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Tue, 20 Sep 2016
Equi ty Research Q Tech (1478 HK) TMT/China
Riding the dual camera ramp Second largest domestic CCM manufacturer for dual camera modules CCM revenue to deliver 36% CAGR from FY15 to FY18E Fingerprint modules ramp up from FY16E onwards
Initiate BUY with TP HK$4.63 based on 12x FY17E PE
Riding on dual camera penetration inflection point. Dual camera is becoming a popular feature in smartphones in 2016 and top smartphone vendors, including Apple, Huawei, Xiaomi and Coolpad have launched their dual camera smartphones. We expect the dual camera penetration in China/global will improve to 22%/20% in 2018E from 0.7%/0.5% in 2015 as it enhances photography experience. Q Tech is the second largest domestic CCM manufacturer of dual camera modules, following Sunny Optical. Q Tech is the sole CCM supplier for LeEco Cool1 dual, the first RMB1,000 level dual camera model, 360 Q5 plus, and major CCM supplier for Xiaomi Redmi Pro, which are the latest dual camera smartphones launched by LeEco, 360 and Xiaomi. Thus, we believe Q Tech is a good proxy for dual camera investment. We expect Q Tech to deliver 4.4mn/26.6mn/40.7mn units dual camera modules, with ASP more than 2 times of single camera module, total revenue of dual camera module is expected to be RMB252mn/RMB1,211mn/RMB1,671mn in FY16/17/18E, representing 6%/19%/20% of total revenue.
Robust shipments growth and product mix upgrade in CCM. Q Tech recorded 100%/94% shipment/revenue yoy growth for compact camera module (CCM) in 1H16, thanks to its client mix upgrade. Its top 3 clients are Vivo/Oppo/Huaqin(ODM for Huawei), which recorded 109%/134%/38%(Huawei) yoy shipment growth in 1H16. We believe the current client mix of Q Tech is solid compared to its 1H15 top 3 clients of Vivo, ZTE and Lenovo. Q Tech also maintains product mix upgrade by increasing shipment proportion of 8M+ modules. In 1H16, Q Tech’s 13M modules account for 13% of total shipments, and targets further improving 13M modules proportion to 20%/35% in FY16/17E. Q Tech’s 13M+ modules has tapped into supply chain of leading Chinese smartphone vendors including Oppo and Vivo since 4Q15, with normally 6-8 months ramp up, we believe it will help product mix upgrade. We forecast CCM revenue to deliver 40% CAGR to RMB6,000mn in FY18E from RMB2,202mn in FY15.
Margin expansion from fingerprint module robust shipments growth. Q Tech commenced fingerprint module shipment in FY16, it delivered 1.4mn units in 1H16, and aims to deliver 20mn units for FY16E given most smartphone models launched in second half. With increasing penetration of fingerprint modules in China smartphones from 15% in 2015 to 62% in 2018E, and capacity expansion of Q Tech from current 6mn units/month to 10mn units/month by end of 2016, we expect Q Tech’s fingerprint to achieve 20mn/60mn/100mn units shipment and contribute RMB580mn/RMB1,530mn/RMB2,240mn revenue in FY16/17/18E, representing 14%/24%/27% of total revenue. Moreover, as fingerprint enjoys higher GPM than CCM, it will help on margin expansion.
Attractive valuation on quadruple earnings growth. Initiate BUY with TP HK$4.63 based on 12x FY17E PE with 40% upside. We forecast Q Tech to record 61% EPS CAGR from FY15 to FY18E, compared to peers’ 26% EPS CAGR, thanks to 1) increase in dual camera penetration and fingerprint penetration; 2) top 5 clients, Chinese smartphone vendors’ robust shipment growth; 3) CCM product mix upgrade. Q Tech currently trades at 8.6x FY17E PE, 39% discount to peers. Moreover, we expect Q Tech to launch dividend policy for FY16E given its solid financial results. Risks: 1) slowdown in China smartphone shipments; 2) lower than expected dual camera penetration; 3) ASP erosion of CCM and fingerprint modules.
Chloe Liu
+852 2135 0209
Yuji Fung
+852 2135 0236
Initial Coverage
BUY
Close price: HK$3.31
Target Price: HK$4.63 (+39.9%)
Key Data
HKEx code 1478 HK
12 Months High (HK$) 3.40
12 Month Low (HK$) 0.96
3M Avg Dail Vol. (mn) 2.55
Issue Share (mn) 1,041.77
Market Cap (HK$mn) 3,448.26
Fiscal Year 12/2015
Major shareholder (s) He Ningning (72.13%)
Source: Company data, Bloomberg, OP Research
Closing price are as of 19/09/2016
Price Chart
1mth 3mth 6mth
Absolute % 35.7 108.2 156.6
Rel. MSCI CHINA % 34.4 93.5 143.7
PE
Company Profi le Q Technology is a leading PRC-based
manufacturer focusing on mid-to-high end
camera module and fingerprint module
market for Chinese branded smart phone
and tablet PC manufacturers.
Exhibit 1: Forecast and Valuation Year to Dec (RMB mn) FY14A FY15A FY16E FY17E FY18E
Revenue 2,161 2,202 4,095 6,398 8,240
Growth (%) 53 2 86 56 29
Net Profit 196 102 176 342 447
Growth (%) 20 (48) 73 94 31
Diluted EPS (HK$) 0.370 0.122 0.198 0.386 0.504
EPS growth (%) (9) (67) 63 94 31
Change to previous EPS (%) 0.0 0.0 0.0
Consensus EPS (HK$) 0.238 0.294 0.345
ROE (%) 28.1 8.7 13.5 22.1 23.6
P/E (x) 8.9 27.2 16.7 8.6 6.6
P/B (x) 1.5 2.2 2.1 1.7 1.4
Yield (%) 1.6 0.0 1.2 2.3 3.0
DPS (HK$) 0.052 0.000 0.040 0.077 0.101
Source: Bloomberg, OP Research
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Sep/15 Dec/15 Mar/16 Jun/16
HK$1478 HK MSCI CHINA
0
2
4
6
8
10
12
14
16
Jan/15 Jul/15 Jan/16 Jul/16
Forward P/E Ratio
+1std.
avg.
-1std.
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 2 of 28
Table of Contents
Table of Contents ......................................................................................................................................... 2
Riding on dual camera penetration inflection point ....................................................................................... 3
Robust shipment growth and product mix upgrade in CCM .......................................................................... 8
Margin expansion from fingerprint module robust shipments growth ...........................................................12
Attractive valuation on quadruple earnings growth. Initiate BUY with TP HK$4.63 with 40% upside ...........17
Investment Risks .........................................................................................................................................22
Management profiles ..................................................................................................................................23
Shareholding structure ................................................................................................................................24
Financial Summary .....................................................................................................................................25
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 3 of 28
Riding on dual camera penetration inflection point Dual camera is the new trend in mid-to-high-end smartphones
Dual camera can provide premium photographic quality over single camera, such
as resolution enhancement, larger aperture or in-depth function, optical zoom and
3D mapping, etc. Four major types of dual-cam are on the market: (1) Identical
type – 2 high resolutions with RGB + RGB; (2) Twin type - 2 high resolutions with
RGB + Mono (black and white); (3) Twin type – Telephoto + wide-angle with RGB
+ RGB and (4) Depth type – high resolution + low resolution with RGB + RGB.
