Q Technology (1478 HK) Equity Research Summary
Core Information
- Company: Q Technology
- Sector: TMT/China
- Rating: BUY
- Target Price (TP): HK$16.50 (+4% from previous HK$15.90)
- Close Price (as of 13/10/2017): HK$15.86
- Market Cap: HK$17,376.17 million
- Issue Share: 1,095.60 million
- Major Shareholder: He Ningning (68.58%)
- 12M High: HK$23.25
- 12M Low: HK$3.56
- 3M Avg Daily Vol: 22.48 million
Key Financial Highlights
Revenue and Earnings Forecast
| Year to Dec |
FY15A |
FY16A |
FY17E |
FY18E |
FY19E |
| Revenue (RMB mn) |
2,202 |
4,991 |
8,266 |
10,322 |
11,710 |
| Net Profit (RMB mn) |
102 |
191 |
482 |
633 |
763 |
Earnings Growth
| Metric |
FY15A |
FY16A |
FY17E |
FY18E |
FY19E |
| Net Profit Growth (%) |
-48 |
87 |
153 |
31 |
21 |
| Net Margin (%) |
4.6 |
3.8 |
5.8 |
6.1 |
6.5 |
Earnings Per Share (EPS)
| Metric |
FY15A |
FY16A |
FY17E |
FY18E |
FY19E |
| Diluted EPS (HK$) |
0.122 |
0.215 |
0.504 |
0.660 |
0.797 |
| EPS Growth (%) |
-67 |
76 |
134 |
31 |
21 |
Operating Metrics
| Metric |
FY15A |
FY16A |
FY17E |
FY18E |
FY19E |
| Gross Margin (%) |
10.9 |
8.5 |
11.2 |
11.1 |
11.4 |
| Operating Margin (%) |
5.7 |
4.4 |
7.0 |
7.3 |
7.7 |
| EBITDA Margin (%) |
7.1 |
5.6 |
8.1 |
8.4 |
8.9 |
Valuation Metrics
| Metric |
FY15A |
FY16A |
FY17E |
FY18E |
FY19E |
| P/E (x) |
105.5 |
59.9 |
31.9 |
24.3 |
20.1 |
| P/B (x) |
8.6 |
7.5 |
7.3 |
5.8 |
4.6 |
Recent Performance and Updates
-
Sept 2017 Shipments:
- CCM shipments flat at 14.7 million units.
- 13MP+ module shipments up 144.0% yoy to 9.3 million units, with penetration improved to 63%.
- Fingerprint module shipments up 343.8% yoy to 6.79 million units, down 3.2% mom.
- 9M17 CCM shipments up 10.7% yoy to 130 million units.
- 9M17 Fingerprint module shipments up 1,125% yoy to 53.8 million units.
-
Earnings Revisions:
- Revised down FY17E net profit estimate to RMB482 million (-2.9%).
- Revised up FY18E net profit estimate to RMB633 million (+4.8%).
- Revised down FY17E revenue estimate to RMB8.3 billion (-3.1%).
- Revised up FY18E revenue estimate to RMB10.3 billion (+1.6%).
-
Dual Cam Penetration:
- Revised up FY17E dual cam penetration to 20% from 10%.
- Revised up FY18E dual cam penetration to 30% from 20%.
- This improvement is expected to offset slowing shipment growth and drive ASP and margin improvement.
Key Assumptions and Revisions
| Metric |
FY17E (New) |
FY17E (Old) |
% Change |
FY18E (New) |
FY18E (Old) |
% Change |
| CCM Shipments (mn pcs) |
195 |
213 |
-8.3% |
234 |
255 |
-8.2% |
| Fingerprint Shipments (mn pcs) |
70 |
80 |
-12.5% |
105 |
104 |
+1.0% |
| HCM ASP (RMB per pcs) |
32 |
29 |
+8.9% |
32 |
28 |
+12.8% |
| Dual Cam Shipments (mn pcs) |
39 |
21 |
+18.0% |
70 |
51 |
+19.2% |
| Dual Cam Penetration (%) |
20% |
10% |
+10.0% |
30% |
20% |
+10.0% |
Risks
- Slowdown in China smartphone shipments growth.
- Lower than expected dual camera penetration.
- ASP erosion of CCM and fingerprint modules.
Peer Group Comparison
| Company |
Ticker |
Price (HK$) |
EV/EBITDA |
Gross Margin (%) |
Net Margin (%) |
ROE (%) |
Shipment Growth (%) |
| Q Tech |
1478 HK |
15.86 |
44.6 |
11.2 |
5.8 |
26.9 |
10% |
| Sunny Optical |
2382 HK |
121.90 |
56.3 |
11.1 |
6.8 |
42.2 |
20% |
| Truly Intl Hldgs |
732 HK |
3.60 |
21.9 |
11.2 |
7.5 |
75.6 |
10% |
| Cowell |
1415 HK |
3.52 |
30.2 |
11.1 |
4.3 |
16.0 |
10% |
| Shenzhen O-Fil-A |
002456 CH |
22.30 |
53.9 |
11.1 |
6.3 |
68.9 |
10% |
| Huizhou Speed -A |
300322 CH |
13.36 |
8.8 |
11.1 |
4.3 |
76.5 |
10% |
Historical Recommendations and Target Price
| No. |
Date |
Rating |
Target Price (HK$) |
Close Price (HK$) |
| 1 |
20 Sep 2016 |
Initial BUY |
4.63 |
3.22 |
| 2 |
11 Oct 2016 |
BUY |
4.90 |
4.11 |
| 3 |
11 Jan 2017 |
BUY |
6.30 |
4.87 |
| 4 |
17 Mar 2017 |
BUY |
7.80 |
6.04 |
| 5 |
13 Jun 2017 |
BUY |
7.80 |
6.16 |
| 6 |
14 Aug 2017 |
BUY |
15.90 |
12.58 |
Summary of Key Points
- Company Overview: Q Technology is a leading PRC-based manufacturer in the mid-to-high end camera module and fingerprint module market for Chinese branded smartphones and tablets.
- Performance: Sept 2017 shipments in-line, with significant growth in 13MP+ and fingerprint module shipments.
- Earnings Revisions: Revised down FY17E net profit estimate due to slower shipment growth, but revised up FY18E net profit due to improved dual cam penetration.
- Valuation: Maintained BUY rating with a revised target price of HK$16.50 based on a 25x FY18E PE.
- Growth Outlook: Expected growth in CCM shipments and dual cam penetration in FY18E to offset shipment slowdown.
- Peer Comparison: Q Tech is competitive in terms of gross margin, net margin, and ROE, with a relatively high EV/EBITDA compared to peers.
Conclusion
Q Technology continues to show strong performance in key segments, particularly in fingerprint modules and 13MP+ camera modules. The company's ability to improve dual cam penetration and maintain ASP and margin growth supports the BUY rating and revised target price. However, risks such as slowing smartphone shipments and ASP erosion remain.
