Wed, 16 May 2012

Equi ty Research Ju Teng Intl (3336 HK) Cas ing / China

Comeback of Wintel versus Apple

The Wintel camp targets to get 20% of Tablet market by mid-2013

98% yoy growth in Tablet driving mobile PC growth from 2012 onwards

Initiate coverage with BUY on new earnings growth driver from Tablet casing and undemanding valuation at 45% discount to peer.

Intel and Microsoft (Wintel) target to get 20% of the Tablet market by mid-2013. The

media Tablet landscape is expected to change dramatically and we believe Ju Teng will be

the direct beneficiary given (1) long established strategic partnership with top tier

Taiwanese Notebook ODMs on plastic/metal casing and (2) Non-Apple PC brands will be

keen on launching new Tablets for gaining market share in the low-end mass market

reaping the robust Tablet growth.

Rebounding notebook shipment 2H12 onwards driving by Ultrabook and Win 8. After

a tough year in 2011 with global PC shipments up only 1.8% yoy, slipped from 13.7% yoy

in 2010 due to weakened consumer demand and the Thai Flooding, IDC forecast PC sales

will rebound in 2012 with 5.0% yoy growth to 371mn units, mainly driven by a robust 8.1%

notebook book growth to 226mn units, thanks to (1) Ultrabook which is estimated to

contribute 15% of notebook sales in 2012 and (2) Microsoft new OS – Win 8 which is

expected to be officially launched in Oct 2012. Notably, Gartner estimates Media Tablet to

grow at 98% yoy to 119mn in 2012, while Apple’s iPad will account for 61.4% of the Tablet

market, down 5.2 ppt yoy from 2011, and Win 8 Tablet share will increase to 4% or 5.0mn

units in 2012, from ZERO in 2011.

Initiate coverage with a BUY rating on undemanding valuation and new growth

drivers. Since the debut of Apple iPad in April 2010, Ju Teng share price slipped from its

record high HK$8.35 in Jan 2010 to HK$1.65 currently, representing 6x FY12E PE, mainly

due to (1) netbook’s failure in gaining mobile PC market share, (2) stagnant growth of the

overall PC market and (3) Ju Teng’s limited exposure in the metal Tablet casing market.

We initiate BUY with TP HK$2.50 based on 9x FY12E PE on Ju Teng, representing 20%

discount to industry average, given (1) the emerging Win 8 Tablet casing growth, (2) a

rebound in overall PC sales from 2012 onwards driven by Ultrabook and Win XP

replacement and (3) a 38% earnings CAGR in 2012 – 2015E.

(FY11 HK$0.08 final ex-dividend date: 21 May)

Risk: (1) Slowdown in global notebook demand, (2) failure to venturing into the Tablet

market by Win 8, and (3) intensifying competition in the mobile device casing market.

Yuji Fung

Analyst

+852 2135 0236

Yuji.fung@oriental-patron.com.hk

Initial Coverage

BUY

Close price: HK$1.65

Target Price: HK$2.50(+52%)

Key Data

HKEx code 3336

12 Months High (HK$) 2.59

12 Month Low (HK$) 0.87

3M Avg Dail Vol. (mn) 7.47

Issue Share (mn) 1,131.55

Market Cap (HK$mn) 1,867.06

Fiscal Year 12/2011

Major shareholder (s) Cheng Li-Yu (28.9%)

Source: Company data, Bloomberg, OP Research Closing price are as of 15/5/2012

Price Chart

1mth 3mth 6mth

Absolute % -20.3 -25.7 20.4

Rel. MSCI CHINA % -13.7 -16.1 19.0

PE

Exhibit 1: Forecast and Valuation Year to Dec (HK$ mn) FY10A FY11A FY12E FY13E FY14E

Revenue 7,166 8,235 9,214 10,713 12,306

Growth (%) (4) 15 12 16 15

Net Profit 331 257 307 471 650

Growth (%) (53) (23) 20 53 38

Diluted EPS (HK$) 0.284 0.226 0.274 0.421 0.581

EPS growth (%) (55) (20) 21 53 38

Change to previous EPS (%)

NA NA NA

Consensus EPS (HK$)

0.248 0.345 0.340

ROE (%) 7.9 5.6 6.3 9.1 11.6

P/E (x) 5.8 7.3 6.0 3.9 2.8

P/B (x) 0.4 0.4 0.4 0.3 0.3

Yield (%) 4.7 4.8 5.0 7.6 10.6

DPS (HK$) 0.1 0.1 0.1 0.1 0.2

Source: Bloomberg, OP Research

0.0

0.5

1.0

1.5

2.0

2.5

3.0

May/11 Aug/11 Nov/11 Feb/12

HK$3336 HK MSCI CHINA

0

2

4

6

8

10

12

Dec/06 Dec/07 Dec/08 Dec/09 Dec/10 Dec/11

Forward P/E Ratio

+1std.

avg.

-1std.

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 2 of 26

Table of Contents

Financial Summary ...................................................................................................................................... 3

Intel and Microsoft target to get 20% share in the Tablet market by mid-2013 .............................................. 4

Rebounding notebook sales in 2012 driven by Ultrabooks and Win 8 .........................................................12

Initiate BUY on new growth driver emerged ................................................................................................18

Investment Risk ..........................................................................................................................................20

Shareholding structure ................................................................................................................................21

Competitive Analysis ...................................................................................................................................22

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 3 of 26

Financial Summary Year to Dec FY10A FY11A FY12E FY13E FY14E

Year to Dec FY10A FY11A FY12E FY13E FY14E

Income Statement (HK$ mn) Ratios

Plastic 4,505 5,834 6,374 6,661 6,961

Gross margin (%) 12.9 10.5 11.7 14.1 15.3

Metal 1,170 1,365 1,808 2,626 3,565

Operating margin (%) 6.4 4.1 4.7 7.3 8.7

Netbook 1,112 546 467 399 341

Net margin (%) 4.6 3.1 3.3 4.4 5.3

Tablet 0 0 76 538 951

Selling & dist'n exp/Sales (%) 0.9 1.2 1.2 1.2 1.2

Others 380 489 489 489 489

Admin exp/Sales (%) 5.8 5.8 5.9 5.6 5.4

Turnover 7,166 8,235 9,214 10,713 12,306

Payout ratio (%) 27.4 34.9 30.0 30.0 30.0

YoY% (4) 15 12 16 15

Effective tax (%) 15.5 17.1 17.1 17.1 17.1

COGS (6,244) (7,367) (8,136) (9,204) (10,429)

Total debt/equity (%) 48.2 55.3 52.9 49.1 44.8

Gross profit 922 868 1,077 1,509 1,877

Net debt/equity (%) 28.0 40.6 44.9 36.5 26.3

Gross margin 12.9% 10.5% 11.7% 14.1% 15.3%

Current ratio (x) 1.46 1.48 1.42 1.50 1.59

Other income 29 65 27 21 26

Quick ratio (x) 1.15 1.18 1.11 1.19 1.28

Inventory T/O (days) 60 51 50 50 50

Selling & distribution (63) (98) (109) (124) (142)

AR T/O (days) 127 121 120 120 120

Admin (416) (478) (544) (598) (667)

AP T/O (days) 92 89 90 90 90

Other opex (15) (17) (19) (22) (26)

Cash conversion cycle (days) 95 83 80 80 80

Total opex (495) (593) (672) (744) (835)

Asset turnover (x) 0.74 0.77 0.79 0.87 0.91

Operating profit (EBIT) 456 339 432 786 1,069

Financial leverage (x) 2.33 2.33 2.39 2.40 2.41

Operating margin 6.4% 4.1% 4.7% 7.3% 8.7%

EBIT margin (%) 6.4 4.1 4.7 7.3 8.7

Provisions 0 0 0 0 0

Interest burden (x) 0.92 0.85 0.86 0.92 0.94

Finance costs (35) (45) (52) (52) (52)

