20171211-招商证券_香港_-信利国际-00732.HK-Auto__IoT__3D-sensing_on_track__Stay_neutral_on_valuation_7页_1mb

Truly (732 HK) Summary

Core Content

This report provides an analysis of Truly's financial performance and business outlook for the years 2017 to 2019. The company is transitioning from its traditional smartphone display business to a more diversified portfolio focusing on Auto, IoT, and 3D-sensing technologies. The report highlights the company's strategic investments, financial forecasts, and valuation considerations.

Main Points

Business Recovery and Growth Drivers

• Non-smartphone segments (Auto and IoT) are expected to be the major growth drivers in FY18E and FY19E.
• The Huizhou G5 and Shanwei G4.5 fabrication facilities are set to ramp up production in 4Q17 and 1H18, respectively, contributing to revenue growth.
• 3D-sensing projects with Qualcomm and Himax are expected to launch in 2Q18, with capacity reaching 2kk in 2Q18, 6kk in 3Q18, and 10kk in 4Q18.
• 18:9 full-screen display projects are expected to recover in 1H18, with 7 projects launched in 4Q17 and over 10 in 1H18.

Revenue and Profit Growth

• Revenue is forecasted to grow from HKD 21,405 million (FY17E) to HKD 26,250 million (FY18E) and HKD 29,768 million (FY19E), with a +26% YoY growth in FY18E.
• The smartphone segment is expected to recover with +18% YoY in FY18E and +6% YoY in FY19E, though it remains a smaller contributor compared to the non-smartphone segments.
• Net profit is projected to increase significantly from HKD 163 million (FY17E) to HKD 826 million (FY18E) and HKD 1,048 million (FY19E), representing a +408% YoY growth in FY18E.
• EPS is expected to rise from HKD 0.06 (FY17E) to HKD 0.28 (FY18E) and HKD 0.36 (FY19E), although the analyst has trimmed FY17-18E EPS by 12–78% due to weaker performance in 2H17 and margin pressures.

Valuation and Investment Outlook

• The analyst raised the target price (TP) from HK$2.75 to HK$3.46, based on a 12.2x FY18E P/E (historical average), despite a 13.5x P/E currently.
• The rating remains Neutral, as the current valuation is considered fair and reflects all positives.
• The analyst is more conservative on gross margin and Huizhou AMOLED JV losses compared to consensus, leading to lower EPS forecasts.
• Upside risks include better AMOLED/auto sales and earlier-than-expected breakeven from the joint venture.

Key Financial Data

Metric	2017E	2018E	2019E
Revenue (HKD mn)	21,405	26,250	29,768
Net Profit (HKD mn)	163	826	1,048
EPS (HKD)	0.06	0.28	0.36
P/E (x)	68.6	13.5	10.6
P/B (x)	1.5	1.4	1.3
ROE (%)	2%	10%	12%

Investment Ratings

Rating	Definition
NEUTRAL	Expect stock to generate +10% to -10% return over the next 12 months
BUY	Expect stock to generate 10%+ return over the next 12 months
SELL	Expect stock to generate loss of 10%+ over the next 12 months

Analyst and Regulatory Disclosures

• The analyst certifies that the views in the report reflect their personal opinions and that there is no conflict of interest.
• The report is not intended for general public and is restricted to relevant persons in the UK, Japan, and Canada.
• It is not available to U.S. persons unless permitted under SEC Rule 15a-6.
• CMS HK is not a registered broker-dealer in the U.S.

Conclusion

Truly is undergoing a strategic shift towards Auto, IoT, and 3D-sensing technologies, which are expected to drive future growth. Despite revenue and profit recovery, the company's current valuation is considered fair, and the analyst maintains a Neutral rating. The report highlights both growth opportunities and risks related to margin pressures and joint venture performance.