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16 June 2012
In-Cell & Touch Panel
A major breakthrough in display: Opportunity in smartphone and Tablet PC
Given uncertainty surrounding In-cell touch panel technology (“In-cell”), we illustrate (1) where In-cell is in terms of technology spectrum; (2) Incell cost structure analysis; (3) quantify impact of In-cell for supply chains; and (4) implications for major LCD panel and touch panel makers. What’s In-cell technology? In-cell touch panel is a display panel integrated with touch sensor which is a thinner, lighter and more flexible touch solution. This is economically viable for single models with big volume (i.e. iPhone). Since it requires only one lamination layer, this provides set makers one-stop solutions and can match with any kind of cover lens such as 3D or curved lens design. In-cell will save up to 20% over add-on type: We estimate In-cell to reduce panel costs by around 20% which will help to alleviate set makers' burden in touch devices' BOM. Also, LCD makers could enjoy attractive margins leveraging their vertical integration once yield rate is on the right track. As the screen size is getting bigger, the additional value to LCD panel makers would be much bigger than the current revenue opportunity and also bring new value in touch functions. Meaningful revenue opportunity in Apple’s products: Assuming iPhone 5 is using In-cell panels, we forecast three panel makers, LGD, Sharp, and Japan Display combined will generate In-cell revenue of US$3.6 billion in 2012 and US$8.0 billion in 2013, respectively. If Incell panels (Oxide backplane) are used in iPad which theoretically reduces 7% of total BOM, then total In-cell revenue opportunity in iPad would be almost US$6.0 billion. Hence, a combined In-cell revenue opportunity would be US$14 billion in 2013, by our estimation. LCD panel makers vs. Touch panels: We forecast LCD makers’ revenue to increase while Touch panel players witness a shrinking trend with multiple contraction. Hence, LCD panel makers (LGD and Sharp) with strong position in In-cell technology will deserve higher multiple, in our view. Among touch panel players, a leading touch panel maker like TPK could still enjoy its industry leadership in the next couple of years.
Display and Touch Panel player valuation
Company LGD Sharp TPK Wintek Ticker 034220 KS 6753 JT 3673 TT 2384 TT Rating OW OW OW N TP (LC) 36,000 650 500 23 Price (LC) 22,300 412 455 16 Upside Downside 61% 58% 10% 46% Market cap (US$ B) 6.9 5.8 3.6 0.9 P/B(x) 12E 0.8 0.7 3.0 0.7 13E 0.7 0.6 2.2 0.7
Asia-Pacific Tech Research
Technology - Semiconductors JJ Park
(822) 758-5717 firstname.lastname@example.org J.P. Morgan Securities (Far East) Ltd, Seoul Branch
(886-2) 2725-9899 email@example.com J.P. Morgan Securities (Taiwan) Limited.
(81-3) 6736-8637 firstname.lastname@example.org JPMorgan Securities Japan Co., Ltd.
(82-2) 758- 5712 email@example.com J.P. Morgan Securities (Far East) Ltd, Seoul Branch
(91-22) 6157-3261 firstname.lastname@example.org J.P. Morgan India Private Limited
Panel & Touch YTD performance
40% 20% 0% -20% -40% -60% LGD
-11% -39% Sharp TPK -27% Wintek
P/E(x) 12E 14.3 na 8.9 31.6 13E 5.8 4.9 8.4 19.8
ROE (%) 12E 13E 5.4 12.4 2.2 36.6 2.2 13.7 30.5 3.4
Source: Bloomberg, J.P. Morgan estimates
See page 19 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.morganmarkets.com
JJ Park (822) 758-5717 email@example.com
Asia Pacific Equity Research 16 June 2012
Table of Contents
What is In-cell technology? .....................................................3
In-cell technology in touch panel trend ....................................................................3 In-cell vs. OGS (One Glass Solution) ......................................................................4 In-cell touch panel cost structure .............................................................................5
How big is In-cell? ....................................................................6
Methodology...........................................................................................................6 In-cell supply/demand .............................................................................................6 In-cell ASP and revenue trend .................................................................................9 In-cell technology beyond iPhone..........................................................................10
Market Cap comparison: TFT-LCD vs. Touch Panel..............................................12 Implications to LGD..............................................................................................13 Implications to Sharp ............................................................................................14 Implication to Japan Display .................................................................................15 Implications to Touch Panel players ......................................................................15
Appendix I: In-cell supply/demand model............................17
and others. Where are we in terms of the trend? Conventional add-on projected capacitive touch includes a sensor substrate with ITO pattern that senses the users’ touch. What is In-cell technology? In-cell technology in touch panel trend Thinner.park@jpmorgan. as is the controller IC. With sensor-on-cover. Touch sensor can be: (1) Lightsensing elements (light-sensing). However. lighter.5D / 3D In/On-cell Sensor Patterning G/G or G/F/F By Separate ITO Patterning by Piece or Sheet In/On-cell Built-in Sensor Lamination & Layer # Cover Lens & Controller Panel Touch Module Maker Controller Panel Cover Lens Market view on In-cell In-cell may be more economically viable for single models with big volume. one-glass solution: Implications from Korean panel makers" by Narci Chang published on 26 March.5D/3D Add-On 2D SOC. the ITO pattern is on the cover lens (bottom side). we have witnessed issues with durability under high-temperature photolithography. placed between the TFT array substrate and the color filter substrate. Morgan Cover Lens Type Touch Module Maker 2D/2. One Glass 2D / 2. Figure 1: Touch Panel type by category Sensor Substrate w/ Sensor substrate Touch Module Structure w/o Sensor substrate Panel Maker Source: Display Search. Being not flexible. we made an attempt to: (1) see where in-cell is in terms of technology spectrum. (3) quantify potential impact of in-cell to supply chains. and (3) Capacitive electrodes (charge-sensing). Please refer to our last touch panel sector report for details:"Touch Panel Sector: In-cell vs. J. (4) comparison b/w TFT-LCD and Touch Panel. with in-cell/on-cell touch. and more flexible touch solution In-cell touch panel is a display panel integrated with touch sensor that is physically underneath either TFT or the color filter. Two options for eliminating the sensor substrate are sensoron-cover and in-cell/on-cell touch. 3 .com Asia Pacific Equity Research 16 June 2012 Given uncertainty around in-cell technology. (2) Micro-switches (voltage-sensing).P. 2012. the sensor is integrated into one display panel. and (5) implications for key stocks. customization for touch panels seems to be a bottleneck for in-cell to see wider adoption. yield rate losses related to lamination. (2) in-cell cost structure analysis.JJ Park (822) 758-5717 jj.