Exhibit 2: Major type of dual camera
Structure Symmetric Dual-cam Asymmetric Dual-cam Single Camera
Resolution High + High High + High High+ High High+ Low
CMOS sensor RGB + RGB RGB + Mono RGB + RGB RGB + RGB RGB
Focal length Same Same Telephoto + Wide-angle Depends
Photo demo
Optical zoom ★ ★ ★★★★★ ★ ★
Low-light image
quality
★★ ★★★★★ ★★★★ ★★ ★★
Improved resolution ★★★★ ★★★★★ ★★★★ ★★ ★
3D depth mapping ★★★★★ ★★★ ★★★★ ★★★★★ ★
Multiple
focus/post-photo
adjustments
★★★ ★★★ ★★★ ★★ ★
Adopted models Huawei Honor 6 Huawei P9/P9 Plus,
Huawei Honor V8/8,
LeEco Cool1 dual,
360 Q5 Plus, Qiku Terra
iPhone 7 Plus
LG G5/G5 SE
Xiaomi Redmi Pro
HTC One M8
Source: OP Research
Newly released iPhone 7 Plus is the only current model with Telephoto + Wide
angle dual-cam, which can produce premium optical zoom effect to create depth
of field and 3D imagery by combining photos from long and short focal length
cameras. It is the most advanced dual-cam design due to higher level of
algorithm and more complicated data process. We believe the dual-cam adoption
of iPhone 7 Plus would speed up the dual-cam adoption in Android camp.
For RGB+Mono dual-cam, it is mainly adopted by Chinese smartphones,
including Huawei P9, LeEco Cool1 dual, and 360 Q5 plus. This type of dual-cam
significantly improves photographic clarity and light sensitivity by combining
normal photo from colour sensor and black & white photo with pixel enhancement
and better low-light performance from monochrome sensor.
Dual camera provides premium
photographic quality and has four
types
iPhone 7 Plus adopts Tele + Wide
dual-cam, which would speed up
dual-cam adoption in Android
camp
RGB+Mono dual cam is mainly
adopted by Chinese smartphones,
including Huawei P9, LeEco
Cool1 dual, and 360 Q5 plus.
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 4 of 28
RGB + RGB dual-cam with different resolutions can simulate a dimensional effect
and create pictures with different areas of focus. The manufacture of RGB+RGB
dual-cam is less difficult and it is adopted by Xiaomi Redmi Pro, LG G5 and HTC
One M8.
We believe an increasing number of smartphone vendors will follow iPhone to
adopt dual camera in their upcoming models, which puts dual camera into the
next trend of mid-to-high-end smartphones.
Exhibit 3: Latest smartphones adopting dual camera in 2016
iPhone 7 Plus 360 Q5 Plus LeEco Cool1 dual Xiaomi Redmi Pro
CPU Dual core A10 Quad core
Qualcomm Snapdragon 820
Octa core
Qualcomm Snapdragon 652
Deca core
Helio X20/X25
RAM 3GB 4/6G 3/4GB 3/4GB
Storage 32/128/256G 128G (up to 256G) 32/64G 32/64/128G (up to 128G)
Display 5.5'' QHD LTPS 6''QHD AMOLED 5.5''FHD LTPS 5.5''QHD AMOLED
Camera Dual 12MP (rear) 7MP (front) Dual 13MP(rear) 13MP(front) Dual 13MP(rear) 8MP(front) 13MP+5MP (rear) 5MP (front)
CCM supplier LG Q Tech Q Tech Q Tech, O-film
Fingerprint ✓ ✓ ✓ ✓
SIM Single SIM Dual SIM Dual SIM Dual SIM
OS iOS 10 360 OS2.0 Androd 6.0 MIUI 8
Launch time Sep 2016 Aug 2016 Aug 2016 Jul 2016
Price RMB6,388/RMB7,188
/RMB7,988
RMB2,599/RMB2,799 RMB1,099/RMB1,499
RMB1,599/RMB1,699
RMB1,499/RMB1,699
/RMB1,999
Huawei Honor 8 Huawei Honor V8 Huawei P9/P9 Plus LG G5SE/G5
CPU Octa core
HiSilicon Kirin 950
Octa core
HiSilicon Kirin 950/955
Quad core
HiSilicon Kirin 955
Quad core
Qualcomm Snapdragon 652/820
RAM 3/4GB 4GB 4GB 3/4GB
Storage 32/64G (up to 256G) 32/64G (up to 256G) 32/64GB (up to 256GB) 32G (up to 256gG)
Display 5.2''FHD LTPS 5.7''QHD LTPS 5.2''FHD LTPS/ AMOLED 5.3'' FHD LTPS
Camera Dual 12MP(rear) 8MP(front) Dual 12MP(rear) 8MP(front) Dual 12MP(rear) 8MP(front) 16MP+8MP (rear) 8MP (front)
CCM Supplier Sunny Optical, Liteon Sunny Optical, Liteon Sunny Optical, Liteon LG
Fingerprint ✓ ✓ ✓ ✓
SIM Dual SIM Dual SIM Dual SIM Dual SIM
OS Androd 6.0.1 Androd 6.0 Androd 6.0 Androd 6.0.1
Launch time Jul 2016 May 2016 Apr 2016 Apr/Feb 2016
Price RMB1,999/2,499 RMB2,299 RMB3,188/RMB3,988 RMB3,499RMB3,999
Source: OP Research
RGB+RGB dual-cam with different
resolutions has simpler
manufacture process, and is
adopted by Xiaomi Redmi Pro, LG
G5 and HTC One M8
We believe dual-cam will become
the next trend of mid-to-high-end
smartphones
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 5 of 28
0.1% 0.7%
7%
16%
22%
28%
37%
0.4% 0.5%
5%
13%
20%
27%
33%
0%
5%
10%
15%
20%
25%
30%
35%
40%
2014 2015 2016E 2017E 2018E 2019E 2020E
China Global
0.4 3 32 82
127 173
234
5 7
71
212
343
470
610
0
100
200
300
400
500
600
700
2014 2015 2016E 2017E 2018E 2019E 2020E
China Global
(mn unit)
Dual camera penetration gradually ramps up
We expect China/global smartphone dual camera penetration to improve from
7%/5% in 2016 to 37%/33% in 2020E, and thus drive the dual camera
China/global shipment growth of 64%/71% CAGR from 2016E to 2020E.
Exhibit 4: China/Global dual-cam penetration from 2014 to 2020E
Source: IDC, IHS, OP Research
Exhibit 5: China/Global dual-cam shipment from 2014 to 2020E
Source: IDC, IHS, OP Research
We expect China/global
smartphone dual camera
penetration improves further to
37%/33% in 2020E
We expect China/global dual-cam
shipments to grow at a 4-year
CAGR of 64%/71% to
234mn/610mn in 2020E
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 6 of 28
4.4
26.6
40.7
3%
15%
20%
0%
5%
10%
15%
20%
25%
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
FY16E FY17E FY18E
Dual cam shipment Dual cam shipment penetration
(mn units)
Second largest domestic player in dual camera modules market
Currently, only three domestic players can produce dual camera modules (DCM).
