20210118-招银国际-丘钛科技-01478.HK-Positive_profit_alert_on_ASP_GPM_hike__Lift_TP_to_HK_18.8_7页_1mb

CMB International Securities | Equity Research | Company Update Summary

Core Content

Q Technology (1478 HK) has issued a positive profit alert for FY20E, reporting a net profit growth of 40–60% YoY, with a mid-point of +50% YoY, which is 5%–13% above our/consensus estimates. The growth is attributed to a significant increase in CCM ASP due to a better product mix and improving GPM from enhanced production automation and CCM product mix.

The company's CCM revenue is expected to grow by 45% YoY to RMB15.0bn in FY20E, despite a 3% YoY shipment decline due to the impact of the pandemic and the slowdown in Huawei orders. In contrast, FPM revenue is projected to drop by 25% YoY to RMB2.1bn, mainly due to 10%–17% YoY shipment and ASP declines.

Key Points

Positive Outlook

• Smartphone recovery is on track, with global smartphone growth expected at 7%–2% YoY and China smartphone growth at 16%–5% YoY in FY21E/FY22E.
• Strong demand for sub-RMB1k 5G phones is expected to drive growth for Q-tech.
• Oppo, Vivo, Xiaomi are projected to grow by 23%–34% YoY in FY21E, with Q-tech likely to expand its share in Samsung CCM.
• Q-tech's CCM roadmap in miniaturization, 3D sensing, and periscope optical zoom is viewed positively.
• HCM ASP is expected to grow at 6% CAGR for FY20E–FY22E.

Strategic Moves

• Proposed A-share spin-off of Kunshan Q-tech China, which focuses on CCM for smartphones, vehicles, and IoT.
• The spin-off is expected to enhance CCM capacity and R&D and accelerate auto/IoT product pipeline in FY22E–FY23E.
• Component shortages are expected to alleviate in 1Q21E, due to low seasonality.

Valuation and Recommendations

• Reiterated BUY with a target price of HK$18.8, which is a 41% upside from the current price of HK$13.38.
• TP increased from HK$16.6 due to a higher 20x FY21E P/E compared to the previous 18x.
• Catalysts include Samsung HCM order win and progress on A-share spin-off.

Financial Highlights (FY18A–FY22E)

Earnings Revision

• FY20E–FY22E EPS revised up by 1–4% to reflect stronger performance and higher HCM ASP/GPM.
• Our EPS estimates are 6–13% above consensus.

Revenue Breakdown (CCM and FPM)

CCM Revenue

• CCM revenue is expected to grow from RMB6,273 in FY18 to RMB14,975 in FY20E.
• CCM shipment is projected to grow from 264mn in FY18 to 392mn in FY20E.
• CCM ASP is expected to rise from RMB23.9 in FY18 to RMB38.2 in FY20E.

FPM Revenue

• FPM revenue is expected to grow from RMB1,832 in FY18 to RMB2,062 in FY20E.
• FPM shipment is projected to grow from 108mn in FY18 to 92mn in FY20E.
• FPM ASP is expected to rise from RMB17.1 in FY18 to RMB22.4 in FY20E.

Key Ratios

Market Context

• Market Cap: HK$15,685 million
• Average 3-month turnover: HK$88.12 million
• 52-week High/Low: HK$14.10 / HK$7.71
• Total Issued Shares: 1,172 million

Analyst and Rating

• Analyst: Alex Ng
• Rating: BUY
• Target Price (TP): HK$18.8
• Previous TP: HK$16.6
• Up/Downside: +40.5%
• CMBIS Ratings:
  • BUY: Potential return of over 15% over next 12 months
  • HOLD: Potential return of +15% to -10% over next 12 months
  • SELL: Potential loss of over 10% over next 12 months

CMBIS Investment Outlook

• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark over next 12 months
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark over next 12 months

Shareholding Structure

Summary

Q Technology is experiencing strong growth in its CCM business, driven by higher ASP and improved GPM. The company is expected to benefit from the recovery of the smartphone market and the demand for sub-RMB1k 5G phones. Q-tech has also announced a proposed A-share spin-off, which is expected to enhance its CCM capacity and R&D, accelerating its auto and IoT product pipeline. The company's target price has been increased to HK$18.8, reflecting a 41% upside and a higher 20x FY21E P/E. The BUY rating is reiterated based on the positive outlook for earnings growth and the potential for outperforming the market.