【Company Research】FIT Hon Teng (6088 HK) – Weak 1H20 in-line; 2H recovery on Belkin/iPhone

FIT’s 1H20 profit decline of 78% YoY is in-line with profit warning earlier, driven by production shutdown on COVID-19 in 1Q20 and weaker Belkin impacted by US/EU lockdown in 2Q20. 1H20 flattish revenue was better than expected, while lower GPM of 13.6% is in-line (vs 19.6% in 1H19) due to higher COVID-19 expense and change in optical module biz model. After discussing with mgmt., we remain positive on FIT’s 2H recovery driven by 5G iPhone upcycle, 5G mobile antenna/ wireless charging and Belkin’s new TWS/speakers. We slightly adjusted our estimates to reflect 1H20 results and higher GPM in FY21-22E. Maintain BUY with new TP HK$4.10 based on same 15x FY21E P/E (5-yr hist. avg.).

 

  • 1H20 weakness in-line; Strong mobile/PC offset by Belkin weakness.  Despite weaker 1H20 earnings due to COVID-19, flattish revenue is better than our estimate of -7% YoY decline, thanks to 1) stronger mobile (+14% YoY) with iPhone SE and type-C upgrade, 2) better laptop/tablet (+6% YoY) on WFH demand, which offset weakness of Belkin’s smart accessories (-30% YoY). As production lines have resumed since 2Q20 and lockdown is gradually lifted in major cities, mgmt. is positive on 2H20 demand recovery and increasing trend of work-from-home for smart home products (routers, smart speaker) and datacenter (optical module).

 

  • Outlook: 5G product launch and Belkin recovery. Looking ahead, apart from 5G iPhone upcycle in 2H20E, mgmt. expected to accelerate product launches across all segments in 2H20, including 5G handset antenna, backplanes in base stations, Belkin’s TWS/speakers and automobile components. In particular, we expect Belkin business will drive earnings recovery and boost profitability in 2H20. We expect revenue/NP to recover with -3%/+4% YoY in 2H20E and 12%/45% YoY in FY21E.

 

  • Expect stronger 2H20 ahead; Maintain BUY with TP of HK$4.10. We adjusted FY20/21/22E EPS by 11%/-1%/-3% mainly for 1H20 results and better margin in FY21-22E. Our new TP of HK$4.1 is based on unchanged 15x FY21E P/E (in-line with 5-year hist. avg.). We estimate 26% EPS FY20-22E CAGR, backed by 9% revenue CAGR. Upcoming catalysts include new products from Belkin and 5G iPhone launch.
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