瑞信-美股-电子元器件行业-台湾元器件行业2019年回顾：改善整个零部件供应链的基本面-2019.9.14-64页.pdf

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.14 September 2019 Asia Pacific/Taiwan Equity Research Electronic Components&Connectors Taiwan Components Sector Research Analysts Pauline Chen 886 2 2715 6323 pauline.chencredit- Angela Pan 886 2 27156352 angela.pancredit- QUARTERLY 6M 2019 review:Improving fundamentals across components supply chain Figure 1:Lens,power,cooling,handset components and PCB saw better EPS growth in 6M19 Source:Company data We summarise the key findings from 96 sample downstream component companies 6M 2019 financial reports.(1)Ex.passive,the components sector saw 11%YoY operating profit growth off flattish revenue,with OPM expansion of 67 bp YoY,driven by 1 pp YoY expansion in lens,handset components,cooling,power supply,connector,and hinge.(2)Inventory days declined from a historical high to 70 days,but still above the 2008-18 2Q average of 58 days.(3)Lens,handsets components,and cooling saw double-digit YoY growth in capex,while overall components saw a 10%YoY decline in capex.(4)The Apple chain saw a narrowed revenue YoY decline,narrowed OPM YoY contraction,improved inventory turnover,declining capex,but increasing RD expense.(5)Cost rigidity in components is seen in the higher labour cost ratio,growing depreciation and RD expense,while EMS saw flat or declining ratios of labour cost,depreciation,and RD.Stock calls.We see improving fundamentals across the component supply chain and see declining inventory levels coupled with new model launches driving 3Q19 revenue upside.While the yet-to-be-solved trade dispute remains an overhang,we prefer companies with clear spec upgrades,including Largan,Unimicron,and NYPCB.We view the latest Apple event as an incremental positive catalyst for Catcher and Largan.(5.00)0.005.0010.0015.0020.006M19 EPS6M18 EPS(NT$)14 September 2019 Taiwan Components Sector 2 Focus charts Figure 2:Revenue comparison(6M 2019)Figure 3:Capex comparison(6M 2019)Source:Company data Source:Company data Figure 4:Operating profit comparison(6M 2019)Figure 5:Labour costs comparison(6M 2019)Source:Company data Source:Company data Figure 6:EPS comparison Figure 7:Inventory days down from historical high Source:Company data Source:Company data -40%-30%-20%-10%0%10%20%050,000100,000150,000200,000250,000300,000Revenue(LHS)Revenue growth(RHS)(NT$mn)0%3%6%9%12%15%18%05,00010,00015,00020,00025,00030,00035,000capex(LHS)Capex-to-sales(RHS)(NT$mn)0%5%10%15%20%25%30%35%40%45%50%02,0004,0006,0008,00010,00012,00014,00016,00018,000operating profit(LHS)OPM(RHS)(NT$mn)0%5%10%15%20%25%30%010,00020,00030,00040,00050,00060,000labour cost(LHS)labour cost as of sales(RHS)(NT$mn)(5.00)0.005.0010.0015.0020.006M19 EPS6M18 EPS(NT$)20304050607080Mar-08Mar-09Mar-10Mar-11Mar-12Mar-13Mar-14Mar-15Mar-16Mar-17Mar-18Mar-19componentEMS(days)14 September 2019 Taiwan Components Sector 3 6M 2019 review:Improving fundamentals across the components supply chain Sub-sector highlights We summarise the key findings from 96 sample downstream component companies 6M 2019 financial reports.(1)Ex.passive,the components sector saw 11%YoY operating profit growth off a flattish revenue,with OPM expansion of 67 bp YoY,driven by 1 pp YoY expansion in lens,handset components,cooling,power supply,connector and hinge;(2)inventory days declined from its historical high to 70 days,still above the 2008-18 2Q average of 58 days;(3)lens,handsets components and cooling saw double-digit YoY growth in capex,while overall components saw a 10%YoY decline in capex;(4)the Apple chain saw a narrowed revenue YoY decline,narrowed OPM YoY contraction,improved