it requires additional processes to mature. hence it requires only one lamination layer as OGS. where to procure IC solutions. Brands with large volume seller (i. Unlike touch module makers. but not flexible for customization Inner Mechanics Additional FPC and controller IC still occupy inner mechanical room Good for integration on IC and signal cable In-cell Source: Display Search. panel makers have to decide how to invest in cover lens finishing 4 . Beside. Customization dilemma is not serious for OGS type as brands have flexibility choosing options. Customization Easier to select. This provides set-makers onestop solutions.e. Morgan.park@jpmorgan. In addition. 3D is limited to premium models.P. making the device lighter. Piece type has more difficulty with patterning on 3D form No need to match any kind of cover lens except tuning controller/IC Panel Source Brands have multiple sources of panel makers to match touch modules Brands have more limited selection of panel makers IC & Spec. change. Possible scenarios: collaboration b/w panel and touch panel players In-cell and OGS/SOC involve cover lens and lamination processes and both approaches avoid the sensor substrate. panel sources. This could lead to a decline in sensitivity. OGS (One Glass Solution) Key advantages: easier integration and one-shop solution As for in-cell/on-cell touch. Additionally. J. and touch module makers. sensor. the sensors and controller IC are built into the panel. OGS (One-Glass-Solution) Sensor-on-cover OGS/SOC 3D Cover Lens Sheet type has difficulty forming 3D when ITO sensor is already on. Apple.JJ Park (822) 758-5717 jj. in-cell can match with any kind of cover lens while OGS cannot easily support 3D or curved lens design.P. hence it leads to lower yield rate at an initial stage.com Asia Pacific Equity Research 16 June 2012 In-cell vs. It could create noises which interfere with TFT-LCD ICs. Table 1: Comparison of In-cell vs. Table 2: Who is working on what? LightSensing In-Cell In-Cell In-Cell In-Cell In-Cell In-Cell In-Cell In-Cell In-Cell On-Cell VoltageSensing In-Cell In-Cell Charge-Sensing In-Cell In-Cell In-Cell On-Cell On-Cell On-Cell On-Cell Resistive On-Cell On-Cell Developing Phase MP in 2H12 MP (Galaxy) MP in 2H12 R&D R&D MP in 2H12 MP in 2H12 MP in 1H12 MP in 4Q12 R&D R&D Sharp Samsung Mobile AUO Hitachi CPT Sony TMD LGD CMI HannStar Wintek On-Cell In-Cell In-Cell On-Cell On-Cell Source: Display Search. Morgan. and panel Good for integration. covered by Mark Moskowitz) can fully enjoy incell technology's benefit. intensive integration could drive up the cost of customization if panel makers want to serve multiple customers. J. or tune performance from controller IC. *SOC = Sensor on Cover Key disadvantage: bottleneck lies in customization While easier integration or 3D cover lens provide benefits. Who will use In-cell? The feasibility of customization ultimately depends on the scale of business.
5" TFT-LCD capacitive panel. As Narci Chang. this will help alleviate set makers' burden in touch device’s BOM. In this case. Figure 2: Cost structure comparison b/w In-cell and OGS $. then touch module makers can still benefit. it will reduce panel cost by approximately 20% (assuming same panel size). Morgan estimates. assuming yield rate is mature As mentioned above. According to our estimates. flagged in touch panel industry note (“Recent concerns about tight key component supply appears to be overblown”) published on 16 February. 2011. We believe TFT-LCD panel makers will enjoy attractive margins leveraging their vertical integration and gather increasing touch-embedded panel orders once yield rate is on right curve. but will gain less revenue since only lamination is needed instead of the whole touch module. If set-makers allocated some or entire cover lens and lamination process.JJ Park (822) 758-5717 jj.com Asia Pacific Equity Research 16 June 2012 capacity. *Above cost structure is assuming 3. touch panel analyst.e.P. one key advantage of in-cell touch panel is integration of TFTLCD panel with touch sensor functionality. TPK) with strengths in cover lens finishing process and lamination can still benefit in our view. % 11% 8% 16% Cover glass FPCB & Chip Touch sensor Cost down ~20% Cover glass FPCB & Chip TFT LCD + Touch control +15% +10% 62% TFT LCD +70% Panel Price $37 Panel Price $?? Source: J.park@jpmorgan. In-cell touch panel cost structure In-cell will save up to 20% compared to add-on type touch panel. touch panel players (i. Actual price may vary 5 .
5 5. Morgan estimates” Gen 4. J. TFT-LCD LTPS for previous iPhone series. (In-cell runs multiple processes on the color filter.0 3. Since In-cell has not been manufactured on a mass scale.8 35.P.5 2. J. Table 4: In-cell supply key assumptions Line LGD AP2 LTPS Sharp Kameyama line Japan Display Ex-Sony Ex-TMD D2 Source: Company data. Morgan estimates How big is In-cell? Methodology Our in-cell supply/demand is based on below key assumptions.2 1. it is difficult to gauge the price of In-cell type display module.5 Proportion 11% 5% 3% 1% 6% 75% Source: Display Search.7 1.0 1. Table 3: In-cell touch panel BOM comparison (iPhone 4S vs. Current in-cell's yield rate is expected to hover around 60-70% vs.5 Glass substrate 730 1500 600 1300 920 1850 720 1500 Monthly glass capacity (K) 3Q12E 4Q13E 65 80 25 25 53 53 35 35 18 18 Yield rate 3Q12E 73% 58% 64% 63% 64% 4Q13E 80% 75% 76% 75% 76% In-cell supply/demand In-cell capacity to hover around 466K/Qtr by 2013E According to our estimates.park@jpmorgan. we estimate total in-cell capacity to climb up to +450K/Qtr by end of 2013E on square meter basis.0 37.3 0. iPhone Next-series) US$. Gap is expected to decrease as LGD increases its allocation from 4Q12E.com Asia Pacific Equity Research 16 June 2012 Manufacturing cost comparison Aside from touch panel BOM difference. OGS has separate processes for cover glass and color filter).JJ Park (822) 758-5717 jj.P.3 0.4 2. the manufacturing costs are theoretically lower in OGS than In-cell considering yield rates.0 Proportion 11% 16% 5% 3% 1% 2% 62% 100% Total 47. 6 .2 6. OGS's at over 80% on average.6 100% Next iPhone series (assuming 4") Component Cover glass Chip FPCB OCA Others TFT-LCD + Touch control Price $ 5.8 23. Major difference b/w adjusted capacity and max capacity comes from LGD's increasing allocation to previous technology line. but we believe the manufacturing costs would be higher than that of OGS solution since it does not have to scrap out the color filter even if it fails during photolithography process.5 6. % iPhone 4S (3.0 0.5") Component Cover glass Glass sensor Chip FPCB OCA Others TFT-LCD Total Price $ 4.
