20210722-招银国际-信维通信-300136.SZ-Maintain_HOLD_on_continuous_margin_pressure_6页_1mb

CMB International Securities | Equity Research | Company Update Summary

Core Content

Sunway (300136 CH) recently released its 1H21 results, which showed a revenue increase of +19.5% YoY but a significant decline in net profit by -47.5% YoY. This performance missed expectations, primarily due to a record-low gross margin of 15.7% in 2Q21, compared to 40.5% in 3Q20, attributed to new business ramp-up, seasonality, and rising material costs. As a result, CMBIS revised down its FY21-23E EPS estimates by 26-38%, and adjusted the target price (TP) to RMB26.6, reflecting a lower 27x FY22E P/E multiple than the previous 31x 21E P/E.

Main Points

• Revenue and Net Profit Performance:

  • 1H21 revenue was +19.5% YoY, but net profit dropped by -47.5% YoY.
  • Revenue in 2Q21 declined by -4.6% YoY and -10.6% QoQ.
  • Net profit in 2Q21 was RMB570 million, significantly below expectations.
  • CMBIS estimates FY21E net profit at RMB558 million, FY22E at RMB950 million, and FY23E at RMB1,454 million.

• Gross Margin Pressure:

  • Gross margin in 1H21 dropped to 20.1%, compared to 30.2% in FY20.
  • Domestic and overseas gross margins declined to 20.0% and 17.8%, respectively, from 30.2% in FY20.
  • The outlook for gross margin remains cautious, with potential for recovery in 2H21 but difficulty in reaching previous levels.

• Earnings Revisions:

  • CMBIS revised down its FY21-23E EPS estimates by 26-38%.
  • The new EPS estimates are 30-56% below the consensus.
  • Gross margin estimates for FY21E and FY22E are 20.1% and 22.1%, respectively.

• Target Price and Rating:

  • CMBIS maintains a HOLD rating.
  • TP was adjusted to RMB26.6, with a 1.5% upside from the current price of RMB26.20.
  • The stock is currently trading at 26.6x 22E P/E, which CMBIS considers fairly valued.

Key Information

• Financial Highlights:

  • Revenue is expected to grow sequentially in 2H21E due to the peak season in the consumer electronics market.
  • The company's revenue by segment shows growth in antenna/RF modules, wireless charging, and EMC/EMI, while cables/connectors and RFFE show varying growth rates.
  • Operating and net margins are expected to decline in FY21E, with operating margin at 7.1% and net margin at 6.9%.

• Valuation Metrics:

  • 12-month forward P/E and P/B ratios are provided, with the company trading at 45.3x 21E P/E and 4.1x 21E P/B.
  • CMBIS compares Sunway with peers like Amphenol, Luxshare, and Lingyi iTech, noting that the P/E and P/B for Sunway are in line with or below the industry average.

• Risk Factors:

  • Potential risks include slower-than-expected market share gains and continued delays in new business ramp-up.
  • CMBIS is cautious about the near-term outlook due to margin deterioration and delayed new business performance.

Summary Table

Conclusion

CMBIS maintains a HOLD rating on Sunway, citing continued margin pressure and delayed new business ramp-up as key concerns. The TP has been reduced to RMB26.6, and the company is considered fairly valued at its current price. Despite potential recovery in 2H21E, the long-term margin outlook remains uncertain. Investors are advised to consider the risks associated with the company's performance and seek independent financial advice.