瑞信-亚太地区-电子元器件行业-台湾套管行业：股价回调-2019.12.3-22页.pdf

Taiwan Casing Sector Accumulate leaders on share price pull back Electronic Components&Connectors|Sector Review Figure 1:Casing sector valuation comparison Note:Priced as at 02 Dec 2019,O=OUTPERFORM,N=NEUTRAL;Source:Company data,Credit Suisse estimates Prefer Aluminum alloy supply chain over stainless steel supply chain.We currently expect three Aluminum alloy models(out of five)in 2020E vs one Aluminum alloy model(out of three)in 2019,given Aluminum alloys better cost performance(to support OLED panel at a lower cost).Assuming Apples pricing strategy remains similar YoY,we think it might be reasonable to assume Al alloy TAM to grow YoY in 2020E.While vendor allocation for 2H20 models has not been finalised,we think the above trends would suggest a bigger Aluminum alloy TAM,and Catcher is unlikely to move to stainless steel in 2020E.Given its operational efficiency and willingness to offer a more competitive pricing,we expect Catcher to remain the largest Aluminum casing supplier in 2020E.Casetek unlikely in iPhone but can be a source for Apple Watch.We think the likelihood of Casetek supplying casing for the new iPhone models is low,given that(1)existing suppliers price offerings are too competitive for Casetek to make profits;(2)5G models require higher technology entry barrier,hence,it is risky to bring in new suppliers;and(3)Apple seems to have a super aggressive shipment target for 2H20E,which makes supply chain delivery crucial to achieve this target.Nevertheless,we expect Apple to continue its efforts in supplier diversification,and bring Casetek as the third source for a smaller project(Apple Watch).Accumulate Catcher on share price pull back.We revise our FY19-21E earnings forecasts on Catcher,Foxconn Tech,and Casetek,to factor in their 3Q19 results and updated outlook.The sector is trading at-1x SD P/B,because of market concerns over deteriorating profitability due to Apples aggressive pricing strategy.However,we think the recent profit-taking after iPhones monthly shipment peak(in Oct-2019)offers good opportunity to accumulate on leaders,and expect earnings to recover from 2H19,driven by better iPhone 11 volume,the SE2 launch to mitigate seasonal weakness,and ASP upgrade in 2H20E 5G models.We expect bigger Al alloy TAM in 2H20E models to benefit Catcher as the major supplier.Accordingly,we raise Catchers TP from NT$278(10 x)to NT$295(11x),to reflect our confidence in its earnings recovery.We think the trend will also benefit Foxconn group,but we prefer FII more than Foxconn Tech,given the formers higher exposure to 5G to include casing and assembly.We stay sideways on Casetek,given its bigger earnings volatility and lower cash dividend yield compared to the group.CompanyRatingTargetprice20192020201920202019202020192020CatcherO295.015.79.01.31.38.113.84.14.1FTCN70.010.89.40.90.98.69.44.75.4CasetekN53.0NA15.30.70.7(1.8)4.32.13.3P/E(X)P/B(X)ROE(%)Div yield(%)3 December 2019 Equity Research Asia Pacific|Taiwan DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Research Analysts Pauline Chen 886 2 2715 6323 pauline.chencredit- Angela Pan 886 2 27156352 angela.pancredit- 3 December 2019 Taiwan Casing Sector 2 Focus charts and table Figure 2:Casing sector valuation comparison Company Rating Target EPS EPS growth P/E(X)P/B(X)ROE(%)Div yield(%)price 2019 2020 2018 2019 2019 2020 2019 2020 2019 2020 2019 2020 Catcher O 295.0 15.66 27.39-9%75%15.7 9.0 1.3 1.3 8.1 13.8 4.1 4.1 FTC N 70.0 6.20 7.10 0%15%10.8 9.4 0.9 0.9 8.6 9.4 4.7 5.4 Casetek N 53.0(1.41)3.19-13%-327%NA 15.3 0.7 0.7(1.8)4.3 2.1 3.3 Note:Priced as at 02 Dec 