J. According to our industry check. we believe Sharp and Japan Display will catch up with LGD in terms of yield rate and start fullscale production in 3Q12E. Despite lower yield rate compared to LGD.P. J. J. Morgan estimates.P.P.com Asia Pacific Equity Research 16 June 2012 Figure 3: Quarterly in-cell capacity by panel makers Unit in 000sqm 250 200 150 100 50 0 3Q12E 4Q12E LGD AP2 LTPS 1Q13E 2Q13E 3Q13E Japan Display 4Q13E Sharp Kameyama line Figure 4: Quarterly in-cell adjusted-capacity by panel makers Unit in 000sqm 200 150 100 50 0 3Q12E 4Q12E LGD AP2 LTPS 1Q13E 2Q13E 3Q13E Japan Display 4Q13E Sharp Kameyama line Source: Company data. Once mass production takes off. 7 . Morgan estimates Average yield rate to be 68% in 2012E and 76% in 2013E As of 1H12.P. Morgan estimates Source: Company data. we forecast all panel makers to run the line at full-capacity.park@jpmorgan. we estimate industry average yield rate is around 60-70%.JJ Park (822) 758-5717 jj. LGD seems to be on right track and should soon be ready for commercial production. *Adjusted-capacity = capacity x allocation (%) Figure 5: Yield rate assumptions by panel makers % 85% 80% 75% 70% 65% 60% 3Q12E 4Q12E LGD AP2 LTPS 1Q13E 2Q13E 3Q13E Japan Display 4Q13E Sharp Kameyama line Figure 6: UTR assumptions by panel makers % 100% 95% 90% 85% 80% 3Q12E 4Q12E LGD AP2 LTPS 1Q13E 2Q13E 3Q13E Japan Display 4Q13E Sharp Kameyama line Source: Company data. Morgan estimates Source: Company data. J.
Figure 9: Quarterly in-cell demand Unit shipments in millions 45 40 35 30 25 20 15 10 5 0 40 29 27 14 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E 28 28 30 Figure 10: Quarterly in-cell supply/demand Unit shipments in millions 70 60 50 40 30 46 27 52 58 60 61 40 28 28 30 61 40 10 7 6 6 20 10 0 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E iPhone w in-cell (new iPhone) Source: Company data.P.park@jpmorgan. Morgan estimates Source: Company data. J. 27M/126M in 2012E/2013E Assuming next iPhone series adopt in-cell panels. we estimate they will account for roughly 20% of total shipments in 2012E. In-cell demand to pick-up in 2013E. 1Q13E onwards.P. For 2013E. 207-250M in 2013E Above supply/demand analysis is based on our base case assumption of panel size (4. J. Within panel makers. J.JJ Park (822) 758-5717 jj.P. Sharp is expected to be the major supplier followed by Japan Display and LGD. we expect LGD to increase its M/S similar to Japan Display. accounting +80% of 2013E iPhone shipments. Morgan estimates iPhone w/o in-cell In-cell Supply In-cell Demand to panel makers (different from end-demand) Source: Company data. Going into 2013E. in-cell panel supply may vary as large as 11% to our view. we forecast in-cell demand to reach 126M units. we do not expect in-cell panel demand to cause supply shortage risks. 8 . Morgan estimates Quarterly supply to reach 60M after full-scale production We expect panel makers to kick-in full-scale production in late 2Q12E and its quarterly supply to reach +50M by end of 4Q12E.com Asia Pacific Equity Research 16 June 2012 Figure 7: Quarterly in-cell supply by panel makers Unit shipments in millions 25 20 15 10 5 0 3Q12E 4Q12E LGD 1Q13E Sharp 2Q13E Japan Display 3Q13E 4Q13E Figure 8: Quarterly in-cell supply M/S by panel makers % 100% 80% 60% 40% 20% 0% 3Q12E 4Q12E LGD 1Q13E Sharp 2Q13E Japan Display 3Q13E 4Q13E 32% 29% 36% 29% 37% 29% 36% 29% 37% 29% 37% 37% 31% 35% 34% 35% 34% 34% Source: Company data. Depending upon panel size and yield rate variances. J.P.0" and average yield rate 68%/76%). Given plenty of supply over demand. we estimate incell panel demand to climb above 60M once yield rate curve moves up. Morgan estimates Sensitivity reveals supply to range from 85-101M in 2012E.