Sunny Optical is the first domestic player to produce DCM, and is the DCM
supplier for Huawei models, including P9 and Honor8, together with Liteon. Q
Tech is the second domestic player in dual camera market, and is the sole
supplier for Cool1 dual jointly launched by LeTV and Coolpad, 360 Q5 Plus and
also the major supplier of Xiaomi Redmi Pro. O-film is the third domestic player in
dual camera market, and it is also the DCM supplier for Xiaomi Redmi Pro. Thus,
we believe Q Tech is a good proxy for dual camera investment.
We forecast Q Tech will deliver 4.4mn/26.6mn/40.7mn units for DCM,
representing 3%/15%/20% shipment penetration in FY16/17/18E, similar to
China dual camera penetration rate. Q Tech also allocates 5mn monthly capacity
for DCM, representing ~22% of total capacity.
Exhibit 6: Q Tech’s DCM shipment and penetraton
Source: OP Research
There are only three domestic
players which can produce DCM;
Q Tech is the second largest one
following Sunny Optical
We forecast Q Tech to deliver
4.4mn/26.6mn/40.7mn DCM in
FY16/17/18E, representing
3%/15%/20% of total shipment; Q
Tech also allocates 22% of total
capacity for DCM
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 7 of 28
252
1,211
1,671
57.0 45.6 41.0
6%
19%20%
0%
5%
10%
15%
20%
25%
-
400
800
1,200
1,600
2,000
FY16E FY17E FY18EDual cam revenue Dual cam ASP Dual cam revenue proportion
(RMBmn/RMB)
ASP of DCM is normally 2.5-3 times of single camera module, as currently only a
few CCM suppliers can produce DCM so they enjoy high bargaining power. Q
Tech’s yield for RGB+RGB and RGB+MONO camera modules can achieve over
90%. We estimate the DCM revenue to be RMB252mn/RMB1,211mn/
RMB1,671mn in FY16/17/18E, representing 6%/19%20% of total sales.
Exhibit 7: Q Tech’s dual camera revenue and ASP
Source: OP Research
We estimate DCM revenue to be
RMB252mn/RMB1,211mn
/RMB1,671mn in FY16/17/18E, as
ASP of DCM is 2.5-3 times of
single camera module, and Q
Tech can achieve 90% yield rate
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 8 of 28
Robust shipment growth and product mix upgrade in CCM
Solid customer base drives shipment growth
Q Tech’s top 5 clients in 1H16 are Vivo, Oppo, Huaqin (ODM for Huawei), ZTE
and Xiaomi. Given that currently Huawei is the No.1 smartphone vendor in China,
followed by Oppo, Xiaomi and Vivo, we believe Q Tech’s client mix is very solid.
Q Tech is currently the largest CCM supplier of Vivo, and second largest CCM
supplier of Oppo, in terms of shipments.
Exhibit 8: Top 5 clients by shipment
1H16 2015 1H15
1 Vivo Vivo Vivo
2 Oppo Oppo ZTE
3 Huaqin(Main ODM for Huawei) Lenovo Lenovo
4 ZTE ZTE Huaqin
5 Xiaomi Meizu TCL
Source: Company, OP Research
Chinese smartphone vendors are grabbing market share aggressively.
Huawei/Oppo/Vivo have experienced 38%/134%/109% yoy growth for 1H16
shipments, and we believe they will maintain the growth momentum. Q Tech is
well positioned to capture the robust growth of Chinese smartphone vendors, as
Vivo, Oppo and Huaqin (ODM for Huawei) are its top 3 clients.
Exhibit 9: Chinese smartphone vendors global shipments
1H16 Ranking Vendors 1H16 1H15 yoy% FY16E 1H16 as FY16E
1 Huawei 60.6 43.9 38% 140 43%
2 Oppo 34.6 14.8 134% 78 44%
3 Xiaomi 30.5 30.8 -1% Not disclosed n.a.
4 Vivo 28.2 13.5 109% 66 43%
5 ZTE 23.3 21.7 7% 70 33%
Source: Company, OP Research
Q Tech recorded strong shipment in 1H16; it was up 104% yoy to 72.4mn units,
thanks to its clients mix change ( Oppo, Xiaomi replaced Lenovo and TCL in top 5
clients), and robust shipment growth of Vivo, Oppo, and Huawei. Other
competitors’ CCM shipment growth in 1H16 was much lower, O-film recorded
~50% yoy growth, Truly is 18% while Sunny’s CCM shipment was flat.
Exhibit 10: 2016 CCM shipment and target of leading suppliers
Company 1H16(mn units) 1H16 yoy% FY16E target(mn units) 1H16 /FY16E target
O-film (002456 SZ) 130.0 50% 300.0 43%
Sunny (2382 HK) 107.8 0.7% 250.9 43%
Q Tech (1478 HK) 72.4 104% 147.6 49%
Truly (732 HK) 50.1 18% 109.6 46%
Source: Company, O-film, Truly, OP Research
Q Tech has solid client mix, top 5
clients are Vivo, Oppo,
Huaqin(ODM for Huawei), ZTE and
Xiaomi
Q Tech is well positioned to
capture the robust growth of
Chinese smartphone vendors. In
1H16, Huawei/Oppo/Vivo
recorded 38%/134%/109% yoy
shipment growth
Q Tech recorded 104% yoy
shipment growth in 1H16 thanks
to client mix change and robust
growth of top 3 clients.
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 9 of 28
17%
34%
49%
3%
6%
14%
26.1
22.4 22.8
20.0
21.0
22.0
23.0
24.0
25.0
26.0
27.0
0%
10%
20%
30%
40%
50%
60%
70%
FY14 FY15 1H16
8M 10M+ ASP
(RMB)
25%20% 20%
16%31%
60%
35.1
34.2
40.0
31.0
32.0
33.0
34.0
35.0
36.0
37.0
38.0
39.0
40.0
41.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
FY14 FY15 1H16
8M 10M+ ASP
(RMB)
Q Tech has CCM capacity of 16.5mn units/month in 1H16, and plans to expand to
23mn units/month by the end of FY16E, together with O-film and Sunny’s
capacity expansion plans.
Exhibit 11: 2016 CCM monthly capacity of leading suppliers
Company Early 2016(mn units/month) By end of 2016(mn units/month)
O-film (002456 SZ) 38.0 40-45
Sunny (2382 HK) 30.0 40.0
Q Tech (1478 HK) 16.5 23.0
Truly (732 HK) not disclosed not disclosed
Source: Company, O-film, Truly, OP Research
Product mix upgrade to drive above market ASP enhancement
Q Tech keeps upgrading product mix of camera modules, in 1H16, its 8M/10M+
CCM accounted for 49%/14% of total shipment, leading to a blended ASP of
RMB22.8. Sunny Optical, Q Tech’s CCM competitor, had 20%/60% of total
shipment for 8M/10M+ CCM, and enjoys a blended ASP of RMB40.0 in 1H16.
