Luxshare reported FY19 preliminary revenue/net profit growth of 74%/73% YoY. Net profit is 24%/14% above our estimates/consensus, and also beat its prior NP growth guidance of 45-55% YoY. 4Q19 revenue/net profit grew 79%/72% YoY, beating consensus by 36%/38%, thanks to 1) strong AirPods momentum, 2) iPhone 11 strength and 3) solid growth in comm/auto, in our view. We revised up FY20/21E EPS by 34%/39% and raised TP to RMB55.4 based on 42x FY20E P/E (10% premium to peers). Luxshare is our A-share top pick given Airpods/Watch potential and major 5G beneficiary into 2020.
- Strong AirPods momentum into 2020E. In view of stronger-than-expected AirPods demand and positive customer feedback, we estimate AirPods shipment to reach 100mn/120mn in FY20E/21E (vs 60mn in FY19), and Luxshare will ship 65mn units in FY20E, accounting for 50% of FY20E revenue (vs 42% in FY19). In addition, we believe adoption of SiP packaging technology and continued spec upgrade (e.g. processor, battery, wireless charging) in next-gen AirPods will boost ASP upside in FY20E/21E.
- Riding on Apple 5G product cycles. We believe Luxshare will continue to expand into Apple supply chain in 2020E ranging from Macbook/ iPad to iPhone and wearables (Watch/ AirPods). Luxshare is set to benefit from iPhone 11/SE2 volume growth in 1H20E, and further gain share allocation in new 5G iPhones in 2H20E, leveraging strong product portfolio of antenna, acoustics, haptics and wireless charging. We estimate non-Airpods revenue from Apple will account for 24%/22% of revenue in FY20E/21E.
- Well-positioned to capture 5G opportunities. Looking ahead, Luxshare is well-placed to capture growth opportunities in 5G era backed by its solid product roadmap, including 1) massive MIMO and compact filter-antenna and 2) optical solutions in datacenter/telecom. In the meantime, Luxshare is also aggressively expanding Vietnam capacity to diversify tariff risks.
- Our FY20/21E NP are 21%/16% above consensus. Raise TP to RMB55.4. We revised up our FY20/21E net profit by 34%/29% and revenue by 35%/32% to factor in stronger AirPods shipment and ASP. Hence, we lifted our TP to RMB55.4, based on higher 42x FY20E P/E, 10% premium to peers of 37x given stronger earnings growth and promising growth profile. Upcoming catalysts include stronger AirPods shipment and 5G iPhone launch.