900 1. Unit output in millions 2012 Unit Output Panel Size = 4. we estimate total in-cell revenue to be around $2 billion. US$ 2. Morgan estimates In-cell total revenue accounts for ~19% of total iPhone COGS On annual basis.000 1. per our assessment. J. we believe iPhone 4S G/G structure (including TFT array) is around $37 (3. Morgan estimates 48 50 46 45 43 42 40 48 46 44 42 40 38 36 Panel Price assumptions Source: Company data. In table 4.100 2.park@jpmorgan. we foresee Sharp to generate the largest in-cell revenue followed by LGD and Japan Display. According to unit output base assumptions. which accounts 9% of iPhone COGS in 2012E.500 3Q12E 4Q12E 1Q13E 2Q13E 3Q13E 4Q13E In-cell revenue Source: Company data. Morgan estimates Avg Yield Rate = 68% (base) 98 85 Avg Yield Rate = 76% (base) 239 207 Avg Yield Rate = 71% (bull) 101 88 Avg Yield Rate = 79% (bull) 250 216 In-cell ASP and revenue trend Initial In-cell panel ASP to be $48 and decrease 10% Y/Y next year Currently.1 billion in 2Q13E. In-cell quarterly total revenue to be around $2 billions On a quarterly basis. we expect in-cell panel price to show moderate decline of 10% Y/Y in 2013E.5”) and in-cell initial price point should not be lower than that. panel makers are projected to generate over $4 billion revenue.200 2. increasing manufacturing cost.3" 2013 Unit Output Panel Size = 4. As yield rate climbs up on the curve. J. Provided panel is the most expensive single component in smartphone.JJ Park (822) 758-5717 jj.0" Panel Size = 4. Yield rate in %.P.P.0" Panel Size = 4. we assess the potential in-cell display panel cost structure and estimate initial ASP to be $48. 9 . we forecast its proportion to total iPhone COGS to increase to 19% once panel makers begin full-year production. assuming mature yield rate on par with TFT-LCD LTPS. J.700 1.800 1.3" Source: Company data.600 1.com Asia Pacific Equity Research 16 June 2012 Table 5: Unit outputs sensitivity analysis by panel size and yield rate Panel size in inches. Given limited suppliers and better yield rate. and linear increase in other components. Figure 11: Quarterly in-cell revenue by panel makers Unit in US$ millions 900 800 700 600 500 400 300 200 100 0 3Q12E 4Q12E LGD 1Q13E Sharp 2Q13E Japan Display 3Q13E 4Q13E Figure 12: Quarterly in-cell total revenue and panel price trend Unit in US$ millions. Panel price is derived from cost saving of glass sensor.P. we forecast quarterly revenue to reach $2.
+50M new iPad series may be candidates for in-cell technology.144 Unit (bull case): +15% 3. Revenue in US$ millions 2012 Revenue.951 9.000 2.515 Unit (bear case): -15% 5.park@jpmorgan. 10 . Depending upon panel price and unit output variances.000 2.8bn in 2012E and $5.135 4.000 5.135 Unit (base case) 6.596 4.bull 2013 Revenue. US$ million Panel Price ($36) .311 1. J. Apple seems to be most suitable brand to adopt the in-cell in near-term.8bn / $10.056 3.500 2.P.000 8.745 6.188 1.P.bull Source: Company data. In this case.097 2.515 4.000 3.8~10. US$ million Panel Price ($40) .598 3.5bn in 2012E/2013E Given uncertainty of our panel price and unit output assumptions.298 Figure 14: Annual in-cell total revenue and % out of iPhone COGS Unit in US$ millions.000 1.JJ Park (822) 758-5717 jj. we illustrated sensitivity analysis to give color on total revenue range.056 3.500 3. Touch panel players may lose +60% revenue opportunity (assuming no touchpanel supply at all in in-cell panel).base Panel Price ($54) . Morgan estimates Unit (bear case): -15% 2.596 2012E In-cell revenue 2013E In-cell % to iPhone COGS Source: Company data. Morgan estimates Total in-cell revenue may go as high as $4.951 3.000 6.000 4.921 2.6~4.5 billion vs. we estimate total in-cell revenue to range from $2.144 10.base Panel Price ($49) .500 1.000 7.772 9. % 9.755 Unit (bull case): +15% 7.000 0 19% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 9% 7.759 7.3 in non in-cell case.5bn in 2013E.000 500 0 2012E LGD Sharp Japan Display 2013E 1. Table 6: Revenue sensitivity analysis by panel price and unit output Panel Price in US$. J. and their 2013E revenue from iPad could decline to $1. Morgan estimates Source: Company data.bear Panel Price ($42) . J. we forecast TFT-LCD players to generate $8. Unit output in millions. $7.733 2. iPad with in-cell can generate +22% more revenue to TFT-LCD Assuming new iPad (to be launched in 2013E) was manufactured with in-cell display.516 In-cell technology beyond iPhone Works under high-volume single model brand As we have illustrated in the technology comparison section.000 1.3bn compared to $3. Apple has kept singular model policy across different mobile applications and we believe there is a chance that Apple may consider choosing in-cell for other applications if it works well with iPhone.0 billion in non in-cell case.772 Unit (base case) 3.P.bear Panel Price ($47) .759 7.com Asia Pacific Equity Research 16 June 2012 Figure 13: Annual in-cell revenue by panel makers Unit in US$ millions 3.
In-cell on Tablet PC panel can theoretically reduce +7% of total BOM.com Asia Pacific Equity Research 16 June 2012 Figure 15: Apple and market tablet PC shipment Unit in millions.P. Morgan Stock implications LGD and Sharp stand out to us as the winners Given limited supply and strong position with in-cell.000 8. we pick LGD and Sharp to be key beneficiary names in the panel space. we see increasing need of cost reduction efforts.000 2.934 2013E (w/o in-cell) Panel Sales +22% vs. J. J. Figure 17: Smartphone Touch Panel market demand Unit in millions.200 1.477 4. Morgan estimates Source: iSuppli.282 6.400 1.467 2. J. As total BOM must be reduced to enable more attractive price points.000 10. LGD and Sharp seem pretty confident about in-cell adoption and we believe in-cell will create strong top-line and bottomline opportunity.000 800 600 400 200 0 2011 In-cell demand 2012E 2013E 2014E 2015E In-cell demand % Total smartphone touch panel demand Figure 18: (Touch Panel + LCD array) % to total BOM comparison % 21% 17% 13% 3% 0% 25% 20% 15% 10% 5% 0% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 63% 82% 18% Smartphone 37% Tablet PC Source: Company data.000 6.P. Morgan estimates Touch panel BOM needs to be reduced Comparing module (TFT-LCD + Touch Panel) costs' burden in touch device's BOM. which could be positive catalysts for the share price.000 0 1.290 2.JJ Park (822) 758-5717 jj.park@jpmorgan. % 160 140 120 100 80 60 40 20 0 58% 61% 59% 70% 60% 50% 40% 30% 20% 10% 0% 2011 iPad shipments 2012E Total Tablet PC shipments 2013E iPad % (RHS) Figure 16: LCD & Touch Panel Revenue opportunity from iPad US$ millions 12.P. w/o in-cell Source: Company data. 11 . hence we expect panel makers to jump into tablet PC developing in-cell in long-term after firstly touching base on smartphone touch panel.P. it represents over 37% of the tablet PC BOM and 18% of the smartphone BOM according to our estimates.926 2013E (w in-cell) Touch 3. % 1.552 8. Morgan estimates 1. J.000 4.431 2011 2012E Panel Source: Company data.
