BYDE’s 3Q19 strong revenue of 51% YoY (vs +22% in 2Q) was driven by Huawei recovery and better assembly biz, while net profit decline narrowed to -35% YoY (vs -71% in 2Q). 3Q GPM improved sequentially to 7.0% from 5.5% in 2Q, on track to return to 1Q level of 8.1%. Backed by upbeat guidance with solid product/client roadmap, we believe BYDE will enter another growth phase and earnings growth set to recover in FY20-21E, benefiting from 5G upgrade, share gains in Huawei/Apple and expansion into BTS/auto/ smart IoT. We upgraded the stock to BUY, and raised TP to HK$15.0, based on 15x upcycle FY20E P/E.
- 3Q recovery on track; Expect 4Q earnings back to +ve growth. BYDE’s impressive 3Q19 revenue was a result of strong assembly/auto/intelligent segments and flattish casing given ASP pressure and slow plastic/glass migration. We are particularly positive on 3Q GPM of 7% (vs 5.5% in 2Q), suggesting solid recovery to 8% in 4Q19E. Our view is also reaffirmed by mgmt.’s upbeat guidance that 4Q sales/NP will peak in 2019, which implies 4Q earnings turnaround to 20%+ YoY (vs. -35%/-71%/-16% in 3Q/2Q/1Q).
- Strong FY20E guidance with solid 5G product pipeline. Mgmt. is bullish with revenue guidance of RMB100bn/200bn in FY20E/24E (vs. RMB50-60bn in FY19E), driven by 1) assembly to double (50% of sales) on Huawei phone/ BTS share gain, 2) metal casing (20%) to return record-high level in 2017, 3) glass casing (5%) to double, and 4) auto/smart intelligent segment (17%) to grow 30-50% YoY. Looking into 5G era, BYDE started to ship 7 5G smartphone models with 10+ models in pipeline for 1H20E (Honor, P40). We see opportunities in 1) 5G antenna on metal mid-frame, 2) metalistic plastic casing with CNC/PVD, and 3) ceramic functional parts on RFFE/filters.
- Closer Huawei/Apple partnership in 5G era; auto/smart intelligence on fast track. We expect BYDE to accelerate collaboration with Huawei/Apple, in terms of 1) Huawei’s casing/assembly/5G BTS/servers and expansion in India/Brazil/Hungry, and 2) Apple order win in Watch/Airpod/Macbook. We expect auto/smart intelligent biz to be backed by 1) Di-Link on BYD Dynasty/e/s series, 2) foreign tier-1 OEMs, and 3) intelligent-driving modules in FY22E.
- Entering new growth phase; Upgrade to BUY with TP HK$15. We are confident on BYDE’s client/product roadmap and expect earnings recovery to continue into FY20-21E. Our new TP of HK$15 is based on 15x upcycle FY20E P/E. Upcoming catalysts include 5G product launches and order wins.
