Julian Yoon

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/9919" target="_blank" data-smartkarma-citation="entities:9919:1">Universal Display Corp (OLED US)</a> (UDC) is the best pure play on the upcoming acceleration of the OLED mobile adoption cycle, which after many years of investor anticipation is finally coming to fruition.  While <a href="https://www.smartkarma.com/entities/191" target="_blank" data-smartkarma-citation="entities:191:1">Samsung Electronics Co Ltd (005930 KS)</a> has adopted OLED displays for use on its own mobile devices since 2010 beginning with Galaxy S1, industry OLED adoption is set to meaningfully accelerate beginning this year with Apple's adoption of OLED for iPhone 8.  Additionally, Samsung (for lower end phones) and Chinese smartphone maker's are also set to increase the pace of OLED adoption.  OLED penetration of total smartphone shipments should increase from 16% at end of 2015 to almost 40% by 2018.  Primary benefits of OLED and impetus for adoption include better picture quality, design flexibility / differentiated form factor (e.g., curved screens), lighter weight and better power consumption.               While there are various ways to play OLED, including display makers (e.g, Samsung, <a href="https://www.smartkarma.com/entities/7145" target="_blank" data-smartkarma-citation="entities:7145:1">LG Display Co Ltd (034220 KS)</a>, <a href="https://www.smartkarma.com/entities/11323" target="_blank" data-smartkarma-citation="entities:11323:1">Boe Technology Group Co. Ltd (200725 CH)</a> ) and equipment makers (e.g., <a href="https://www.smartkarma.com/entities/283" target="_blank" data-smartkarma-citation="entities:283:1">Applied Materials Inc (AMAT US)</a>, <a href="https://www.smartkarma.com/entities/7117" target="_blank" data-smartkarma-citation="entities:7117:1">Nikon Corp (7731 JP)</a> , <a href="https://www.smartkarma.com/entities/1689" target="_blank" data-smartkarma-citation="entities:1689:1">Advanced Process Systems Cor (054620 KS)</a> ), I believe UDC represents the best pure play opportunity in the OLED supply chain due to:<ul><li>Strength of its patent portfolio leading to monopolistic position in its core product  </li><li>Strong financial profile <ul><li>High gross margins and operating leverage leading to operating margin expansion</li><li>Strong balance sheet with net cash and high free cash flow yield</li><li>Recurring revenue stream</li></ul></li><li> Longstanding relationships with the leading display manufacturers</li></ul>I've been looking at UDC since the middle of last year and added it to my conviction portfolio in December when stock was trading around low $50 range at FY17 PE multiple of 42x.  Since I added the stock to my conviction portfolio, it is up 33% and stock is currently trading at 51x 1 year forward P/E.  However, I still see decent runway for upside based on my target price of $86 per share in my base case and $102 per share in my bull case.  Given the recent run up in the stock, I recommend buying on dip at around $65 level, for a 30% expected return based on my twelve month base case target price of $86.

Universal Display Corp (OLED US) (UDC) is the best pure play on the upcoming acceleration of the OLED mobile adoption cycle, which after many years of investor anticipation is finally coming to fruition.  While Samsung Electronics Co Ltd (005930 KS) has adopted OLED displays for use on its own mobile devices since 2010 beginning with Galaxy S1, industry OLED adoption is set to meaningfully accelerate beginning this year with Apple's adoption of OLED for iPhone 8.  Additionally, Samsung (for lower end phones) and Chinese smartphone maker's are also set to increase the pace of OLED adoption.  OLED penetration of total smartphone shipments should increase from 16% at end of 2015 to almost 40% by 2018.  Primary benefits of OLED and impetus for adoption include better picture quality, design flexibility / differentiated form factor (e.g., curved screens), lighter weight and better power consumption.               While there are various ways to play OLED, including display makers (e.g, Samsung, LG Display Co Ltd (034220 KS), Boe Technology Group Co. Ltd (200725 CH) ) and equipment makers (e.g., Applied Materials Inc (AMAT US), Nikon Corp (7731 JP) , Advanced Process Systems Cor (054620 KS) ), I believe UDC represents the best pure play opportunity in the OLED supply chain due to:Strength of its patent portfolio leading to monopolistic position in its core product  Strong financial profile High gross margins and operating leverage leading to operating margin expansionStrong balance sheet with net cash and high free cash flow yieldRecurring revenue stream Longstanding relationships with the leading display manufacturersI've been looking at UDC since the middle of last year and added it to my conviction portfolio in December when stock was trading around low $50 range at FY17 PE multiple of 42x.  Since I added the stock to my conviction portfolio, it is up 33% and stock is currently trading at 51x 1 year forward P/E.  However, I still see decent runway for upside based on my target price of $86 per share in my base case and $102 per share in my bull case.  Given the recent run up in the stock, I recommend buying on dip at around $65 level, for a 30% expected return based on my twelve month base case target price of $86. 

Best Pure Play on OLED.  Key Revenue Drivers to Rebase in 2017/2018.