The author is an analyst of NH Investment & Securities. He can be reached at  esshim@nhqv.com. -- Ed.

Tovis manufactures industrial monitors and TFT-LCD modules. Moving ahead, we anticipate high earnings growth on both a likely recovery in orders from casinos (in line with endemic status for Covid-19) and production capacity expansion for automotive display modules. External environment uncertainties linger Tovis posted consolidated 1Q22 sales of W79.6bn (+8.9% y-y, +21.7% q-q) and OP of W0.3bn (TTP y-y, TTP q-q). With the casino industry entering a recovery period (in line with endemic status for Covid-19), and with operations underway for new production lines making automotive display modules, the firm’s earnings are showing a clear turnaround. But, the pace of improvement proved slower than expected due to ongoing external negatives, including maritime freight cost hikes and issues over automobile semiconductor supply. Earnings growth to start in earnest from 2H22 on additional capacity expansion and better external conditions On May 11, Tovis disclosed that it is earmarking funds for investment in a new manufacturing facility. A total of W34.8bn is to be directed towards the construction of a plant in Seocheon that will make automotive display modules. The investment is being made to keep in synch with an automobile new model trend towards larger sizes and numbers of displays. The first of the new lines is slated to start operating from 1H23. Once construction is all completed, the plant is projected to have sufficient capacity to generate annual sales of W200bn. With the firm’s total production capacity (sales-basis) forecasted to reach W500bn (Dalian facilities W300bn + Seochun facilities W200bn) by 2024, high earnings growth and stronger business competitiveness should be in the spotlight in the not-too-distant future. With external conditions likely to improve steadily going forward, Tovis’s earnings growth should begin in earnest from 2H22. Even though normalization of maritime freight costs may take some time, automobile semicon supply issues are likely to ease from 2H22, and production expense reduction is anticipated from 2Q22 in response to a drop in panel prices. Despite trimming down our OP estimates due to the ongoing external environment uncertainties, we slightly push up our 2023 sales forecast in light of the capacity expansion plans. Given the likely full-year reflection from of benefits from the expansion project from 2024, and further given expected synergies between newly-acquired Seil Hi-Tech (industrial film maker) and Tovis’s existing businesses, we foresee continued steep earnings growth.