Exhibit 12: CCM product shipment mix and ASP
Source: Company, OP Research
Exhibit 13: CCM product shipment mix and ASP – Sunny Optical
Source: Company, OP Research
Q Tech plans to expand CCM
capacity from current
16.5mn/month to 23mn/month by
end of 2016
Q Tech’s 8M/10M+ CCM accounts
for 49%/14% of total shipment in
1H16 with blended ASP of
RMB22.8
Sunny’s 8M/10M+ CCM accounts
for 20%/60% of total shipment in
1H16 with blended ASP of
RMB40.0
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 10 of 28
16%10%
2% 2% 0%
64%
51%
35%26%
5%
17%
34%
49%
50%
40%
20%
3% 6%13%
18%
35%
50%
1%1%
5%
10%
3%
15%20%
0%
20%
40%
60%
80%
100%
FY14 FY15 1H16 FY16E FY17E FY18E
3M and below 5M 8M 13M 16M+ Dual cam
Thus, we believe there is ASP improvement room for Q Tech given 1) potential
product mix upgrade, management guided 20%/35% of total shipment for 13M
CCM in FY16/17E, compared to the 1H16’s proportion of 13%, as its 13M and
above CCM has entered into supply chain of several leading brands, including
Oppo and Vivo since 4Q15 and it normally takes 6-8 months to see significant
shipment; 2) Q Tech began DCM shipments in 2H16 as supplier of Xiaomi Redmi
Pro, LeEco Cool1 dual and 360 Q5 plus. DCM shipment is counted as 1 and ASP
is 2.5-3 times of single camera module, thus we expect it will further drive ASP.
We forecast 8M/13M/16M/dual cam CCM will account for 50%/18%/1%/3% of
total shipments in FY16E, and improves to 40%/35%/5%/15% in FY17E, and
further improves to 20%/50%/10%20% in FY18E.
Exhibit 14: CCM product shipment mix
Source: Company, OP Research
We believe there is ASP
improvement room given
1)management guided 20%/35%
13M CCM shipment penetration in
FY16/17E as it tapped into Oppo
and Vivo’s 13M CCM supply chain
in 4Q15 and ramp up takes 6-8
months; 2) increase DCM
shipment
13M/16M/dual-cam CCM will keep
increasing shipment proportion
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 11 of 28
2,161 2,202
3,515
4,868
6,000
83 98 148 177 204
26.1
22.4 23.8
27.5 29.5
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
FY14 FY15 FY16E FY17E FY18E
CCM Revenue(LHS) CCM shipments(LHS) CCM ASP(RHS)
(RMBmn/mn units) (RMB)
As a result, we expect ASP of CCM to gradually improve to
RMB23.8/RMB27.5/RMB29.5 in FY16/17/18E, and shipment yielding
50%/20%/15% yoy growth in FY16/17/18E, and revenue recording
60%/38%/23% yoy growth to RMB3,515mn/RMB4,868mn/RMB6,000mn in
FY16/17/18E.
Exhibit 15: CCM revenue, shipment and ASP
Source: Company, OP Research
Further opportunity to penetrate Huawei CCM supply chain from
Single CCM to Dual Cam from FY17E onwards
Q Tech currently supplies CCM to Huawei through Huaqin, Huawei’s major ODM
for Honor model. The reason why Q Tech has not tapped into Huawei’s CCM
supplier chain is because Q Tech used to be a major supplier of ZTE and ZTE is
the main competitor of Huawei.
However, since Q Tech begins supplying fingerprint modules to Huawei in FY16E,
we believe it has opportunity to further extend to Huawei’s CCM supply chain,
and Huawei is likely to share Honor dual cam supply to Q Tech to diversify dual
cam supply chain risk.
We expect revenue to record
60%/38%/23% yoy growth to
RMB3,515mn/RMB4,868mn/
RMB6,000mn in FY16/17/18E.
Q Tech currently supplier CCM to
Huawei through Huawei’s ODM,
Huaqin
Further opportunity to tap into
Huawei’s CCM supply chain given
Q Tech begins fingerprint
modules shipment to Huawei and
Huawei is likely to diversify
dual-cam supply chain risk
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 12 of 28
237 418
619
861 1,151
1,435 1,479
5.5
4.0
3.0
2.5 2.3
2.1 2.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
-
200
400
600
800
1,000
1,200
1,400
1,600
2014 2015 2016E 2017E 2018E 2019E 2020E
Volume ASP
(mn unit) (US$)
3%
15%
40%
52%
62%
19%
29%
45%
55%
65%
0%
10%
20%
30%
40%
50%
60%
70%
2014 2015E 2016E 2017E 2018E
China Global
Margin expansion from fingerprint module robust shipments growth
Rapid growth of fingerprint market and penetration of smartphone
Global fingerprint sensor shipment is expected to record 28% CAGR from 418mn
units in 2015 to 1,479mn units in 2020E, while ASP will drop gradually from US$4
in 2015 to US$2 in 2020E.
Exhibit 16: Global fingerprint sensor shipment vs. ASP from 2014 to 2020E
Source: Carnegie Research, OP Research
Thus, we expect China/global fingerprint penetration in smartphones will improve
from 15%/29% in 2015 to 62%/65% in 2018E.
Exhibit 17: China/Global fingerprint penetration in smartphones from 2014
to 2018E
Source: OP Research
Global fingerprint shipments are
expected to record 29% CAGR
from 2015 to 2020E
Fingerprint penetration in
China/global smartphones will
improve to 62%/65% in 2018E
from 15%/29% in 2015E
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 13 of 28
FPC
Avnet
Arrow
WPI
Future
Electronics
O-film
(002456 CH)
Truly
(732 HK)
Q Tech
(1478 HK)
CrucialTech
(114120 KS)
Primax
Huawei
OPPO
Xiaomi
vivo
ZTE
Other Chinese
brands
Shipment of sensor
Design/customization support
Software customization and integration. 3-9 months
Distributor Module house OEM/ODM
Warehousing
& logistics
Packaging & module
manufacturing
Industrial design,
integration, tuning and
end-user experience
The rising penetration rate is the result of: 1) smartphone market players
following Apple’s adoption of fingerprint, making fingerprint modules a key
component in smartphone market. As fingerprint modules can be seen from the
outside, it offers a clear differentiation from non-fingerprint module-applied
smartphones and which customers find more attractive. 2) increasing mobile
payments are adopting fingerprint for authentication, including Apple Pay, Alipay,
and Samsung Pay. We expect the penetration of mobile payments will continue to
improve in China market, thus driving the penetration of fingerprint modules in
smartphone.
Fingerprint industry value chain analysis
The key components of fingerprint module include sensor, metal loop, cover plate,
ect; among these components, the sensor is the most important. Currently, there
are mainly 8 integrated circuit (IC) developers, Authen Tec was acquired by Apple,
and provides sensor IC design for Apple exclusively, Synaptics mainly supports
Samsung and HTC, while other smartphone companies, like HuaWei, Oppo, Vivo
are supported by FPC (a Swedish company), Goodix and Silead (Chinese
companies), Crucial Tec (114120 KS), More DNA and Focal Tech (Taiwan
companies).
