20221202-招银国际-京东方精电-00710.HK-Corp_Day_Takeaways__Chengdu_auto_display_plant_to_drive_growth_in_FY23E_6页_1mb

BOE Varitronix (710 HK) Summary

Core Content

BOE Varitronix, a subsidiary of BOE Technology Group, is a leading player in the global auto display module market. The company's strong performance in the first half of 2022 was driven by robust demand for auto display modules, increased production capacity, and higher average selling prices (ASP). The management remains optimistic about the company's growth prospects in FY23E, citing continued demand, ASP improvements, and the ramp-up of the Chengdu auto display plant, which is expected to become profitable in 4Q22E and generate up to RMB5bn in sales in FY23E.

Key Points

• Market Position: BOE Varitronix is the No.1 in global auto display module shipments with a market share of 15.7% in 2Q22 according to Omdia.
• Growth Drivers:
  • Increased demand for high-end display products, including OLED, BDcell, curved-display, AR-HUD, and rear-view modules.
  • Expansion of system products for Chinese customers, which will start contributing sales in FY23E.
  • Stable industry demand with improving ASP.
• Chengdu Plant:
  • Expected to turn profitable in 4Q22E.
  • Max capacity of 15mn pieces, generating up to RMB5bn in sales in FY23E.
  • Supports robust market demand and improves cost efficiency for long-term profitability.
• Financial Performance:
  • Revenue is projected to grow at a 33% CAGR from 2021 to 2024, driven by 45% CAGR in automotive display.
  • Net profit is expected to grow at 47% CAGR over the same period.
  • Net margin improved by 2.2ppts HoH due to operating leverage and economies of scale.
• Valuation:
  • Target price (TP) is HK$26.01, based on 25x FY23E PE.
  • Current price is HK$14.08, with an upside of 84.7%.
• Earnings Summary (FY20A to FY24E):
  • Revenue: HK$4,527 (FY20A), HK$7,738 (FY21A), HK$10,565 (FY22E), HK$14,081 (FY23E), HK$18,011 (FY24E).
  • Net profit: HK$68.6 (FY20A), HK$327.8 (FY21A), HK$553.7 (FY22E), HK$756.4 (FY23E), HK$1,032.4 (FY24E).
• Key Risks:
  • Market competition.
  • Technological advancements and shifts in customer demand.
  • Supply chain disruptions.
  • Currency fluctuations and geopolitical risks.

Shareholding and Financial Metrics

• Shareholding Structure:
  • BOE Technology Group: 54.3%
  • Ko Chun Shun: 10.0%
• Stock Data:
  • Market Cap: HK$10,377.0 million
  • 52-week High/Low: HK$18.86 / HK$5.84
  • Total Issued Shares: 737.0 million
• Valuation Metrics (FY22E to FY24E):
  • P/E: 18.5 / 13.5 / 9.9
  • P/B: 1.7 / 1.3 / 1.2
  • Dividend Yield: 88.7% / 221.7% / 302.6%
  • ROE: 15.6% / 18.8% / 22.4%
  • Net Gearing: -40.1% / -13.5% / -21.1%

Analyst Ratings and Investment Outlook

• CMBIG Rating: BUY with a Target Price of HK$26.01.
• Catalysts for Growth:
  • Booming demand from New Energy Vehicle (NEV) customers.
  • Product penetration in high-end auto display segments.
  • Capacity expansion with the Chengdu plant.
• Valuation Comparison with Peers:
  • BOE Varitronix has a higher P/E than most peers, indicating potential upside.
  • The report highlights the company's strong fundamentals and positive outlook for the auto display industry.

Conclusion

The company is well-positioned for growth due to its leadership in the auto display market, technological upgrades, and the expansion of its Chengdu plant. The management's confidence in the sector's demand and ASP improvements supports the BUY rating and HK$26.01 target price. Investors should consider the company's strong financial performance and growth potential, while being mindful of the risks associated with the industry and market conditions.