20180611-东英亚洲证券-丘钛科技-01478.HK-May_shipments_in-line_6页_1mb

Q Technology (1478 HK) Equity Research Summary

Core Content

Q Technology is a leading Chinese manufacturer of mid-to-high end camera modules and fingerprint modules for branded smartphone and tablet PC producers. The company's recent financial and operational performance has led to a SELL rating, with a target price of HK$4.90 (a 30% decrease from the current close price of HK$6.98 as of 08/06/2018).

Key Data

• HKEx Code: 1478 HK
• 12 Months High: HK$23.25
• 12 Months Low: HK$5.92
• 3M Avg Daily Vol.: 8.74 mn
• Issue Share: 1,131.72 mn
• Market Cap: HK$7,899.42 mn
• Fiscal Year: 12/2017
• Major Shareholder: He Ningning (66.39%)

Financial Performance (Year to Dec)

Shipment and Market Penetration

• May Shipments: CCM up 31.4% YoY to 20.3 mn units; FPM up 41.6% YoY to 7.8 mn units.
• Penetration of 10M+ CCM: Dropped to 38%, a 11-month low since Jun 17.
• Expected Shipment Growth: Improved in 2H18E due to seasonality and increased demand from OEMs like OPPO, vivo, and Huawei.
• Margin Outlook: Margins are expected to remain under pressure due to low production yield and lack of competitive advantage over tier-1 suppliers like Sunny Optical and O-Film.

Key Risks and Upside Factors

• Upside Risks:

  1. Faster ramp-up of Newmax lens set business.
  2. Higher than expected shipment growth.
  3. Recovery of 10M+ CCM penetration in 2H18E.

• Downside Risks:

  1. Continued low penetration of high-end CCM.
  2. Margin compression due to product mix and yield issues.
  3. Slow recovery of investor confidence.

Peer Group Comparison

Recent Reports and Recommendations

Historical Recommendations and Target Price

Summary of Key Points

• Rating: SELL
• Target Price: HK$4.90 (based on 15x FY19E PE)
• Performance: May shipments were in line with expectations, but penetration of 10M+ CCM dropped to 38%, indicating a loss of market share.
• Margin Outlook: Margins are expected to remain under pressure in 2H18E due to low yield and lack of competitive edge.
• Financial Health: Net profit has declined in FY18E, with a net margin of 3.6%. P/B has decreased over time, suggesting lower valuation.
• Investor Confidence: Needs time to rebuild, with no immediate signs of margin or ASP improvement.
• Peer Comparison: Q Tech is underperforming compared to peers like Sunny Optical and Truly Intl Hldgs, which have higher margins and better performance metrics.

Conclusion

Q Technology is facing significant challenges in maintaining its market position and improving profitability. The downgrade to SELL reflects concerns over declining margins, low penetration in high-end markets, and the need to rebuild investor confidence. Despite potential shipment growth in the second half of 2018, the company's financial and operational performance remains weak, with limited upside potential.