china components sector - research-doc.credit-suisse.com

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

12 December 2016 Asia Pacific/China/Hong Kong

Equity Research Electronic Components & Connectors

China Components Sector Research Analysts

Sam Li

852 2101 6775

[email protected]

Kyna Wong

852 2101 6950

[email protected]

THEME

Chinese smartphones in 2017: Shipments

slowing down but upgrades continue

Figure 1: Focus on key themes for stock ideas

Source: Credit Suisse estimates

For the China smartphone market in 2017, we see divergence in shipment

growth for the two major forces (Chinese brands slowing down and Apple

picking up), even as spec upgrade remains the key differentiator in a

competitive market. Overall, we see the value pool continuing to favour

upstream names (semi and components) more than downstream ones

(assembly and OEMs), and recommend investors to focus on spec upgrades

for supply chain investment:

■ China shipments slowing down but the upgrade cycle just taking off.

We estimate China market shipments growth to decelerate to 4% in 2017

from 11% in 2016 (by MIIT). However, the upgrade trend, which has started

this year, seems far from over yet. A potential major inventory correction in

May/June 2017, and margins will diverge in the supply chain.

■ iPhone8 up-cycle with spec upgrades. The CS Apple analyst estimates

iPhone shipments to grow 5%/15% YoY in 2017/18 vs. down 10% in 2016,

driven by the iPhone8 sales 2H17 onwards. We see increasing adoption for

glass casing, OLED, dual-cam, haptic, and wireless charging in the

iPhone8, and expect Chinese smartphones to copy (or be front-runners).

■ Stock calls. We downgrade Tongda to NEUTRAL on retreating metal

casing demand, downgrade Truly to NEUTRAL on slower AMOLED ramp

up, and slightly raise Sunny's estimates/TP on higher dual-cam shipments.

We now have OUTPERFORMs on Sunny/AAC in H-share and Lens/

GoerTek/Luxshare/TSHT in A-share. Key risks: Demand volatility in Apple

or China smartphones, changes in global macro/FX/trade environment,

changes in technology, and M&As.

12 December 2016

China Components Sector 2

Focus charts and table Figure 2: China smartphone demand to grow 4% in

2017E

Figure 3: China smartphone manufacturing to grow

9% in 2017E

Source: MIIT, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 4: We estimate only one-fourth of upgrade

demand (from sub-Rmb1000) was converted in 2016

Figure 5: Upstream (semi & component) to

outperform downstream (assembly & OEM) on GMs

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Figure 6: Downgrade Tongda on slowing metal

casing cycle

Figure 7: Downgrade Truly on NM pressures


Figure 8: Earnings/rating/TP changes and related themes

Company Ticker 17E EPS Rating TP (lc)

∆ Prior New ∆ Prior New ∆ Prior New Key themes in 2017

AAC 2018.HK ↔ 4.04 4.04 ↔ O O ↔ 86.9 86.9 Acoustics, haptic upgrades

Sunny 2382.HK ↑ 1.40 1.41 ↔ O O ↑ 43.8 44.6 Dual-cam

Tongda 0698.HK ↓ 0.19 0.19 ↓ O N ↑ 2.1 2.2 Slowing metal casing adoption

Truly 0732.HK ↓ 0.34 0.28 ↓ O N ↓ 4.6 3.3 Slower AMOLED ramp

Coolpad 2369.HK ↓ -0.05 -0.04 ↔ U U ↓ 0.9 0.6 Share loss in China market, uncertainty in Leshi cooperation

Source: Company data, Credit Suisse estimates

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2011 2012 2013 2014 2015 2016E 2017EOthers Lenovo Samsung Apple

Meizu Gionee Coolpad LeEco

ZTE Vivo Oppo Xiaomi

Huawei YoY

mn units

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Oppo Huawei YoY

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2011 2012 2013 2014 2015 2016E 2017E 2018E

Avg Component GM Avg Assembly GM

Avg Upstream GM Avg OEM GM

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Plastic Metal 2/2.5D glass 3D glass Others

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12 December 2016


Chinese smartphones in 2017: Shipments slowing down but upgrades continue For the China smartphone market in 2017, we review our stance, and see divergence in

shipment growth for the two major forces (Chinese brands slowing down and Apple

picking up), even as spec upgrades remain the key differentiator in a competitive market.

