Investment Thesis
Strong penetration in the Europe market and taking market share of Huawei overseas together fuel a market-beating smartphone shipment growth, an FY20-23 CAGR of 17.0%. A more diversified revenue distribution worldwide also minimises its geopolitical risk under the technology embargo of China.
Promising internet service growth imposes a strong pull on the overall margin. We expect the overall gross margin to increase from 14.9% FY20 to 20.8% in FY23, with internet service’s gross profit contribution to expand to 41.1% in FY23.
Growing premium smartphone market share supported by advancing smartphone hardware technology, pulling an overall ASP growth at an FY21-23 CAGR of 5.4%.
Valuation:
Our TP of HK$23.70 is based on 16.5x FY22F PE, which is based on a mean reversion to its historical average since IPO, justified by smartphone market share gains and the margin pull from Internet services.
Where we differ:
Our smartphone segment’s ASP is 2.2%/ 6.3% higher and gross margin is 1.6/2.5 ppts higher than the market in FY22/23F, as we expect better penetration in premium smartphone market to resulting in a 2.2/3.5ppts higher margin together with the internet’s margin pull.
Key Risks to Our View:
Delay or cancellation of smartphone shipment caused by persisted chips shortage or lockdown owning to new variant of pandemic.