We downgrade BYDE to Hold (from Buy) with lowered TP HK$ 12.3, as we expect multiple near-term headwinds from Huawei/Apple demand weakness, slower 5G casing upgrade and 5G network deployment delay dragged by CONV-19. While we are positive on BYDE’s share gain Apple/Huawei supply chain in FY20/21E, we think earnings outlook remains uncertain in near term, and our new FY20/21E EPS are 22%/10% below consensus. We lowered our TP to HK$12.3, based on lower 15x FY20E P/E (from 17x prev.). Recommend to stay on the sidelines.
- Expect pressure in 1H20E followed by weak recovery in 2H20E. We expect sales/NP to decline 12%/8% YoY in 1H20E, mainly due to CONV-19 impact on smartphone weakness and project delays in auto/smart intelligent segments. In 2H20E, we estimate BYDE will resume sales/NP growth of 20%/9% YoY in 2H20E, driven by metal/glass casing upgrade, share gain in OEM business and growth in auto/smartphone intelligent segments.
- Solid product roadmap for 5G upgrade cycle. Despite postponed 5G cycle into 2H20E, we are confident BYDE remains on track to capture 5G growth opportunities in FY21/22E, on the back of 1) share gain in Apple/Huawei OEM business for more product categories, 2) metal casing with antenna upgrade, 3) more plastic/glass casing adoption, and 4) auto/smart intelligent products to be driven by robust IoT product demand.
- Broader partnership with Huawei/Apple ahead. As the largest assembly manufacturer in China, we believe BYDE will benefit from Huawei/Apple strategy to diversify its assembly supply chain ahead. For Huawei, we expect BYDE to supply 5G BTS AAU, and build production factories with Huawei in India/Brazil/Hungry. For Apple, we expect BYDE to gain share and expand into Airpods, Watch, TV and Macbook. Although progress is now delayed, we think BYDE remains on track to add production lines for Watch/ Macbook and new products in 2020.
- Our FY20/21E EPS are 22%/10% below consensus; D/G to HOLD. While we are positive on BYDE’s product roadmap on multiple 5G growth trends, we believe BYDE will not be immune to COVID-19 disruption. We lowered our TP to HK$12.3, after we cut FY20/21E EPS by 24%/16% and reduced target multiple to 15x FY20E P/E (from 17x) given lower earnings visibility. Upside risks include faster demand recovery and 5G deployment.