touch panel market cap began to move up on back of strong Apple supply chain story while TFT-LCD players suffer from deteriorating supply/demand dynamics. Moving into 2010.000 4. Morgan. all ITO sputtering is made by TPK/Wintek on cover glass) OGS/Touch-on-lens Source: J. Beginning from mid-2011.000 10.000 - TFT-LCD Touch Panel (RHS) Source: Bloomberg.P. Touch Panel includes TPK/Wintek/Melfas/Iljin Display/J Touch/ELK TFT-LCD clearly trading on discount to revenue generation Until mid-2009.000 TPK IPO Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 2.000 6. both TFT-LCD and Touch panel players' market cap moved inline direction until mid-2010. Since TPK's IPO.000 0 Jan-08 12. Lamination is TPK's best strength. both TFT-LCD and Touch panel have witnessed similar market cap to revenue multiple trend and nicely rebounded after financial crisis.000 5. TFT-LCD includes LGD/Sharp/AUO/CMI.park@jpmorgan. Touch Panel Touch Panel on boom until mid-2011 since TPK IPO After financial crisis. Touch panel began trading at higher multiple compared to TFT-LCD on Apple supply chain story and it recorded robust multiple expansion from mid-10 to mid-11.JJ Park (822) 758-5717 jj.000 10.000 35.000 40. Figure 19: Market Cap trend of TFT-LCD and Touch panel players US$ millions 45.000 30. TPK Market Cap comparison: TFT-LCD vs. TPK could remain in the supply chain given its superior lamination yield rate.000 25.000 20. touch panel players reverted into showing stiff correction and we witnessed similar market cap trend between two names. 12 . TMD Losers TPK & Wintek. however. Sharp.000 15.000 8. Laibo (The need for ITO sensor is eliminated.com Asia Pacific Equity Research 16 June 2012 Table 7: Potential beneficiary for in-cell touch panel technology Technology In-cell Winners LGD. However. Sintek.
Present) X.0 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 TFT-LCD Jul-10 Jan-11 Touch Panel Jul-11 Jan-12 Source: Company data. Touch Panel includes TPK/Wintek/Melfas/Iljin Display/J Touch/ELK Implications on LGD Revenue Impact According to our estimates. we estimate LGD to generate approximately $1.JJ Park (822) 758-5717 jj. Along with strong top-line growth.2x (TFTLCD) and 2.000 Mainly due to shrinking TPK top-line 1.0 2.0 6.0 0. Bloomberg. Recent multiple contraction seems market has already priced in risks associated with Touch-panel.000 4. TFT-LCD includes LGD/Sharp/AUO/CMI. Multiple = Market Cap / Revenue 7.0 1.0 6. J. in-cell/on-cell emergence and weak IT demand has dragged down touchpanel’s multiple to similar level of TFT-LCD and they are each trading at 1.0 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 TFT-LCD Touch Panel Jul-12 Oct-12 Figure 22: Revenue projection of TFT-LCD and Touch Panel Unit in US$ millions.0 3. 13 .0 2.3x (Touch panel) as of now. we believe panel makers with a strong position in in-cell technology deserve higher multiple going forward. Touch Panel includes TPK/Wintek/Melfas/Iljin Display/J Touch/ELK However.500 1.P. We illustrated revenue impact of in-cell to each players in the below firstname.lastname@example.org 8.500 2.0 5.000 6. Bloomberg.0 4.0 3.000 0 Jan-11 Jul-11 Jan-12 TFT-LCD Jul-12 Jan-13 Touch Panel (RHS) Jul-13 3.0 5. J.6 billion in 2012E/2013E.3/2.000 2. Morgan estimates * TFT-LCD includes LGD/Sharp/AUO/CMI. we believe in-cell panel business to positively contribute to LGD’s operating level.0 1.com Asia Pacific Equity Research 16 June 2012 Figure 20: Market Cap to Revenue trend (2008 . Touch Panel includes TPK/Wintek/Melfas/Iljin Display/J Touch/ELK Source: Company data. Upon increasing revenue trend. Figure 21: Market Capitalization to Revenue trend (2008~) Multiple (X) 7.P. Morgan estimates * TFT-LCD includes LGD/Sharp.000 500 - Source: Company data.000 10. each accounting for 5% and 10% of total revenue.0 0. TFT-LCD deserves higher multiple on in-cell opportunity JPM Asia tech team forecasts TFT-LCD players' revenue to continuously increase while Touch panel players witness a shrinking trend.0 4.000 2. % 12.
