Q-tech announced positive profit alert, stating FY20E NP growth of 40-60% YoY, with mid-point 5%/13% above our/consensus estimates. Mgmt. attributed strong growth to 1) significant CCM ASP increase on better product mix and 2) improving GPM on better CCM product mix and upgraded production automation. We raised our FY20-22E EPS by 1-4% to reflect better GPM/ASP and OVX/Samsung shipment upside. We also lifted our TP to HK$18.8 based on higher 20X FY21E P/E (vs 18x prev.) for higher sector valuation and proposed A-share spin-off. Trading at 14.2x FY21E P/E, we think the stock is attractive. Reiterate BUY.
- FY20E positive profit alert on 40-60% YoY NP growth. Q-tech stated FY20E NP to grow 40-60% YoY, with mid-point net profit (+50% YoY) 5%/13% above our/consensus estimates. We estimate FY20E CCM revenue growth of 45% YoY to RMB15.0bn, driven by 50% YoY ASP growth despite 3% YoY shipment decline due to COVID-19 and Huawei slowdown impact. As for FPM (fingerprint module), we estimate revenue to drop 25% YoY to RMB2.1bn mainly due to 10%/17% YoY shipment/ASP decline.
- Smartphone recovery on track; OVX/Samsung HCM shipment upside. On the back of post-COVID-19 smartphone recovery, we expect Q-tech will benefit from global smartphone growth of 7%/2% YoY and China smartphone growth 16%/5% YoY in FY21/22E, driven by strong demand of sub-RMB1k 5G phones. For Q-tech’s major clients, we estimate Oppo/Vivo/Xiaomi to grow 23%/25%/34% YoY to 145mn/138mn/200mn in FY21E, and we believe Q-tech will also expand share in Samsung CCM in FY21E. We are positive on Q-tech’s CCM roadmap in miniaturization, 3D sensing and periscope optical zoom, and we expect HCM ASP to grow 6% FY20-22E CAGR.
- Proposed A-share spin-off; Component tightness to alleviate in 1Q21E. Q-tech earlier announced the proposed spin-off of Kunshan Q-tech China, which focuses on CCM for smartphone, vehicle and IoT. We expect the funding could enhance CCM capacity/R&D and accelerate auto/IoT product pipeline in FY22E-23E. In addition, mgmt. expected recent component shortage will gradually alleviate given low seasonality in 1Q21E.
- Reiterate BUY; Lift TP to HK$18.8 (41% upside). We revised up FY20E-22E EPS by 1-4% to factor in stronger FY20E and higher HCM GPM/ASP. Our new TP of HK$18.8 is based on higher 18x FY21E P/E. Catalysts include Samsung HCM order win and A-share spin-off progress.
