【Company Research】Goertek (002241 CH) – Riding on TWS/VR boom; Upgrade to BUY

We upgrade Goertek to BUY (from Hold) as we turn more positive on its product pipeline of AirPods Pro/Studio and Oculus Quest/PSVR in FY20/21E, backed by TWS/wearables upcycle, capacity expansion and impressive yield improvement.  We expect 2H20E/FY21E net profit to grow 118%/ 51% YoY, and our FY21/22E EPS are 19%/13% above consensus. Our new TP of RMB46 is based on 40x FY21E P/E, in-line with 1-sd above 5-yr average P/E, given 35% FY20-22E EPS CAGR, strong earnings visibility and improving ROE. Near-term catalysts include product launches of AirPods Studio, HomePod 2 and Oculus Quest2 in 2H20E.

 

  • TWS: AirPods momentum, share gains and improving margin. We are positive on Goertek’s leading market position and growth outlook of its AirPods/TWS segment. We estimate AirPods shipment will grow 45%/22% YoY to 94mn/115mn in FY20E/21E, and Goertek will gain share allocation from 20% in FY19 to 23%/37% in FY20/21E. In addition, we expect improving product mix and production yield to drive earnings upside in after new production lines of AirPods Pro commerce operations in 3Q20E.

 

  • VR/AR: Oculus Quest and Sony PSVR to boost growth. Goertek is global pioneer in VR/AR industry since partnership with Oculus and Sony in 2014. We expect Goertek to start shipment of Oculus Quest series in 2H20E, and VR/AR segment will regain traction with 82%/40% YoY growth in FY20/21E, backed by new product cycle from Oculus Quest 2 and Sony PSVR 2. In addition, Goertek recently announced to raise RMB4bn convertible bond to expand capacity for 28.6mn TWS earphones, 3.5mn VR/AR products and 5mn AR/VR optical modules, which will help boost share gain and drive revenue growth in FY20-21E.

 

  • Upgrade to BUY with new TP of RMB46. We revised up our FY20-22E EPS by 27-51%, mainly to reflect our more positive view on AirPods shipment/margin upside given strong consumer demand and cancellation of in-box earphones in iPhone 12 in 2H20E. Our FY21/22E EPS are 19%/13% above consensus, and our TP of RMB46 is based on 40x FY21E P/E, in-line 1-sd above its 5-yr average P/E, given 35% FY20-22E EPS CAGR, strong earnings visibility and improving ROE. Near-term catalysts include product launches of AirPod Studio, HomePod 2 and Oculus Quest2 in 2H20E.
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