Our research showed faster AMOLED adoption trend in China (30%of new handset models in 1H16, vs 9% in FY15); Truly poised to benefitgiven its R&D track record and early-mover advantage in AMOLED
Lifted FY16-18E EPS by 9-24% on continued earnings recovery in2H16E and better profitability in AMOLED JV in FY17-18E
Upgrade to BUY; We recommend investors to accumulate ahead ofAMOLED mass production in 4Q16E. Our FY16-18E EPS are 12-25%above consensus (more confident in AMOLED shipment/profitability)
Major beneficiary of robust AMOLED demand in FY17-18E
Leveraging 15+ years of R&D experience in PM/AMOLED panels and recentsmall-scale AMOLED production, Truly is set to capture the robust AMOLEDdemand from Chinese smartphone brands in FY17E, in our view. Assuming15k/m AMOLED production (50% yield and USD30 blended ASP) and 60k/mTFT-LCD production in FY17E, we believe the Huizhou plant will breakevenin 1Q17E, and we conservatively estimated associate income of HKD30mn/HKD40mn in FY17E/18E, vs. a loss of HKD65mn in FY16E. Given highervisibility of AMOLED demand in China and Truly’s TFT-LCD/AMOLED yieldimprovement in 4Q16E, we revised up our FY16-18E EPS by 9-24% to factorin higher GPM in FY16E and AMOLED profit contribution in FY17-18E.
2Q16E preview: revenue and earnings recovery on track
Truly will announce 2Q16 results in mid-August, and we expect revenue/netprofit to grow at 4%/9% YoY (vs. 1%/13% YoY in 1Q), driven by fingerprintmodules ramp-up and solid CCM/TLI revenue growth. We estimate 2QGPM/OPM will come in at 12.3%/8.3% (vs 12.2%/7.1% in 1Q), thanks tohigher utilization and less pricing pressure in display/fingerprint products. For2H16E, we believe growth momentum will continue, driven by new capacityof fingerprint module (5-7kk/m vs 2-3.5kk/m in 1H) and mass production ofautomobile’s OGS/TLI products.
Positive on AMOLED mass adoption; Upgrade to BUY
Our new FY16-18E EPS are 10-20% above consensus, as we are moreconfident in Truly’s AMOLED shipment/profitability. Our new TP of HK$4.86is based on higher target P/E of 12.0x (prev. 8.5x), 1 S.D. above its 3-yrhistorical fwd mean and in-line with its peers’ average P/E, given Truly’searnings recovery in FY16-18E and AMOLED upcycle. Upcoming catalystsinclude fingerprint module ramp-up and AMOLED mass production.