We hosted CMBI Technology Virtual Corporate Day with 10 A/H listed companies last week. Overall, both corporates and investors are positive on 5G supply chain opportunities and technology trends post COVID-19. While most companies expect China 5G network rollout and 5G smartphone adoption are well on track in FY20/21E, there exists NT uncertainties from Huawei restriction and 2H demand recovery. We prefer 5G infra names, such as SY Tech, SCC and ZTE, given “New Infra” policy support and LT growth opportunities from strong data demand. We also like Apple plays and share gainer, such as BYDE, FIT Hon Teng and Luxshare amid Huawei uncertainties and China-India dispute.
- 5G infra: China 5G well on track; supply chain localization to accelerate. Most companies expect China new 5G BTS to reach 60-80k in FY20E and 2H20E demand will remain robust despite Huawei concerns. We believe domestic PCB and BTS supply chain will benefit most, since Chinese operators will accelerate 5G rollout with localization trend in 2H20E.
- Smartphone: NT uncertainties from Huawei restriction, China-India dispute and COVID-19 in India/ SEA. All companies indicated China 5G shipment is ahead of expectations despite COVID-19 outbreak and Huawei ban. While trough is likely over, mgmt. remain cautious on overseas outlook in near term, given demand uncertainties in India/ SEA. Most investors hold a mixed view on Android camp given recent Huawei restriction and China-India dispute, and we see increasing investor interests in Apple 5G cycle.
- Component: high-end Android under pressure; Focus on 5G iPhone cycle. Recent industry datapoints suggested high-end Android models are under pressure given consumer budget constraints and lack of innovative features. Both Sunny and Q-tech expected HCM ASP/GPM to remain stable in FY20E, and benefit from further share gain amid industry consolidation. We expect 5G iPhone supply chain will enjoy strong cycle in 2H20/2021E.
- Prefer 5G infra and Apple plays. China tech supply chain has underperformed most sectors YTD due to supply chain disruption in 1Q, Huawei ban and demand weakness in 2Q. While most negatives in 1H20 are priced in, we suggest to focus on themes with high visibility into 2021. We recommend 5G infra and Apple plays as global 5G network will continue to build out in 2021 and 5G handset cycle will accelerate after 5G iPhone launch in 2H20E. We continue to like BYDE, FIT Hon Teng and Luxshare for Apple plays and share gainers, and we expect ZTE, Shengyi Tech and SCC will benefit from 5G infra upgrade.
