Tongda’s 1H20 net profit of 90% YoY decline is in-line with profit warning (85-90% YoY decline) due to slower upgrade and net exchange loss (vs FX gain in 1H19). Looking into 2H20E, we expect intense competition on glastic casing and slower iPhone waterproof upgrade will continue to drag margin in the near term, offsetting Xiaomi/Samsung’s recovery and 5G iPhone cycle in 2H20E. We revised up FY20-22E revenue for better Samsung/Xiaomi shipment but lowered GPM by 0.1-9ppt for inferior product mix and intense competition. We maintain Hold on the stock with TP HK$0.5, based on 7x FY21E P/E.
- 1H20 weakness in-line due to slower upgrade and FX loss. Tongda’s 1H20 net profit decline of 90% YoY is largely in-line with profit warning (85-95% YoY) due to weaker GPM and FX loss, while 1H20 revenue growth of 2% YoY is 11%/5% higher than our/market estimates, thanks to solid casing revenue (+10% YoY) offsetting NB/automobile/household product weakness amid COVID-19 impact. GPM came in at 15.2% (vs 21.1% in 1H19) given slower upgrade of glastic casings and lower margin of iPhone components.
- 2H20E: Xiaomi/Samsung’s recovery but margin risk persists. Despite rapid glastic casings adoption on Xiaomi/Samsung 5G smartphones, mgmt. maintained FY20E shipment of 150mn, which implies 5% YoY decline to 80mn in 2H20E (vs 84mn in 2H19). We estimate 2H20E handset revenue to decline 3% YoY with flattish blended ASP given higher mix of lower-ASP glastic product. In addition, we expect iPhone revenue to remain flattish in FY20E, and product launch delays will drag GPM to 19% in FY20E (vs 22% in FY19). Overall, we estimate 2H20E revenue to decline 4% YoY (vs +2% in 1H20E), and top 3 clients will remain Xiaomi, Apple and Samsung, accounting for 30%/20%/15% of FY20E revenue.
- Maintain Hold with TP HK$0.5. We raised FY20-22E revenue given better Samsung/Xiaomi shipment but trimmed GPM by 0.1-9ppt for inferior product mix and intense competition. We maintain Hold with TP HK$0.50 based on 7x FY21E P/E (1-sd below hist. avg.), given weaker growth visibility and margin downside risks. In the long term, we believe Tongda will benefit from glastic casing adoption, 5G iPhone upcycle and IoT opportunities, but current valuation of 6.5x FY21E P/E is fair in our view, given lack of near-term catalysts.
