20140328-Maybank_KERPL-More_legs_to_go_17页_1mb

MediaTek (2454 TT) Summary

Core Content

• Company Overview: MediaTek (MTK) is a key player in the global semiconductor industry, with a focus on mobile chipsets. The company is currently valued at TWD610.0B, with a share price of TWD452.00 and a target price of TWD599.00 (+33%).
• Market Capitalization: MTK's market cap is USD20.0B, with an annualized debt-to-equity ratio at net cash.
• Financial Highlights: MTK's core EPS is projected to reach TWD31.59 in FY15, with a significant increase in FY14 to TWD28.55. The company is expected to achieve record earnings in both FY14 and FY15, driven by a richer product mix, aggressive cost reduction, and operating leverage.
• Earnings Forecast: The earnings forecasts for FY14 and FY15 have been raised by 3% each, resulting in revised forecasts that are 10% higher than the consensus. This reflects improved profit margins and expectations of higher profitability.

Main Points

• 4G Chipset Launch: MTK is set to launch 4G chipsets in 2Q14, including FDD-LTE for international markets and TD-LTE for China. These chipsets are expected to expand MTK's TAM and provide a competitive edge.
• Partnership with TCL Comm: The partnership with TCL Comm is pivotal, as it is preparing to ship the One Touch Idol PoP S7, an international 4G model using MTK's FDD-LTE solution. This will help MTK gain traction in the developed market.
• Competitive Landscape: QCOM currently dominates the global integrated 4G market with ~100% share, while MTK has zero presence. However, the landscape is expected to change significantly in the coming year.
• Product Portfolio: MTK is enhancing its product mix with the introduction of the MT6595, a high-end octa-core chipset, and the MT6752/32, which are 64-bit integrated LTE solutions. These products are expected to offer better performance and cost efficiency.
• Market Share in 3G: MTK's market share in integrated 3G chipsets increased to 25% in 2013 from 11% in 2012, showing strong growth in this segment.
• Export Market Growth: The export market is expected to grow significantly, contributing to MTK's overall growth and profitability. It is projected to account for 30-35% of total smartphone shipments in 2014.
• 4G Market in China: The potential 4G smartphone market size in China is estimated at 125m units in 2014. Domestic vendors may capture 65-70m units (55%), while international brands will take the remaining. QCOM is expected to dominate with >70% share, followed by Marvell, Broadcom, and MTK (<10%).
• Profitability: Despite lower profit margins compared to the feature phone era, MTK's smartphone AP generates significantly higher profit per unit than its feature phone counterparts. The blended ASP for MTK's smartphone is expected to increase from USD10.25 in 2013 to USD11.25, with a gross margin of mid-to-high 40%.
• Key Financial Metrics:
  • Revenue: Expected to grow from USD201.778B in FY14 to USD235.860B in FY15.
  • Core Net Profit: Projected to rise from TWD44,401M in FY14 to TWD49,735M in FY15.
  • Core P/E: Expected to drop from 15.8 in FY14 to 14.3 in FY15.
  • EV/EBITDA: Projected to decrease from 11.6 in FY14 to 10.2 in FY15.

Key Information

• Investment Recommendation: The company is maintained at a "BUY" rating.
• Technology Trends: The shift from 3G to 4G is expected to accelerate in 2015, with the 4G adoption rate likely to increase rapidly.
• Market Share: MTK's market share in the 3G integrated chipset market is growing, and the company is expected to benefit from the expansion of the EM (Emerging Markets) smartphone market.
• Cost and Profitability: MTK's strategy of full turnkey solutions and SOC integration is helping to optimize cost structures and improve profitability.
• Future Outlook: MTK is likely to gain significant market share in the 4G segment, especially as the landscape changes and more vendors adopt its solutions.

Summary Table

Strategic Implications

• MTK's 4G solutions are expected to be a major catalyst for growth, especially in the international and Chinese markets.
• The company is likely to see a significant boost in its reputation and share price due to successful customer wins in the 4G segment.
• MTK's focus on integration and cost efficiency is helping it gain a competitive edge in the market.
• The company's export market is expected to grow and contribute to its overall profitability.