Tax burden (x) 0.79 0.89 0.83 0.65 0.64

Profit after financing costs 422 294 379 734 1,017

Return on equity (%) 7.9 5.6 6.3 9.1 11.6

Associated companies & JVs (1) (7) (7) (7) (7)

ROIC (%) 6.2 3.9 4.4 7.7 10.2

Pre-tax profit 420 287 372 727 1,010

Tax (65) (50) (65) (126) (174)

Year to Dec FY10A FY11A FY12E FY13E FY14E

Minority interests (24) 20 0 (130) (185)

Balance Sheet (HK$ mn)

Net profit 331 257 307 471 650

Fixed assets 4,742 5,805 6,137 6,126 6,153

YoY% (53) (23) 20 53 38

Intangible assets & goodwill 38 38 38 38 38

Net margin 4.6% 3.1% 3.3% 4.4% 5.3%

Associated companies & JVs 6 (1) (9) (18) (26)

EBITDA 859 816 1,008 1,433 1,769

Long-term investments 42 25 25 25 25

EBITDA margin 12.0% 9.9% 10.9% 13.4% 14.4%

Other non-current assets 245 479 479 479 479

EPS (HK$) 0.284 0.226 0.274 0.421 0.581

Non-current assets 5,073 6,345 6,669 6,650 6,668

YoY% (55) (20) 21 53 38

DPS (HK$) 0.078 0.079 0.082 0.126 0.174

Inventories 1,029 1,029 1,115 1,261 1,429

AR 2,499 2,732 3,029 3,522 4,046

Year to Dec FY10A FY11A FY12E FY13E FY14E

Prepayments & deposits 410 558 625 726 834

Cash Flow (HK$ mn)

Other current assets 18 10 10 10 10

EBITDA 859 816 1,008 1,433 1,769

Cash 884 698 397 676 1,082

Chg in working cap 265 (104) (129) (310) (319)

Current assets 4,839 5,027 5,175 6,195 7,401

Others 73 44 0 0 0

Operating cash 1,196 756 879 1,123 1,450

AP 1,581 1,796 2,006 2,269 2,572

Interests paid (22) (31) (52) (52) (52)

Tax 120 130 65 126 174

Tax (77) (38) (130) (65) (126)

Accruals & other payables 835 922 1,031 1,199 1,377

Net cash from operations 1,097 687 696 1,006 1,272

Bank loans & leases 761 541 541 541 541

CB & othe debts 0 0 0 0 0

Capex (964) (1,379) (921) (643) (738)

Other current liabilities 26 0 0 0 0

Investments (8) (5) 0 0 0

Current liabilities 3,322 3,389 3,643 4,135 4,664

Dividends received 3 1 1 1 1

Sales of assets 31 19 0 0 0

Bank loans & leases 1,353 2,081 2,081 2,081 2,081

Interests received 0 0 12 7 12

CB & othe debts 0 0 0 0 0

Others (132) (254) 0 0 0

Deferred tax & others 11 4 4 4 4

Investing cash (1,070) (1,618) (908) (634) (725)

MI 837 1,157 1,157 1,287 1,473

Non-current liabilities 2,201 3,242 3,242 3,372 3,558

FCF 27 (931) (211) 371 547

Issue of shares 23 0 0 0 0

Total net assets 4,389 4,742 4,959 5,338 5,847

Buy-back 0 (19) 0 0 0

Minority interests 214 297 0 0 0

Shareholder's equity 4,389 4,742 4,959 5,338 5,847

Dividends paid (89) (91) (90) (92) (141)

Share capital 113 112 112 112 112

Net change in bank loans 28 509 0 0 0

Reserves 4,276 4,630 4,847 5,226 5,735

Others 0 0 0 0 0

Financing cash 176 696 (90) (92) (141)

BVPS (HK$) 3.87 4.24 4.43 4.77 5.23

Net change in cash 203 (235) (301) 279 406

Total debts 2,113 2,622 2,622 2,622 2,622

Exchange rate or other Adj 51 28 0 0 0

Net cash/(debts) (1,230) (1,924) (2,225) (1,946) (1,540)

Opening cash 608 862 654 354 633

Closing cash 862 654 354 633 1,038

CFPS (HK$) 0.940 0.606 0.622 0.899 1.137

Source: Company, OP Research

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 4 of 26

Intel and Microsoft target to get 20% share in the Tablet market by mid-2013

Microsoft’s new OS Win 8 aims at the booming Tablet market, from 0% in

2011 to 5-10% in 2012. After the developer and consumer preview of Win 8

released in early 2012, Microsoft received good feedback on its new OS – Win 8,

especially the new “Metro UI”, which comes with touch function enhancement,

and improved background processing management which aims to improve

energy consumption efficiency, according to industry sources. All the new

features and innovation of Win 8 aims to improving its mobility and user

experience. In our view, the new OS will helps PC brand players regaining their

market share in the Tablet market as well as driving notebook shipments growth,

especially the Ultrabook segment.

The new 28nm Intel chip Ivy Bridge CPU processor released on 24th April also

aims to improve the overall performance. According to industry sources, the new

chip has a 10% performance improvement in terms of energy saving as

compared to the previous generation (Sandy Bridge chip), in particular, the

improvement on energy saving will likely to boost notebook and Ultrabook battery

performance, hence their shipment growth. However, according to the industry

sources, the yield on this new chip remains low and hence Intel may ship the new

chip to desktop manufacturers first with notebook and Ultrabook shipments will

ramp up as late as June 2012 and it is expected to account for 15% of notebook

shipments.

We believe the market will get a clear outlook on the potential impact of Win 8 OS

on the Tablet and notebook markets in the upcoming third preview of Win 8 in

June as well as the pickup in Ultrabook shipments in 2H12.

We see Intel and Microsoft (“Wintel” alliance) are well-prepared to compete in the

Tablet and notebook market in 2H12 with the official release of Win 8 currently

schedule in Oct 2012.

Exhibit 2: Win 8 Tablet – The new Metro UI

Source: Neowin, OP Research

SECURITY EASY TO USE AND INTRGRATE PORTABLE

• HP ProtectTools software

• TPM embedded security device

• Support for Computroce

• Windows 8 Professional OS

• Multi-touch or digital pen input

• Outdoor viewing option

• Enterprise level docking

• 8-10 hours of battery life

• 9.2mm thin

• Weight only 6.8kg

HP Slate 8

The Right Business Touch

HP Win 8 Slate – 10.1”

Debut of Microsoft Win 8 OS late

2012 will change the Tablet

market landscape dramatically

and drive Ultrabook shipments

growth …

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 5 of 26

Recap the current Tablet landscape. Since the debut of Apple iPad in April

2010, Apple continuously dominates the Tablet market despite Google’s Android

system also ventured into the market in Feb 2011. Among all Tablet and notebook

brands in market, Apple ranked the top in terms of shipments worldwide, thanks

to its robust Tablet sales in 2011 despite a weak Mac notebook sale.

Exhibit 3: Notebook and Tablet PC shipments by brands, 2011

Source: Digitimes, OP research

Apple’s iPad have an absolute competitive advantage featured by its content-rich

AppStore. According to Gartner, Apple will continuously dominate the Tablet

market in the coming 5 years with market share gradually down from 67% in 2011

to 46% by 2016.

Despite Google released a version of its Android OS (3.0 Honeycomb) for Tablet

device with the first Android Tablet released on Feb 2011, lack of (1) mobile

applications tailored for media Tablets, (2) scale in the ecosystem for mobile app

engineers and (3) low monetization value of Android users versus premium iOS

users who are willing to pay for a mobile app, all together resulting in the failure

for PC brands to penetrate into the Tablet market except Samsung Galaxy and

Amazon Kindle Fire.

