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Overseas handset brands outperform in China in Oct

■ China handset shipments were up 28.4% yoy to 33.6m units in Oct 21 vs. a yoy decline of 8.1% in Sep and 9.7% in Aug.
■ Both local and overseas brands reported a yoy increase in shipments in Oct.
■ 5G models accounted for 79.2% of total handset shipments in Oct 21, up from 70.6% in Sep and 72.8% in Aug.
■ The CAICT’s Oct 21 China handset shipment numbers were released later than expected. But it is still a reference for the market. In our view, the rebound in Oct 21 handset shipments was due to iPhone 13 shipments and preparation for 11.11 sales. We believe weak sentiment has been priced in.
■ The analysis in this report is based on industry and macro figures and may differ from the views of individual analysts, in some cases.

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China handset shipments reported a yoy increase in Oct 21

The China Academy of Information and Communications Technology (CAICT) released its Oct 21 handset shipment figures yesterday, reporting a yoy increase in Oct 21 vs. a yoy decline in Sep and Aug 21. According to the CAICT, China handset shipments were up 28.4% yoy and 57.0% mom to 33.6m units. Handset shipments saw a major rebound vs. a yoy decline of 8.1% in Aug 21 and 9.7% in Jul. 5G models accounted for 79.2% of total handset shipments in Oct 21, up from 70.6% in Sep and 72.8% in Aug and close to 79.4% in Jul. In Oct 21, 26 new handset models were released, up 4% yoy. Sixteen new 5G models were released in Oct, accounting for 61.5% of the total number of new models released in the month, up from 41.4% in Sep, 80.0% in Aug and 42.3% in Jul 21. Shipments of local brands totaled 22.8m in Oct 21, up 12.2% yoy and 58.3% mom, accounting for 96.2% of total shipments, up from 94.5% in Sep and 93.8% in Aug. Shipments of overseas brand handsets (mainly iPhones) increased significantly by 83.1% yoy and 881.8% mom to 10.8m units. The number of new models released by local brands was up 13.6% yoy and represented 96.2% of the total number of new models released in Oct 21. Some 32.7m smartphones were shipped in Oct, up 30.6% yoy, accounting for 97.3% of total shipments in the month. In Oct 21, 25 new smartphone models were released, up 13.6% yoy, accounting for 85.5% of the number of new models released in the month.

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Component suppliers

Component names released their Oct 21 figures earlier this month. Sunny Optical’s [2382.HK] Oct 21 shipments dropped by 13% mom and 28% yoy. Sunny Optical’s vehicle lens shipments reported a 23% yoy decline. Q-Tech [1478.HK] reported a 7% yoy increase but a 7% mom drop in camera module shipments. Q-Tech’s fingerprint module shipments rose 17% yoy and 4% mom. The monthly figures for Sunny Optical, Q-Tech and Truly [0732.HK] were in line with our previous discussion that Android camp handset component makers were unlikely to report a significant mom increase in volume shipments in Oct and maybe Nov, given weaker smartphone shipment volume in China. The CAICT’s Oct 21 China handset shipment numbers were released later than expected. But it is still a reference for the market. In our view, the rebound in Oct 21 handset shipments figures was due to iPhone 13 shipments and preparation for 11.11 sales. The Oct 21 handset shipment numbers are expected to ease concerns somewhat. Unit shipments of overseas brands also reached a new high of 10.8m units in Oct 21 on a monthly basis since Feb 18. We maintain the view that weak sentiment has been priced in. We expect the yoy revenue growth of Android camp names to peak in 3Q21, but the Oct 21 shipment figures may indicate stabilization in 4Q21. We reiterate the view that the market is looking for new growth drivers for the hardware sector. We also reiterate the view that the auto sector (ADAS, smart cockpits, including auto-displays, HUD and the Internet of Vehicles) and metaverse (AR/VR) are medium- and long-term themes for the hardware segment. We believe that Huawei’s VR Glass 6DoF game set will boost sentiment on AR/VR names. For auto electronics, we maintain that potential beneficiaries include BOE Varitronix [0710.HK], Truly, Foryou Corp [002906.CH] and Fuyao Glass [3606.HK]. For metaverse, potential beneficiaries are names such as Goertek [002241.CH], Sunny Optical, Xiaomi [1810.HK], Solomon Systech [2878.HK] and FIT Hon Teng [6088.HK].

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