20220711-招银国际-丘钛科技-01478.HK-1H_profit_warning_in-line__Trim_TP_to_reflect_uncertainty_7页_1mb

Q Technology (1478 HK) Company Update Summary

Core Content Overview

Q Technology (1478 HK) released its 1H22 profit warning, indicating a decline in earnings of 50-70% YoY, which is largely in line with estimates of -55% YoY. The company attributed this decline to several factors including reduced smartphone demand, lower utilization due to lockdowns, higher operating costs, labor cost increases in Suzhou, and lower gross margin due to the development of IoT and auto CCM.

Despite the challenges in the smartphone segment, the firm is optimistic about the growth prospects of its auto and IoT CCM businesses, which are expected to contribute significantly to revenue in 2023 and 2024. The report also outlines the company's financial performance, valuation, and market outlook.

Main Points

• 1H22E Performance:

  • Revenue declined by 26% YoY.
  • CCM/FPM shipment decreased by 5% and 8% YoY respectively.
  • CCM/FPM ASP dropped by 23% and 26% YoY respectively.
  • Net income declined by 20.4% YoY.
  • EPS for FY22E was 58.3 RMB cents, down from 71.7 RMB cents in the previous estimate.

• Outlook for 2H22E and FY23E:

  • Revenue and net profit are expected to grow by 3% and 62% YoY respectively in 2H22E.
  • Revenue and net profit are projected to increase by 13.6% and 37.4% YoY in FY23E.
  • Auto and IoT CCM are expected to increase their sales contribution from 2-3% to 7% and 14% respectively in FY23E and FY24E.

• Valuation and Target Price:

  • Current price is HK$5.0.
  • New target price is HK$7.0, representing a 38% upside.
  • P/E ratio for FY22E is 7.2x, and for FY23E is 5.3x.
  • The report maintains a BUY rating based on the attractive risk-reward ratio.

Key Financial Data

Revenue and Net Profit Growth (YoY)

Year	Revenue (RMB mn)	Net Profit (RMB mn)	EPS (RMB cents)
FY20	17,400	840	71.9
FY21	18,663	863	73.2
FY22E	16,592	687	58.3
FY23E	18,855	944	80.1
FY24E	21,917	1,206	102.3

Earnings and Margins

Metric	FY22E	FY23E	FY24E
Gross Margin (%)	8.9	9.7	10.2
Operating Margin (%)	5.2	5.9	6.5
Net Margin (%)	4.1	5.0	5.5

Shareholding Structure

Shareholder	Percentage
He Ningning	63.61%
Harvest Fund Mgmt.	2.72%
Vanguard Group	1.23%

Key Ratios and Metrics

• P/E (x): 7.2 (FY22E), 5.3 (FY23E)
• P/B (x): 0.9 (FY22E), 0.8 (FY23E)
• ROE (%): 13.1 (FY22E), 15.7 (FY23E), 17.3 (FY24E)
• Net gearing (%): 48 (FY22E), 47 (FY23E), 47 (FY24E)

Upcoming Catalysts

• Samsung order ramp-up in CCM.
• A-share spin-off.
• Newmax integration.

Market Performance and Comparison

• Market Cap (HK$mn): 6,017
• Avg. 3mths t/o (HK$mn): 11.869
• 52W High/Low (HK$): 17.46 / 4.74
• 12M forward P/E band and P/B band are shown in figures, indicating Q Tech's valuation relative to peers.

Analyst Certification

• The analyst certifies that the views expressed accurately reflect personal views.
• No compensation was tied to the specific views in this report.
• The analyst has not traded in the stock within 30 days prior to the report's issue and will not do so within 3 business days after.

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: Not rated by CMBIGM.
• OUTPERFORM: Industry expected to outperform the benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the benchmark.
• UNDERPERFORM: Industry expected to underperform the benchmark.

Important Disclosures

• The report is not tailored to individual investors.
• Past performance is not indicative of future results.
• The value of investments may fluctuate and is not guaranteed.
• CMBIGM does not assume liability for any loss or damage resulting from reliance on this report.
• The information is based on publicly available data and may be subject to change.

Conclusion

Q Technology's current challenges in the smartphone segment are expected to be temporary, with the firm's auto and IoT CCM businesses poised for significant growth in the coming years. The revised earnings estimates and target price reflect the current uncertainty in the smartphone market but highlight the potential for strong returns in the long term. The firm is maintaining a BUY rating due to its attractive valuation and growth opportunities in the auto and IoT segments.