欣旺达(300207)

Good 3Q18 results and positive 2019 outlook (handset, PC, automotive)

Sunwoda reported good 3Q18 operating results which beat consensus by 12%thanks to handset ASP hike (faster dual cell battery proliferation) and new NBbattery orders gain from U.S. customer. Management was also positive on2019 outlook and anticipates continued smartphone battery margin expansionpropelled by enhanced vertical integration (targets to lift in-house battery cellsupply for Android customers to 20%). Sunwoda also highlighted on track takeoff in automotive battery cells. The company believes the strong cell order winsfrom Chinese OEMs will help boost its automotive revenue growth starting 2019.Reiterating Buy rating.

3Q18 results beat on new smartphone and PC strength

Sunwoda reported 3Q18 earnings of RMB208mn (+105% QoQ, +73% YoY), onrevenue of RMB5.5bn (+38% QoQ, +56% YoY). Operating profit of RMB239mn(+12% QoQ, +16% YoY) beats consensus estimate by 12%. Managementattributes the stronger OP growth to its 1) share gain in key U.S. customer's threenew smartphone models , 2) handset ASP hike on dual cell battery proliferation,and 3) initial penetration into U.S. customer's upcoming NB battery. Sunwodaexpects its momentum to persist into 4Q18 with meaningful QoQ profit growththanks to continued handset and PC momentum.

Positive 2019 outlook and on track delivery in automotive battery

Sunwoda is upbeat on its 2019 outlook. For handsets, Sunwoda targets tolift its in-house battery cell (carries GPM of 20%+) supply ratio for Androidhandset OEMs to 20% (vs. 10% in 2017). Management anticipates continuedhandset battery margin expansion thanks to enhanced vertical integration. ForPC, Sunwoda is confident of delivering continued share gains from Taiwanesecompetitors in key U.S. customer NBs by leveraging its high cost/performanceproducts. Management also highlighted the take off in the automotive battery cellside thanks to ongoing order wins from Chinese OEMs.

Valuation and risks

Our TP of RMB14.5 is still based on 24x one year FW EPS (vs. the China IT industryaverage of 25-30x PE), which we believe is reachable given the market share win.Risks: iPhone share loss, slower China EV demand, unfavorable FX.