During Xiaomi’s annual Mi Developer Conference (MIDC 2020) on 5 Nov, BYDE’s CEO attended as keynote speaker to reiterate its strategic partnership with Xiaomi across all categories in next few years, and BYDE was also awarded as Xiaomi’s best strategic partner in past four years. We believe it affirmed our view that Xiaomi will emerge as BYDE’s second largest customer with 19% of FY21E sales (vs 9% in FY20E), which will offset Huawei loss since 2H20E. We remain positive on BYDE as the major beneficiary of industry consolidation and Apple/ Xiaomi’s supplier diversification strategy. We slightly adjusted our EPS to reflect lower mask demand and stronger shipment from Xiaomi/iPad. Our new SOTP-based TP of HK$49.5 is based on lower mask target multiple. We believe recent correction already reflected weaker mask sales, and we recommend investors to accumulate on recent weakness for BYDE’s positive outlook.
- Strategic partnership with Xiaomi to drive growth. We expect BYDE’s EMS share allocation from Xiaomi to increase to 40% in FY21E from 10-20% in FY20E, and its revenue from Xiaomi will jump almost three times to RMB20bn in FY21E. Mgmt. stated that BYDE’s capacity for Xiaomi will reach 100mn in FY21E (vs 20mn in FY20E). As we expect Huawei will scale down its smartphone biz under US ban in FY21E, we think new orders from fast-growing Xiaomi can mitigate the Huawei impact.
- Apple: iPad/Watch EMS/components well on track. We believe BYDE will start to ship with 20-30% share allocation in latest iPad model in 2H20E, and it will expand to 30-40% share for all iPad products in 2021. Overall, we estimate Apple revenue will increase 280% YoY to RMB38bn in FY21E (37% of sales). As we believe Apple will continue to diversify component suppliers, we expect BYDE to gain share in iPhone/Watch ceramic products and also penetrate into iPad metal casing and front glass. We forecast Apple revenue will reach RMB50bn in FY22E.
- Our FY21/22E EPS are 28%/38% above consensus; Reiterate BUY. We remain positive on BYDE’s 5G roadmap, stronger partnership with major brands and expansion into medical segment. We slightly revised down our SOTP-based TP to HK$49.5 (from HK$50.4) to reflect weaker mask demand and assign lower 8x multiple for mask biz. Our TP implies an undemanding valuation of 16.3x FY21E P/E. Catalysts include faster share gain, stronger mask and Xiaomi/Apple product launches.
