Equity Research TMT 2H18 Hong Kong TMT Sector Outlook Optical leaders benefiting from increased penetration of dual-cameras and 3D sensing; semiconductors to enter development upcycle Ou Yafei SFC CE No. BFN41 oyf@gf.com.cn +86 2 8757 39 GF Securities (Hong Kong) Brokerage Limited 29-3/F, Li Po Chun Chambers 189 Des Voeux Road Central Hong Kong Smartphones: Chinese branded smartphones see growth rebound China s smartphone market experienced a significant slump during 4Q17-1Q18, but we believe the global smartphone market is still in a stable phase of development, albeit with some fluctuations. The Chinese market can, to some extent, be used as a leading indicator of demand in the global smartphone market. We think the downturn in China s smartphone market from 4Q17 was mainly due to the launch of the iphone X at end-217, which significantly prolonged the R&D cycle for handsets based on the Android system, which most Chinese branded smartphones use. Based on recent shipment data for the upstream smartphone industry chain, we find the supply chain for Chinese branded Android smartphones began to rebound in Jan 218, with shipments broadly returning to normal in March 218. As the usual cycle from upstream supply to smartphone shipment takes around 2-3 months, we believe that Chinese branded Android smartphone shipments should see a turning point from March 218, and from May 218, we expect smartphone shipments to fully return to normal levels. Optical: Leaders benefiting from increased penetration of dual-cameras and 3D sensing Among smartphone components, optical modules have the shortest R&D cycle and the greatest room for innovation, and this innovation has a big impact on user experience. Innovation of smartphone optical modules is still at an early stage, but with smartphone cameras moving towards SLR cameras in terms of performance and with more applications for AR, VR, AI and other functions being adopted, there is substantial room for optical module innovation. Semiconductors: Domestic semiconductor industry to enter development upcycle The semiconductor industry is highly capital and technology-intensive, and is strategically important for the world's major economies. As the world's largest buyer of semiconductors, we see significant growth opportunities for China s semiconductor industry. The industry chain is likely to continue to benefits from this. Investment highlights We highlight Sunny Optical (2388 HK, Buy), AAC (218 HK), Q- Tech (1478 HK, Buy) in the optical sector. For the semiconductor sector, we like Semiconductor Manufacturing International (981 HK) and LHN (173 HK). Risks US-China trade frictions intensify; downstream smartphone sales fall short of expectations; lower-than-expected penetration for dual cameras; 3D sensing R&D slower than expected; Rmb exchange rate volatility; technological challenges during the localization of semiconductors; downstream semiconductor sales fall short of expectations.
Figure 1: Global & China smartphone shipments and growth 16 14 全球智能手机出货量 Global smartphone shipments ( 亿台 ) 中国智能手机出货量 China s smartphone shipments ( 亿台 ) 全球增速 Global growth 中国增速 China growth (1m units) (1m units) 7 64. 6 12 5 1 8 38.5% 29.5% Global market slumped 2.9%, 全球下滑 2.9%; China market is expected to 中国预计下滑 decline 2 2; 4 3 6 19.8% 2 4 2 1.2% 7.6% 3.2% 2.8% -.1% -4.9% 212 212 年 213 213 年 214 214 年 215 年 216 216 年 217 年 217Q1 1Q17 218Q1 1Q18 1-1 Figure 2: 1Q15-1Q17 global smartphone shipment structure (m) 5 45 其他 Others 4 小米 Xiaomi 35 3 OPPO 25 华为 Huawei 2 苹果 Apple 15 三星 1 Samsung 5 216Q2 216Q3 216Q4 217Q1 217Q2 217Q3 217Q4 218Q1 2
