A booming 2015 on metal casing momentum
We held a site visit trip with FIH in China on July, 1. Most investors werepositive on FIH’s 1) increasing sales exposure to the market share winners(Huawei, Xiaomi, Meizu, Oppo, etc), 2) rising contribution from high marginsmartphone casings, and 3) the take off of India smartphone business. FIH hasofficially raised its 2015 capex guidance to USD180-200mn vs. USD130-140mnbefore, while 70% of the capex will be spent on casing machine procurement(eg. CNC). Mgmt states that its blended handset casing GM is around 20%(metal casing is 30+% in our view) vs. EMS projects of single digit only. Weexpect increased profit contribution from handset component will help FIHdeliver a 78% YoY EPS growth in 2015. Reiterate Buy.
Key meeting note
FIH started to supply metal casings to Xiaomi and Huawei high-endsmartphone since late 2014 and has been gaining more new projectsfrom them consistently. Mgmt anticipates handset component saleswill account for 30%+ of its total revenue in 2014.
FIH has cooperated with several local handset vendors in India (e.g.,Macromax) and expects the business to take off in 2016. Byleveraging its local manufacturing facilities and know-how (FIH usedto build handsets for Nokia in India), FIH has established its firstmover advantage in India. India government’s recent tariff incentivepolicy for local manufacturing will enhance international handsetvendors’ reliance on FIH (import tariff claims for 8-10% of handsetCOGS).
Mgmt believe recent market concern on its non-Chinese handsetbusiness (e.g., Sony and Mototola) is overdone. Even after Lenovo’sacquisition of Motorola, FIH remains as the dominant EMS partner forMotorola’s handset products. Mgmt expects its Motorola sales to stayflat YoY in 2015. For Sony, FIH used to be a major assembler for itshigh-end smartphone models. Therefore, mgmt sees limited impactfrom Sony’s expiration of mid to low end smartphone businessrecently.