20220708-招银国际-闻泰科技-600745.SH-Diversified_hardware_play_with_bright_outlook_3页_2mb

Summary of CMB International Global Markets | Equity Research | Company Initiation on Wingtech (600745 CH)

Core Content

Wingtech (600745 CH) is a diversified hardware company with a strong focus on IDH/ODM and semiconductor (semi) IDM businesses. The company has initiated with a BUY rating and a Target Price (TP) of RMB93.12, representing an upside of +23.3% from the current price of RMB75.50. The TP is based on a 25x FY23 P/E, which is 2SD lower than its historical mean of 46x, indicating an attractive valuation.

Wingtech has undergone a strategic transformation, expanding into new markets such as semi IDM and optical imaging modules, while reducing its reliance on smartphone ODM. This diversification is expected to enhance resilience and profitability, as new business segments have higher net profit margins (NPM) compared to traditional ODM operations.

Main Points

Business Transition and Growth

• ODM business: Transitioning from smartphone to more diversified markets (notebook, AIoT, auto), with a 2022-2024E CAGR of 26.2%. The product mix is expected to improve, with non-mobile projects contributing more to revenue and margins.
• Semi IDM business: Grew 40% YoY in FY21, showing strong business integration capabilities. It is a key growth driver, expected to deliver a 41.6% CAGR in 2022-2024E, with RMB13.8bn revenue in FY21. The semi segment is projected to maintain high margins and support overall revenue growth.
• Optical imaging module business: Acquired from OFilm in 2021, this segment is expected to return to profitability in 2022. The new Zhuhai factory, with 4x larger capacity, is set to begin production in 3Q22, targeting the larger rear camera market in auto, AR/VR, and other sectors.

Valuation and Risks

• Valuation: Forward P/E is 2SD below historical mean, suggesting the current share price is attractive, especially given the company's strong growth prospects and margin expansion.
• Upside Catalysts:
  • Better-than-expected earnings results
  • New 12-inch factory production in 2H22
  • ODM new projects contributing to revenue in 2H22
• Downside Risks:
  • Macroeconomic challenges (overseas inflation, economic slowdown)
  • Geopolitical tensions that could disrupt supply chains
  • Ongoing investigations into the NWF acquisition by the British government citing national security concerns

Key Financials (YE 31 Dec)

Notes on Financial Performance

• Revenue growth slowed in FY21 due to market transition, but is expected to rebound in 2022.
• Gross margin is expected to improve gradually to 18% in 2024E.
• Net income and EPS are projected to grow significantly, especially in FY23E and FY24E.
• The company is currently net cash in FY21, with a net gearing of 13.5% in FY22E and 16.2% in FY24E.

Share Performance

• 1-month: +13.3%
• 3-month: -2.1%
• 6-month: -38.9%
• 12-month: Price performance chart available (see figure 1)

Shareholding Structure

Investment Thesis

• ODM business: Transitioning to more profitable non-mobile segments with improved product mix.
• Semi IDM business: Strong growth driven by semi shortage and localization in China, with high margins and potential for further expansion.
• Optical imaging module business: Expected to become profitable in 2022, with new capacity in Zhuhai supporting future growth.
• Valuation: Attractive with a forward P/E significantly below historical average, driven by growth opportunities and margin expansion.
• Risks: Macroeconomic and geopolitical factors, as well as regulatory scrutiny on the NWF acquisition.

Conclusion

Wingtech is transitioning from a smartphone ODM to a diversified hardware player with strong growth potential in semi IDM and optical imaging modules. The company is well-positioned to benefit from the semi shortage, localization trends, and expansion into high-growth markets like auto and AR/VR. The current valuation is considered attractive, and the company's operations and strategic acquisitions suggest a solid foundation for future performance.