20230105-招银国际-China_Technology__Limited_surprise_on_Apple_order_cut__Suggest_to_focus_on_non-smartphone_names_3页_713kb

China Technology Sector Summary

Core Content

This document provides an analysis of the China Technology sector, focusing on the performance and outlook of key supply chain companies related to Apple and other consumer tech firms. The analysis includes order cuts, market valuation, and strategic recommendations for investors.

Main Points

• Apple Supply Chain Pressures: Recent reports indicate order cuts for AirPods, Watch, and MacBooks in 1Q23E due to a weaker consumer backdrop. The supply chain is expected to remain volatile in the near term due to uncertainties in the 1Q23 outlook and profit-taking pressure after a $30%+$ rally since November.

• Conservative Outlook on Consumer Tech: The recent sector rally has priced in demand recovery post-China reopening. However, the analysts remain cautious about the potential for a recession in the US and EU, which could negatively impact most smartphone-related stocks. These stocks have high exposure to overseas clients and markets.

• Recommendation to Focus on Non-Smartphone Exposure: Amid macroeconomic weakness and ongoing inventory correction, the analysts recommend focusing on sub-sectors with non-smartphone exposure, such as automotive (EV), AR/VR, and datacom. These areas are expected to offer better entry points in late 1Q23E as supply chain adjustments continue.

• Stock Ratings and Valuation:

  • BUY: FIT Hon Teng (6088 HK), BOEVx (710 HK)
  • HOLD: BYDE (285 HK), Sunny Optical (2382 HK), AAC Tech (2018 HK)

  The valuation table includes metrics such as market cap, price, target price, P/E, P/B, and ROE for each company.

Key Information

• Order Cuts: The order cuts for Apple products are attributed to a weaker consumer backdrop and seasonal weakness in 1Q23E. The analysts are not surprised by these cuts, as they follow a soft holiday season in December.

• Inventory Correction: The Android supply chain has been actively destocking since 3Q22, and the Apple supply chain is expected to accelerate inventory correction in 1Q23E due to weaker macroeconomic outlook in the US and EU.

• Geopolitical and Market Factors: Ongoing geopolitical tensions, the impact of the pandemic, and supply chain decoupling are expected to drive Apple's diversification of production bases, though weak macroeconomic conditions may slow this process.

• Sales Mix Exposure:

  • FIT Hon Teng (6088 HK): 40% Apple, 3% Huawei/Honor, 57% others
  • BYDE (285 HK): 40% Apple, 5% Huawei/Honor, 10% Samsung, 30% other CN brands, 15% others
  • Sunny Optical (2382 HK): 2% Apple, 10% Huawei/Honor, 20% Samsung, 58% other CN brands, 10% others
  • AAC Tech (2018 HK): 45% Apple, 5% Huawei/Honor, 25% Samsung, 20% other CN brands, 5% others

• Strategic Recommendations: Investors are advised to stay on the sidelines until more visibility on Apple's earnings is available (26 Jan). The analysts maintain a HOLD rating for companies with high smartphone exposure and a BUY rating for those expanding into auto components.

Figures and Tables

• Figure 1: Global smartphone shipment forecast (Source: IDC, CMBIGM estimates)
• Figure 2: Global VR/AR market shipment forecast (Source: IDC, CMBIGM estimates)
• Figure 3: Honhai and Luxshare production lines (Source: Digitimes, CMBIGM)
• Figure 4: Apple production lines (2021) (Source: Counterpoint, Digitimes, CMBIGM)
• Figure 5: Supply chain mapping and sales mix exposure (2022) (Source: Company data, CMBIGM estimates)

Analyst Certification and Disclosures

• The analysts certify that the views expressed accurately reflect their personal opinions and that no compensation is directly or indirectly related to the views in the report.
• The analysts confirm they have not traded in the stocks covered within 30 days prior to the report's issuance and will not do so for 3 business days after.
• CMBIGM provides ratings and recommendations based on their analysis, but the information is not guaranteed and is subject to change without notice.

CMBIGM 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
• NOT RATED: Stock not rated by CMBIGM
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark

Disclaimer

• This report is for informational purposes only and not intended as investment advice.
• The information is based on publicly available data and is subject to change.
• CMBIGM is not liable for any losses incurred from relying on the information in this report.
• The report may not be reproduced, reprinted, sold, or redistributed without prior written consent from CMBIGM.