inventory turnover,declining capex but increasing RD expense;and(5)cost rigidity in components is seen in the higher labour cost ratio,and growing depreciation and RD expense,while EMS saw flat or declining ratios for labour,depreciation and R&D expense.Stock highlights Power supply:Power supply expects the cost structure to stay favourable into 3Q19,but the continued investment into relocation outside China might cap margins in the next two years.For Delta,we think DETs acquisition is EPS neutral,because revenue upside from the acquisition is offset by intangible asset amortisation and the removal of investment income.Risks:Demand uncertainty,slower 5G deployment and rising trade tensions.Handset components:We believe the accelerating lens upcycle would solidify Largans technology leadership,and drive ASP growth,including:(1)7P becoming mainstream for the high-end flagship in 2020,and 8P design under way;(2)the adoption of periscope design;and(3)under-display lens.We will monitor the competition landscape,with Genius ramping up,and the potential entry from Sunny Optical in the Apple supply chain.For Merry,we think ODMs limited value add to TWS would lessen the earnings upside from decent unit growth.For TXC,we continue to monitor when 5G opportunities materialise.Risks:Rising trade tensions,slower smartphone sell-through and slower spec upgrade.Casings:We revised down Catchers 2H19 rebound due to pricing pressure and cost rigidity.We think negatives are priced in with current P/B at-2 STD,and see upsides from lower price of iPhone 11(US$50 below iPhone XR).For Casetek,we see good development in new wearable projects,which however will come at greater cost.We see a bumpy road for Casetek to capitalise on a bigger TAM.We are uncertain of the sustainability of FTCs profitability.Risks:Apples product demand,enhanced competition,pricing pressure and rising trade tensions.PCB(printed circuit board):We raise forecasts for Unimicron as we see better-than-expected profitability improvement from substrate(ABF).NYPCBs 2Q19 margin was slower due to non-substrate business,but we remain constructive on earnings strength from the ABF upcycle.For Kinsus,we believe that the relatively softer ABF business,with non-ABF still a drag on earnings,could continue to cap the share price.We see decelerating core profit growth in 2H19 for Tripod from a high base capping further share price upside.For Chin Poon,we think the unit rebound expected in the market should be revised down to factor in downsides from heightened competition.Risks:Rising trade tensions,slower 5G deployment,slower recovery of GPU/CPU or server,and weaker smartphone sell-through.Connectors:We like Sinbon and BizLink for their diversification and solid track record.For Hu Lane,we believe slower sales were more than just a cyclical issue and expect more downside risks from intensified competition and more severe pricing pressure.Risks:Rising trade tensions and key customers outlook(Tesla for BizLink;Geely for Hu Lane).Key highlights from components 6M2019 financial reports suggests improving fundamentals across sub-sectors 14 September 2019 Taiwan Components Sector 4 Sector valuation matrix Figure 8:Stocks EPS outlook and valuation Company Ticker CS rating P/E(x)P/B(x)ROE(%)2018 2019 2018 2019 2018 2019 Delta 2308 TT N 20.8 15.8 2.9 2.7 14%17%LOT 2301 TT N 14.4 13.5 1.6 1.5 11%11%Chicony 2385 TT N 18.5 12.0 2.8 2.5 15%21%Catcher 2474 TT O 6.4 11.5 1.2 1.1 18%10%FTC 2354 TT N 9.8 10.6 0.9 0.9 9%8%Casetek 5264 TT N n.a.43.6 0.7 0.7-5%2%Largan 3008 TT O 21.5 19.0 4.9 4.1 23%22%Merry 2439 TT N 14.4 12.1 2.9 2.7 20%22%TXC 3042 TT N 19.3 19.3 