Management guided 10% YoY sales growth and flattish GPM inFY16E, driven by 10 times fingerprint module shipment growth and+20%YoY vehicle display/touch modules sales
Positive on AMOLED outlook in the long term, but we expect limitedearnings contribution in FY16E until further yield improvement in FY17E
Lifted FY16-18E EPS by 8-12% on stronger fingerprint and vehicleorders; Maintain NEUTRAL on demanding valuation of 8.9x FY16E P/EExpect FY16E revenue recovery to continue into 2Q16EWe visited Truly’s AMOLED factory in Huizhou this week, and mgmt. isconfident to achieve 10% YoY revenue growth in FY16E, recovering fromrevenue/NP decline of -9%/24% YoY in FY15. Company expected fingerprintmodule shipment to grow 10 times or above in FY16E （vs 2kk units in FY15），and non-smartphone segment, especially vehicle products, to deliver 20%YoY sales growth in FY16E. We estimate the high-margin vehicle segmentwill deliver 25% sales CAGR during 2016-18E, backed by 34% sales CAGRof larger-sized TFT display following mass production of G4.5 TFT productionline in Huizhou in 2Q15. In March, Truly’s monthly sales declining trendlasted for 3 quarters reversed with 15% YoY growth （vs -12%/-4% YoY inFeb/Jan）， and we expect the momentum to continue into the rest of FY16E.
　　Positive on AMOLED progress; Wait for yield improvementWe believe AMOLED mass production will begin in 3Q16, and it will take 2-3quarters for yield level to improve to breakeven level of 50-60% as permgmt’s estimate. In our view, as an early-mover with extensive experience inAMOLED technology, Truly is set to benefit from strong demand for AMOLEDdisplay from Chinese smartphone brands, given its advantage in less powerconsumption,thinner/lighter form factor and applications for flexible display.
　　Our current model does not reflect potential earnings upside from AMOLEDproducts until higher visibility on order wins and yield improvement.
　　Maintain NEUTRAL as near-term positives fully priced inWe lifted our FY16-18E EPS by 8-12% to reflect fingerprint ramp-up andstronger vehicle segment, offsetting ASP pressure in handset display/touchproducts. Our new TP of HK$2.66 is based on higher target P/E of 8.5x （prev6.8x）， same as its 1-yr fwd mean, given Truly’s earnings recovery in FY16-18E. We maintain NEUTRAL rating as the stock is fairly priced at 8.9x FY16EP/E, in-line with its 1-yr fwd P/E mean of 8.5x and 25% discount to its peers’
　　11.1x FY16E P/E given lower visibility of AMOLED products.