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Cowell e Holdings (1415 HK) Equity Research Summary

Company Overview

Cowell e Holdings is a leading manufacturer of camera modules for mobile devices and consumer electronics components. It is a major supplier of front-facing camera modules for Apple, as well as a key provider of optical components to Samsung Electronics, LG Electronics, and Hitachi. The company also collaborates with other major players such as Guangzhou O-film Image and Foxconn in supplying camera modules to Apple.

Core Content and Key Information

• Target Price: HK$2.26
• Rating: Accumulate (Initiation)
• Valuation: Based on a P/E ratio of 7.8x for 2018E, which is considered reasonable given the company's historical valuation range of 7.6-9.7x P/E during the smartphone upcycle.
• Revenue Dependency: Revenue from Apple has historically accounted for more than 80% of total revenue from 2011 to 2017, except for 2014.
• Apple's Full-Screen iPhones: The expected launch of three full-screen smartphones by Apple in September 2018 is anticipated to positively impact iPhone sales, which in turn could benefit Cowell e's business.

Earnings Forecasts

• Revenue Growth: Expected to be 4.3% in 2018E, followed by 0% in 2019E and a decline of 4.3% in 2020E.
• Net Profit Growth: Projected to increase by 11.4% in 2018E, 8.7% in 2019E, and 1.4% in 2020E.
• EPS Growth: Expected to rise from Rmb0.034 in 2016A to Rmb0.041 in 2020E.

Key Financial Ratios

Risks

• Escalation in China-US trade frictions
• New iPhone sales miss expectations
• Lower-than-expected improvement in the company's gross profit
• Rmb exchange rate volatility

Stock Performance

• The stock performance is illustrated in Figure 1, showing a historical trend of revenue and net profit from 2011 to 2017.
• Figure 2 and Figure 4 provide a breakdown of revenue by client and product, highlighting Apple's significant contribution.
• Figure 3 compares the revenue from Apple between Cowell e and Guangzhou O-film, showing that Guangzhou O-film's revenue from Apple was higher in 2017.
• Figure 5 illustrates the relationship between Apple's revenue, camera module ASP, and sales of Apple products.

Rating Definitions

• Accumulate: Stock is expected to outperform the benchmark (Hong Kong Hang Seng Index) by more than 5% but not more than 15% over a 12-month time horizon.

Analyst Certification and Disclosure

• The research analyst(s) certifies that the views expressed in the report accurately reflect their personal views.
• There are no direct or indirect financial interests in the company or relevant securities mentioned.
• GF Securities (Hong Kong) does not hold any shares of the securities mentioned in the report.
• No investment banking relationship with the companies mentioned in the past 12 months.

Disclaimer

• This report is for informational purposes only and does not constitute an offer to buy or sell securities.
• The information and opinions may change without notice.
• The report does not take into account the specific investment objectives, financial situation, or needs of any individual.
• The proprietary trading division may have different investment decisions from the research report.

Copyright

• Copyright © GF Securities (Hong Kong) Brokerage Limited.
• Unauthorized copying or reproduction is prohibited.