1Q performance remained resilient
? Truly reported its Mar 22 revenue, which in our view, indicates that its operations remain
resilient despite the challenging environment, especially given the COVID-19 outbreak.
? Lower end market demand for smartphones dragged down overall growth for Truly, but
the Company should benefit from changes in the competitive landscape of the
smartphone display segment.
? Although Truly did not release concrete guidance for 2022, we expect it to deliver
positive yoy growth, as auto displays will remain a growth driver.
? We believe the market has reset expectations about Truly, but concern about softer
performance of the smartphone components segment seems to be overdone.
? The auto electronics segment should remain the growth driver for the Company in
2022F and beyond. Within the sector, Truly is trading at a lower valuation than its peers.
Mar 22 performance remained resilient
Truly reported its Mar 22 revenue figures, which decreased 1.5% yoy, from HK$1,983m in
Mar 21 to HK$1,954m in Mar 22. We believe that Truly’s Mar 22 revenue figures indicate
that its operations remain resilient, especially given the softer-than-expected handset
shipments and the COVID-19 outbreak (Shenzhen lockdown in Mar). Management
managed to solve the logistics bottleneck between HK and Shenzhen in Mar 22 due to the
COVID-19 outbreak. The extra logistics costs incurred, based on our understanding, are
manageable. The Company’s 1Q22 revenue increased 0.3% yoy, from HK$5,326m in 1Q
21 to HK$5,341m in 1Q22.
Smartphone components segment expected to be soft in 2022 but no
need to panic
Given softer-than-expected handset shipments in China, the market has concerns about
Truly’s smartphone components segment in 2022. We don’t believe that Truly’s
smartphone components segment will drag down overall performance that much in 2022.
Shipments of the Company’s compact camera modules and fingerprint module products
may continue to be soft, but Truly will benefit from a change in the competitive landscape
of the smartphone display segment. Truly will also focus more on the profitability of the
smartphone components segment.
Expectations have been reset
Shares of Truly were under pressure after the 2021 results announcement, given the
broad-based market correction, and the market has concerns about the outlook for the
smartphone industry. After the 4Q21 results announcement and recent industry news flow,
the market reset its expectations about Truly. We believe the market has been too cautious
about Truly because of concerns about its smartphone components segment. We think the
performance of the Company’s auto electronics segment is more resilient than the handset
segment and that the auto electronics segment will remain the growth driver for the
Company in 2022F and beyond. In this sector, Truly is trading at a lower valuation than
BOEV [0710.HK]. Truly declared a total dividend per share of HK$0.10 (translating to a
payout ratio of 24% for 2021. Given the improvement in its operating performance, we
believe that the Company will raise its dividend payout ratio of 30–40% in the future.