Apple posted FY4Q (CY3Q19) results with EPS of US$3.03 (+4% YoY) and revenue of US$61.0bn (+2% YoY), which are 7% and 3% above consensus. GPM came in at 38.0%, slightly above consensus. For FY1Q20 guidance, Apple expects revenue of US$86-$90bn, with midpoint of US$87.5bn (+4% YoY) largely in-line with consensus at US$86.5bn Given better guidance, iPhone recovery, wearable momentum and improving China sales, we believe Apple supply chain will react positively, especially wearables names, such as Luxshare and Goertek. We also like Apple content/share gainers, such as FIT, Tongda and TK Group. For other iPhone-related names, we are increasingly more positive on 4Q19/FY20E shipment upside such as AAC Tech and O-Film.
- Stabilizing iPhone on low-price strategy and strong wearables momentum. Key highlights from earnings call include 1) improving iPhone sales (-9% YoY, vs -15% in FY3Q) due to lower-pricing and 5x more trade-in vs last yr, 2) better China trend (-2% YoY, vs -4% in FY3Q) on price cuts and less trade tensions, 3) Cook’s optimistic view on US-China trade dispute progress, 4) continued strong wearables momentum (AirPods, Watch) (+54% YoY, vs +48% in FY3Q), 5) Service re-accelerated (+18% YoY, vs +13%/16% in FY3Q/2Q) with double digit growth across all regions, and 6) Service on track to double 2016 revenue by 2020 (now 20% of sales; 30% of GP).
- Positive outlook backed by solid pipeline (iPhone SE, newAitPod Pro, Apple TV+). Despite Apple’s accelerated shift to service-led growth strategy, we believe iPhone shipment recovery, wearables demand and strong pipeline (esp. low-price iPhone SE, noise-cancelling AirPods Pro) will be positive to Apple supply chain in 4Q19 and 2020E. We expect iPhone shipment decline to narrow to -5% YoY in CY4Q (vs -8% in CY3Q) and return to +17% YoY growth in CY1Q20E.
- Improving iPhone/wearable is positive to supply chain; Prefer content /share gainers with YoY growth. We believe better iPhone 11 sales is partly priced in, but bullish guidance confirmed continued recovery for supply chain. Looking ahead, despite late launch of 5G iPhones until 2H20E, we expect new iPhone SE could offset China weakness in 1H20E. For stocks, we are more positive on wearables-related names, such as Luxshare and Goertek, while we are increasingly more positive on iPhone-related stocks including AAC Tech on acoustics/haptics. We also like share gainers, such as FIT on connectors, Tongda on iPhone/Macbook waterproof components, BYDE on Watch/ accessories, and Luxshare on Airpod/acoustics.