Due to PC brands are more focus on hardware design and lack of software

development skill set, PC brands are essentially hard to compete and gain

market share from Apple in the Tablet market. The success of Samsung and

Amazon in this segment is attributed to (1) the smaller size and hence the lighter

weight of the device, (2) the available of a digital pen as an alternative input

device and (3) optimization on the Android platform such as Amazon e-book

platform as well as Amazon appstore. Hence, we believe the launch of Microsoft

Win 8 OS for Tablet is able to solve most of software issue currently block the

door of PC brands in Tablet market. The marketplace (AppStore of Microsoft) is

fully supported by Microsoft and the ecosystem of Win OS Tablet is much more

competitive with high motivation for mobile app engineers and enterprise IT

department to develop and deploy new apps on Win OS Platform instead of

Google Android Platform, especially the enterprise IT departments are already

very familiar with the MS Win OS platform, which has an edge in the area of

security issues.

Despite whether the Win 8 OS will gain 8% market share as a leading industry

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Apple HP Lenovo Acer Dell Asus Toshiba Samsung Sony Fujitsu

NB Tablet

(mn)

… Apple ranked the top of global

PC shipments by brand in 2011,

thanks to the success of media

Tablet – Apple iPad

… with the strong support from

Wintel on software (Win 8 OS,

Appstore – Marketplace) and

hardware, PC brands is eager to

penetrate into the tablet market to

reap the benefit from the 39.4%

CAGR in tablet shipment during

the period of 2011 - 2017

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 6 of 26

research firm’s estimate or 20% as industry sources indicate, no doubt Win 8 will

directly hit the Tablet market and we expect Win 8 Tablets will ramp up

substantially in 4Q12 covering low-to-high end (US$200-US$1,000), which will be

also an edge to the iPad (US$600). Our channel check also suggests that PC

brands have already started to prepare the prototype of Win 8 Tablet model

based on the latest release of Win 8. We see there is an upside risk on the

Gartner’s 4.9mn Win OS Tablet shipments in 2012 given (1) high incentive for PC

brands to venture into the Tablet market given the robust demand in the coming 5

years and (2) the strong “Wintel” alliance aiming at the Tablet market.

According to Industry source, HP, Dell, Samsung and Lenovo have already

started the R&D on Win 8 Tablet.

Exhibit 4: Worldwide sales of media Tablets to end users by OS ('000)

OS 2011 2012 2013 2016

Other operating systems 1,919 510 637 464

QNX 807 2,643 6,036 17,836

Microsoft 0 4,863 14,547 43,648

Android 17,292 37,878 61,684 137,657

iOS 39,998 72,988 99,553 169,652

Total market 60,016 118,882 182,457 369,257

Source: Gartner (April 2012)

Exhibit 5: Worldwide sales of media Tablets to end users by OS ('000)

Source: Gartner (April 2012)

PC brands are keen to participate in Tablet market despite thin margin.

Notwithstanding PC brands are keen to participate in the Tablet market to gain

market share, the profitability on Tablet device with lower ASP (i.e. US$300) may

not be as profitable as notebooks, which have higher ASP (US$600 – US$2,000).

For example, US$600 for a typical office PC and US$2,000 for a high-end 3D

gaming enabled Ultrabook.

Instead of profitability per unit, the booming demand on Tablet device is more

likely a volume game for the PC brands. We expect PC brands will develop

Tablets and Ultrabook models in parallel to reap the profit in the market for

consumer electronic products.

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

2011 2012 2013 2014 2015 2016Other operating systems QNX Microsoft Android iOS

('000)

… Gartner estimate Win Tablet

market share will ramp up from

0% in 2011 to 4% in 2012 while

Apple iPad market share will

continuously decline from 67% to

46%, we see this as a

conservative estimate as top tier

PC brands like Samsun, Dell, HP,

Lenovo already got the plan on

Win 8 Tablet accordingly to the

industry source.

… Ultrabook is unlikely to

compete with Tablet given its

uncompetitive pricing, weigh, and

the mobile-app driven Tablet

market

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 7 of 26

According to Displaysearch, the mobile PC market is estimated to grow at 31%

yoy in 2012 to 285.4mn units, of which 25% will be Tablets, up 256% yoy to

72.7mn, outpacing the 12% yoy growth for notebooks to 187.5mn units. In

addition, Displaysearch estimates the contribution by Tablet PC will further ramp

up from 25% in 2011 to ~50% level in 2017 with 39.4% shipments CAGR in

2011 – 2017, outpacing the 18.2% shipments CAGR for notebooks during the

same period.

Exhibit 6: 2011-2017 Mobile PC shipments by form factor

Source: NPD displaysearch

The three concerns on Ju Teng will be solved in 2H12. Ju Teng share price

have topped in Jan 2010 at HK$8.35 and underperformed the market till late 2011.

The main concerns on Ju Teng were mainly on:

1. The rapid ramp up in Apple iPad that adopted metal casing supplied by

Catcher (2474 TT, NR) as Ju Teng has limited exposure on metal casing,

2. Stagnant shipment of netbooks (aka mini-notebooks) and

3. Substitution effect from notebook to Tablet due to the success of Apple

Tablet in the consumer market.

Exhibit 7: Share price performance versus peer

Source: Bloomberg, OP Research

0

200

400

600

800

1,000

2011 2012 2013 2014 2015 2016 2017

Notebook PC Mini-note PC Tablet PC

(mn)

-80

-60

-40

-20

0

20

40

60

80

May/11 Jul/11 Sep/11 Nov/11 Jan/12 Mar/12

%3336 HK 2474 TT

… 18.2% shipments CAGR for

notebooks versus 39.4%

shipments CAGR for Tablet in

2011 – 2017. Tablet device

dominated the global mobile PC

device growth in the 5 years

… JuTeng (JT) will turnaround in

2012 as three main market

concerns will be solved

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 8 of 26

However, we believe the three concerns on Ju Teng will be solved in 2H12

onwards. Ju Teng share price started rallying in late 2H11 as the company

revised up its casing pricing that helped improving the company’s profitability and

the new notebook product – Ultrabooks are scheduled to be rolled out massively

in 2H12. These two factors solved investor concerns on the stagnant shipment of

netbook with hope to maintain notebook PC market by the new slim-design

Ultrabook.

In our view, notebook and Tablet are two distinct markets with different user

experience, we don’t see Ultrabook will directly help PC brands gaining any

Tablet market share, but we believe Tablets enable PC brands to position

themselves better in the Tablet market. Microsoft’s new OS Win 8 and Intel’s Ivy

Bridge chip will directly benefit Ultrabooks due to improved software and

hardware performance such as (1) full support of touch screen in Win 8 and (2)

better ecosystem as compare to Android AppStore like Microsoft’s Marketplace.

On the other hand, we believe Tablets with Win 8 OS are able to regain market

share for non-Apple PC brand and most top-tier PC brands will launch their own

Win 8 Tablets from 4Q12 onwards.

Leveraging on its dominant market position and well-established

relationship with top tier Taiwanese NB ODMs. Ju Teng is a leading notebook

PC plastic casing suppliers for all top tier PC brands with 30% market share in the

global notebook market. (incl PC and Mac). The long-established business

relationship with Taiwanese NB ODMs, which accounted for over 90% of global

notebook PC shipments, and various JV with some of them will enable Ju Teng to

secure and ramp up its Tablet casing shipments, of which Ju Teng only had very

limited exposure due to the failure of non-Samsung PC brands Tablets, which are

all based on the Android platform.

