20181211-东英亚洲证券-丘钛科技-01478.HK-November_shipments_in_line_with_expectations_6页_1mb

Q Technology (1478 HK) Equity Research Summary

Core Information

• Company Name: Q Technology
• Industry: PRC-based manufacturer of mid-to-high end camera module and fingerprint module
• Target Market: Chinese branded smart phone and tablet PC manufacturers
• Current Price: HK$4.23 (as of 10/12/2018)
• Target Price: HK$5.75 (+36%)
• Issue Shares: 1,131.72 million
• Market Cap: HK$4,787.18 million
• Major Shareholder: He Ningning (66.39%)
• Research Analysts: Yuji Fung, Dallas Cai
• Contact: +852 2135 0236 (Yuji Fung), +852 2135 0248 (Dallas Cai)
• Email: yuji.fung@oriental-patron.com.hk, dallas.cai@oriental-patron.com.hk

Key Highlights

November Shipments

• CCM (Camera Camera Module) shipments: Increased by 95.7% YoY to 25.31 million units
• FPM (Fingerprint Module) shipments: Decreased by 7.8% YoY to 9.97 million units
• Penetration of 10MP+ CCM: Dropped to 42% in November 2018 from 49% in October 2018 and 67% in November 2017
• Cumulative 11-month CCM sales: Reached 232.2 million units, representing 46.3% YoY growth
• Cumulative 11-month FPM sales: Reached 99.8 million units, representing 37.5% YoY growth

Share Options

• Share options granted: 12.72 million shares (~1% of total outstanding shares)
• Exercise price: HK$4.65
• Conditions: FY19E, FY20E, FY21E revenue growth of at least 20% compared to FY18E
• Exercise date: 1 April 2020 (if conditions met)
• Impact on EPS: Reduced fully diluted EPS by 0.9%

Financial Performance

Revenue

• FY16A: 4,991 million RMB
• FY17A: 7,939 million RMB
• FY18E: 7,469 million RMB
• FY19E: 10,207 million RMB
• FY20E: 13,245 million RMB
• Growth Rates: 127%, 59%, -6%, 37%, 30% YoY

Net Profit

• FY16A: 191 million RMB
• FY17A: 436 million RMB
• FY18E: 49 million RMB
• FY19E: 370 million RMB
• FY20E: 590 million RMB
• Growth Rates: 87%, 129%, -89%, 654%, 60% YoY

EPS

• FY16A: 0.215 HK$
• FY17A: 0.467 HK$
• FY18E: 0.050 HK$
• FY19E: 0.380 HK$
• FY20E: 0.607 HK$
• EPS Growth: 76%, 118%, -89%, 654%, 60% YoY

Margins

• Gross margin: 8.5%, 11.1%, 4.7%, 8.5%, 9.0%
• Operating margin: 4.4%, 6.8%, 1.7%, 4.9%, 5.7%
• Net margin: 3.8%, 5.5%, 0.7%, 3.6%, 4.5%
• EBITDA margin: 5.7%, 8.3%, 3.9%, 6.9%, 7.6%

Financial Ratios

• P/E (x): 19.7, 9.1, 83.9, 11.1, 7.0
• P/B (x): 2.5, 1.8, 1.9, 1.6, 1.3
• Yield (%): 0.9, 2.3, 0.2, 1.8, 2.9
• ROE (%): 13.7, 23.5, 2.3, 16.2, 21.7
• Current ratio (x): 1.26, 1.05, 1.00, 1.02, 1.05
• Quick ratio (x): 0.99, 0.88, 0.83, 0.85, 0.86
• Inventory turnover (days): 64, 36, 36, 36, 36
• AR turnover (days): 191, 94, 94, 94, 94
• AP turnover (days): 207, 146, 146, 146, 146
• Cash conversion cycle (days): 47, -17, -17, -17, -17
• Asset turnover (x): 1.53, 1.50, 1.20, 1.47, 1.57
• Financial leverage (x): 2.34, 2.86, 2.92, 3.05, 3.09
• Net debt/equity (%): 17.3, 28.6, 32.6, 21.8, 9.1

Risks

• Weaker than expected GPM: Due to sub-optimal product mix
• Slower ramp-up of Newmax lens set business
• Lower than expected yield rate for new products

Peer Group Comparison

Recent Reports and Recommendations

Historical Recommendations and Target Prices

Summary

Q Technology (1478 HK) is a leading PRC-based manufacturer of mid-to-high end camera modules and fingerprint modules, primarily serving Chinese branded smart phone and tablet PC manufacturers. The company reported November shipments in line with expectations, with CCM sales up 95.7% YoY and FPM sales down 7.8% YoY. The company granted 12.72 million share options at HK$4.65, which may impact the fully diluted EPS by 0.9%. The analysts maintain a BUY rating with a target price of HK$5.75, based on a 15x FY19E PE.

Despite the Huawei incident affecting the stock performance of handset suppliers, Q Tech has limited exposure to Huawei, and there has been no concrete impact on its operations yet. The analysts will monitor the situation closely for potential forecast modifications. Financial performance shows a consistent growth in revenue and net profit, with a focus on improving margins and operational efficiency.

The company's financial ratios indicate a moderate level of debt and a relatively stable current ratio, while its P/E and P/B ratios suggest a valuation that is in line with industry peers. The analysts recommend maintaining the BUY rating, citing the company's strong growth potential and resilience in the face of market challenges.