Q Tech procures sensors from FPC, Goodix and Silead, and then assembles
them with metal loop, cover plate and other components.
Exhibit 18: Fingerprint supply chain
Source: FPC, Company, OP Research
We believe fingerprint modules
are becoming a key component of
smartphones and they facilitate
mobile payments
Key components of fingerprint
module include sensor, metal
loop, and cover plate
Q Tech procures sensors from
FPC, Goodix, and Silead
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 14 of 28
Exhibit 19: Fingerprint value chain
Components Sensor Metal Loop Cover Plate Others Module
Process IC design Manufacturing Packing&Testing
Companies
Apple Authen Tec (US)
(acquired by Apple
in 2012)
TSMC (2330TT)
Xintech (3374 TT)
ASE (2311 TT)
WLCSP (603005
CH)
Sapphire Tech
Crystal Applied
Aurora (600666 CH)
ASE(2311 TT),
Sharp(6753 JP)
Samsung, HTC Synaptics
(Validity)(US)
SMIC (981 HK) TSHT (2185 CH)
JCET(600584 CH)
Aurora (600666 CH)
TDG (600330 SH)
O-film (002456 CH)
Truly (732 HK)
Q Tech (1478 HK)
CrucialTec (114120 KS)
Other brands
smartphones,
eg: Huawei,
Oppo, Vivo
Sweden: FPC
China: Goodix,
Silead, Microarray
Korea: CrucialTec
(114120 KS)
TW: More DNA,
Focal Tech
(3545 TT)
Source: OP Research
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 15 of 28
Capacity expansion with first-tier client mix
Q Tech obtained FPC fingerprint certificate in 2H15, and officially kicked off its
fingerprint business in FY16. Currently it ranks 6th in terms of fingerprint module
shipment, Q Tech delivered 1.4mn units in 1H16, and targets to deliver 20mn
units for FY6E. Q Tech’s fingerprint clients are first-tier China smartphone
vendors, including Huawei, Vivo, Oppo, and Xiaomi, which are grabbing market
share aggressively.
Exhibit 20: 2016 fingerprint shipment and target of leading suppliers
Company 1H16(mn units) FY16E target(mn units) 1H16 as % of FY16E target
O-film (002456 SZ) 70 120 58%
Truly (732 HK) 8.9 50 18%
Q Tech (1478 HK) 1.4 20 7%
Source: Company, O-film, Truly, OP Research
Q Tech has fingerprint capacity of 3.5mn units/month in early 2016, and
expanded to 6mn units/month in Aug16, and targets to further expand to 10mn
units/month by end of 2016.
Exhibit 21: 2016 fingerprint monthly capacity of leading suppliers
Company Early 2016(mn units/month) By end of 2016(mn units/month)
O-film (002456 SZ) 18 22
Truly (732 HK) 2.5 7.5-10
Q Tech (1478 HK) 3.5 10
Source: Company, O-film, Truly, OP Research
Margin expansion story
Currently, there are four types of fingerprint products, coating for low-to-mid-end
smartphones, while covered is used widely in mid-to-high end smartphones.
Q-tech has mastered the two technologies with shipment proportion of 6:4
between coating and covered.
Exhibit 22: Type of fingerprint products
Coating Covered Underglass Aliveness Detection FPI
Economical solution for a
full range of mid-to low-end
smartphones
Unique oDLC surface
hardness solution matching
sapphire glass.
Sensors mounted under a
sheet of glass or ceramics.
It is based on multiple static
features, which derived
from a single fingerprint
image. The static features
are comprised of individual
pore spacing, residual
noise and several first
order statistics.
Q Tech: √ Q Tech: √
ASP: US$3.5-US$4 ASP: US$5
Source: Company, OP Research
We expect Q-Tech to record 20mn
fingerprint shipments in FY16E
Q Tech’s capacity expands from
3.5mn/month in 1Q16 to 10mn
units/month by end of FY16E
Q-Tech mainly produces coating
and covered fingerprint module
with shipment proportion of 6:4.
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 16 of 28
580
1,530
2,240
20 60 100
29.0
25.5
22.4
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
-
500
1,000
1,500
2,000
2,500
FY16E FY17E FY18E
Revenue(LHS) Shipment(LHS) ASP(RHL)
(RMBmn/mn units) (RMB)
Q-Tech enjoys fingerprint module ASP of RMB29.7 in 1H16, and aims to further
improve ASP by increasing covered module proportion. Besides, as fingerprint
module enjoys higher GPM of 12%-15%, we believe the expansion of fingerprint
business will help margin expansion as its CCM GPM is around 9-11%.
Exhibit 23: 1H16 fingerprint ASP of leading suppliers
Company 1H16
O-film (002456 SZ) ~RMB36
Truly (732 HK) HK$39.3
Q Tech (1478 HK) RMB29.7
Source: Company, O-film, Q-tech OP Research
We expect Q Tech to deliver 20mn/60mn/100mn units fingerprint module, and
RMB580mn/1,530mn/2,240mn revenue, representing 14%/24%/27% of total
revenue in FY16/17/18E.
Exhibit 24: Fingerprint module and revenue from FY16E to FY18E
Source: Company, OP Research
Q-Tech’s fingerprint module ASP
is HK$29.7 in 1H16
We forecast Q Tech to record
RMB580mnRMB1,530mn/
RMB2,240mn fingerprint revenue
in FY16/17/18E
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 17 of 28
26.1 22.4 23.8
27.5 29.5
38.3
29.0
25.5 22.4
-11%
-14%
6%
15%
7%
-24%
-12%-12%
-30%
-20%
-10%
0%
10%
20%
-
10.0
20.0
30.0
40.0
50.0
FY14 FY15 FY16E FY17E FY18E
CCM ASP Fingerprint ASP CCM yoy% Fingerprint yoy%
(RMB)
83 98
148 177
204
20
60
100
200%
67%
19%
50%
20%15%
0.0%
50.0%
100.0%
150.0%
200.0%
-
50
100
150
200
250
300
350
FY14 FY15 FY16E FY17E FY18E
CCM shipments Fingerprint shipment Fingerprint yoy% CCM yoy%
(mn units)
Attractive valuation on quadruple earnings growth. Initiate BUY with TP HK$4.63 with 40% upside
Increasing shipment and ASP drive revenue growth with 52% CAGR
We expect Q Tech to deliver 148mn/177mn/204mn units CCM in FY16/17/18E,
representing 50%/20%/15% yoy growth, due to 1) upgrading of client mix; 2)solid
growth of top 3 clients(Vivo, Oppo, and Huaqin). Fingerprint modules shipment is
expected to achieve 20mn/60mn/100mn units in FY16/17/18E with 200%/67%
yoy growth in FY17/18E, thanks to 1) ramp up and tap into Huawei, Oppo, Vivo
and Xiaomi’s fingerprint module supply chain in FY16E; 2) improving fingerprint
penetration in China smartphones from 15% in FY15 to 62% in FY18E.
