Strong auto CIS and TDDI business
? 1Q22 net profit fell 14% yoy to Rmb896m due to pandemic challenges. We
expect strong earnings recovery in 2Q22F on easing Omicron in China.
? We expect overall revenue to rise c.22% yoy to Rmb29bn in FY22F, driven by
auto CIS, TDDI and recovery of handset CIS.
? Reiterate Add. We lower our TP to Rmb221.0 to reflect weakened China
smartphone market, now based on 32x FY23F P/E (previously 50x FY22F).
Sluggish market sentiment dragged down 1Q22 revenue
Will Semi announced weaker than expected 1Q22 results due to the sluggish China
smartphone market and supply chain constraints amid the Omicron outbreak in China.
Revenue decreased c.11% yoy to Rmb5.54bn in 1Q22 as it was dampened by low
smartphone CIS demand and ongoing pandemic challenges. Gross profit margin (GPM)
expanded by 290bp yoy to 35.3%, thanks to higher proportion of auto CIS and TDDI. 1Q22
net profit dropped c.14% yoy to Rmb896m, formed 17% of our full-year FY22F forecast.
We deem it as in line as we expect a strong earnings recovery in 2Q22F (+50% qoq to
Rmb1.3bn) due to robust shipments on high-margin auto CIS and high-end smartphone
CIS. This is thanks to improving supply chain constraints amid decreasing Omicron cases.
Recovering high margin segments could be potential catalysts
Market research company Yole estimates global auto CIS market size at US$1.6bn in 2021. Will Semi’s auto revenue jumped 130% yoy to Rmb2.3bn in FY21, making Will Semi
the 2nd biggest auto CIS producer in the global market. We expect Will Semi auto CIS
revenue to rise over 50% in FY22F, driven by the fast-growing ADAS market and rapidlygrowing Chinese EV market. Will Semi now offers a wide range of applications, from VGA
to 8MP in-cabin CIS and front-view CIS to cater to the US and EU tier-1 automakers.
Meanwhile, Touch and Display Driver integration (TDDI) segment revenue rose 160% yoy
to over Rmb1.8bn in FY21. We expect TDDI business revenue to rise over 50% in FY22F
with a stable GPM of c.55% due to production for BOE and Tianma commencing in 4Q21,
and mass production of Display Driver IC (DDIC) for OLED displays in 2H22F.
Dependable profitability in FY22F from auto CIS and TDDI
We expect total revenue to rise c.22% yoy to Rmb29bn in FY22F, driven by 1) robust auto
CIS shipment output, 2) new customers and new product launches in TDDI business, and
3) recovering handset CIS in 2H22F. We expect overall GPM to stay at c.34% in FY22F,
supported by better product mix in handset CIS and higher contribution from auto CIS and
TDDI.
Reiterate Add with a lower target price of Rmb221.0
We keep our Add call due to sustainable market share gains in handset and auto CIS,
thanks to new product launches and significant semi-localisation trend. Our EPS forecasts
are intact as we expect strong earnings recovery in 2Q22F due to Omicron easing in China
and accelerating automotive CIS demand in 2H22F due to chip supply improving. We cut
our target price to Rmb221.0, now based on 32x FY23F P/E (previously 50x FY22F) to
reflect the weakened smartphone demand and supply chain disruption in China caused by
Omicron infections. Re-rating catalysts include fewer Covid cases in China, sustained auto
CIS market share gains and stable GPM in CIS and TDDI businesses. Downside risks:
higher production costs and keener competition in CIS.