We upgrade BYDE to BUY (from Hold) with new TP HK$ 22.2, as we turn more positive on its recent progress with Huawei/Xiaomi/Apple partnership, 5G casing upcycle and new mask business. We also believe BYDE is well-positioned to benefit from industry consolidation and weather the storm from COVID-19 impact. We lifted FY20-22E EPS by 153%/44%/32% to reflect 1H20 beat, faster share gain, glass/ceramic upgrade and mask biz contribution. We derive our new TP of HK$ 22.2 from SOTP (10.7x implied FY20E P/E vs. prev. 15x FY20E P/E) to reflect BYDE’s business diversification with different growth profiles and outlook.
- 1Q20 significant beat and 1H20 positive profit alert. BYDE reported 1Q20 revenue decline of 18% YoY, but net profit grew 69% YoY to RMB 675mn (tracking 62%/53% of our/consensus FY20E NP) driven by glass/ ceramic component and mask production during COVID-19 outbreak. By segment, we believe component segment grew rapidly with 5G phone casing upgrade offsetting EMS decline. BYDE also issued 1H20 positive profit alert with 280%+ YoY NP growth, well above market expectations.
- Share gain in Huawei/Xiaomi/Apple and ceramic/glass upcycle. We are also confident BYDE will accelerate share gain with Huawei/Xiaomi/Apple given their diversification strategy ahead. For Huawei/Xiaomi, we expect BYDE to gradually expand EMS share to 50%/40% in FY21E from 20-30% /10-20% in FY19. For Apple, we believe BYDE will ramp iPod Touch/iPad EMS in 2H20E, and ship ceramic components for watch and 5G phone antenna in 2H20E. For casing, we expect share gain in Samsung and strong demand for glass/ceramic casing on 5G adoption.
- Expect mask revenue of Rmb9.3bn in FY20E. Backed by mask capacity of 30mn/day and 2-3mn/day net-add in April, we forecast mask segment to deliver Rmb9.3bn revenue with 20-25% GPM in FY20E, accounting for 13% of FY20E revenue. We expect BYDE to maintain this business after outbreak, and contribute RMB1.9bn/930mn in FY21/22E.
- Upgrade to BUY; Core segment/mask to boost growth ahead. We are positive on BYDE’s 5G product roadmap, share gain in major brands and new mask business. We lifted FY20-22E EPS by 32-153% and raised TP to HK$22.2 based on SOTP valuation for BYDE’s diversified businesses. Major catalysts include smartphone recovery and stronger mask demand.
