3Q16 results miss expectations
　　Truly announced its 3Q16 results: revenue was HK$6.035bn（+21.4% YoY）， beating our estimate by 9.8%; while GM wasslightly down QoQ at 10.1%, vs. 10.6% in 2Q16 and 9.4% in3Q15. Its equity earnings were HK$85mn vs. CICCe ofHK$50mn, thus net profit was HK$173mn （+22.9% YoY） orHK$0.06/share, 33% below both our and consensus estimates.
　　Trends to watch
　　We still expect >10% full year revenue growth. Afterdisappointing results last year and early this year, Truly hasmanaged to stabilize its slide and report 21.4% YoY top linegrowth in 3Q16 （vs. +3.8% YoY in 2Q16）。 Managementguide >10% revenue growth in 2016 on: 1） significant （>10x）sales growth of fingerprint recognition modules; and, 2） strongdemand in the non-smartphone segment （guide: >20% revenuegrowth in FY16）。 Management also guides >10% gross profitgrowth, which implies stable GPM.
　　AMOLED production line still ramping up. Truly’s newfactory in Huizhou （Capex: Rmb6.7bn） will manufacture AMOLEDpanels. It boasts a G4.5 production line with 30k monthlyproduction capacity – split evenly between flat panels andflexible displays） and is expected to deliver sales ofRmb1.3bn/year. Production started at end-September; it isinitially shipping TFT-LTPS LCD, with AMOLED displays to ship inlate November.
　　Earnings forecast
　　We trim our 2016/17e EPS by 9.9%/3.6% fromHK$0.33/0.35 to HK$0.29/0.33, due to the lower equityearnings of its G4.5 AMOLED production line and higher tax rate.
　　Valuation and recommendation
　　The stock is trading at 15.8x 2017e P/E. We maintain ourHOLD rating, but lower our target price by 9.11% toHK$3.69 （11.2x 2017e P/E）， implying 14.95% upside roomRisks
　　Improvements in AMOLED yield rate are slower than expected.