2019,O=OUTPERFORM,N=NEUTRAL;Source:Company data,Credit Suisse estimates Figure 3:AI iPhone was 61%of 2017 new iPhone Figure 4:AI iPhone was 47%of 2018 new iPhone Source:IDC Source:IDC Figure 5:Share allocation in 2018 new iPhone Figure 6:Share allocation in 2019E new iPhone Source:Company data,Credit Suisse estimates Source:Company data,Credit Suisse estimates 2017 new iPhoneAIStainless steel2018 new iPhoneAIStainless steelFoxconn50-55%Catcher20-25%Jabil20-25%2H18 new iPhoneFoxconn50%Catcher25%Jabil25%2H19E new iPhone3 December 2019 Taiwan Casing Sector 3 Accumulate leaders on weakness We revise our earnings forecasts for Catcher,Casetek,and Foxconn Tech,post 3Q19 results and factoring in their updated outlook.We think the recent profit-taking after iPhone monthly shipment peak(in October 2019)offers good opportunities to accumulate on leaders,and we expect earnings to recover from 2H19,driven by better iPhone 11 volume,the Spring launch Aluminum alloy model to mitigate seasonal weakness,and ASP upgrade in 2H20E for 5G models.We also expect bigger Aluminum alloy TAM in 2H20E models to benefit Catcher being the key supplier.Accordingly,we raise TP from NT$278(10 x)to NT$295(11x),to reflect our confidence in its earnings recovery.We think the trend will also benefit Foxconn group,but we prefer FII than Foxconn Tech,given the formers higher exposure to 5G to include casing and assembly.We stay sideways on Casetek,given its bigger earnings volatility and lower cash dividend yield compared to the group.Figure 7:Casing sector valuation comparison Price Price Rating*Target Price Year CFPS CFPS FY1E CFPS FY2E CFPS FY3E Company Ccy 02 Dec 19 Prev Cur Prev Cur End Ccy Prev Cur Prev Cur Prev Cur Casetek Holdings Limited (5264.TW)NT$48.75 N*V-53.00 Dec-18 NT$15.16 10.91 19.51 16.16 21.42 18.48 Catcher Technology(2474.TW)NT$246.00 O 278.00 295.00 Dec-18 NT$37.32 31.75 46.22 45.47 52.42 51.62 Foxconn Technology Corp(2354.TW)NT$66.80 N-70.00 Dec-18 NT$7.66 7.77 8.84 8.67 9.15 8.98*O-Outperform,N-Neutral,U-Underperform,R-Restricted V=Stock consider volatile(see Disclosure Appendix).Company data,Credit Suisse estimates Prefer Aluminum alloy iPhone supply chain over stainless steel in 2020E We currently expect three Aluminum alloy models(out of five)in 2020E vs one Aluminum alloy model(out of three)in 2019,given Aluminum alloys better cost performance(to support OLED panel with cheaper casing cost).Assuming the customers pricing strategy remains similar YoY,we think it might be reasonable to assume Aluminum alloy TAM to grow YoY in 2020E.Expect spring launch to mitigate seasonal weakness For 2020,we expect a spring launch of SE to help the supply chain to defend overall utilisation rates in the seasonal 1H.We called it new SE for now,given similar casing feature as SE,although we are not sure about the precise name of the model.As a result,we think the supply chain for new SE would be largely the same as SE.This means we expect Catcher and Pegatron to remain the major casing and assembler for this model,and therefore,these two companies may find better-than-seasonal performance on smartphones.Figure 8:SE1 quarterly volume&%of total iPhone Figure 9:SE1 suppliers quarterly sales vs seasonal Source:IDC Source:Company data 0%2%4%6%8%10%12%14%16%18%20%01,0002,0003,0004,0005,0006,0007,0008,0001Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q181Q192Q193Q19SE1 volume(LHS)%of total iPhone(RHS)(,000 units)(%)-60%-40%-20%0%20%40%60%80%1Q163Q161Q173Q171Q183Q181Q193Q19Catcher sales QoQPegatron sales QoQ3 December 2019 Taiwan Casing Sector 4 Aluminum alloy likely still mainstream,Catcher less likely to move to stainless steel For 