Exhibit 25: Shipment from FY14 to FY18E
Source: Company, OP Research
ASP of CCM is expected to recover gradually due to 1) increasing dual cam
penetration in China from 0.7% in FY15 to 22% in FY18E; 2) upgrade product mix
of CCM to high pixel modules. While ASP of fingerprint modules is expected to
drop due to competition despite product mix upgrade from coating to covered.
Exhibit 26: ASP from FY14 to FY18E
Source: Company, OP Research
Both CCM and fingerprint
shipments are expected to record
robust growth from FY16E to
FY18E
ASP of CCM is expected to
recover gradually while
fingerprint modules ASP will drop
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 18 of 28
2,161 2,202
3,515
4,868
6,000
-
580
1,530
2,240
2,161 2,202
4,095
6,398
8,240
53%
2%
86%
56%
29%
0%
20%
40%
60%
80%
100%
-
2,000
4,000
6,000
8,000
FY14 FY15 FY16E FY17E FY18E
CCM Fingerprint Total yoy%
(RMBmn)
100% 100%
86%76% 73%
14%24% 27%
0%
20%
40%
60%
80%
100%
FY14 FY15 FY16E FY17E FY18ECCM Fingerprint
As a result, we expect Q Tech revenue to record a 55% CAGR to RMB8,240mn in
FY18E from RMB2,202mn in FY15.
Exhibit 27: Revenue from FY14 to FY18E
Source: Company, OP Research
Exhibit 28: Revenue mix from FY14 to FY18E
Source: Company, OP Research
Revenue is expected to record
55% CAGR from RMB2,202mn in
FY15 to RMB8,240mn in FY18E
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 19 of 28
196
102
176
342
447 20%
-48%
73%94%
31%
-80%
-40%
0%
40%
80%
120%
-
100
200
300
400
500
FY14 FY15 FY16E FY17E FY18E
Net profit yoy%
(RMBmn)
16.3%
10.9%
9.5%10.5% 10.6%
9.0%
4.6% 4.3%5.3% 5.4%
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
FY14 FY15 FY16E FY17E FY18E
GPM NPM
Net profit CAGR higher than peers and valuation discount to peers
We expect Q Tech’s GPM to be 9.5% in FY16E, and pick up to 10.5% in FY17E,
due to 1) greater revenue contribution from fingerprint modules which has higher
GPM of double digits; 2) greater revenue contribution from DCM which has higher
GPM than single camera module when capacity ramps up.
Exhibit 29: GPM and NPM from FY14 to FY18E
Source: Company, OP Research
Hence, we expect net profit to achieve 64% CAGR to RMB447mn in FY18E from
RMB102mn in FY15, compared to peers’ 3-year earnings CAGR of 26%.
Exhibit 30: Net profit from FY14 to FY18E
Source: Company, OP Research
We forecast GPM to be
9.5%/10.5%/10.5% in FY16/17/18E
Net profit is expected to record
64% CAGR from RMB102mn in
FY15 to RMB447mn in FY18E
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 20 of 28
1H16 result review. Revenue was up 99% to RMB1,727mn in 1H16, thanks to
100% yoy CCM shipment growth and ramp up of fingerprint business. GPM
dropped 3.5ppts yoy and 0.4ppt hoh due to 1) depreciation of RMB in 1H16 by
2.1%, GPM normally drops by 1% for every 3% RMB depreciation; 2) low
utilization rate of fingerprint business due to limited shipment in 1H16. We expect
the GPM will pick up gradually with the mass production and significant shipment
of fingerprint modules. As a result, net profit was up 30% yoy to RMB82mn.
Initiate BUY with TP of HK$4.63 based on 12x FY17E PE, 15% discount to
peers. We believe Q Tech is well-positioned to ride on increasing dual-cam and
fingerprint adoption in smartphones, it is expected to achieve 61% EPS CAGR
from FY15 to FY18E, which is higher than peers’ 26%, while it currently trades at
only 8.6x FY17E PE, 39% discount to peers. Besides, we expect Q Tech to
launch dividend policy in FY16E given its solid financial results.
For 1H16 results, revenue was up
99% to RMB1,727mn and net
profit was up 30% yoy to
RMB82mn
Initiate BUY with TP of HK$4.63
based on 12x FY17E PE, 15%
discount to peers
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 21 of 28
Exhibit 31: Results summary
RMB mn 1H14 2H14 1H15 2H15 1H16 1H16 YoY 2H16E
Revenue 965 1,196 869 1,334 1,727 99% 2,368
COGS (797) (1,012) (757) (1,205) (1,566) 107% (2,140)
Gross profit 168 184 112 129 161 45% 228
Other income & gains 1 27 15 (23) (2) -114% 9
Selling exp (2) (3) (2) (4) (3) 45% (7)
Admin exp (9) (13) (10) (17) (12) 20% (24)
R&D (33) (40) (36) (39) (52) 45% (70)
Listing exp (9) (8) 0 0 0 n.a. 0
Other opex 0 0 0 0 0 n.a. 0
Operating profit (EBIT) 116 146 78 47 91 18% 137
Provision for other items 0 0 0 0 0 n.a. 0
Finance costs (10) (13) (6) (4) (1) -77% (2)
Profit after financing costs 106 133 72 43 90 26% 135
Associated cos 0 0 0 0 0 n.a. 0
Jointly controlled cos 0 0 0 0 0 n.a. 0
Pre-tax profit 106 133 72 43 90 26% 135
Tax (17) (27) (9) (4) (8) -9% (26)
Minority interests 0 0 0 0 0 n.a. 0
Net profit 89 107 63 39 82 30% 109
HoH%
Revenue 24% -27% 54% 29% 37%
Gross profit
10% -39% 16% 25%
41%
Net profit 20% -41% -38% 111% 33%
YoY%
Revenue -10% 12% 99% 78%
Gross profit
-34% -30% 45%
77%
Net profit -29% -63% 30% 179%
Key ratios
GPM 17.4% 15.4% 12.8% 9.7% 9.3% 9.6%
Selling exp 0.2% 0.3% 0.3% 0.3% 0.2% 0.3%
Admin exp 1.0% 1.1% 1.2% 1.3% 0.7% 1.0%
R&D 3.4% 3.4% 4.1% 2.9% 3.0% 2.9%
EIT 15.8% 20.2% 12.1% 9.4% 8.8% 19.2%
Net margin 9.2% 8.9% 7.3% 2.9% 4.8% 4.6%
Revenue by segment
Compact camera module 965 1,196 869 1,333 1,686 94% 1,829
Fingerprint module 0 0 0 0 41 n.a. 539
ASP by segment
Compact camera module 27 25 23 21.7 22.7 -3% 25
Fingerprint module n.a. n.a. n.a. 38.0 29.7 n.a. 29
Shipment by segment
Compact camera module 35 48 37 61 74 100% 73
Fingerprint module 0 0 0 0 1 n.a. 19
Source: Company, OP Research
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 22 of 28
Investment Risks Demand for smartphone slows down. According to IDC, global smartphone
shipment in 2016E is expected to slow down to 3.1% yoy from 10.5% yoy growth
in 2015. Q Tech as the component supplier of smartphone venders may suffer
from slower revenue growth if smartphone shipments remain sluggish. However,
we believe Q Tech can maintain growth as its major customers are Chinese
smartphone vendors, which is expected to maintain solid shipment growth of 14%
yoy in 2016E.
