DISCLOSUREAPPENDIXATTHEBACKOFTHISREPORTCONTAINSIMPORTANTDISCLOSURES,ANALYSTCERTIFICATIONS,LEGALENTITYDISCLOSUREANDTHESTATUSOFNON-USANALYSTS.USDisclosure:CreditSuissedoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethattheFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.14September2019AsiaPacific/TaiwanEquityResearchElectronicComponents&ConnectorsTaiwanComponentsSectorResearchAnalystsPaulineChen886227156323pauline.chen@credit-suisse.comAngelaPan886227156352angela.pan@credit-suisse.comQUARTERLY6M2019review:ImprovingfundamentalsacrosscomponentssupplychainFigure1:Lens,power,cooling,handsetcomponentsandPCBsawbetterEPSgrowthin6M19Source:Companydata■Wesummarisethekeyfindingsfrom96sampledownstreamcomponentcompanies'6M2019financialreports.(1)Ex.passive,thecomponentssectorsaw11%YoYoperatingprofitgrowthoffflattishrevenue,withOPMexpansionof67bpYoY,drivenby>1ppYoYexpansioninlens,handsetcomponents,cooling,powersupply,connector,andhinge.(2)Inventorydaysdeclinedfromahistoricalhighto70days,butstillabovethe2008-182Qaverageof58days.■(3)Lens,handsetscomponents,andcoolingsawdouble-digitYoYgrowthincapex,whileoverallcomponentssawa10%YoYdeclineincapex.(4)TheApplechainsawanarrowedrevenueYoYdecline,narrowedOPMYoYcontraction,improvedinventoryturnover,decliningcapex,butincreasingRDexpense.(5)Costrigidityincomponentsisseeninthehigherlabourcostratio,growingdepreciationandRDexpense,whileEMSsawflatordecliningratiosoflabourcost,depreciation,andRD.■Stockcalls.Weseeimprovingfundamentalsacrossthecomponentsupplychainandseedeclininginventorylevelscoupledwithnewmodellaunchesdriving3Q19revenueupside.Whiletheyet-to-be-solvedtradedisputeremainsanoverhang,weprefercompanieswithclearspecupgrades,includingLargan,Unimicron,andNYPCB.WeviewthelatestAppleeventasanincrementalpositivecatalystforCatcherandLargan.(5.00)0.005.0010.0015.0020.006M19EPS6M18EPS(NT$)...