1.4 1.4 7%7%BizLink 3665 TT O 19.3 16.5 3.0 2.7 15%16%Sinbon 3023 TT O 20.9 19.4 4.5 4.1 22%21%Hu Lane 6279 TT N 12.4 16.0 1.7 1.7 14%11%Chin Poon 2355 TT N 78.3 20.1 0.8 0.8 1%4%Kinsus 3189 TT N 54.2 n.a.0.7 0.7 1%-6%Unimicron 3037 TT O 38.2 19.7 1.5 1.4 4%7%Tripod 3044 TT N 11.9 10.9 1.8 1.7 15%15%NYPCB 8046 TT O n.a.70.7 0.9 0.9-2%1%Topoint 8021 TT N 11.4 13.3 0.7 0.6 6%5%Company Ticker CS rating Price Target EPS(NT$)EPS growth(%)local local 2018 2019 2018 2019 Delta 2308 TT N 146.0 175.0 7.00 9.23-1%32%LOT 2301 TT N 48.7 48.0 3.38 3.59 203%6%Chicony 2385 TT N 91.0 87.0 4.92 7.60-11%55%Catcher 2474 TT O 233.5 278.0 36.31 20.33 28%-44%FTC 2354 TT N 63.6 70.0 6.47 6.02-8%-7%Casetek 5264 TT N 52.1 53.0-4.05 1.19 n.a n.a Largan 3008 TT O 3900.0 5400.0 181.67 205.11-6%13%Merry 2439 TT N 148.5 170.0 10.34 12.27-43%19%TXC 3042 TT N 40.2 41.0 2.08 2.08-33%0%BizLink 3665 TT O 227.0 258.0 11.75 13.78 17%17%Sinbon 3023 TT O 130.0 118.0 6.23 6.72 15%8%Hu Lane 6279 TT N 74.2 80.0 6.00 4.63-40%-23%Chin Poon 2355 TT N 32.2 36.0 0.41 1.60-89%290%Kinsus 3189 TT N 42.1 42.0 0.78-3.46-30%n.a Unimicron 3037 TT O 43.3 46.0 1.13 2.19 318%93%Tripod 3044 TT N 112.0 113.0 9.40 10.26 13%9%NYPCB 8046 TT O 41.4 46.0-0.90 0.58 n.a n.a Topoint 8021 TT N 20.2 22.0 1.77 1.51 19%-14%Note:Priced as of 12 September 2019.O=Outperform,N=Neutral.Source:Company data,Credit Suisse estimates 14 September 2019 Taiwan Components Sector 5 Table of contents Focus charts 2 6M 2019 review:Improving fundamentals across the components supply chain 3 Sub-sector highlights.3 Stock highlights.3 Sector valuation matrix 4 Key findings in 6M 2019 financial reports 6 Revenue growth.6 Operating profit growth and operating margin(OPM).6 EBITDA margin.7 Labour costs.7 Capex.8 Depreciation expense.8 Inventory and cash conversion cycle.9 ROIC.10 R&D spending.10 Other highlights.11 Sub-sector highlights 12 Power supply.12 Casing.18 Handset components.25 PCB.32 Connectors/Cable.45 14 September 2019 Taiwan Components Sector 6 Key findings in 6M 2019 financial reports We summarise the key findings from 96 sample downstream component companies 6M 2019 financial reports.Revenue growth Revenue YoY decline for the components sector narrowed to-1%YoY in 6M19(from -4%in 3M19),driven by accelerated growth in lens and cooling,offsetting the double-digit YoY decline in passive components.iPhone supply chains YoY decline also narrowed to 9%YoY in 6M19(from the-18%YoY decline in 3M19),reflecting better-than-expected restocking.Within the 11 sub-sectors,cooling saw the strongest YoY growth(+16%),driven by growing incremental demand from communication and smartphone,and double-digit YoY growth was also seen in lens(+11%)and handset components(+10%),driven by ASP strength from spec upgrades and share gains.Figure 9:6M 2019 revenue comparison Figure 10:6M 2019 revenue-mix by sector Source:Company data Source:Company data Operating profit growth and operating margin(OPM)Operating profit for the components sector also saw a 9%YoY decline in 6M 2019,off a 1%YoY revenue decline.But ex.passive,the components sector saw 11%YoY growth off flattish sales in 6M 2019.Power supply was one of the main contributors to growth,as it saw a larger percentage increase in the mix,thanks to more favourable passive components costs and favourable forex(weaker NTD and RMB).Lenss operating profit also grew 17%YoY to account for 19%of operating profit,thanks to solid spec upgrades.Sub-sector wise,cooling,power supply,connector,PCB,lens and hinge delivered at least double-digit operating profit YoY growth,up 111%/46%/29%/25%/17%/17%YoY,respectively,while PC components and battery also showed