欧菲科技(002456)

Multi-cams, UD FPMs and new iPhone projects as key growth drivers

O-Film reported solid 3Q18 results, with sales up 38% YoY and EPS up 58% YoY,driven by rising multi-cam adoption from Android clients and new iPhone projectwins (Face ID receiver, and TP sensor). 2019 outlook seems promising. We expecttrio-cams and under-display fingerprint modules (UD FPMs) to be the key 2019upgrade themes on Android phones. O-Film is the only firm under our coveragethat can capture both upgrades. Also, it is set to gain more market share (FaceID receivers and TP sensors) and win new items (Face ID transmitters and rearcams) in the Phone supply chain. We retain our Buy rating.

In-line 3Q18 operating results: strong top-line growth continues

O-Film reported 3Q18 EPS of RMB0.23 (up 58% YoY and 41% QoQ ) and operatingprofit of RMB1,05 bn (up 70% YoY and 8% QoQ) on sales of RMB 12.9bn (up38% YoY and 21% QoQ). Sales beat our estimates by 8%, with GPM up 1.2pptYoY to 14.6%. O-Film attributes the strong YoY sales growth to rising adoption ofdual-cams/trio-cams/UD FPMs on Android phones, increasing contribution fromnew products (iPhone Face ID receivers, and iPhone TP sensors, in our view)and market share gains. Despite forex fluctuations and intense price competition,GPM remains buoyant at 14.6% due to better product mix and continued specupgrades. Eroded by the higher non-op loss, EPS missed our estimates by 9%.Positive 4Q18 and 2019 outlook: trio-cams, UD FPMs and share gains in iPhoneWe expect 4Q18 sales to grow 6% QoQ (or 46% YoY) to RMB13.7bn, with GPMstabilized at ~15%. Top-line growth will likely be driven by an iPhone componentproduction ramp-up (front cams, Face ID receivers and TP sensors), the newiPad launch (TP sensors + modules), and new trio-cams and 3D sensing moduleprojects from Huawei (Mate 20 / Mate 20X). As for 2019, we expect O-Film topost 19% sales growth, driven by:

Rising adoption of UD FPMs on Android phones (from sub-20mn in2018 to ~100mn in 2019): ASP of UD FPMs is ~USD10 (vs. ASP ofcurrent capacitive FPMs of sub-USD4). We expect O-Film to capture 50%+ market share in this business.

Rising adoption of trio-cams on Android phones: Huawei and Samsungare key trio-cam adopters in 2019. We expect all Tier-1 Android OEMs toadopt trio-cams on their high-end phones in 2020, and we expect O-Filmto capture 20-30% of market share in Android trio-cam projects.

Market share gains in iPhone Face ID receiver modules and TP sensors:O-Film just acquired both businesses in 3Q18, as the back-up supplier(with a sub- 20% market share in 2H18, by our estimate). We expect OFilm could grow market share from current low base.

Potential new projects in 2019 iPhones: this includes Face ID transmittersand rear cameras (for the iPhone XR's successor).

Valuation and risks

We slightly fine-tune our earnings model, and leave 2018-20 EPS forecasts largelyunchanged. We maintain our TP at RMB23, which is still based on 0.8x PEG, or22x PER (2019E EPS). 0.8x PEG is in line with the regional tech peer average.Downside risks: 1) fiercer-than-expected price competition in the touch panelsector and 2) more significant margin erosion in handset cameras.