which uses IGZO technology.com Asia Pacific Equity Research 16 June 2012 Earnings impact Previously we forecasted smartphone display to account for 26% of total LGD's OP in 2012E. 2.JJ Park (822) 758-5717 jj. yield. However. 1 was supplied by a major smartphone maker.000 15. Cost impact As the equipment used in Kameyama plant No. Figure 23: In-cell revenue contribution to LGD’s business Unit in US$ millions. we think fixed costs are low and risk has therefore been minimized. we cautiously forecast in-cell to contribute more to total OP than current smartphone display. we think prices will also be kept low. is not likely to use in-cell technology. production volume. is likely to produce smartphone panels using in-cell technology. % 30. the company recently commented that it will base the timing of the introduction on clients’ needs. making margins narrower than those on other lines.000 20. however. 14 . Morgan estimates 12% 10% 10% 8% 5% 6% 4% 2% 0% 2013E LGD (in-cell) revenue In-cell % out of total revenue Implications to Sharp Recent development from Sharp Sharp announced at end-2011 that it would likely introduce in-cell technology 2013 and not 2012. While we think Kameyama plant No. Detailed margins are not provided. 2 itself. scheduled to begin full-scale production this summer.000 10.000 0 2012E LGD total revenue Source: Company data. because Sharp purchased the equipment used in its Kameyama plant No. the company commented its latest version of IGZO is compatible with in-cell technology and we therefore think panels for tablet PCs could use in-cell technology starting from 2013.000 25. However. On the other hand.P.000 5.park@jpmorgan. we think Kameyama plant No. The company has yet to make any comments on production lines. J. However. 1 (6G LTPS line). based on changes in the tone of management’s comments. or price. we think yield improvements on this line will more easily translate into broader margins.
the margin for smartphones touch panels has become marginal.000 10. Most of the second-tier touch panel makers barely make any profits in this market segment.000 8.000 12. % 18.000 4. more than 90% of the design-ins models for touch on NBs are based on OGS given easier conversion costs among different models and ease of manufacturing process. leading touch panel makers could gain market shares through OGS. Implications for Touch Panel players On the flip side. has been loaned manufacturing equipment (5. but we believe the market could be overly pessimistic about the leading touch panel makers’ revenue opportunities in other areas like tablet market growth and touch on NB or AIOs. J.000 14.JJ Park (822) 758-5717 jj.P. touch panel makers (i.and medium size LCD panel businesses of Sony. Currently.000 6. The size migration and the better margin would likely give touch panel makers another boost on earnings in 2H12 and 2013. While information on the company is limited because it is not listed.000 0 Sharp LCD revenue 19% 12% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2012E Sharp (in-cell) revenue 2013E In-cell % out of total revenue Source: Company data. TMD). LTPS) by a major smartphone maker and we thus expect Japan Display to produce smartphone panels using in-cell technology in the TMD plant. we believe the market has discounted the potential losses of iPhone 5 orders from touch panel makers. Hitachi. especially if measured in square meters and revenues. in our view. 15 . but technology-laggards and film-based makers continue to lose ground.000 2.com Asia Pacific Equity Research 16 June 2012 Figure 24: In-cell revenue contribution to LGD’s business Unit in US$ millions.5G. TMD.park@jpmorgan. Currently. and Toshiba (Toshiba Mobile Display. In short.e.000 16. we believe the touch panel market opportunities are expanding significantly. TPK and Wintek) could see negative impact on its revenue and earnings if in-cell gains market acceptance quickly. Given the technology improvement and the capacity build. We summarize the touch panel market condition by market segment: (1) smartphone market become less attractive for touch panel makers: TFTLCD makers are gaining market shares in smartphone area especially given Apple could potentially switch to in-cell. Morgan estimates Implication to Japan Display Japan Display is an unlisted LCD panel maker formed in 2012 through the integration of the small. like Sharp’s Kameyama plant No. 1.
Hence. We believe eventually touch panel would become an essential part of PCs along with the touch panel prices decline. We do not rule out the possibility that Apple could adopt in-cell for iPad in the longer term. thickness. per our estimate. and Apple’s market share to be 61%/59% in 2012/2013.com Asia Pacific Equity Research 16 June 2012 (2) tablets market could be a big swing factor: we estimate the market is growing by 54%/ 31% in 2012/2013. this is Apple’s binary decision. per our estimate. especially given Intel's agreement with touch panel makers that put touch panel makers at front of the priority in this market segment.JJ Park (822) 758-5717 jj. 16 . one 14” touch panel is nearly twice as large as a 10” tablet in areas. hence it could fill up touch panel makers’ capacities quickly. it could wipe out TPK/Wintek's operating profits by 30-40% for 2012/2013. and costs (over 90% touch on NB models are OGS-based).park@jpmorgan. (3) NBs and AIOs benefits OGS manufacturers: we estimate the touch on NB would represent 5-7% penetration of total market size of 238 million units in 2013. Of note. This could be a drag on touch panel makers' valuation multiple since if this happens. but penetration could be less than 1% in 2012/2013. Again. but technology and cost hurdles remain to be resolved first. We also believe there is a great potential that Apple could follow suit by integrating touch into its NB/AIO series of products in the future. Desktop PC represents another 154/152 million unit market. and this is a downside risk for touch panel maker like TPK and an opportunity for TFT-LCD makers like LGD and Sharp. OGS seems to be the most practical solution for this market in terms of weights. we believe leading touch panel makers like TPK could still enjoy its industry leadership in the next couple of years. We have seen Intel and Microsoft clearly pushing touch panel adoption in the NB market in Computex.
