Major beneficiary in the smartphone market repositioning
- Oppo’s and Vivo’s higher-than-market expected share gains fuel CCM shipment CAGR to 22%
- Module premiumisation pulls margin from 10.2% in FY20 to 14.2% in FY23
- Expect FY22 CCM shipment, revenue, and EPS at 14%, 19%, and 36% higher than market
- Reiterate BUY based on its cheap valuation and promising FY20-23F EPS CAGR of 37.7%
Investment Thesis
Market share surpasses that of O-Film for the first time. Oppo’s and Vivo’s share gains that were higher than the market’s expectation accelerated Q Tech’s CCM shipment growth to a 22% FY20-23 CAGR. Higher market share strengthens its bargaining power.
Premiumisation of CCM exerts a strong pull on margin. Advanced CCM revenue is expected to increase from 57.0% in FY20 to 75.7% in FY23, pulling the overall gross margin from 10.2% in FY20 to 14.2% in FY23.
Potential A-share listing narrows R&D spread with peers. Over 50% of capital raised will be allocated to R&D investment, with support for research expenditure to double in three years.
Valuation:
Q Tech is trading at 4.3x FY22F PE, well below its seven-year forward PE average of 13.2x. Our TP of HK$16.60 is based on an 8.5x FY22F PE, reversion to 1SD below the seven-year historical average, on promising share gain and margin expansion.
Where we differ:
Our FY22F CCM shipment estimation is 14% higher than the market’s, resulting in 19%/36% higher revenue/ EPS.
Key Risks to Our View:
Slowing smartphone shipment growth due to prolonged chip shortage.