We believe Tongda is poised to benefit from strong Apple demand and 5G-driven smartphone recovery in 2020, following Xiaomi shipment decline and Apple margin weakness in 2H19. As the early mover in Glastic casing market, we expect Tongda to become the largest Glastic supplier for Samsung and Vivo amid rapid 5G mass-market penetration in 2020. We adjusted our FY19-21E EPS on FX impact, and we raised TP to HK$1.15 with higher 8x FY20E P/E (from 6x) to reflect higher earnings visibility and 5G sector upcycle in 2020. Reiterate BUY.
- Expect strong 5G demand and Apple recovery after 2H19 weakness. We expect Tongda revenue to accelerate to 18%/25% YoY in 1H20/2H20E after a mild recovery of 8% YoY in 2H19E. For 2020E, we believe Tongda will secure the major Glastic supplier status from Samsung/Vivo and benefit from new orders from Macbook waterproof components and iPad Pro adaptors. We expect Top 4 clients will be Samsung, Apple, Xiaomi and Vivo in 2020.
- Major beneficiary of Samsung/Vivo’s Glastic adoption. Driven by rapid 5G penetration into mass market in 2020, we expect Samsung A-series and Vivo Y/iQOO-series to upgrade to Glastic casing for better signal and lower cost amid 5G SoC upgrade. Mgmt. estimated Glastic TAM to reach 200mn /300-400mn in FY19/20E, and we expect Tongda to become Chinese largest Glastic supplier with 100mn/140mn shipment in FY19/20E. We estimate glastic revenue to grow 56%/39% in FY19/20E, accounting for 37%/55% of FY19/20E sales.
- iPhone: share gain and order win (Watch/Airpod) to boost growth. We expect Tongda to benefit from iPhone 5G shipment recovery and expand into Watch/Airpod waterproof components in 2020E. In addition, we believe Tongda’s iPhone content growth will continue with adoption of ceramic inject molding parts in 2020. Overall, we estimate 21%/29% in FY20/E21E.
- Return to growth mode in 2020; Lifted TP to HK$1.15 (24% upside). We are bullish on Tongda’s earnings momentum with 44%/16% YoY EPS growth in FY20/21E. We trimmed FY19/20/21E NP by 4-12% on FX impact, but lifted our TP to HK$1.15 based on higher 8x FY20E P/E (from 6x) given stronger earnings visibility and sector re-rating on 5G optimism. Upcoming catalysts include strong Samsung/Apple shipment and Vivo product launch.
