Truly released its Apr sales was up 9.6% yoy to HK$1.7bn and 4M17sales up 15.7% yoy to HK$7.2bn, in line with our expectations.
We revise down our FY17/18E earnings by 5.9%/5.1% to HK$616mn/HK$903mn to reflect increase stake in Huizhou G4.5 plant JV.
Maintain BUY with TP revised down to HK$3.20 from HK$3.40 based on15x FY17E PE.
April sales in line. Truly released its April sales was 9.6% yoy to HK$1.7bn and4M17 sales up 15.7% yoy, accounting for 29% of our FY17E sales target. Weexpect the monthly turnover sales will gradually pick up from May 2017 onwardsgiven seasonality.
We revised down our FY17/18E earnings by 5.9%/5.1% to reflect increasestake in its loss-making Huizhou G4.5 plant JV. Truly announced that thecompany will inject RMB410mn into its Huizhou G4.5 plant JV and the capitalinjection will be settled by capitalizing the debt owed by the JV to Truly. Thecompletion of capital injection is expected to be mid-2017. Upon completion ofcapital injection, Truly will own 59.7% stake of the JV as compared to previous53% and Huizhou Zhongkai agrees to delegate 7.3% of its 23.5% voting power inthe JV to Truly for 5 years immediately after the establishment of the JV, henceTruly voting power will further increase from 59.7% to 67%. As a result, we reviseup our share loss from associate from previous HK$371mn/HK$256mn toHK$394mn/HK$288mn to reflect the stake change in the JV from 53% to 59.7%.We see the move is likely to bring short term pain but long term gain for thecompany given the promising demand on the adoption of AMOLED panel.
Maintain BUY. We maintain our BUY rating on Truly with TP revised down toHK$3.20 from HK$3.40 based on 15x FY17E PE given (1) gradual ramp up offingerprint sales growth from FY17E onwards, (2) the negative aspect of theloss-making associates are likely factored-in, and (3) we expect the net loss fromthe G4.5 plant JV will gradually narrow down from 4Q17E onwards.
Risks: 1) delay or slow ramp up of G4.5 plant; 2) ASP erosion is faster thanexpected, 3) fingerprint module GPM may be lower than we expect.