1. Metal casing JV with Wistron - 71%-owned (Underconstruction)

2. Magnesium / Aluminum alloy casing with Compal - 59%-owned

Exhibit 8: Ju Teng is market leader and has 30% global market share

Source: Company, OP Research

Ju Teng30%

Hon Hai20%Huan Hsin

10%

Others40%

… notebook and Tablet are two

distinct markets. But JuTeng is

ready to penetrate into Tablet

casing, thanks to Wintel support

on PC Brands and strong alliance

with top tier Taiwanese NB ODMs

... Strong alliance and

well-established relationship with

TW NB ODMs is the key to break

into the Tablet casing market

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 9 of 26

Exhibit 9: TW Notebook ODMs supply chain and market share

2010 2011E Major clients JuTeng Customers

Quanta Computer 53.44 55.80 HP, Dell, Lenovo, Toshiba, Asus Yes

Compal 45.10 40.50 Acer, Dell, Lenovo, HP, Toshiba Yes

Wistron 27.50 31.60 Acer, Dell, Lenovo Yes

Inventec 16.00 16.00 HP, Toshiba Yes

Hon Hai 8.00 12.00 HP, Asus No – ODM for Apple

Pegatron 15.45 15.50 Asus Yes

Source: DisplaySearch, OP Research

Exhibit 10: TW Notebook Market Share

Source: Company, OP Research

Ju Teng will directly benefit from the change in supply chain driving by Win 8 OS Tablet. Foxconn, a subsidiary of Hon Hai Group, is the primary ODM for Apple iPad. The relationship between casing supplier and the ODM is crucial for the casing supplier to get orders from the PC brands, which in turn are the direct customers of the ODMs. Given Ju Teng’s strong strategy alliance with Compal and Winstron, as well as the other three top-tier Taiwanese NB ODMs, namely Quanta, Inventec and Pegatron, we believe Ju Teng will be able to secure a material exposure in the Tablet casing market once Win 8 OS is launched in Oct 2012.

Quanta Computer33%

Compal24%

Wistron18%

Inventec9%

Hon Hai7%

Pegatron9%

... It’s time to invest in JuTeng to

ride on the changes in Tablet

supply chain driving by Wintel PC

Brands Tablet

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 10 of 26

Exhibit 11: Tablets supply chain

Brand Apple Apple Acer Acer Asus Asus Asus HTC HTC Lenovo Lenovo Motorola Dell Dell Dell Dell Dell HP HP

Model iPad 2 iPad 3 Iconia Tab

A500

Iconia Tab

W500

EeePad

MeMO

EeePad

TF101

Transform

er

Eee-Pad

EP102

Slider

Flyer Flyer IdeaPad LePad Xoom Streak 5 Streak 7 Streak 7

New

Inspiron

duo

Gallo TouchPad Slate 500

Panel 9.7" 9.7" 10.1" 10.1" 7" 10.1" 10.1" 7" 7" 10.1" 10.1" 10.1" 5" 7" 7" 10.1" 10.1" 9.7" 8.9"

Resolution 1024*768 2048*1536 1280*800 1280*800 1280*800 1280*800 1280*800 1024*600 1280*800 1280*800 1280*800 1280*800 800*480 800*480 1280*800 1366*768 1280*800 1024*768 1024*768

LCD tech. IPS IPS MVA MVA IPS IPS IPS IPS IPS MVA MVA ASV TN TN IPS TN MVA IPS IPS

Panel supplier Samsung, LG

Display, CMI,

Sharp

Samsung, LG

Display, CMI,

Sharp

AUO AUO LG

Display,

HannStar

LG

Display,

HannStar

LG

Display,

HannStar

LG

Display,

HannStar

Hydis AUO AUO Sharp AUO AUO Hydis CPT, CMI AUO Samsung,

LG Display

LG Display

OS iOS iOS Android Windows Android Android Android Android Android Android Android Android Android Android Android Windows Android WebOS Windows

CPU Apple Apple Mvidia

Tegra

Mvidia

Tegra

Nvidia

Tegra

Nvidia

Tegra

Nvidia

Tegra

Qualcomm Qualcomm Qualcomm Nvidia

Tegra

Nvidia

Tegra

Nvidia

Tegra

Nvidia Tegra Intel Atom Nvidia Tegra Qualcomm Intel Atom

OEM/ODM Foxconn Foxconn Compal Pegatron Pegatron Pegatron Pegatron HTC HTC Quanta Quanta Compal Qisda Qisda Qisda Quanta Pegatron Inventec,

Pegatron

Inventec

JuTeng

(3336.HK)

Exposure with

ODMs

YES YES YES YES YES YES YES YES YES YES YES YES

Launch Q1'11 Q4'11 Q1'11 Q2'11 Will Be

End of Life

Q1'11 Q311 Q2'11 Q4'11 Q1'11 Q1'11 Q4'10 Q2'10 Q3'10 Q4'11 Q3'10 Q3'11 Q1'11 Q4'10

2011 Shipment

target

40M - 6M 1.5M 500K 1M-2M (estimated) 1.5M (estimated) 2M-3M

(estimated)

N/A N/A N/A N/A 300K 3M (estimated)

Source: Displaysearch, OP research

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 11 of 26

Exhibit 12: Ju Teng’s clients

Source: Company

Win 8 Tablets - the new growth driver behind 38% earnings CAGR in

2012-15E. Unlike traditional notebook product which required 4-6 pcs of parts for

a complete casing, either in plastic or metal or both, Tablets generally require only

1 pcs of casing per unit. However, given the rapid ramp up of Tablet penetration

from 25% in 2011 to ~50% in 2017 and the robust 39.4% shipment CAGR in the

coming 5 years and over 60% yoy growth in 2012 and 2013 as compared to

low-teen yoy growth on notebook shipment, we believe the successful venturing

into the Tablet casing market will be a new key growth for Ju Teng as it not only

solves the issue of Tablet substitution but the Win 8 Tablet will create a new

earnings growth driver for Ju Teng.

We assume Ju Teng will take 30% share in the Win 8 OS Tablet market, which is

similar to its current market share in NB casing. Successfully venturing into the

Tablet casing market by PC brands will contribute 10%/62% earnings

enhancement in FY12/13E.

Based on our currently estimate, our FY12/13E EPS is 11%/22% higher than

market consensus. Should Win 8 Tablet gain market share in the Tablet market

4Q12 onwards, we believe there is a potential upward revision on earnings

estimate on Ju Teng in the upside.

In addition, the new earnings growth driver from Tablet casing will also provide a

downside cushion on current consensus earnings estimate in case Ultrabook

ramp up is slower than market expect.

Ju Teng’s

clients

(Assemblers)

Assemblers’

clients

… New earnings growth driver

emerged, the Tablet casing, to

drive 38% earnings CAGR in

2012-2015E

… Tablet casing provides upside

on shipments and downside

cushion from delay ramp up in

Ultrabook

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 12 of 26

Rebounding notebook sales in 2012 driven by Ultrabooks and Win 8

Tough year for most PC brand players in 2011. Wordwide PC shipments grew

1.8% in 2011 due to weakening consumer demand and economic downturn. The

mature markets, accounted for 43% worldwide shipments in 2011, shrinked by

9% comparing to 2010. PC vendors struggled to maintain consumer interests in

the market and the consumers was holding off making PC purchases due to

strong Tablet substitution, especially from Apple’s iPad, which proved to be a

powerful distraction, according to IDC.

However, IDC forecast a rebound in worldwide PC shipments in 2012 with 8.1%

yoy growth on portable PC to 226.4mn units (i.e. notebook, Tablet) and 0.5% yoy

growth on desktop PC to 144.6mn units, mainly driven by the new Wintel platform

on Ivy Bridge chip and Win 8 OS.

Exhibit 13: Worldwide PC shipments is expected to rebound in 2012

Source: IDC, Company

1Q12 PC shipments growth rebounded faster than market expectation with

Lenovo and HP gained more market share. 1Q12 PC shipments were up 1.9%

yoy to 100.0mn units. HP remained no.1 with 0.3ppt market share gain as

comparing to a year ago. Notably, Lenovo and Asus recorded a 28.1% and 21.3%

yoy growth in 1Q12 and Lenovo gained 2.7ppt market share to 13.1% while

ASUS gained 0.9ppt market share to 6%.

