20210129-招银国际-信维通信-300136.SZ-4Q20_miss_on_slower_antenna_and_FX_impact__Trim_TP_to_RMB46.7_5页_1mb

Summary of Sunway (300136 CH) Company Update

Core Content

This report provides an analysis of Sunway's financial performance and future outlook for the fiscal years 2020-2022. It outlines the reasons for the 4Q20 earnings miss, revised financial estimates, and a reduced target price (TP) due to conservative assumptions. Despite short-term challenges, the report maintains a "BUY" rating, highlighting the company's strong growth potential in 5G antenna and wireless charging markets.

Key Financial Performance

• 4Q20 Revenue: RMB 1,832 million (up 18% YoY)
• 4Q20 Net Profit: RMB 274 million (up 43% YoY)
• Gross Margin (GPM): 34.0% (vs. 33.3% in 4Q19)
• EPS (RMB): 0.28 (up 42.2% YoY)
• Net Profit CAGR (FY20-22E): 41%
• EPS CAGR (FY20-22E): 41%

Earnings Miss in 4Q20

The earnings miss in 4Q20 is attributed to:

1. Slower antenna growth due to competitive pressures
2. Product launch delays for major clients
3. Impact of macroeconomic uncertainties on domestic clients
4. Foreign exchange losses from RMB appreciation
5. Higher R&D and share-based compensation expenses

Revised Estimates and Target Price

• Revised FY20-22E Revenue Estimates: RMB 6,173 million, RMB 9,170 million, RMB 12,567 million
• Revised FY20-22E Net Profit Estimates: RMB 1,020 million, RMB 1,439 million, RMB 2,025 million
• Revised TP: RMB 46.7 (down from RMB 64.31)
• Justification for TP: Based on a 31.4x FY21E P/E ratio, consistent with 5-year historical forward P/E
• Upside Potential: 30.7% from current price (RMB 35.70)

Positive Outlook

• Antenna Growth: Expected to grow at a 32% CAGR (FY20-23E), driven by share gains in LDS antenna and 5G upgrades
• Wireless Charging Growth: Expected to grow at a 51% CAGR (FY20-23E), due to adoption in smartphones, tablets, and wearables
• Market Position: Sunway is a global leader in antenna and wireless charging technologies
• Client Expansion: Anticipated expansion into Apple and Android ecosystems, including smartphones, tablets, and AloT (Watch/TWS/band)

Risks

• Slower-than-expected market share gains
• Delays in 5G upgrades
• US-China trade tensions
• Overseas 5G deployment delays

Valuation

• Current P/E (12M forward): 22.6x FY21E (1 SD below 5-year average)
• Valuation Context: The stock has historically traded between 25x-40x EPS
• Recommendation: Accumulate after correction due to potential for long-term growth

Financial Summary (YE 31 Dec)

• Revenue: FY18A: RMB 4,707 million; FY20E: RMB 6,173 million; FY22E: RMB 12,567 million
• Gross Profit: FY18A: RMB 1,719 million; FY20E: RMB 2,117 million; FY22E: RMB 4,411 million
• Net Profit: FY18A: RMB 988 million; FY20E: RMB 1,020 million; FY22E: RMB 2,025 million
• EPS: FY18A: RMB 1.01; FY20E: RMB 1.05; FY22E: RMB 2.09
• Net Margin: FY18A: 21.0%; FY20E: 16.5%; FY22E: 16.1%
• Operating Margin: FY18A: 24.1%; FY20E: 15.9%; FY22E: 18.3%
• Gross Margin: FY18A: 36.5%; FY20E: 34.3%; FY22E: 35.1%

Key Ratios

• ROE (Return on Equity): FY18A: 26.7%; FY22E: 22.3%
• ROA (Return on Assets): FY18A: 13.7%; FY22E: 13.7%
• Net Debt/Total Equity: FY18A: 25.0%; FY22E: 19.9%
• Current Ratio: FY18A: 1.8; FY22E: 1.5
• Inventory Turnover Days: FY18A: 34.0; FY22E: 42.9
• Payable Turnover Days: FY18A: 81.6; FY22E: 101.4
• Cash Conversion Cycle: FY18A: 88.2; FY22E: 63.2

Earnings Revisions

• Revenue Revisions: Down 12% for FY20E, 16% for FY21E, 15% for FY22E
• Gross Profit Revisions: Down 15%, 18%, 17%
• Operating Profit Revisions: Down 35%, 34%, 32%
• Net Profit Revisions: Down 23%, 33%, 32%
• EPS Revisions: Down 17%, 27%, 27%

Analyst Certification and Disclaimer

• The analyst certifies that the views expressed reflect personal opinions and not influenced by compensation
• The report is not an offer or solicitation to buy or sell securities
• CMBIS has an investment banking relationship with the issuers in the report
• The report is for informational purposes only and not tailored to individual investors

CMBIS Ratings

• BUY: Potential return of over 15% over the next 12 months
• HOLD: Potential return of +15% to -10%
• SELL: Potential loss of over 10%
• NOT RATED: Not rated by CMBIS
• OUTPERFORM: Industry expected to outperform the market
• MARKET-PERFORM: Industry expected to perform in-line with the market
• UNDERPERFORM: Industry expected to underperform the market

Important Disclosures

• The report is subject to change and not guaranteed
• Past performance is not indicative of future results
• Investors should consult professional advisors for investment decisions
• CMBIS is not a registered broker-dealer in the U.S. or Singapore, and the report is not intended for general distribution

Conclusion

Despite the 4Q20 earnings miss, Sunway is still viewed as a long-term growth opportunity due to its leadership in 5G antenna and wireless charging. The reduced target price reflects more conservative assumptions, but the "BUY" rating remains due to strong growth prospects. Investors are advised to consider accumulating after a correction.