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Weak shipments likely to persist into 4Q21F

  • Q Tech’s Sep 21 HCM shipment grew 15% yoy (+5% mom) by volume, outperforming its competitor due to an improved customer portfolio.
  • 9M21 HCM was c.5% pts below company guidance/our forecasts for FY21F. We lower our HCM shipment growth to 20% to reflect weak 4Q21F shipment.
  • Reiterate Add due to its continuous market share gain for sophisticated HCM products. We lower TP to HK$22.34 on c.2-4% EPS cuts in FY21-23F.
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HCM outperform peer due to improved customer portfolio

Q Technology’s (Q Tech) Sep shipments saw sustained mom improvement in both handset camera modules (HCM) and fingerprint recognition modules (FRM), thanks to new order wins for Honor and market share gains in flagship models for Vivo, Oppo and Xiaomi. HCM shipment grew 15% yoy (+5% mom) to 43m units in Sep 21, outperforming its key competitor’s -9% yoy (-3% mom) on an improved customer portfolio. More importantly, 32MP and above product shipments maintained a strong growth of 63% yoy in Sep 21, accounting for 28% of total shipments, which should support sustained GPM improvement in FY21F. FRM shipment grew 12% yoy (+2% mom) to 9.5m units due to an expanded customer base and rising demand for side-mounted capacitive fingerprint recognition modules in low-to mid-range models.

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9M21 shipments c.5% pts below company guidance for FY21F

9M21 HCM shipments grew 22% yoy, of which, 30MP and above products jumped 50% yoy, c.5% pts below the company’s guidance of a 25% yoy increase in FY21F. We estimate a 20% yoy HCM shipment growth in FY21F (previously 26% yoy) due to delays in some new model launches by Chinese customers on the back of advance 5G systemon-chips (SoC) shortages. On the positive side, we estimate 30% of FY21F HCM output will come from 32MP and above sophisticated products (32MP/48MP/64MP/108MP large chip size camera module, OIS, wide-angle/ultra-wide-angle and IoT products), which should support GPM to stay above 11% in 2H21F (11.9% in 1H21).

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Expect weak shipment to persist into 4Q21F

3Q shipments were slightly affected by a few days of electricity suspension in Kunshan, Jiangsu province, Q Tech’s main product base. However, electricity supply returned to normal after the Golden Week Holiday. Nevertheless, we estimate tight SoC supply, especially for advance 5G SoCs, to sustain in 4Q21F and affect Chinese brand shipments. We lower our FY21F HCM shipment forecast by 6% pts, from a growth of 26% to 20%, resulting in a c.4% EPS cut for FY21F and c.1.5% EPS cuts for FY22-23F.

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Reiterate Add; target price lowered to HK$22.34

We reiterate our Add call on Q Tech due to its continuous market share gains in the supply chains for sophisticated products for Oppo, Vivo and Xiaomi, and stable GPM outlook. We cut our TP to HK$22.34 due to EPS revisions and lower our target multiple to 15x (previously 18x) for FY22F, reflecting unfavourable handset shipment growth outlook, and a 40% discount to its closest peer to reflect smaller handset lens business and less exposure to the automotive segment. Share price catalysts include continual product mix improvements and sustained GPM outlook. Downside risks are GPM pressure on poor spec-upgrades and fluctuating renminbi.