4.20%

8.10%

13.30%14.00%

12.20%

10.10%

1.80%

5.00%

9.50% 9.60%

8.50%

7.20%

0.0%

4.0%

8.0%

12.0%

16.0%

2011 2012* 2013* 2014* 2015* 2016*

Portable PC Total PC

Rebounding in notebook sales,

thanks Intel new chip CPU,

Microsoft Win 8 OS…

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 13 of 26

Exhibit 14: Worldwide PC shipment market share – 1Q12

Source: Gartner, Company

Exhibit 15: Preliminary worldwide PC vendor unit shipment estimates for

1Q12

Company

1Q12

Shipments

1Q12 Market

Share (%)

1Q11

Shipments

1Q11 Market

Share (%)

1Q12-1Q11

Growth (%)

HP 15,305,413 17.2 14,785,739 16.9 3.5

Lenovo 11,629,510 13.1 9,075,667 10.4 28.1

Dell 9,826,121 11.0 9,984,358 11.4 -1.6

Acer Group 9,684,524 10.9 10,660,254 12.2 -9.2

ASUS 5,361,994 6.0 4,420,328 5.1 21.3

Others 37,171,419 41.8 38,357,841 43.9 -3.1

Total 88,978,981 100.0 87,284,188 100.0 1.9

Note: Data includes desk-based PCs and mobile PCs, including mini-notebooks but not media Tablets such as the iPad. Source: Gartner (April 2012)

The global top 5 PC brands are all JuTeng’s key end-customers and they

contributed around 70% of JuTeng sales. We believe JuTeng is able to leverage

its dominant market position in NB casing to reap the 8.1% rebounding in portable

PC in 2012.

In addition, any robust ramp up in shipment of Tablets by any one of the global

top 5 brands means JuTeng’s Tablet casing business will get a boost. We believe

the likely early drivers will be HP and Lenovo as HP’s Win 8 Tablet models

already leaked to the market, according to Neowin, and Lenovo is aggressively

exploring the global mobile PC device market in order to increase its market

share further.

Exhibit 16: PC Brands Win 8 Tablet

Source: engadget, OP Research

HP17.2%

Lenovo13.1%

Dell11.0%

Acer Group10.9%

ASUS6.0%

Others41.8%

… Thanks to the strong alliance

and well-established relationship

with TW NB ODMs, all top tier PC

brands are JuTeng’s customer

that JuTeng will benefit from the

PC shipments rebound

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 14 of 26

Exhibit 17: Ju Teng key end customers

Source: OP Research estimate

Ultrabook helps regaining growth momentum from 4Q12. Despite the market

is speculating the postpone of Ultrabook shipments ramp up to 2013 due to high

price on Ultrabook specific components, such as uni-body casing and solid state

drive (SSD), as well as Intel’s reluctance in reducing price on Ivy Bridge chips and

hence leaving Ultrabook pricing remains uncompetitive at US$1,000 levels

versus Amazon Kindle Fire (US$200), Apple iPad (US$600) and traditional

notebooks (US$500-700) and the upcoming MacBook Air (US$699).

We do not believe Ultrabook will help PC brands to gain the market share in

Tablet given they are two different category of consumer electronic devices.

Tablet is a consumer electronic products more for casual use than serious

business works, except for some very specific tasks, eg as an input device for

doing field surveys. Tablet is also not designed for works with heavy

alphanumeric inputs due to the absence of an integrated keyboard. Attached or

wireless keyboard is a solution but they almost completely nullify the key

advantage of Tablets, ie the ultra-portability.

However, we believe there will only be a minor delay rather than a complete

failure of the entire Ultrabook concept. Ultrabooks’ slim design, lightweight and

hence improved mobility as well as energy consumption should make them a

replacement for mainstream notebook once prices come down to more

competitive levels which, in our view, should be in the range of US$700 or below.

The current high prices are mainly attributable to expensive Ultrabook

components (e.g. Intel Ivy Bridge 28nm CPU) and lack of 28nm manufacturing

capacity for the Ivy-Bridge chips. However, we believe large semiconductor

manufacturer such as TSMC will quickly to adopt the 28nm manufacturing

process in 2H12, which will help lowering the overall cost of Ultrabooks. We

expect the inflection point of Ultrabook will start to emerge in 4Q12 when Win 8 is

officially launched and growth will accelerate in full speed in 2013.

Acer20%

Lenovo15%

Dell16%

HP16%

others33%

… Uncompetitive pricing on

Ultrabook remains a key issue

unsolved

… However, ramp up in Ultrabook

is just a minor delay but not

complete failure.

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 15 of 26

Exhibit 18: PC Brands Ultrabook model in 2012

Brand HP Samsung Dell Lenovo Acer ASUS Vizio

Product name Spectre Series 5 XPS 13 ThinkPad T430u Aspire S5 UX 21 Unknown

Panel size 14" 13.3"/14" 13.3" 14" 13.3" 11.6" 14"

Memory 4GB 4GB/8GB 4GB Up to 8GB Unknown 4GB N.A.

CPU Core i5/i7 Core i5 Core i3/i5/i7 Ivy Bridge CPU Ivy Bridge CPU Core i3/i5/i7 N.A.

Storage (GB) 128/256 SSD

500GB

HDD+16GB

SSD, SSD

128GB (13")

128/256 SSD 1TB HDD+ 128

SSD Unknown 128/256 GB N.A.

Battery Polymer Polymer Polymer Polymer Polymer Polymer N.A.

Casing Aluminum Aluminum Aluminum Aluminum Aluminum Aluminum N.A.

ODM Quanta in-house Quanta Quanta Compal Pegatron Compal Quanta

Thickness (mm) 20 17.6/20.9 18 20 15 3~17 N.A.

weight (Kg) 1.7 1.8 1.3 1.8 1.35 1.2 N.A.

MSRP (US$) 1399 899~1099 1000 849 >1000 899 Low price target

MP Feb'12 Jan'12 Feb'12 3Q12 2Q12 Sep 2Q12

Source: Trendforce, Mar, 2012

Replacement demand on Win XP also contributes the growth. Despite

Microsoft’s Win 7 have been launched for a year while Win XP, which was

launched in 2010 and still dominated the current installed base of PCs with 46%

market share in April 2012. However, as Microsoft have announced to terminate

the official support on Win XP by 2014, this is likely to stimulate replacement

demand for PC given the replacement cycle was already delayed due to the

financial crisis and subsequent economic downturn. Given the concerns of

corporate security, large enterprises as well as MNC have to upgrade their OS

and we believe Win 8 OS is the logical choice, especially for notebook/portable

devices given its outperformance and enhancement on mobility and battery life.

We see Ju Teng to benefit from the replacement demand driven by the migration

from Win XP to Win 8. We are confident that JuTeng is able to achieve the

company guided 15% revenue growth yoy in the coming years given (1)

Ultrabook ramp up in 2013, (2) Win XP-to Win 8 replacement demand, (3) the

launch of the new Wintel platform – Win 8 + Ivy Bridge chip.

… Replacement demand triggered

as Microsoft announced to

terminate the support service on

WinXP which accounted 45% of

market share in April 2012

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 16 of 26

Exhibit 19: PC Market share by OS – April 2012

Source: Net Application

Exhibit 20: Leakage of Microsoft products development timeline

Source: Neowin, OP Research

Windows XP45%

Windows 739%

Windows Vista7%

Mac OS X 10.63%

Mac OS X 10.73%

Linux1%

other2%

2011 2012 2013 2014

WIN

DO

WS

WIN

DO

WS

PH

ON

E

Windows Client*

Windows 7

SP1

Windows 8

Developer Preview

Windows XP

End of Service

Microsoft Desktop

Optimization Pack

for Software

Assurance

MDOP 2011 R2

MBAM 1.0 DsRT7.0, AIS

Historical Release

Cadence: Yearly

Windows Intune

Windows InouneHistorical Release

Cadence: Semiannually

Internet Explorer

Internet Explorer 10.0Historical Release

Cadence: 2 yrs

Windows Server

Historical Release

Cadence: 2-3yrs

Windows 7

SP1

Windows Phone

Windows Phone

v. Next

Historical Release

Cadence: Yearly

Future

Investments

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 17 of 26

Ultrabook and metal casing driving margin expansion. JuTeng expects a

1-2ppt margin expansion in 2012 mainly driven by increased ASP in 2H11 and

increasing demand and contribution from metal casing. However, we believe the

margin expansion will be modest in 2012 given notebook shipment will only ramp

up in 2H12 and Ultrabook ramp up is likely postponed to 2013 given high ASP.

