Q-tech’s FY20 net profit grew 55% YoY to RMB840mn, in-line with positive profit alert earlier, mainly driven by 52% CCM ASP hike despite 3% shipment decline. GPM further improved 1ppt to 10.2%, due to better product mix and scale benefits. Looking in 2021, we are positive on mgmt. guidance of 30% YoY CCM/FPM shipment growth and 30%+ high-end 32MP CCM mix. We raised our FY21-22E EPS by 13-14% to reflect better GPM and CCM share gain. We also lifted our TP to HK$23.0 based on same 20X FY21E P/E. Trading at 12.9x FY21E P/E with 18% FY21-23E EPS CAGR, we think the stock is attractive. Reiterate BUY.
- Results in-line; Better GPM is a positive sign of improving landscape. Q-tech revenue/net profit growth of 32%/50% is largely in-line, backed by 47% YoY CCM growth despite 24% YoY FPM decline. By 2H20, revenue/ net profit grew 6%/40% YoY, due to slower CCM ASP hike on Huawei ban (+22% YoY, vs +100% in 1H) and stronger GPM of 12.1% (vs 8.3% in 1H). We expect higher GPM will sustain into 2021, given spec upgrade recovery, better efficiency/automation, and improving landscape on O-Film weakness.
- 2021: 30%+ YoY volume growth and high-end share gain. On the back of post-COVID-19 recovery, we expect Q-tech will benefit from strong rebound of global smartphone shipment and spec upgrade cycle. Mgmt. guided 30% YoY growth for both CCM/FPM and 30% CCM 32MP mix, thanks to high-end CCM share gain, India expansion, and Samsung order win. We are positive on Q-tech’s product roadmap in miniaturization, 3D sensing and periscope optical zoom, and we expect steady HCM ASP at 3% FY21-23E CAGR.
- Proposed A-share spin-off to accelerate Auto/IoT CCM and vertical integration. Mgmt. reiterated long-term roadmap for auto/IoT CCM and vertical integration strategy through spin-off to A-share listing. For auto CCM, Q-tech started to build production capacity since 2018 (2kk/yr in 2020), and it targets to accelerate expansion of ADAS products and MP of DMS/ODS projects in 2021. In addition, Q-tech will start mass production of 13MP-64MP CCM under Project Apollo in 2021 to offer turnkey solutions by integrating with Neamax and other related companies (e.g. VCM, connector, FPCB).
- Reiterate BUY; Lift TP to HK$23.0 (56% upside). We revised up FY21E-22E EPS by 13-14% to factor in stronger GPM and CCM share gain. Our new TP of HK$23.0 is based on same 18x FY21E P/E. Catalysts include Samsung HCM order win and A-share spin-off progress.
