Sunway released FY20E earnings preview with net profit growth between -4.9% and 4.9%, with mid-point of RMB1.0bn which is 23%/24% below our/consensus estimates. By 4Q20, we estimate revenue/net profit of RMB1,832/274mn, up 18% /42% YoY. We believe the miss is mainly due to slower antenna, GPM pressure, higher R&D and RMB appreciation. We cut FY20-22E estimates by 17-27% to reflect more conservative assumptions, and trimmed our TP to RMB46.7 based on same 31.4x FY21E P/E. We expect near-term pressure on stock price, but we maintain our positive view on Sunway’s antenna/wireless charging with 32%/51% sales CAGR in FY20-23E given strong 5G smartphone shipment and rapid adoption of wireless charging. Maintain BUY.
- Weaker 4Q20 due to slower antenna and FX impact. We believe the miss was mainly due to 1) slower antenna and GPM pressure due to competition, 2) product launch delay of major clients; 3) domestic client impact on macro uncertainties, 4) foreign exchange loss due to RMB appreciation, and 5) higher R&D expense and share-based compensation. By 4Q20, revenue/net profit grew 18%/43% YoY, and GPM came in at 34.0% (vs 33.3% in 4Q19).
- Positive outlook for 5G antenna upgrade and wireless charging. As global leader in antenna and wireless charging, we expect Sunway to accelerate category expansion in both Apple/Android camp ranging from smartphones to tablets to AIoT (Watch/TWS/band). We forecast antenna to grow 32% FY20-23E CAGR, driven by share gain for LDS antenna and 5G antenna upgrade. Also, we expect Sunway’s wireless charging to grow 51% CAGR in FY20-23E given share gain in iPhone/iPad/wearables, Android adoption and product launch of transmitters (e.g. Magsafe and Airpower).
- Maintain BUY; lower TP to RMB46.7. We adjusted our estimates and lower TP to RMB46.7 (same 31x FY21/P/E) to reflect more conservative revenue and margin assumptions. We expect near-term pressure on stock price, but we recommend to accumulate after correction as we believe Sunway will benefit from 5G smartphone shipment and rapid adoption of wireless charging. Potential risks include slower-than-expected market share gain and delay in 5G upgrades.