However, we believe shipment growth remains robust given the rebound in NB

shipments in 2H12. We estimate 1.8ppt/2.5ppt margin improvement in FY12/13E

as metal casing enjoys at least 5% higher in margin than plastic ones and

30%-100% premium on ASP while we estimate shipments mix for plastic/metal to

be 79%/21% in FY13E as compared to 88%/12% in FY11.

Exhibit 21: Metal casing on Ultrabook and Plastic casing on notebook

Source: Company

Exhibit 22: Price and margin comparison

Plastic Casing Metal Casing

ASP US$10-15 US$20+

Margin 10%-15% 15%+

JT Capacity 85mn 22mn pcs / 1200 CNC machine (FY11 End)

45mn pcs / 2500 CNC machine (By mid-2012)

Source: Company, OP Research

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 18 of 26

Initiate BUY on new growth driver emerged

Win 8 Tablet demand not yet priced in.

We believe that Ultrabook will not be able to gain PC market share from Tablet,

however it will fuel a stable notebook PC shipment growth from 2013 onwards,

when Ultrabooks have better price-performance ratio.

The real (and new) growth driver for Ju Teng will be the new Wintel platform and

the ambition of Microsoft and Intel in the mobile device market. With this new

camp of players, we believe the robust 104% shipments CAGR in 2012-2017 for

Tablets will lift JuTeng to a new level.

We estimate Win 8 OS Tablet shipments to be 3.33mn/16.7mn units in 2012/2013

and we assume Ju Teng to account for 30% market share in Tablet casing. Hence,

we estimate HK$29mn/HK$181mn earnings enhancement in FY12/13E driving

by Win Tablet casing.

Our FY12/13E earnings estimates are 11%/22% higher than consensus. We

believe market consensus has not yet priced in the growth driver from Tablet.

Exhibit 23: Key Assumptions

2011 2012E 2013E 2014E 2015E 2016E

Macro PC

248 336 431 547 702 739

JT's market share in notebook 27% 26% 25% 23% 22% 21% JT's market share in Ultrabook 37% 30% 30% 30% 30% 30%

Notebook

188 217 249 284 324 369 Ultrabook

19 33 50 71 97 129

JT's market share in Tablet 0% 1% 4% 5% 6% 8% JT's market share in Win Tablet 0% 10% 25% 30% 30% 30%

Tablet

60 119 182 262 377 369 Other operating systems 2 1 1 0 0 0 QNX

1 3 6 11 21 18

Microsoft

0 5 15 23 35 44 Android

17 38 62 93 141 138

iOS

40 73 100 133 177 170

Company Shipments

58 67 80 94 112 130 Plastic mn 44 51 56 61 67 74 yoy %

26% 15% 10% 10% 10% 10%

Metal - Notebook mn 7 10 15 21 29 39 yoy %

17% 39% 53% 43% 37% 33%

Netbook mn 7 6 6 5 5 4 yoy %

-53% -10% -10% -10% -10% -10%

Metal - Tablet mn 0 0 4 7 10 13 yoy % n.a. 648% 86% 55% 25%

ASP Plastic US$ 17 16 15 15 14 13

yoy %

3% -5% -5% -5% -5% -5% Metal - Notebook US$ 25 24 23 21 20 19 yoy %

0% -5% -5% -5% -5% -5%

Netbook US$ 10 10 9 9 8 8 yoy %

5% -5% -5% -5% -5% -5%

Metal - Tablet US$ 0 20 19 18 17 16 yoy % n.a. -5% -5% -5% -5%

Financials Plastic casing sales US$ mn 881 877 905 936 970 1,006

Metal casing sales US$ mn 175 242 406 579 774 963 Total sales US$ mn 1,056 1,119 1,311 1,515 1,744 1,969

GPM US$ 10.5% 11.7% 14.1% 15.3% 15.9% 15.9%

Net profit US $ mn 33 39 60 83 103 115 Net profit HK$ mn 257 307 471 650 806 897

Source: Company, Gartner (April 2012), Displaysearch, OP Research estimate

We estimate 104% shipments

CAGR for Tablet casing in

2012-2017…

… Our earnings estimate is 11%

and 22% above consensus by

taking into account the Win Tablet

casing

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 19 of 26

Undemanding valuation even not yet priced in the new Tablet casing

earnings growth driver. Ju Teng current trades at 6.7x/4.8x FY12/13E PE based

on Bloomberg consensus as compare to its peer Catcher’s 11.4x/10.0x FY12/13E

PE, representing 41%/52% discount to Catcher. Despite Apple is a key customer

of Catcher, which should deserve a premium valuation, we believe Ju Teng’s

strong alliance with Top 5 Taiwanese NB ODMs (accounted for 90% of worldwide

PC shipments) suggests just a small discount of 20% to Catcher is reasonable.

Based on our earnings estimate, Ju Teng trades at 6.0x/3.9x FY12/13E PE or

45%/56% discount to peers which we see the valuation of Ju Teng either based

on consensus or ours estimate are undemanding.

Market re-rating will be triggered by stronger than expected ramp up in Win

8 Tablets in 4Q12. If Win 8 Tablets successfully venture into the Tablet market in

4Q12, we believe Ju Teng will be re-rated given its dominant market position in

NB casing and strong alliance with the Taiwanese NB ODMs. Also, we are

confident that the Tablet market will eventually be a three-camp market (iOS,

Android and Win 8) instead of being dominated by a single player and this trend

has already revealed by the ramp up of Amazon Kindle Fire and Samsung Galaxy,

which are running on Android. Given Wintel platform and its strong software and

application support for PC brands, we are confident that Win 8 will take at least

8% market share or 15mn units in 2013 and increase further to 12% or 44mn

units in 2016.

Improving cashflow and ROE. After another tough year in 2011, when Ju Teng

cut prices in 1H11 to boost sales in reaction to the challenging market condition,

which depressed its profitability, the company has readjusted its pricing strategy

in 2H11 with price hike and hence achieving a recovery in margins in 2H11. In

light of the booming Ultrabook and PC brand Tablet demand from 4Q12 onwards,

we believe JuTeng is able to improve its ROE from 5.6% in FY11 back to 6.3% in

FY12 and further increase to 9.1%. Free cash flow will turn back to positive in

FY13 after major capex on metal casing JV as well as relocation of production

plants is completed in 2012.

Initiate BUY with TP of HK$2.50. We initiate BUY on JuTeng with TP of HK$2.50

based on 9.0x FY12 PE, 20% discount to its peer given (1) 38% earnings CAGR

in 2012-2015E, (2) undemanding valuation at 45% discount to its peers,

representing 52% upside potential, and (3) the re-rating opportunity on Ju Teng

driving by the success launch of Win 8 OS Tablet and Ultrabook and its dominant

market position in PC casing and strong alliance with TW NB ODMs.

… JT trades at 6.7x/4.8x FY12/13E

PE, representing 45%/56%

discount to industry average

… Re-rating opportunities are

likely triggered by a success

launch of Win 8 Tablet in 4Q12 or

earlier

… Initiate BUY with TP HK$2.50

based on 9x FY12E PE, 20%

discount to industry average

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 20 of 26

Investment Risk

Slowdown in the global notebook demand. Slowdown in global notebook

demand due to weakening in demand for consumer electronic products and / or

substitution effect from Tablet will have direct negative impact on Ju Teng given

its 30% dominant market position in the global notebook market with nearly 100%

of sales are generated from the notebook casing.

