Goertek pre-announced FY20 revenue/net profit growth of 64%/123% YoY, which reached upper end of its prior earnings guidance (+115-125% YoY). We maintain our positive view on Goertek’s outlook backed by upcycle of AirPods /Watch/HomePod, better product mix and recovery of AR/VR demand. We raised FY21E/22E EPS by 16-18% to reflect stronger revenue and fine-tuned margins. Our new TP of RMB46.9 is based on lowered 35x FY21E P/E (vs prior 40x), given recent weaker sector sentiment. We believe stock price pullback on recent mgmt. changes provides good buying opportunity given Goertek’s product roadmap and high earnings visibility of 36% FY20-22E EPS CAGR. Maintain BUY.
- Strong 4Q20 results on AirPods momentum and improving yield. Goertek reported upbeat 4Q20 earnings with revenue/net profit of RMB22.9bn/838mn, up 108%/184% YoY. We attribute this to 1) higher share and improving yield for AirPods, 2) stronger AR/VR products (new Oculus), and 3) better demand for new products (AirPods Max, HomePod mini). For FY20, we estimate revenue from precision components/ hearables (AirPods/Homepod)/ smart products (watch, VR) grew 20%/65%/59% YoY.
- 2021 Outlook: AirPods and AR/VR as dual growth engines. We estimate AirPods shipment will grow 45%/22% YoY to 94mn/115mn in FY20E/21E, and Goertek’s share allocation will expand from 23% in FY20 to 37%/41% in FY21/22E, driving AirPods revenue growth of 103%/23% YoY. in addition, we expect Goertek VR/AR segment will regain traction with 40%/30% YoY growth in FY21/20E, backed by new product cycle from Oculus Quest and Sony PSVR in 2H20E.
- Share repurchase program announced. Goertek announced a new share repurchase program of RMB500mn-1bn with price no more than RMB39.0 per share, equivalent to 12.82mn-25.64mn share and 0.39-0.78% of its total shares outstanding. We believe the share buyback signaled mgmt.’s strong confidence about the company’s outlook.
- Maintain BUY with new TP of RMB46.9 We revised up our FY21-22E EPS by 16-18% to reflect stronger revenue and fine-tuned margins. Our FY21/22E EPS are 11%/7% above consensus, and our new TP of RMB46.9 is based on lowered 35x FY21E P/E (vs prior 40x), due to recent weaker sector sentiment. We believe recent correction offers good opportunity to accumulate the stock.
