Driver IC prices keep rising! Goldman Sachs is optimistic about Novatek and predicts that large and small DDIC prices will continue to rise

According to a comprehensive report by Jiwei.com, Novatek, a major driver IC manufacturer, announced that its first quarter EPS reached NT$9.66, which was a stunning performance for the market. Morgan Stanley, a foreign investor, reiterated its "outperform" rating and target price of NT$744. Goldman Sachs Securities believes that due to the continued shortage of foundry capacity, there is still room for further price increases for DDICs of all sizes, and raised its EPS forecast for Novatek this year to NT$40, with the target price simultaneously raised to NT$755.

Goldman Sachs said that Novatek's gross profit margin in the first quarter was as high as 43%, significantly better than the financial forecast of 39-41%, highlighting that amid the shortage of chip and foundry capacity, Novatek's bargaining power has further improved and its profit performance has greater potential.

Goldman Sachs analyzed that the wafer foundry capacity entered the second quarter and the shortage became more serious, especially the capacity of traditional mobile phone DDIC, automotive chips and PMIC was hit the hardest. It is unlikely that driver IC will get more capacity in the second quarter. It is estimated that the price of large and small size DDIC will increase by another 10%, and the price of both types of chips will increase by another 5% in the third quarter.

Reflecting on Novatek's fundamentals, Goldman Sachs estimates that Novatek's gross profit margin can be increased to 45% in the second quarter, and its operating profit margin will be increased to 28.7%. The full-year EPS forecast has been significantly revised up from NT$30 to NT$40, and is estimated to be NT$38.3 in 2022. The target price calculated based on a 25 times price-to-earnings ratio is NT$755.

Industry insiders pointed out that under the impetus of the epidemic, remote work, meetings, education and other interactions have become the norm, which has greatly increased the market demand for panels. The market is hot, not only the demand for TVs, laptops, screens, etc. is strong, but mobile phone brands have also increased their orders to seize Huawei's lost market share, pushing up the demand for driver chips. At the same time, due to the tight supply of 8-inch wafers, the supply and demand of driver chips have been further exacerbated.

Novatek's shipments of OLED DDI, SoC, and large-size DDI maintained quarterly growth in the first quarter of this year, and the strong new demand is conducive to profit performance. Industry insiders expect that the price increase momentum of TDDI and OLED DDI can continue into the second quarter. In order to maintain profit performance, driver chip manufacturers also started the second round of price increases to customers in the second quarter. The market is generally optimistic that the profit will be better than the first quarter in the second quarter with the continued benefit of price increases, setting a new record again.