Lower than expected penetration of dual camera. The penetration of dual
camera may be lower than expected as end customers may find it is not useful or
attractive. However, as iPhone 7 plus is equipped with dual camera, we believe it
can promote the adoption of dual camera in Android smartphones, and the dual
camera technology is advancing from RGB+RGB to RGB+MONO and further
Telephoto + wide-angle, which will bring customers improving photography
experience.
ASP erosion of CCM and fingerprint module. ASP of smartphone camera
module declined ~14% yoy in 2015 and the downtrend remains due to fierce
competition in the camera module market. Fingerprint modules also face fierce
competition as all the players are expanding capacity to grab more market share.
However, we believe the ASP pressure can be relieved by (1) product mix
upgrade to high pixels CCM and covered fingerprint modules; 2) increasing
shipment proportion from DCM.
Foreign exchange risk. Q Tech’s 30%-40% material costs are denominated in
USD, and material costs accounts for ~85% of COGS. As a result, GPM will drop
by 1% for every 3% depreciation in RMB. We believe Q Tech will pay close
attention to the fluctuation of exchange rate, and adopt appropriate measures to
control the risks.
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 23 of 28
Management profiles
Exhibit 32: Management profiles
Name Age Position Role and responsibilities Description
Mr. He Ning ning 45 Chairman,
Executive Director
Overall strategic planning
and formulation of
investment strategies
Mr. He founded the company in 2007.
In 2004, Mr. He founded Shenzhen Xike Dexin Telecom Equipment
Co. (深圳市西可德信通信技術設備有限公司) (“Shenzhen CK”)
which engaged in research, development and sales of complete
handsets components.
In 2000, Mr. He founded Surewheel Asia Pacific Limited (幸誠賽貝
亞太有限公司) which engaged in agency sales of printheads.
Mr. He received the Bachelor’s Degree in Science, majoring in
dynamic meteorology, from the Peking University in 1992 and
Master’s Degree of Business Administration from the University of
California in 2002.
Mr. He has over 20 years of experience in the electrical and
electronic industries.
Mr. He is the step-brother of Mr. Wang Jian qiang, an executive
director of the group.
Mr. Yang Pei kun 36 Chief Executive officer,
Executive director
Overall business operations Mr. Yang joined the group in 2007 as the assistant to chairman and
was appointed CEO in 2014.
Mr. Yang worked at ZTE Corporation (中興通訊股份有限公司)(763
HK & 000063 SZ) from 2004 to 2007.
Mr. Yang received his Bachelor’s Degree in Management with
major in financial management and master’s degree in
management with major in accounting, from the Wuhan University
in 2001 and 2004 respectively.
Mr. Fan Fu qiang 38 Chief Financial Officer,
Company Secretary
Audit management and
budgeting, legal compliance
matters and risk control
Mr. Fan joined the group in 2013 and was appointed to be the chief
financial officer in 2016.
Mr. Fan served as the assistant to the chief financial officer of
Shenzhen CK and Heyuan CK, responsible for legal compliance
matters and risk control.
Mr. Fan received a professional certificate from the Guangdong
International Finance College in 1996, majoring in international
finance. He graduated from the Central Party School of the
Guangdong Provincial Committee in 2008, majoring in public
management.
Mr. Wang Jian qiang 44 Executive Director Overall strategic planning
and formulation of
investment strategies
Mr. Wang joined the group in 2014.
Mr. Wang served as the chief financial officer of Shenzhen CK and
Heyuan CK from 2005 to 2014, responsible for audit management
and budgeting.
Mr. Wang received the Bachelor’s Degree in engineering, major in
fluid machinery and engineering, from the Sichuan University of
Science and Technology in 1995.
Mr. Wang has over 20 years of experience in the electrical and
electronic industries
Mr. Wang is the step-brother of Mr. He, an executive director and
the chairman of the Board.
Source: Company, OP Research
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 24 of 28
72.13% 24.20%
He Ningning
(Chairman)Public
2.33% 1.34%
Pan Hou Capital
(pre-IPO investor)Samart i-Mobile
(pre-IPO investor)
Shareholding structure
Exhibit 33: Shareholding structure
Source: Company, OP Research
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 25 of 28
Financial Summary Year to Dec FY14A FY15A FY16E FY17E FY18E
Year to Dec FY14A FY15A FY16E FY17E FY18E
Income Statement (RMB mn)
Ratios
Compact camera module 2,161 2,202 3,515 4,868 6,000
Gross margin (%) 16.3 10.9 9.5 10.5 10.6 Fingerprint module 0 0 580 1,530 2,240
Operating margin (%) 12.1 5.7 5.1 6.3 6.4
Net margin (%) 9.0 4.6 4.3 5.3 5.4
Selling & dist'n exp/Sales (%) 0.3 0.3 0.2 0.2 0.2
Turnover 2,161 2,202 4,095 6,398 8,240
Admin exp/Sales (%) 1.1 1.2 1.2 1.1 1.1 YoY% 53 2 86 56 29
Payout ratio (%) 14.1 0.0 20.0 20.0 20.0 COGS (1,809) (1,962) (3,705) (5,727) (7,368)
Effective tax (%) 18.2 11.1 15.0 15.0 15.0
Gross profit 353 241 390 671 872
Total debt/equity (%) 63.4 11.7 10.9 8.9 7.3 Gross margin 16.3% 10.9% 9.5% 10.5% 10.6%
Net debt/equity (%) 14.2 Net cash 14.0 24.6 23.9 Other income 28 (8) 7 10 4
Current ratio (x) 1.66 2.01 1.59 1.52 1.53 Selling & distribution (6) (6) (10) (15) (19)