2H20,we expect the top customer to launch three different sized models.Of which,one model could potentially feature two casing design,which is probably why some suppliers said there could be four models in 2H20E(or five models in 2020E including the Spring launch).We expect Aluminum alloy to account for the majority of 2020 total volume vs stainless steel,given better cost performance(Aluminum alloy now supports OLED panel).This makes us to think the likelihood for Catcher to move to the stainless casing supply chain in 2020 is lower.We accordingly lower our blended ASP assumption for Catcher,but it is offset by higher GM,given less capex involved.Figure 10:AI iPhone was 61%of 2017 new iPhone Figure 11:AI iPhone was 47%of 2018 new iPhone Source:IDC Source:IDC New suppliers for Apple Watch,and not for iPhone Catcher likely to gain share on bigger Aluminum alloy TAM We expect to see three Aluminum alloy models(out of five models)in 2020E versus one Aluminum alloy model(out of three models)in 2019.Assuming the customers pricing strategy remains similar YoY,we think it might be reasonable to assume Aluminum alloy TAM to grow YoY in 2020E.While vendor allocation for 2H20 models has not been finalised,we think it might be reasonable to assume that Catcher remains the major supplier for Aluminum alloy casing,given its efficiency and willingness to offer more competitive pricing in 2019.This,together with the potential bigger Aluminum alloy TAM(with three Aluminum alloy models out of five models in 2020E),we therefore expect Catcher to at least maintain(if not gain)its overall market share for iPhones in 2020E.We think Foxconn group is likely to remain the largest supplier in stainless steel models and maintain a smaller share in Aluminum alloy models,given its full range of technology support.2017 new iPhoneAIStainless steel2018 new iPhoneAIStainless steel3 December 2019 Taiwan Casing Sector 5 Figure 12:Share allocation in 2H18 new iPhone Figure 13:Share allocation in 2H19E new iPhone Source:Company data,Credit Suisse estimates Source:Company data,Credit Suisse estimates Casetek likely not in iPhone but in case of Apple Watch Contrast to our previous expectations,we think the likelihood for Casetek to supply casing for new iPhone models is low,given that(1)existing suppliers price offerings are too competitive for Casetek to make profits;(2)5G models require higher technology entry barrier,which makes it risky to bring in new suppliers;and(3)the customer seems to have a super aggressive shipment target for 2H20E,which makes supply chain delivery crucial to achieve this target.As a result,we think it is very unlikely for the customer to bring in any new supplier,given lack of proven manufacturing track record and the rising technology entry barrier.We,however,expect the customers supplier diversification to continue,in order to get better cost structure to mitigate the impact from rising BOM migrating from 4G to 5G(in 2H20E).We,therefore,expect Casetek to be a third source of Apple Watch,given the existing(unlisted)casing suppliers unwillingness to lower ASP.Figure 14:Apple Watch volume&YoY Figure 15:iDevice annual volume mix Source:IDC Source:Company data,Credit Suisse estimates Foxconn50-55%Catcher20-25%Jabil20-25%2H18 new iPhoneFoxconn50%Catcher25%Jabil25%2H19E new iPhone-80%-60%-40%-20%0%20%40%60%80%02,0004,0006,0008,00010,00012,000Jun-16Sep-16Dec-16Mar-17Jun-17Sep-17Dec-17Mar-18Jun-18Sep-18Dec-18Mar-19Jun-19Sep-19Apple Watch volume(LHS)YoY(RHS)(K units)(%)050100150200250300350FY17FY18FY19FY20EFY21EiMacMacBookiPadiPhoneApple Watch(mn units)3 December 2019 Taiwan Casing Sector 6 Accumulate