A significant laggard: Hansol Chemical’s share price has fallen 10% YTD (vs. an18% gain in the KOSPI), significantly underperforming its peer electronic materialcompanies (Fig 1). We attribute this to concerns over weakening near-term earnings,especially in 2Q17e, and note that the company’s shares tend to be more sensitive toconsensus earnings revisions than its peers’ (Fig 2).    Concerns over quantum dots: As we noted in our previous note (Buy: Growth tooutweigh concerns, 17 May 2017), lukewarm quantum dot (QD) sales amid weakerSamsung TV shipments appear to have worried the Street. We expect subdued highmarginQD sales to result in a sequential earnings decline in 2Q17e with operatingprofit falling 25% q-o-q to KRW18bn (20% below consensus) on sales of KRW127bn(down 5% q-o-q). We also lower our QD sales forecasts by 13% for 2017e and 5%for 2018e to reflect lower QD TV sales and QD material pricing (Fig 5).    Earnings cuts likely nearing an end: However, the disappointing 2Q17e earningsalready seem to have been fully digested by the market amid the share pricecorrection. In addition, the consensus OP forecast for 2017e has come down by 14%over the past three months. Consensus earnings downgrades now look set to taperoff on the back of two factors. Firstly, we expect QD volume growth to resume in3Q17e on rising QD content per box and increasing QD TV penetration at SamsungElectronics (005930 KS, KRW2,389K, Buy) ahead of the year-end peak season.    Secondly, we believe hydrogen peroxide (H2O2) demand will rise driven by the fullramp-up of the new 3D NAND plants of both Samsung Electronics and SK Hynix(000660 KS, KRW65,500, Buy) (Fig 7 and 8). We believe Hansol Chem has alreadywon a dominant share of the orders from all new 3D NAND plants of the Korean chipmakers. We also expect H2O2 for semiconductor use to drive a significantimprovement in product mix given its higher ASP (Fig 9 and 10).    Maintain Buy with unchanged TP of KRW110,000: We trim our net profit estimatesby 8% for 2017e and 3% for 2018e to reflect lower QD sales, but our TP remains atKRW110,000 as we roll forward our base earnings to an average of 2017e and2018e EPS (from 2017e EPS previously) with our 16x target PE remainingunchanged. We believe the current valuations of 12x 2017e PE and 2.5x PB look areattractive, given we expect ROE to expand significantly from 10-15% in 2014-15 to20-25% in 2017-18e and EPS to grow by 25-30% in 2017-18e. Hansol Chem is alsotrading at more attractive valuations than its peers (Fig 16 and 17). We expectearnings to bottom in 2Q17e and believe even a minor catalysts could trigger upsidein the shares given the lowered expectation.

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