20140724-高盛-Attractive_investment_in__late-smartphone__era__initiate_at_Buy_26页_537kb

Summary of Primax Electronics Investment Report

Core Content

Goldman Sachs has initiated coverage on Primax Electronics with a Buy rating and a 12-month target price of NT$66, implying a 33% upside from the current price of NT$49.50. The report highlights that Primax is an attractive investment in the "late-smartphone" era, where global smartphone growth is slowing, but demand for audio equipment and camera modules is increasing due to consumers' focus on better mobile audio and optical performance.

Main Points

• Investment Thesis: Primax is positioned to benefit from the shift in consumer demand towards enhanced audio and optical experiences, particularly in the audio equipment and camera module segments.
• Growth Drivers:
  • The acquisition of Tymphany, a leading audio equipment maker, has significantly boosted Primax's earnings, contributing 35% of profits in 2015E (up from 9% in 2013).
  • Camera module business is expected to recover, contributing 38% of revenue and 47% of profits in 2014E.
• Earnings Growth:
  • 2014E: Expected to see 172% yoy net income growth.
  • 2015E: Expected 39% yoy net income growth.
  • 2016E: Expected 26% yoy net income growth.
• Valuation:
  • The target price of NT$66 is based on a 2.8X P/B for the period 2H14E-1H15E, derived from the Taiwan Tech sector average 1-yr forward P/B-ROE of 12.7X and Primax's 22.4% ROE.
  • The current P/E ratio is 10.5X, which is attractive compared to the AeJ component peer average of 12.6X.
  • The target P/E ratio is 13.9X, suggesting a re-rating as the company's ROE is expected to rise.
• Market Cap Potential: The report forecasts that Primax could reach a US$1bn market cap by end-2015.

Key Risks

• Competition: Intensifying in the audio and camera module markets.
• Tymphany Integration: Potential challenges in integrating the acquired company.
• Business Volatility: Risks associated with the changing demand patterns and supply chain dynamics.

Financial Highlights

Peer Comparison

*Denotes stocks are on our Conviction List.

Conclusion

The report outlines a positive outlook for Primax, emphasizing the potential for strong earnings growth and market cap expansion in the late-smartphone era. The acquisition of Tymphany and recovery in the camera module business are seen as key catalysts for growth. Goldman Sachs believes that the company's diversification into high-margin segments will drive ROE expansion and attractive returns over the next 2-3 years. The valuation is based on a P/B-ROE framework, and the target price reflects the potential for re-rating as the company's profitability improves.