Quick ratio (x) 1.54 1.73 1.30 1.22 1.22 Admin (23) (28) (49) (70) (87)
Inventory T/O (days) 29 39 39 39 39 R&D (73) (74) (127) (190) (241)
AR T/O (days) 147 147 147 147 147 Listing exp (17) 0 0 0 0
AP T/O (days) 90 116 116 116 116
Other opex 0 0 0 0 0
Cash conversion cycle (days) 86 70 70 70 70
Total opex (119) (108) (186) (275) (347)
Asset turnover (x) 1.06 1.03 1.72 1.97 1.96 Operating profit (EBIT) 262 125 211 406 530
Financial leverage (x) 2.92 1.83 1.82 2.10 2.22 Operating margin 12.1% 5.7% 5.1% 6.3% 6.4%
EBIT margin (%) 12.1 5.7 5.1 6.3 6.4 Provisions 0 0 0 0 0
Interest burden (x) 0.91 0.92 0.98 0.99 0.99 Finance costs (23) (10) (3) (4) (4)
Tax burden (x) 0.82 0.89 0.85 0.85 0.85
Profit after financing costs 239 115 207 402 526
Return on equity (%) 28.1 8.7 13.5 22.1 23.6 Associated companies & JVs 0 0 0 0 0
ROIC (%) 22.1 9.4 13.4 18.6 19.2
Pre-tax profit 239 115 207 402 526
Tax (44) (13) (31) (60) (79)
Year to Dec FY14A FY15A FY16E FY17E FY18E
Minority interests 0 0 0 0 0
Balance Sheet (RMB mn)
Net profit 196 102 176 342 447
Fixed assets 336 421 564 621 702 YoY% 20 (48) 73 94 31
Intangible assets & goodwill 0 1 1 1 0 Net margin 9.0% 4.6% 4.3% 5.3% 5.4%
Associated companies & JVs 0 0 0 0 0 EBITDA 288 157 260 479 622
Long-term investments 0 0 0 0 0 EBITDA margin 13.3% 7.1% 6.3% 7.5% 7.5%
Other non-current assets 24 32 31 31 31
EPS (RMB) 0.296 0.098 0.167 0.324 0.424
Non-current assets 360 454 597 653 733 YoY% (9) (67) 71 94 31
DPS (HK$) 0.052 0.000 0.040 0.077 0.101
Inventories 142 209 395 611 786
AR 873 889 1,653 2,582 3,325 Year to Dec FY14A FY15A FY16E FY17E FY18E
Prepayments & deposits 0 0 0 0 0
Cash Flow (RMB mn)
Other current assets 375 156 156 156 156 EBITDA 288 157 260 479 622
Cash 553 282 (43) (266) (346)
Chg in working cap 62 203 (397) (504) (398)
Current assets 1,943 1,537 2,161 3,083 3,922 Others (7) 2 0 0 0
Operating cash 343 362 (137) (25) 224
AP 445 622 1,175 1,816 2,336 Interests paid 0 0 0 0 0
Tax 12 2 31 60 79 Tax (39) (38) (2) (31) (60)
Accruals & other payables 0 0 0 0 0
Net cash from operations 304 324 (139) (56) 163
Bank loans & leases 713 142 152 152 152
CB & othe debts 0 0 0 0 0 Capex (158) (137) (200) (128) (165)
Other current liabilities 0 0 0 0 0
Investments 314 125 0 0 0
Current liabilities 1,169 766 1,358 2,028 2,567 Dividends received 0 0 0 0 0
Sales of assets 81 2 0 0 0
Bank loans & leases 0 0 0 0 0 Interests received 3 13 8 (1) (7)
CB & othe debts 0 0 0 0 0
Others (1) 1 0 0 0
Deferred tax & others 9 7 7 7 7 Investing cash 239 4 (192) (129) (172)
MI 0 0 0 0 0
FCF 543 328 (331) (185) (9)
Non-current liabilities 9 7 7 7 7 Issue of shares 551 11 0 0 0
Buy-back 0 0 0 0 0
Total net assets 1,124 1,218 1,394 1,701 2,081 Minority interests 0 0 0 0 0
Dividends paid 0 (42) 0 (35) (67)
Shareholder's equity 1,124 1,218 1,394 1,701 2,081 Net change in bank loans (33) (654) 10 0 0
Share capital 8 8 8 8 8 Interest paid (11) (14) (3) (4) (4)
Reserves 1,116 1,209 1,385 1,693 2,073
Others (540) 80 0 0 0
Financing cash (33) (618) 6 (38) (71)
BVPS (HK$) 2.28 1.50 1.60 1.95 2.39
Net change in cash 510 (290) (325) (223) (79)
Total debts 713 142 152 152 152 Exchange rate or other Adj 1 19 0 0 0
Net cash/(debts) (160) 140 (195) (418) (497) Opening cash 42 553 282 (43) (266)
Closing cash 553 282 (43) (266) (346)
CFPS (HK$) 0.575 0.387 (0.157) (0.063) 0.184
Source: Company, OP Research
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 26 of 28
Exhibit 34: 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 %
Q Technology Gro 1478 HK 3.31 444 0.9 27.2 16.7 8.6 62.8 94.3 60.5 0.28 0.0 1.2 2.21 2.07 20.5 13.9 Net cash 10.9 4.6 8.7 13.5 35.7 113.5
HSI 23,550.45 12.6 12.9 11.8 (2.1) 9.7 6.0 2.15 3.5 3.4 1.21 1.19 9.6 9.2 2.8 17.5
HSCEI 9,747.75 8.4 8.5 7.8 (1.5) 8.9 5.4 1.57 3.7 3.5 0.99 0.94 11.8 11.1 0.4 15.9
CSI300 3,263.12 15.0 13.7 12.1 9.8 12.8 11.6 1.18 2.2 2.1 1.79 1.64 11.9 12.0 (3.8) 4.7
Adjusted sector avg* 19.7 18.3 14.1 33.4 30.1 25.7 0.8 2.6 2.2 3.3 2.9 14.2 11.2 19.5 13.5 4.3 17.9 14.4 (2.2) 4.9
Sunny Optical 2382 HK 38.90 5,500 33.8 47.2 31.2 23.8 51.2 30.9 35.2 0.89 0.6 0.9 8.99 7.54 31.7 22.4 0.0 16.5 7.1 24.6 27.0 (0.1) 54.7
Truly Intl Hldgs 732 HK 3.57 1,338 8.2 12.3 11.4 9.8 7.6 16.3 13.9 0.82 2.8 2.8 1.45 1.33 7.0 6.2 36.3 10.9 4.4 11.0 11.8 (11.2) (1.9)
Cowell 1415 HK 3.08 330 2.1 5.3 6.6 5.6 (20.0) 18.3 0.9 7.51 N/A 0.5 1.16 0.97 2.9 3.6 0.0 14.0 6.2 25.4 15.0 3.0 7.7
Shenzhen O-Fil-A 002456 CH 35.38 5,568 114.5 76.9 40.7 28.7 88.9 41.7 52.6 0.77 0.2 0.4 5.75 5.34 32.1 25.4 59.9 12.6 2.6 9.4 13.5 2.0 26.8
Huizhou Speed -A 300322 CH 18.03 1,103 43.3 N/A 73.6 48.1 N/A 53.1 (220.9) N/A N/A N/A 13.31 12.56 (122.0) 39.6 40.6 16.5 (13.5) (4.8) 16.7 (4.0) (7.3)
Crucialtec Co Lt 114120 KS 9,410.00 240 3.3 27.0 15.0 9.6 80.5 56.8 55.5 0.27 N/A 0.0 2.46 2.29 14.7 11.4 89.9 19.7 3.7 24.6 17.2 (10.4) (13.7)
Lite-On Technolo 2301 TT 46.70 3,496 9.5 15.1 13.1 12.0 15.2 8.8 11.0 1.19 4.7 5.0 1.49 1.35 5.5 5.0 0.0 13.0 3.3 10.8 10.5 (3.6) 6.7
Primax Electroni 4915 TT 45.25 637 6.6 11.1 10.1 8.8 10.5 14.9 10.5 0.96 4.6 5.5 1.98 1.67 5.4 4.7 0.0 10.9 2.7 19.3 16.1 6.5 15.7
* Outliners and "N/A" entries are in red and excl. from the calculation of averages
Source: Bloomberg, OP Research
Tue, 20 Sep 2016
Q Tech (1478 HK)
Page 27 of 28
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