We hosted an NDR investor call with Q-Tech on 29 Jun. Mmgt. expressed positive view on 3Q23 shipment and guided QoQ recovery for handset CCM business, driven mainly by encouraging inventory digestion, demand rebound and ASP hike on spec upgrade across all models. For non-smartphone CCM (10%+ sales mix), mgmt. maintained guidance of 50%+ YoY growth in FY23E driven by IoT and auto ramp-up. Overall, we believe the worst is over and revenue/margin will improve in 2H23E on spec upgrade and shipment recovery. Trading at 6.7x/5.0x FY23/24E P/E, we believe the stock is attractive. Maintain BUY with TP of HK$5.2, based on 10x FY23E P/E.
Smartphone CCM: ongoing spec upgrade across all models; Expect ASP/margin recovery in 2H23E. Despite market’s cautious view on smartphone shipment in 2H23E, mgmt. is confident that HCM shipment recovery will continue into 3Q23E, thanks to inventory restocking and demand recovery in China. Q-tech is also positive on 2H23E ASP QoQ recovery on spec upgrade across high/mid/low-end models: 1) 32M+ HCM; 2) periscope-cam in Android after Honor’s recent launches and, 3) higher OIS adoption (20-30% in FY23E vs. 10% in FY22). In addition, mgmt. guided GPM HoH improvement in 2H23E mainly driven by spec upgrade and better utilization.
Non-smartphone CCM: IoT and auto to drive 50% YoY growth. While FPM segment will remain sluggish with below 10% of sales mix, mgmt. guided auto/IoT CCM sales mix of 10%+ and revenue growth of 50%+ YoY in FY23E, mainly driven by: 1) shipment ramp-up of IoT (70% of non-sp sales mix) such as DJI drone, smart watch and sweeping robots, and 2) strong demand for automobile CCM.
The worst is over and demand recovery is here; Maintain BUY with TP of HK$5.2. We believe the worst is likely over and supply chain is set to start restocking given 3Q23E demand recovery. As Chinese leading CCM supplier, Q-tech will benefit from shipment recovery and spec upgrade in 2H23E (OIS/periscope). The stock is currently trading at 6.7x FY23E P/E, 1- sd below 5-year forward P/E, which is attractive in our view. We maintain BUY with TP of HK$5.2, based on 10x FY23E PE. Upcoming catalysts include shipment QoQ recovery, new product launches and non-smartphone CCM order wins.