20140428-高盛-Buckle_up_for_the_Internet_of_Things__Buy_BizLink_for_robust_growth_49页_926kb

Summary of Taiwan: Technology: Hardware - Electronic Components Report

Core Content

This report focuses on two small-cap connectivity companies in Taiwan: BizLink (3665.TW) and Wistron NeWeb (WNC, 6285.TW). It provides an analysis of their growth potential, market positioning, and financial outlook in the context of the Internet of Things (IoT) and automotive connectivity trends.

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Main Points

Internet of Things (IoT) Trends

• The tech industry is shifting from person-to-person (P2P) to machine-to-machine (M2M) connectivity, driving IoT growth.
• The automotive industry is a key battleground for M2M connectivity, with car OEMs and tech giants working to enhance vehicle intelligence and connectivity.
• Telematics systems (telecommunications + information processing) are becoming standard in vehicles, enabling features like safety, infotainment, and remote control.
• "Vehicle to X" (e.g., vehicle-to-vehicle, vehicle-to-infrastructure) is expected to significantly expand connectivity needs in cars.
• Smart homes are also emerging as a key IoT battleground, with a predicted CAGR of 37% to reach $70 billion by 2018.

Company Overview

• BizLink is a wired connectivity specialist (connectors, cable assemblies) in a fragmented global market.
• WNC is a wireless connectivity specialist (satellite, cellular, Wi-Fi/Bluetooth) with a diversified product portfolio.
• Both companies have low global market share (<3%), but are expected to grow through increased demand in automotive and smart home applications.

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Key Information

BizLink (Buy)

• Current Price: NT$150.0
• Target Price: NT$210 (40% upside)
• 2015E EPS: NT$14.04 (32% above Bloomberg consensus)
• Growth Drivers:
  • Automotive segment: Expected to grow from 26% of total revenue in 2013 to 44% in 2016E.
  • Niche positioning: Strong presence in automotive and industrial applications.
  • Product diversification: Offers a wide range of wired connectivity solutions.
• Financial Highlights:
  • ROE: 23.6% in 2014-2015
  • P/B: 2.7X (lower than peers)
  • P/E: 12.2X (undervalued relative to ROE potential)
• Risks:
  • Temporary setbacks in EV (electric vehicles) may affect growth.
  • Margin expansion volatility could impact profitability.

Wistron NeWeb (Neutral)

• Current Price: NT$68.0
• Target Price: NT$75 (10% upside)
• 2015E EPS: NT$7.45 (30% above Bloomberg consensus)
• Growth Drivers:
  • Auto segment: Expected to grow from 20% of total revenue in 2013 to 31% in 2016E.
  • Digital home connectivity: Increasingly important as smart home adoption grows.
• Financial Highlights:
  • ROE: 17% in 2014-2015
  • P/B: 1.8X
  • P/E: 10.8X (adequately reflects growth potential)
• Risks:
  • Product mix transition: High-growth segments (auto, digital home) are not yet significant enough.
  • Legacy business: Still dominates revenue, with single-digit CAGR.
  • Uncertainty: Growth in 2015E is not yet priced in, and more clarity is needed.

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Valuation Analysis

BizLink

• 2015E EPS CAGR: 37%
• Valuation Methodology: Based on PB/ROE.
• Target Price: NT$210 (12-month TP)
• Return Potential: 40% upside

WNC

• 2015E EPS CAGR: 27%
• Valuation Methodology: Based on PB/ROE.
• Target Price: NT$75 (12-month TP)
• Return Potential: 10% upside

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Summary Table

Company	Ticker	Rating	Current Price	Target Price	Return Potential
BizLink	3665.TW	Buy	NT$150.0	NT$210	40%
Wistron NeWeb	6285.TW	Neutral	NT$68.0	NT$75	10%

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Conclusion

Both BizLink and WNC are positioned to benefit from the IoT and automotive connectivity trends. However, BizLink is currently rated Buy due to its strong growth trajectory and undervalued status, while WNC is rated Neutral as it is expected to accelerate growth in 2015E but is still in a transition phase. The auto industry and smart home environment are key growth areas for both, with BizLink leading in wired connectivity and WNC in wireless connectivity.