Q19. The consensus currently estimates the company's equity to be 634 billion won at the end of 2020, which would be a 30% increase in equity from the end of 3Q19. If we apply the same P/B multiple of 3.6x and apply to next year's book value, the would suggest an implied market cap of 2.3 trillion won or 216,402 won per share (30% higher than current levels).

Tuck-In Acquisitions of Attractive Industrial Gases and Materials Businesses - Since 2016, SK Materials has made several acquisitions &amp; JVs including the acquisition of SKC Airgas (2016), SK Showa Denko (2017), Hanyu Chemical (2019), and Kumho Petrochem's photoresist business (2020). These tuck-in acquisitions have added to the company's revenues and the company has been able to maintain high operating margins. From 2015 to 2019, SK Materials generated an average operating margin of 30%, which is one of the highest among Korean companies with more than $1 billion in market cap.


SK Materials - The Biggest Winner from SK Group's Vertical Integration of Semiconductor Materials

Japan

KANTO DENKA KOGYO CO., LTD. manufactures a variety of chemical and metal products.  The Company products include inorganic and organic chemicals, magnetic metal powder for audio and video tapes and fluorine compounds for semiconductor products.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Kanto Denka Kogyo (4047 JP)

SK Materials - The Biggest Winner from SK Group's Vertical Integration of Semiconductor Materials

We believe SK Materials is the biggest winner from SK Group's efforts to vertically integrate the sourcing of semiconductor-related gases and...

Douglas Kim

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)