20171212-东英亚洲证券-丘钛科技-01478.HK-Muted_shipments_growth_expected_in_FY17E_7页_518kb

Q Technology (1478 HK) Equity Research Summary

Company Overview

Q Technology is a leading PRC-based manufacturer focused on mid-to-high end camera module (CCM) and fingerprint module (FPM) markets for Chinese branded smartphones and tablet PCs. It is positioned as a key supplier in the optical components industry.

Key Data and Market Performance

• Close Price (as of 12/12/2017): HK$13.40
• Target Price: HK$16.10 (+17%)
• Prior Target Price: HK$16.50
• 12 Months High: HK$23.25
• 12 Months Low: HK$3.85
• 3M Avg Daily Vol (mn): 15.77
• Issue Share (mn): 1,095.60
• Market Cap (HK$mn): 14,681.00
• Fiscal Year: 12/2016
• Major Shareholder: He Ningning (68.58%)

Recent Shipment Performance

• November 2017 CCM Shipments: Decreased 34.9% YoY to 12.9mn units
• November 2017 FPM Shipments: Increased 72% YoY to 10.8mn units
• 13MP+ CCM Penetration: Improved to 67% in November from ~50% in 3Q17
• CCM ASP (Average Selling Price): Revised up by 12.1% to RMB35 per unit in FY18E
• FPM ASP: Remained at RMB30 per unit

Earnings Estimate Revisions

• Revised FY17E Earnings: RMB447mn (down 7.3% from prior estimate)
• Revised FY18E Earnings: RMB616mn (down 2.6% from prior estimate)
• CCM Shipments Revised Down: 177mn units (from 195mn units)
• FPM Shipments Revised Up: 78mn units (from 70mn units)

Financial Summary

Key Assumptions and Forecasts

• CCM Shipments (FY17E): 177mn units
• FPM Shipments (FY17E): 78mn units
• Dual-Cam Shipments (FY17E): 35mn units
• Dual-Cam Penetration (FY17E): 20%
• Revenue by Segment (FY17E):
  • Compact Camera Module: RMB5,604mn
  • Fingerprint Module: RMB2,341mn
  • Others: RMB0mn
• Gross Profit (FY17E): RMB875mn
• EBIT (FY17E): RMB534mn
• Net Profit (FY17E): RMB447mn

Strategic Outlook and Rating

• Rating: Maintain BUY
• Reasoning: Q-Tech is on track to penetrate the upstream lens set business, becoming the largest shareholder of Newmax Tech. Synergies are expected to emerge in 2H18E, and the management has a clear vision to become a one-stop optical solutions provider.
• Target Price Rationale: Based on a 25x FY18E PE, the target price is slightly revised to HK$16.10 from HK$16.50.

Risks

1. ASP Erosion: Potential decline in average selling price for CCM modules
2. FPM Growth: Fingerprint module shipment growth may be lower than expected
3. Lens Set Business: Delay in ramping up the lens set business could impact growth

Peer Group Comparison

• EV/EBITDA: Q Tech is currently at 29.3x, while the peer average is 21.3x
• P/B: Q Tech is at 6.4x, while the peer average is 7.9x
• Gross Margin: Q Tech is at 11.0%, while the peer average is 11.2%
• Net Margin: Q Tech is at 5.6%, while the peer average is 3.8%
• ROE: Q Tech is at 25.2%, while the peer average is 27.4%

Historical Recommendations and Target Price

Conclusion

Q Technology remains a strong player in the mid-to-high end camera and fingerprint module markets, despite a muted shipment growth in FY17E. The company is expected to benefit from increased dual cam penetration, which should drive ASP improvements. With strategic moves to expand into the lens set business, Q Tech is positioned for long-term growth, and the current BUY rating reflects confidence in its ability to deliver value despite short-term challenges.