2Q16 results missed due to lower GM & FX loss
Truly International Holdings announced 2Q16 results: revenuewas HK$5.031bn, up +3.8% YoY; net profit was HK$206.55mn,down 7.4% YoY. Net profit missed mainly due to lower thanexpected gross margin of 10.6% resulting from the decline in GMof handset TFT display modules, and FX loss.
Trends to watch
Guided 10%+ revenue growth on significant fingerprintrecognition module sales growth and non-smartphone segmentdemand.
Fingerprint sensor modules recorded HK$210mn inrevenue in 2Q16. Management expects this division to bookrevenue of HK$1bn in 2016. We deem this target a littleaggressive considering the aggressive expansion of fingerprintsensor module capacity from O-Film Tech and also new players,which will put huge pressure on ASP and gross margin.
The prospect of AMOLED adoption plays a key role inhigh valuation. We believe the key driver of the recent shareprice hike is the prospect of massive AMOLED panel adoption bysmartphones. The 4.5G AMOLED line is expected to ramp up atthe end of September.
Earnings forecast
We lower our EPS forecast by 3.4% from HK$0.34 toHK$0.33 for 2016, and by 2.42% from HK$0.36 toHK$0.35 for 2017.
Valuation and recommendation
The stock is trading at 11.9x 2017e P/E. We maintain ourHOLD rating, but raise our target price by 2.53% toHK$4.06, 1.69% downside from the current price. We roll ourP/E target to 2017e; our new TP is based on 11.6x 2017e P/E.
Risks
Persistent ASP pressure on handset TFT display modules.