0 3.5 1Q12 0 0 0 0 0 0 2Q12E 0 0 0 0 0 0 2Q12E NA NA NA NA NA NA 3Q12E 14 17 15 4 10 46 3Q12E 31% 37% 32% 9% 22% 100% 4Q12E 18 19 15 5 11 52 4Q12E 35% 36% 29% 9% 21% 100% 1Q13E 20 21 17 5 12 58 1Q13E 34% 37% 29% 9% 20% 100% 2Q13E 21 22 17 5 12 60 2Q13E 35% 36% 29% 9% 20% 100% 3Q13E 21 23 17 5 12 61 3Q13E 34% 37% 29% 9% 20% 100% 4Q13E 21 23 17 5 12 61 4Q13E 34% 37% 29% 9% 20% 100% 2012E 32 36 30 9 21 98 2012E 33% 36% 30% 9% 21% 100% 2013E 82 88 69 21 48 239 2013E 34% 37% 29% 9% 20% 100% Gen 4. Based on Base case scenario Unit output LGD Sharp Japan Display Ex-Sony Ex-TMD Total supply M/S by unit output (%) LGD Sharp Japan Display Ex-Sony Ex-TMD D2 Total Source: Company data.5 6. Morgan estimates Gen 4.5 5.5 1Q12 NA NA NA NA NA NA 17 .0 email@example.com 5.P.P.5 6. J.0 3. Based on Base case scenario Adjusted Quarterly capacity (K sqm) LGD AP2 LTPS Sharp Kameyama line Japan Display Ex-Sony Ex-TMD D2 Total Yield rate assumptions (%) LGD AP2 LTPS Sharp Kameyama line Japan Display Ex-Sony Ex-TMD D2 Average Source: Company data.5 1Q12 0 0 0 0 0 0 2Q12E 0 0 0 0 0 0 2Q12E 73% 58% 64% 63% 64% 3Q12E 113 177 136 41 95 425 3Q12E 75% 60% 67% 66% 67% 66% 4Q12E 136 177 136 41 95 448 4Q12E 78% 65% 70% 69% 70% 70% 1Q13E 145 177 136 41 95 458 1Q13E 80% 70% 73% 72% 73% 74% 2Q13E 153 177 136 41 95 466 2Q13E 80% 72% 76% 75% 76% 76% 3Q13E 153 177 136 41 95 466 3Q13E 80% 75% 76% 75% 76% 77% 4Q13E 153 177 136 41 95 466 4Q13E 80% 75% 76% 75% 76% 77% 2012E 62 88 68 20 47 218 2012E 77% 63% 68% 68% 69% 68% 2013E 151 177 136 41 95 464 2013E 80% 73% 75% 74% 75% 76% Gen 4. Morgan estimates Gen 4. M/S (%).5 1Q12 70% 55% 61% 60% 61% In-cell panel supply by company Unit output based on 4” panel (mn units).5 5.JJ Park (822) 758-5717 jj.5 6.com Asia Pacific Equity Research 16 June 2012 Appendix I: In-cell supply/demand model In-cell capacity and yield rate assumptions by company Quarterly capacity in 000s sqm and yield rate assumption in %.5 6.5 5.0 3. J.
J.P.5 5.0 3.951 42 18 .733 2. Based on Base case scenario Revenue LGD Sharp Japan Display Ex-Sony Ex-TMD Total Panel Price assumptions Source: Company data.188 1.5 1Q12 NA NA NA NA NA NA 2Q12E NA NA NA NA NA NA 3Q12E 544 649 553 165 388 1.298 685 1.612 7.921 2.5 6.850 46 1Q13E 653 696 554 165 389 1.com Asia Pacific Equity Research 16 June 2012 In-cell panel revenue by company Unit in $ millions. Panel Price in US$.596 47 2013E 2.020 40 2012E 1.park@jpmorgan. Morgan estimates Gen 4.903 45 2Q13E 672 699 563 168 395 1.745 48 4Q12E 643 662 544 162 382 1.097 327 770 3.094 42 4Q13E 692 749 580 173 407 2.934 43 3Q13E 717 776 601 179 421 2.JJ Park (822) 758-5717 jj.311 1.
TPK Holding Co.. and the services provided were non-investment-banking. calling 1-800-477-0406.. Ltd.disclosure.park@jpmorgan. securities-related: LG Display. 19 . Morgan currently has. the following company(ies) as clients.com Asia Pacific Equity Research 16 June 2012 Companies Recommended in This Report (all prices in this report as of market close on 15 June 2012) LG Display (034220.. Ltd. within the past 12 months. the following company(ies) as clients: LG Display. Securities-Related: J. Client/Investment Banking: J. Important Disclosures Lead or Co-manager: J.. where multiple research analysts are primarily responsible for this report. Seoul branch is acting as a Market Maker (Liquidity Provider) for the Equity Linked Warrants of LG Display and owns 18. Morgan currently has.JJ Park (822) 758-5717 jj. TPK Holding Co. or had within the past 12 months. Ltd. is. Ltd. or emailing research. or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. or had within the past 12 months.P. Sharp (6753).KS/W22300/Overweight).P. Company-Specific Disclosures: Important disclosures. TPK Holding Co. Ltd. TPK Holding Co. Sharp (6753) (6753. TPK Holding Co. Morgan received in the past 12 months compensation for investment banking Sharp (6753). Ltd... with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers. Investment Banking (past 12 months): J..jpmorgan. Client/Non-Securities-Related: J.P.460 as of 15-Jun-12.com/disclosures/company. Client/Non-Investment Banking.. Ltd. Morgan currently has..P. Morgan Securities (Far East) Ltd. J. and (2) no part of any of the research analyst's compensation was.. Morgan has received compensation in the past 12 months for products or services other than investment banking from LG Display. or intends to seek.538. Morgan expects to receive.... Investment Banking (next 3 months): J. and the services provided were non-securities-related: Sharp (6753).P. are available for compendium reports and all J.firstname.lastname@example.org/Overweight) Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or.P. the following company(ies) as clients. Ltd. Sharp (6753).TW/NT$454.P. Morgan currently has.P. TPK Holding Co.. TPK Holding Co. Ltd. Non-Investment Banking Compensation: J. Sharp (6753).com with your request. the following company(ies) as investment banking clients: Sharp (6753)..T/¥412/Overweight).P. Client: J. compensation for investment banking services in the next three months from Sharp (6753). Morgan– covered companies by visiting https://mm. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for TPK Holding Co. or had within the past 12 months.. including price charts.P. TPK Holding Co. the research analyst denoted by an “AC” on the cover or within the document individually certifies. or had within the past 12 months. (3673.