Failure to venturing into the Tablet market by Win 8. We estimate 10%/62%

earnings enhancement from Tablet casing given Ju Teng strong alliance with

Taiwanese NB ODMs and the strong desire of “Wintel” and the PC Brands to

venture into the Tablet market to reap the robust 39.4% shipments CAGR in

2011-2017. Any failure in software, such as the acceptance of Win 8 OS, or

hardware, like inappropriate pricing strategy and low acceptance of Tablet

devices from the PC Brands, will have a negative impact on the Win 8 Tablet

penetration and hence the casing demand as well as the sale contribution to Ju

Teng. A 10% decline in our current global Win 8 Tablet shipment in FY12/13 will

lower Ju Teng’s net profit by 1%/4%.

Intensifying competition in the casing market. Although the notebook casing

market is highly concentrated and some of the key players are the top 6

Taiwanese NB ODMs’ (accounted for over 90% of global notebook shipments)

subsidiaries or JV, any intensifying of competition is likely to have a negative

impact on pricing as well as margins of Tablet casing. However, we believe the

Tablet casing market has relatively high entry barrier, which requires heavy

investments in CNC, and Ju Teng’s one-stop solution on casing, especially its

expertise in applying different materials, should also enable it to defend its market

position.

Exchange Risk. Given Ju Teng’s sales are mostly denominated in USD and

costs are partly in RMB, it will be subject to the risk in the change of the

RMB/USD exchange rate.

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 21 of 26

Shareholding structure

Exhibit 24: Organizational chart

Source: Company

Cheng Family Horng Family Employees Public

29.01% 4% 3% 63.99%

Chengyang

Precision

Mold

(Kunshan)

Co. Ltd

Everyday

Computer

Components

(Suzhou) Co.

Ltd

Suzhou Dazhi

Communication

Accessory Co.

Ltd

Ju Teng

Electronics

(Shanghai)

Co. Ltd

Juteng

(Nanjiang)

Communication

Accessory

Co. Ltd

Wis

Precision

(Kunshan)

Co. Ltd

Lian-Yi

Precision

(Zhongshan)

Inc.

WIS

Precision

(jaizhou)

Co. Ltd

Compal

Precision

Module

(Jiangsu)

Ltd

100% 100% 100% 100% 100% 71%(2) 71%(2) 71%(2) 59.28%(3)

Market Cap: HK$2,081 mn

(US$267 mn)

(1)

Mould

ProductionNotebook Computer Casings

LCD TV

Casings

Factory under

Construction

Magnesium/

Aluminum

Alloy Casings

(1): HKEX, as of March 20 2012

(2): 29% is owned by Wistron Corporation

(3): 36.62% is owned by Compal Electronics, Inc.

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 22 of 26

Competitive Analysis Growth path

Past

Sales by product (FY11)

JuTeng Intl (JT) is one of leading notebook plastic casing maker with 30%

global market share in notebook casing with headquarter in Suzhou, the

PRC. JT was founded by three individuals with abundant industyr

experiences: Mr. Cheng Li-Yu, Cheng Li-Yen and Mr. Horng Tsai-Chin in

2000 and listed in HKEx in 2005 with IPO price HK$1.40 and raised

HK$364mn. In 2009, JT issued 100mn share as TDR with NT$17.4 per

share (HK$4.07).

Present

Sales by market (FY11)

After two consecutive years of decline in profit due to failure in netbook

ramp up, sluggish notebook demand, and debut of Tablet device in

2010 – Apple iPad which rapidly gained market share from notebook,

JuTeng aims to turnaround in 2012 by leveraging its metal casing

business under a 60/40 JV with Compal and a 71/29 JV with Wistron to

reap the Uni-body metal casing for Ultrabook that with higher ASP (i.e.

US$20+) and higher margin (20%+).

Future

Sensitivity analysis (%)

Despite the further delay in Ultrabook ramp up due to delay release of

Intel Ivy Bridge CPU and uncompetitive pricing of Ultrabook (US$1,000

versus Tablet US$300/Notebook US$700), the inflection point of

Ultrabook shipment is expected to be triggered in 4Q12 with the help

from Microsoft’s new generation OS – Win 8 and the efforts of Wintel to

lower Ultrabook pricing from 4Q12 onwards. The new Win 8 OS is not

only able to help boosting Ultrabook shipments due to replacement

demand but also helping PC Brands to break into the Tablet market by its

touch-screen focus and mobile applications. Metal and plastic casing

from Tablet device will be a new growth driver for JT that the market has

not priced in currently.

2012F % of Metal NB Vol. Tablet Vol

(HK$ mn) Base Case sales drop 10% drop 10%

Revenue 9,214 100.00% 98.04% 99.92%

Plastic - NB 6,374 69.18% 69.18% 69.18%

Metal - NB 1,808 19.62% 17.66% 19.62%

Tablet 76 0.82% 0.82% 0.74%

SG&A (653) -7.09% -7.12% -7.09%

EBITDA 1,008 10.94% 10.02% 10.90%

Depreciation (589) -6.39% -6.38% -6.39%

EBIT 432 4.68% 3.77% 4.65%

Competitive analysis

Substitutes

Competitive threats

The casing market is highly concentrated with top 3 players accounted

for 60% global market share.

By levering a dominant market position in the global notebook casing

market, JT is ready to turnaround with new OS from Microsoft – Win 8

and the new CPU chip – Ivy Bridge to drive up Ultrabook shipments and

hence the global notebook demand as well as the replacement demand

from WinXP.

We see JT’s lack of Tablet casing market exposure will likely to be

changed with Wintel aiming to fight back a 20% market share in the

Tablet market by mid-2013. More importantly, the PC brands were

lagging behind Apple in terms of annual shipments if taking into account

Tablets. Hence, given the robust growth outlook on Tablet in the coming 5

years, PC brands are likely to venture into the market again with Wintel’s

support which we see the Win 8 platform is more competitive against

Google Android in terms of scale and appstore which is crucial in

consumer electronic device market.

Thanks to extending JT’s business arm to metal casing from purely

plastic in 2009 as well as the 2 new growth drivers – Ultrabook and Win 8

Tablet casing, we believe JT will benefit from a robust shipments growth

as well as an improvement in margin and ASP by ramping up metal

casing contribution from low teen to 40% by 2016.

We expect JT to turnaround in 2012 and we see JT to regain its sales

growth momentum from 4Q12 onwards, thanks to the debut of Microsoft

Win 8 debut in Oct 2012.

New entrants

The entry barrier is high due to (1) capital investment in CNC, (2) strong

alliance with Taiwanese NB ODMs as the top 5 accounted over 90% of

global NB shipments and, (3) tight delivery cycle (i.e. 1 week) and

know-how in surface treatment.

Customers

JT essentially covers the top tier PC Brands given its well-established

relationship with the top 5 Taiwanese NB ODMs. JT has certain level of

bargaining power to customers as the casing for different customers are

highly specific and vary between different models.

Suppliers

JT does not have any bargaining power on the raw material which

accounted for 55%/65% of COGS for metal and plastic. Usually, JT is

able to pass-through the customer raw material cost to the customers.

Plastic casing, 71%

Metal casing, 17%

Net book, 7%Other, 6%

China (excl. HK), 90%

TW, 3%

Others, 7%

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 23 of 26

Management

Vision: JT targets to maintain its no. 1 position in the notebook casing

globally.

Growth strategy: By keeping the close business relationship with

Taiwanese ODMs, JT is likely to benefit from the ramp up in Ultrabook as

well as the success venturing into Tablet market by all top tier PC Brands.

Financial prudence: Reasonable gearing at 40% level and stable net

cashflow from operating with ~30% payout ratio.

Transparency: No monthly or quarterly reporting but cross-checking via

listed Taiwanese customers is possible.

Minority interest: Stable dividend payout since listing.

Risk

Industry: Highly concentrated market and competitive industry. New

materials such as liquidmetal for casing are a potential threat while the

risk is low in near term, i.e. 2-3 years.