leaders on weakness,concerns overdone We expect ASP upgrade and bigger Aluminum alloy TAM in 2H20E models,which should benefit Catcher(OUTPERFORM),as the key Aluminum alloy supplier.We think the trend will also benefit Foxconn group,but we prefer FII(OUTPERFORM)more than Foxconn Tech(NEUTRAL),given the formers higher exposure to 5G(including casing and assembly).We stay sideways on Casetek(NEUTRAL),given more volatile earning performance and lower cash dividend yield compared to the group.Figure 16:Casing sector valuation table Company Rating Target EPS EPS growth P/E(X)P/B(X)ROE(%)Div yield(%)price 2019 2020 2018 2019 2019 2020 2019 2020 2019 2020 2019 2020 Catcher O 295.0 15.66 27.39-9%75%15.7 9.0 1.3 1.3 8.1 13.8 4.1 4.1 FII O 18.0 0.86 0.98 0%14%19.8 17.4 3.9 3.9 21.5 20.4 0.7 0.8 FTC N 70.0 6.20 7.10 0%15%10.8 9.4 0.9 0.9 8.6 9.4 4.7 5.4 Casetek N 53.0(1.41)3.19-13%-327%NA 15.3 0.7 0.7(1.8)4.3 2.1 3.3 Note:Priced as at 02 Dec 2019,O=OUTPERFORM,N=NEUTRAL;Source:Company data,Credit Suisse estimates Expect earnings recovery from 4Q19 In 9M19,we saw margin contraction for the three casing companies,given heavier pricing pressure.We note that the heavier pricing pressure was a result of the groups higher revenue exposure to Apple,which posted 17%YoY unit decline in 9M19.As a result,heavier pricing pressure from competition and the customer has led to 12.8 pp YoY GM erosion in 9M19 for Catcher/Casetek combined.Nevertheless,we expect the groups GM to show milder but sequential recovery from 4Q19,driven by new smartphone models and recovering utilisation rates.The potential launch of new SE next spring should offer buffer to the groups overall utilisation rates in the seasonally slow 1H.Figure 17:iPhone quarterly volume&YoY Figure 18:Catcher&Casetek quarterly GM trend Source:IDC Source:Company data Expect similar competition landscape in 2H19E However,profitability may still look ugly on YoY basis,given the lack of meaningful design changes for 2H19 models.We expect the 2H19 new smartphone models for their top customer to be largely similar to that in 2H18,in terms of size and materials(one featuring Aluminum casing,and two featuring stainless steel).The supply chain and allocation is also expected to remain roughly the same on YoY basis.-35%-30%-25%-20%-15%-10%-5%0%5%10%01020304050607080901Q163Q161Q173Q171Q183Q181Q19iPhone volume(LHS)YoY(RHS)(mn units)(%)0.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%1Q163Q161Q173Q171Q183Q181Q193Q193 December 2019 Taiwan Casing Sector 7 Figure 19:Share allocation in 2H18 new iPhone Figure 20:Share allocation in 2H19E new iPhone Source:Company data,Credit Suisse estimates Source:Company data,Credit Suisse estimates Valuation still at-1x SD P/B Catcher,Foxconn Tech,and Casetek are trading at-1x SD P/B,reflecting market concerns on deteriorating profitability given their top customers aggressive pricing strategy.However,we expect earnings to recover from 2H19,driven by better iPhone 11 volumes,the spring launch Aluminum alloy model to mitigate seasonal weakness,and ASP upgrade in 2H20E for 5G models.Our pecking order is Catcher over Foxconn Tech over Casetek in Taiwan.Figure 21:Top 3 casing forward P/E Figure 22:Top 3 casing rolling P/B Source:Company data,Credit Suisse estimates Source:Company data,Credit Suisse estimates Small cuts in SE2 offset by upward revisions in iPhone 11 We do expect the Foxconn group to be involved in this project,and are aware of the recent milder downward revisions on SE2 volume.We,however,think the volume change could be due to stronger-than-expected iPhone 11 demand.As we expect Catcher to have similar market share in iPhone