Gaining share in flip-chip camera modules

■ We estimate Cowell’s FCCM shipments to rise 16% yoy to c.140m units in FY22F due to rear-facing FCCM shipments starting and stable market share.
■ We see higher ASP for front-facing FCCM and automotive component launches as additional profit growth drivers in FY22F and FY23F.
■ Reiterate Add. Target price raised to HK$14.17 due to c.13%/22% EPS hikes in FY22F/23F and higher target multiple of 18x FY22F EPS.

Strong new products in the pipeline to boost FY22-23F net profit

We reiterate our Add call on Cowell e Holdings (Cowell) and raise our EPS forecasts by c.13%/22% in FY22F/FY23F as we believe the company will start to produce rear-facing flip-chip camera modules (FCCM) for the iPhone 14 (iP14) (expected to launch in Sep 2022F) in FY22F. We estimate FY21F core net profit to fall 19% yoy to US$54.2m, driven by 13% revenue growth, -0.8% pt GPM retraction and higher SG&A expenses for new products development. We project FY22F net profit to jump c.56% yoy to c.US$84m and further increase c.38% yoy to c.US$116m in FY23F, driven by 1) increase in FCCM shipments, 2) higher ASP for front-facing FCCM and 3) rollout of automotive components.

Cowell to gain market share and produce rear-facing FCCM

We expect Cowell’s FCCM shipments to reach c.140m units in FY22F, up 16% yoy (vs. 11% yoy growth in FY21F), driven by the start of FCCM shipments for iPhone rear-facing cameras in 3Q22F and stable market share in the supply chain for iPhone front-facing cameras. In order to accelerate rear-facing FCCM for iPhones, Cowell increased its R&D team in FY21 to develop new products. It also plans to invest approximately US$150m to increase its capacity by c.40% in FY22F due to growing demand from Apple products.

iP14 front-facing camera upgrades likely for better image quality

According to component suppliers for Apple, Apple is likely to enhance functionality for iP14’s front-facing camera, with higher megapixels (12MP in iP13) and a voice coil motor (VCM) for better image quality and autofocus feature. We expect a 15-20% ASP increase for iP14’s FCCM for this potential upgrade, which supports our estimate of a 9% ASP increase p.a. in FY22F and FY23F (vs. a 3% ASP decline in FY21F).

Automotive components starting to generate revenue in FY22F

Cowell has been developing 3D sensing technology for automotive cameras since 2018. We expect Cowell to launch optical components for light detection and ranging (LiDAR) for Chinese electric vehicle (EV) makers in 2H22F. We estimate Cowell will expand its product range from LiDAR components to head-up display components and vehicle camera modules in FY23F, driven by increasing capacity and improving technology know-how.

Reiterate Add with a higher target price of HK$14.17

Stay invested. Our TP rises to HK$14.17 on EPS hikes and a higher target multiple. We now value Cowell at 18x FY22F EPS (previously 14x), c.10% premium over smaller-sized Apple component maker peers, to reflect its accelerating FY22-23F net profit growth and higher market share in the supply chain for Apple. Potential share price catalysts include sustained iPhone camera spec upgrades and strong iPhone sales. Risks: delayed new product launches for automotive components and weaker-than-expected iPhone sales.