欧菲科技(002456)

Key points

We hosted a NDR with O-Film in Hong Kong on Nov 27.

Investors are highly interested in its handset lens / vehicle lens progress, capital burden, qualification lead time, and camera module dynamics.

We maintain our positive view on O-Film and suggest investors to shortexisting handset lens players: Sunny Optical, Largan and AAC.

Event

We hosted a NDR with O-Film in Hong Kong on Nov 27. Investors arehighly interested in its handset lens and vehicle lens, including the product progress / roadmap, capacity expansion plan, capital burden, qualification lead time, etc. Investors are also interested in camera module competition dynamics, smartphone end market outlook, and brand makers’ camera design trend.

Impact

Handset lens capacity expansion: Management is confident about their handset lens capacity expansion plan, which they guided in the 3Q18 analyst briefing (link, Oct 25). Managements are also confident on the shipment / full utilization rate given their large scale in camera module. We model O-Film’s 2019 single camera module shipment for China smartphones at 536m or 45m per month on average.

Handset lens qualification less than 1 month, leveraging camera module:Management highlighted they will market their handset lens via its camera module, just like Sunny Optical, and highlighted the qualification takes less than 1 month, echoing our view that the impact to the industry is immediate.

Handset lens capacity expansion at light capex burden: Managementhighlighted handset lens is a light-asset business, and do not see the capex as a burden to slow down its capacity expansion, echoing our view.

Vehicle lens, qualification lead time around 6 months: Managementhighlighted that, apart from Fujifilm’s clients (mainly German and Japanese auto brands), O-Film can also leverage its existing vehicle camera module clients, GAC group, and SAIC Motor. Management highlighted the qualification lead time for the vehicle lens on its existing module clients will only take around 6 months, much faster than the first-time application.

Camera module, market share gain in Huawei flagship models:Management highlighted their allocation in P20 Pro was at 40% in the beginning and up to 60% in May due to quality, shorter response times, and strong execution. O-Film gained 60%+ allocation in Mate 20 / 20 Pro since beginning.

Earnings and target price revision

No change.

Price catalyst

12-month price target: Rmb20.00 based on a PER method (20x 2019E PE).

Catalyst: Handset lens, Vehicle lens

Action and recommendation

Maintain Outperform.