Q-tech’s 1H20 net profit grew 85% YoY to RMB336mn, reaching high-end of its profit alert (up 50-90% YoY) and beating our/consensus estimate by 14%/30%. The beat was mainly driven by higher camera module revenue (+97% YoY) with better product mix (ASP +100% YoY, vs +52% our est.). We believe improving product mix will continue to drive ASP/margin expansion in 2H20E. We raised FY20-22E EPS by 1-7% to reflect better ASP and margin. Our new TP of HK$16.6 (43% upside) is based on same 18x FY21E P/E. Reiterate BUY.
- 1H20 NP reaching high-end of profit alert; HCM ASP up 100% YoY. 1H20 net profit growth of 85% YoY is at high-end of guidance (+50-90% YoY) in positive profit alert, backed by 74% YoY revenue growth and 10bps GPM improvement. HCM (handset camera module) ASP hike of 100% YoY is the major surprise, mainly driven by better 32MP+ mix of 28% (vs 6.5% in 1H19). Despite COVID-19 impact on utilization in 1Q20, GPM held steady at 8.3% in 1H20 (vs 8.2% in 1H19). As for FPM (fingerprint module), revenue dropped 7% YoY due to 7% volume growth offset by 12% ASP decline.
- FY20E guidance unchanged; HCM spec upgrade intact ahead. Mgmt. maintained HCM shipment guidance of “-5% to 5% YoY growth” in FY20E and HCM 10MP+/32MP+ pixel mix of 60%+/25%+. We are positive on Q-tech’s HCM capacity expansion in India (10kk/m by end-2020) and product roadmap in miniaturization, 3D sensing, and periscope optical zoom. We expect pixel upgrade and periscope adoption to drive HCM ASP growth at 21% YoY in 2H20E and 3% CAGR in FY20-22E.
- New Newmax CEO to enhance integration; Samsung HCM shipment upside. Despite Newmax’s 1H20 net loss of NT$186mn due to COVID-19 impact, mgmt. is confident to enhance Newmax’s LT core competency and recent CEO appointment of ex-Liteon general manger will accelerate technology development and vertical integration with Q-tech. In addition, we expect Q-tech will expand into Samsung HCM in 2H20E-1H21E, which will boost HCM growth in FY21E.
- Reiterate BUY; Lift TP to HK$16.6 (43% upside). We revised up FY20E-22E EPS by 1-7% to factor in stronger 1H20 and higher HCM ASP. Our new TP of HK$16.6 is based on same 18x FY21E P/E. Catalysts include Samsung HCM order win and 3D sensing adoption.