050 Y1.844 OW W50.email@example.comN W36.000 OW OW W60.000 OW W55.000 67.000 OW 53.500 N Y750 UW Y770 OW Y900 Y650 OW UW Y690 OW Y700 N Y700 2. Morgan.474 0 Oct 06 Jul 07 Apr 08 Jan 09 Oct 09 Jul 10 Apr 11 Jan 12 N W31.000 N W36.000 OW W45.550Y2.370 OW W40.000 OW W45.000 OW W60. Morgan.400 OW OW Price(Y) N Y1.T.000 N Y1.000 W40.JJ Park (822) 758-5717 jj. Initiated coverage Oct 04.250 N Y610 UW Y900 OW Y850 3.000 OW W32.000 N W28.896 Price(W) 40. 034220 KS) Price Chart 94. price data adjusted for stock splits and dividends.000 W53. Initiated coverage Oct 11. 2006.000 OW W70.000 OW W55.000OW W52.P.000 N W31.318 OW W56.422 26.KS. 20 .000 N W24.000 80.850 Y1.000 OW OW W50.050 Y550 Y650 N UW UW N Y1.328 664 0 Sep 06 Jun 07 Mar 08 Dec 08 Sep 09 Jun 10 Mar 11 Dec 11 01-May-10 N Source: Bloomberg and J.656 N Y2. price data adjusted for stock splits and dividends.000 W36. Rating Share Price (Y) N OW OW N N N N N N UW UW UW UW N UW UW N OW OW OW OW 2025 2185 2175 1850 1797 1577 1290 1003 687 599 662 889 1087 1018 1009 1226 867 738 595 698 643 656 509 Sharp (6753) (6753.000 OW W42.992 15-Dec-08 N 03-Feb-09 15-Jul-09 03-Aug-09 14-Oct-09 17-Nov-09 21-Sep-10 06-Jun-11 14-Sep-11 16-Nov-11 12-Jan-12 02-Feb-12 24-Apr-12 1.P.250 Y750 N UW 1.000OW W60.320 N Y2. 2006.120Y2.000 Rating Share Price (W) OW OW OW OW OW OW N N N N N OW OW OW OW OW OW OW OW OW OW OW 30400 32400 39600 42700 45000 49250 37600 32900 29600 20850 31450 31350 34800 30000 41350 41700 45450 37250 38550 34850 29550 30250 19150 28550 Price Target (W) 40000 45000 50000 56000 60000 70000 60000 36000 31000 24000 28000 31000 36000 40000 53000 55000 60000 55000 52000 50000 45000 42000 32000 36000 Price Target (Y) 2120 2550 2400 2000 1850 1500 1250 1050 750 610 550 650 770 900 1050 1250 750 690 700 900 850 700 650 10-Apr-07 03-Jul-07 10-Oct-07 31-Oct-07 03-Jul-08 10-Jul-08 20-Aug-08 17-Apr-09 10-Jun-09 17-Jul-09 12-Nov-09 06-Jan-10 01-Apr-10 23-Apr-10 17-Sep-10 13-Jan-11 28-Mar-11 01-Jul-11 22-Jul-11 13-Sep-11 28-Jan-12 Date 04-Oct-06 22-May-07 OW 02-Dec-08 N Source: Bloomberg and J.948 13. 6753 JT) Price Chart 09-Mar-07 26-Jul-07 23-Oct-07 28-Apr-08 22-Jul-08 05-Sep-08 07-Oct-08 04-Nov-08 3.984 N Y1.com Asia Pacific Equity Research 16 June 2012 Date 11-Oct-06 LG Display (034220.
Fujitsu (6702) (6702.. JJ: LG Display (034220.00 385. (3673.com Asia Pacific Equity Research 16 June 2012 TPK Holding Co. our Overweight rating falls into a buy rating category. UW = Underweight Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.TW). our Neutral rating falls into a hold rating category. Coverage Universe: Park. Mitsubishi Electric (6503) (6503.KS) Chang.P.TW).00 581.230 OW NT$800 OW NT$1.T). Initiated coverage Jun 04. Morgan uses the following rating system: Overweight [Over the next six to twelve months. 2011.TW). Chimei Innolux Corporation (3481. SK Hynix (000660. Narci: AU Optronics (2409.P.P. Morgan.TW) Izumi. Everlight Electronics Co.P. Sony (6758) (6758.TWO). (3673. Renesas Electronics (6723) (6723. as of April 3. Ltd. Fuji Electric (6504) (6504.P.00 1000. Inotera Memories.T). and our Underweight rating falls into a sell rating category. LG Electronics (066570. Wintek Corporation (2384. www.00 Price Target (NT$) 1200. Nissin Electric (6641) (6641.T). Morgan Equity Research Ratings Distribution. If it does not appear in the Important Disclosures section of this report. Sharp (6753) (6753.TW).T) J.T).. Morgan ratings: OW = Overweight. TPK Holding Co. the certifying analyst’s coverage universe can be found on J.T). Samsung Electronics (005930.and mid-cap equity research. we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe. 2012 J. Ltd.T). Toshiba (6502) (6502.] Neutral [Over the next six to twelve months. Panasonic (6752) (6752.T). N= Neutral. 3673 TT) Price Chart 1.476 1. Morgan Global Equity Research Coverage IB clients* JPMS Equity Research Coverage IB clients* Overweight (buy) 45% 51% 43% 70% Neutral (hold) 43% 45% 48% 61% Underweight (sell) 12% 34% 9% 53% *Percentage of investment banking clients in each rating category.00 492 246 0 Oct 10 Jan 11 May 11 Aug 11 Dec 11 Apr 12 Source: Bloomberg and J.000 OW NT$1. each stock’s expected total return is compared to the expected total return of a benchmark country market index. J. (2393..P. Taiwan Surface Mounting Technology (6278.T).KS). price data adjusted for stock splits and dividends. Omron (6645) (6645. Nanya Technology Corporation (2408.com. we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.200 OW NT$500 OW NT$700 984 Price(NT$) 738 Date 04-Jun-11 11-Aug-11 28-Oct-11 22-Feb-12 26-Apr-12 Rating Share Price (NT$) OW OW OW OW OW 936.park@jpmorgan. the current analysts may or may not have covered it over the entire period. we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.00 490.00 500.morganmarkets.JJ Park (822) 758-5717 jj.T). The chart(s) show J.] In our Asia (ex-Australia) and UK small. not to those analysts’ coverage universe.TW). 21 .KS).TW). Hitachi (6501) (6501. Oki Electric Industry (6703) (6703. Epistar Corporation (2448.OS). (8069. Inc.] Underweight [Over the next six to twelve months. (3474. Yoshiharu: Anritsu (6754) (6754.P. Ltd.T).00 719.T).T). Morgan’s research website.TW). For purposes only of FINRA/NYSE ratings distribution rules.KS). Morgan's continuing coverage of the stocks.TW.00 700.TW). NEC (6701) (6701.00 800. E Ink Holdings Inc.
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