Apple posted FY1Q (CY4Q19) results with EPS of US$4.99 (+19% YoY) and revenue of US$91.8bn (+9% YoY), which are 9% and 4% ahead of consensus. For FY2Q20 guidance, Apple expects revenue of US$63-$67bn, with midpoint of US$65bn (+12% YoY), 4% ahead of consensus at US$62.3bn. Given better guidance, stronger iPhone shipment, wearable (Airpod/Watch) momentum and China sales recovery, we believe this is positive to Apple supply chain, including AAC Tech, Luxshare, FIT Hon Teng, BYDE, Tongda and Goertek. Recommend to accumulate after correction on recent Wuhan coronavirus.
- Better iPhone on lower price and China recovery; strong wearables continues despite Airpod/Watch shortage. Key highlights from earnings call include 1) iPhone revenue returned growth (+8% YoY, vs -9% in FY4Q) due to strong low-priced iPhone 11, and more installment in US (Apple Card), 2) better China sales (+3% YoY, vs -2% in FY4Q) on price cuts and less trade tensions, 3) Japan down 10% YoY given new rules on carrier discounts, 4) continued wearables momentum (+37% YoY, vs +54% in FY4Q) despite Watch/Airpods supply shortages, 5) Service strength (+17% YoY, vs +18% in FY4Q) with double digit growth across all regions, 6) Service well on track to double 2016 revenue by 2020, 7) limited impact from Wuhan coronavirus and mitigate risks by shifting substitute component and production locations.
- Expect a strong 2020 backed by iPhone SE, 5G phones, AirPods Pro, Apple TV+. Despite Apple’s accelerated shift to service-led growth strategy, we believe iPhone shipment recovery, wearables demand and strong pipeline (esp. iPhone SE, AirPods Pro, 5G phones) will be positive to Apple supply chain throughout 2020E. We expect iPhone shipment decline to grow at double digit in next two quarters (+20%/10% YoY in CY1Q/2Q) and maintain 5% YoY growth in CY3Q/4Q.
- Continued iPhone/wearable growth is positive for supply chain; Prefer content/share gainers with YoY growth. We believe better iPhone 11 sales is partly priced in, but upbeat guidance confirmed continued recovery for supply chain. Looking ahead, we expect new iPhone SE in 1H20 and four 5G phones in 2H20 will boost supply chain demand throughout 2020. For stocks, we prefer wearables-related names, such as Luxshare and Goertek, while we are also increasingly more positive on iPhone plays including AAC Tech on acoustics/ haptics, FIT Hon Teng on connectors, Tongda on iPhone /Macbook waterproof components, BYDE on OEM/ Watch/ accessories, and Luxshare on Airpod/acoustics/haptics/wireless charging.