YoY growth,up 7%/2%YoY.Casings YoY decline narrowed sequentially(from 3M19)to 59%YoY in 6M19.The OPM for the components sector saw a 59 bp YoY contraction to 7.3%in 6M 2019,but ex.passive,components saw a 67 bp YoY expansion to 6.6%.Lens still had the highest OPM of 45.2%and PC components(replacing handsets components)had the lowest OPM of 2.9%in 6M 2019.On a YoY basis,ex.lens handset components continued to enjoy the biggest OPM improvement(up 350 bp YoY),driven by the turnaround in Cheng Uei/Easetech/Ichia,and profit improvement in Merry/UMT.On the other hand,passive components OPM enlarged(down 19.6 pp YoY),hurt by a continued inventory correction in the China market.-40%-30%-20%-10%0%10%20%050,000100,000150,000200,000250,000300,000Revenue(LHS)Revenue growth(RHS)(NT$mn)Power,28%Battery,4%Hinge,1%PC com,5%Connector,5%Casing,11%Lens,3%HS ex lens,7%Passives,4%Cooling,4%PCB,28%Revenue decline narrowed to-1%YoY in 6M19,driven by accelerated growth in lens and cooling,offsetting the double-digit YoY decline in passive components Ex.passive,components saw a 67 bp OPM YoY expansion to 6.6%14 September 2019 Taiwan Components Sector 7 Figure 11:6M 2019 operating profit comparison Figure 12:6M 2019 operating profit-mix by sector Source:Company data Source:Company data EBITDA margin The EBITDA margin for the components sector was flattish at 13.5%in 6M19(vs 13.4%in 6M18).Lens still enjoyed the highest EBITDA margin at 54.9%and battery pack still had the lowest EBITDA margin at 6.3%.Ex.lens handset,components continued to see the biggest EBITDA margin improvement of 388 bp YoY,while power supply,connector,lens,PCB and cooling also delivered 100 bp+YoY EBITDA margin expansion.On the other hand,passive components EBITDA margin contraction widened to 17.81pp YoY.Figure 13:6M 2019 EBITDA margin comparison Figure 14:6M 2019 EBITDA profit-mix by sector Source:Company data Source:Company data Labour costs In 6M 2019,labour costs for the components sector increased slightly 1%YoY and accounted for 17.9%of the components sectors revenue,well above the 2008-18 average of 15.0%.Lens still had the highest labour intensity,with the labour cost reaching 24.1%of 6M 2019 revenue,and battery pack still had the lowest labour intensity at 6.9%.On a YoY basis,ex.lens handset components,lens,cooling,connector,PC components,and hinge did not see margin headwinds from labour costs outgrowing sales in 6M 2019.0%5%10%15%20%25%30%35%40%45%50%02,0004,0006,0008,00010,00012,00014,00016,00018,000operating profit(LHS)OPM(RHS)(NT$mn)Power,21%Battery,3%Hinge,2%PC com,2%Connector,6%Casing,8%Lens,19%HS ex lens,3%Passives,14%Cooling,3%PCB,18%0%10%20%30%40%50%60%05,00010,00015,00020,00025,00030,00035,00040,000EBITDA(LHS)EBITDA margin(RHS)(NT$mn)Power,19%Battery,2%Hinge,2%PC com,2%Connector,5%Casing,13%Lens,13%HS ex lens,4%Passives,10%Cooling,3%PCB,27%Labour cost as of sales was 17.9%in 6M19,high above the historical average 14 September 2019 Taiwan Components Sector 8 Figure 15:6M 2019 labour cost comparison Figure 16:6M 2019 labour cost-mix by sector Source:Company data Source:Company data Capex Capex for the components sector declined 10%YoY in 6M 2019,reflecting rising demand uncertainties.Of this,43%of the spending was from PCB,followed by power supply(13%)and passive components(11%).PC components saw the biggest YoY growth of 137%(replacing battery),while casing(replacing power supply)saw the biggest decline in capex.Capex-to-sales for the components sector declined 68 bp YoY to 7.2%,but still above the 2008-18 average of 6.1%.Lens(replacing passive components)had the highest capex intensity with the capex-to-sales ratio reachi