Figure 3: 2Q16-1Q18 total market share of the top 5 global mobile phone manufacturers 7 6 5 4 3 2 1 Total market share of top 5 global mobile phone manufacturers 59.8% 6.9% 6.9% 62.5% 57.3% 54.9% 54.6% 66.3% 216Q2 216Q3 216Q4 217Q1 217Q2 217Q3 217Q4 218Q1 Figure 4: 1Q15-1Q18 shipments at the top 3 Chinese branded mobile phone brands (m) 12 1 前三大国产品牌手机 Top 3 Chinese branded ( 全球 mobile ) phone 同比增速 YoY growth ( 前三大 (top 3) ) brands 12 1 8 6 4 2 17.1% 8 6 4 2-2 Note: 1Q15-1Q17 top 3 Chinese mobile phone brands are Huawei, OPPO and Vivo; from 2Q17 the top 3 brands were Huawei, Oppo and Xiaomi. 3
Figure 5: 2Q16-1Q18 market share of the top 3 Chinese branded mobile phone manufacturers Total market share of top 3 Chinese brands 3 25% 2 19.8% 2. 21.2% 21.8% 25.6% 26.1% 23.9% 27.3% 15% 1 5% 216Q2 216Q3 216Q4 217Q1 217Q2 217Q3 217Q4 218Q1 Figure 6: 1Q15-2Q17 overseas sales for Huawei, OPPO, Vivo and Xiaomi 海外占比 Overseas ( sales 华为 %) in Huawei 海外占比 Overseas (OPPO) sales % in OPPO 海外占比 Overseas (vivo) sales % in Vivo 海外占比 Overseas ( sales 小米 %) in Xiaomi 6 5 4 3 2 1 19.3% 43.4% 4.7% 27. 215Q1 215Q2 215Q3 215Q4 216Q1 216Q2 216Q3 216Q4 217Q1 217Q2 217Q3 217Q4 4
Figure 7: CCM sales at leading manufacturers (kk) 45 4 35 3 25 2 15 1 5 45. 332.8 31. 228.1 269.9 186. 177.8 172.5 98.4 211 212 213 214 215 216 217 舜宇 Sunny Optical (2382 HK) 欧菲科技 O-film Tech (2456 CH) 丘钛 Q-tech (1478 HK) Sources: Company data, GF Securities Development & Research Center Note: Data for O-film Image (Guangzhou) has been excluded in O-film Technology s data Figure 8: CCM revenue at leading manufactures CCM revenue comparison (Rmb 1m) 2 18 16 14 12 1 8 6 4 2 177.8 114. 123. 82.2 79.4 68. 55. 44.2 42.7 59. 11.9 24.9 28.7 21.6 14.1 2.8 6.4 5.9 22. 211 212 213 214 215 216 217 Sunny Optical 舜宇 (2382 HK) 欧菲科技 O-film Tech (2456 CH) 丘钛 Q-tech (1478 HK) Sources: Company data, GF Securities Development & Research Center Note: Data for O-film Image (Guangzhou) has been excluded in O-film Technology s data 5
Figure 9: CCM ASP at leading manufactures (Rmb) 6 55 5 45 4 35 3 25 2 15 1 53.4 41.6 35.5 34.2 29.5 25.6 3.4 22.4 24.1 211 212 213 214 215 216 217 舜宇 Sunny Optical 欧菲科技 O-film Tech (2456 CH) 丘钛 Q-tech (1478 HK) (2382 HK) Sources: Company data, GF Securities Development & Research Center Note: Data for O-film Image (Guangzhou) has been excluded in O-film Technology s data Figure 1: CCM gross margin at leading manufacturers 18% 16% 14% 12% 1 8% 14.7% 12. 14.1% 13.6% 16.6% 12.6% 11.5% 11.3% 16.3% 9.6% 12.8% 1.9% 11.1% 1.5% 8.5% 15.9% 13.1% 11.1% 6% 4% 5.4% 2% 211 212 213 214 215 216 217 舜宇 Sunny Optical 欧菲科技 O-film Tech (2456 CH) 丘钛 Q-tech (1478 HK) (2382 HK) Sources: Company data, GF Securities Development & Research Center Note: Data for O-film Image (Guangzhou) has been excluded in O-film Technology s data 6
Figure 11: Dual-camera models (as of March 11, 218) Dual-camera models, 55, 29% Single-camera models, 135, 71% Sources: GF Securities Development & Research Center Figure 12: 214-19 global CCM shipments and forecasts Figure 13: 215-2 dual-camera market forecasts 39 38 37 36 35 34 33 32 31 32.9 出货量 Shipments ( 亿颗 (1m) ) 35.7 34.6 36.4 增长率 Growth rate 37.9 37.2 6. 5. 4. 3. 2. 1. 8 6 4 2 全球市场规模 Global market ((Rmb 亿元 1m) ) 增速 Growth 12 1 8 6 4 2 3 214A 215A 216A 217E 218E 219E. 215A 216E 217E 218E 219E 22E Sources: www.chyxx.com, GF Securities Development & Research Center Sources: www.chyxx.com, GF Securities Development & Research Center Figure 14: 21-2 global semiconductor sales (US$ 1m) 5 半导体销售额 Semiconductor ( sales 亿美元 (US$ ) 1m) 增速 Growth 25% 4 2 3 2 1 15% 1 5% 21 211 212 213 214 215 216 217 218E -5% Sources: WSTS, GF Securities Development & Research Center 7
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