Business: The business growth prospect rely on the global economic

condition as well as consumer preference in electronic device. JT has

limited bargaining power on the customer/supplier side.

Management: Over 20 years experience and stable management team.

Execution: Clear plan on metal casing production capacity expansion

while the execution progress depends on the JV partner, the Taiwanese

ODMs.

Regulation: Limited regulatory risk on casing business.

Source: Company, OP Research

3

5

32

3

Vision

Growth strategy

Financial prudenceTransparency

Alignment with minority shareholders'

interest

5: Best; 1: Worst

3

3

23

1

Industry

Business

ManagementExecution

Regulation

5: High risk; 1: Low risk

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 24 of 26

Exhibit 25: Peer Group Comparison

Company Ticker Price

Mkt

cap

(US$m)

3-mth

avg t/o

(US$m)

PER

Hist (x)

PER

FY1 (x)

PER

FY2 (x)

EPS

FY1

YoY%

EPS FY2

YoY%

3-Yr EPS

Cagr (%)

PEG

(x)

Div yld

Hist (%)

Div yld

FY1 (%)

P/B

Hist (x)

P/B

FY1 (x)

EV/

Ebitda

Hist

EV/

Ebitda

Cur Yr

Net

gearing

Hist (%)

Gross

margin

Hist (%)

Net

margin

Hist (%)

ROE

Hist

(%)

ROE

FY1

(%)

Sh px

1-mth %

Sh px

3-mth %

Ju Teng Intl Hdg 3336 HK 1.65 240 2.0 7.3 6.0 3.9 21.4 53.3 37.0 0.16 4.8 5.0 0.39 0.37 4.6 4.0 40.6 10.5 3.1 5.6 6.3 (20.3) (25.7)

HSI 19,894.31 9.5 10.1 9.1 (5.9) 10.8 5.0 2.03 3.0 3.9 1.37 1.29 14.4 12.7 (3.9) (6.9)

HSCEI 10,084.59 8.4 7.7 6.9 9.0 12.4 10.6 0.73 2.4 4.0 1.37 1.24 16.3 16.1 (7.8) (13.7)

CSI300 2,617.37 12.8 11.0 9.3 16.9 18.5 16.5 0.67 1.5 1.9 1.94 1.71 15.1 15.5 1.4 2.7

Adjusted sector avg* 14.0 10.9 8.9 33.7 18.3 14.4 0.79 4.6 4.3 1.44 1.62 5.8 7.4 10.2 2.9 11.4 14.8 15.8 (8.9) (7.8)

Catcher Tech 2474 TT 191.00 4,865 115.4 12.8 11.4 10.0 11.7 13.9 12.8 0.90 1.9 3.8 2.50 2.39 33.4 7.1 1.6 25.8 64.4 24.1 25.6 (11.0) (12.8)

Foxconn Technolo 2354 TT 94.70 3,768 51.7 13.8 11.7 9.6 18.8 20.8 14.3 0.81 1.0 1.8 1.98 1.70 48.7 7.0 0.0 3.5 9.5 15.3 16.0 (15.1) (31.1)

Bin Chuan Enterp 1569 TT 70.90 178 3.2 22.4 10.8 N/A 107.1 N/A N/A N/A 1.1 3.7 0.00 2.22 (143.7) N/A 20.4 0.7 338.9 12.9 23.0 (5.3) (7.7)

Quanta Computer 2382 TT 82.50 10,746 26.4 13.7 12.3 10.9 11.8 12.9 11.6 1.05 4.4 5.0 2.60 2.45 19.3 10.0 10.2 3.1 2.2 20.2 20.5 10.9 17.2

Compal Electron 2324 TT 32.95 4,912 11.3 13.0 10.0 8.4 30.4 18.5 20.4 0.49 8.2 4.9 1.33 1.21 15.8 6.8 0.0 3.2 1.7 10.0 12.1 (2.5) (4.8)

Wistron Corp 3231 TT 42.00 2,983 19.6 9.6 8.7 7.3 11.1 18.4 12.9 0.67 7.2 5.7 1.38 1.28 13.1 6.1 43.7 4.2 1.5 15.3 15.7 (5.5) (11.9)

Inventec Corp 2356 TT 10.05 1,182 1.9 12.7 8.8 7.0 44.9 24.9 N/A N/A 10.0 3.0 0.71 0.67 10.8 N/A 26.7 4.1 0.7 5.5 6.7 (18.3) (22.4)

Pegatron Corp 4938 TT 42.50 3,253 17.3 850.0 13.6 9.2 6,132.0 43.6 370.9 0.04 3.4 3.8 1.05 1.00 (100.9) 14.4 12.5 1.4 0.0 0.1 6.8 (4.4) 11.1

* Outliners and "N/A" entries are in red and excl. from the calculation of averages

Source: Bloomberg, OP Research

Wed, 16 May 2012

Ju Teng Intl (3336 HK)

Page 25 of 26

Our recent reports Date Company / Sector Stock Code Title Rating Analyst

10/05/2012 SPT Energy 1251 New Kazakh contract re-affirms growth BUY Alan Lau

08/05/2012 TCL COMM 2618 Smartphone penetration reached 13% in Apr BUY Yuji Fung

08/05/2012 TCL Multimedia 1070 Another strong set of April shipments BUY Yuji Fung

07/05/2012 China Singyes Solar 750 Rise and Shine - 2012 Golden Sun is released BUY Alan Lau

04/05/2012 YGM Trading Limited 375 A potential HK$150-200mn acquisition for

Aquascutum outside Asia

BUY Daniel Wong

02/05/2012 CIMC ENRIC 3899 Site Visit Takeaway BUY Alan Lau

27/04/2012 TCL COMM 2618 Disappointing 1Q12 results due to increased opex BUY Yuji Fung

27/04/2012 TCL Multimedia 1070 Very impressive 1Q12 results BUY Yuji Fung

26/04/2012 China Singyes Solar 750 Not All Solar Are Bad Solar BUY Alan Lau

24/04/2012 Stelux Holdings 84 More upside potential ahead BUY Daniel Wong

20/04/2012 Sunny Optical 2382 Stronger than expected 1Q12 shipments BUY Yuji Fung

19/04/2012 Tongda Group 698 Smartphone casing driving robust 2012 earnings

growth

NR Yuji Fung

19/04/2012 Trinity 891 A positive move in the right direction HOLD Daniel Wong

18/04/2012 CMS 867 Roadshow takeaway - High & Stable Organic Growth NR Nature Chen

17/04/2012 Shenguan 829 Sizzling NR Daniel Wong

17/04/2012 TCL Multimedia 1070 A 3-Dimension growth - Higher market share,

improved product mix and vertical integration

BUY Yuji Fung

16/04/2012 CIMC ENRIC 3899 A Conviction BUY in the Natural Gas Age BUY Alan Lau

13/04/2012 TCL COMM 2618 1Q12 profit warnings due to mismatch in smartphone

RD and shipment delivery - BUY

BUY Yuji Fung

12/04/2012 Prince Frog 1259 Jumping on the growing leaf - BUY BUY Daniel Wong

10/04/2012 TCL Multimedia 1070 Mar shipments growth remains robust NR Yuji Fung

10/04/2012 TCL COMM 2618 Strong Mar shipment - BUY BUY Yuji Fung

10/04/2012 ASR Holdings 1803 Investing in Service, Not Asset - BUY BUY Yuji Fung

30/03/2012 China Lilang 1234 Slower orders growth for 2012 Autumn collections BUY Daniel Wong

30/03/2012 SPT Energy 1251 Growth not priced in BUY David Yuan

30/03/2012 China All Access 633 Oversold is unwarranted and a strong conviction BUY BUY Yuji Fung

29/03/2012 China All Access 633 First Take - 2011 results in line BUY Yuji Fung

28/03/2012 Tianneng Power 819 Key takeaways from post-results roadshow - Ahead of

the curve

NR Stephen Leung

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