Overall, we see the value pool continuing to favour upstream names (semi and

components) more than downstream ones (assembly and OEMs), and recommend

investors to focus on spec upgrades for supply chain investment.

We want to highlight to investors our numeric analysis on 2017 China smartphone demand

and metal casing cycle, our non-consensus calls on Tongda and Truly, and the key supply

chain time window (late 1Q17 for iPhone8 and May/June for Chinese smartphones).

Shipments slowing down but upgrades just taking off

We estimate China market shipments (demand) growth to decelerate to 4% in 2017 from

11% in 2016 (by MIIT), due to a larger base, saturated penetration, and decelerating 4G

net adds growth. Total Chinese brand shipments (supply) could still grow 9% YoY in 2017

(vs. 18% in 2016), helped by exports. However, our research shows the upgrade trend,

which started this year, is far from over yet. For example, our analysis shows only 25% of

the sub-Rmb1000 sales in 2015/16 were upgraded to above-Rmb1000 phones.

Component upgrades still remain the key differentiator in the commoditised market. We

believe the key upgrades include dual-cam, glass casing, OLED, acoustic, and Type C.

Meanwhile, metal casing adoption/growth should slow down. A potential major inventory

correction in May/June, and margins will diverge in the supply chain.

iPhone8 up-cycle with spec upgrades

On the other side, the CS Apple analyst estimates iPhone shipments to grow 5%/15% YoY

in 2017/18 vs. down 10% in 2016, driven by iPhone8 sales 2H17 onwards, which could be

positive to Apple supply chain names. We see increasing adoption for OLED, glass

casing, dual-cam, haptic, and wireless charging in the iPhone8, and expect Chinese

smartphones to copy (or be front-runners). Timing-wise, as always, we expect late 1Q17

or early 2Q17 to be the key time window for investment in the iPhone supply chain, due to

better visibility on specs, ASPs, and allocation by then. In addition, although the overall

impact of US elections would be limited to the tech supply chain, we feel potential fund

flows and individual cases would from time to time put pressure on the sector, especially

on Apple supply chain stocks.

Downgrade Tongda and Truly, and raise Sunny TP

We downgrade Tongda to NEUTRAL from Outperform on decreasing metal casing

demand; we downgrade Truly to NEUTRAL from Outperform on slower AMOLED ramp-

up, and slightly raise Sunny's estimates/TP for higher dual-cam shipments. Overall, we

are relatively more positive on the A-share coverage due to the lower-than-historical

average valuations and a closed investment environment from overseas fund flows. Our

H-share coverage NTM P/E valuation is at a historical high, especially after the recent

hikes for the SZ-HK Connect. We now have OUTPERFORMs on Sunny/AAC in H-share

and Lens/GoerTek/Luxshare/TSHT in A-share.

Key risks: Demand volatility in Apple or China smartphones, changes in global

macro/FX/trade environment, changes in technology, and M&As

12 December 2016


Valuation summary

Figure 9: H-share NTM P/E at a historical high Figure 10: A-share below the historical average


Figure 11: Comp sheet of our hardware supply chain coverage

Company Ticker Rating Mkt cap

US$ bn TP (lc)

Current

price (lc)

Po.

up/down

NI Growth (%) P/E (x) P/B (x) ROE (%) Div yld

16E 17E 18E 16-18E 16E 17E 18E 17E 17E 17E

A-share

Hardware Luxshare 002475.SZ O 6.6 26.9 21.29 26% 8.1 49.5 29.5 27.9 38.7 25.9 20.0 3.5 13.7% 0.4%

GoerTek 002241.SZ O 6.2 41.3 27.85 48% 26.7 34.6 14.9 25.1 26.8 19.9 17.3 3.2 16.3% 0.0% Lens Tech 300433.SZ O 8.5 33.2 26.92 23% 0.8 49.4 41.9 28.8 37.8 25.3 17.8 3.6 14.3% 1.2% O-film 002456.SZ N 6.0 40.7 38.02 7% 67.6 60.0 71.7 66.4 51.5 32.2 18.7 3.9 12.4% 0.5%

Upstream

TSHT 002185.SZ O 2.0 15.3 12.85 19% 13.5 32.1 33.1 25.9 37.9 28.7 21.5 2.6 9.1% 0.5% NFME 002156.SZ N 1.6 11.6 11.63 0% 6.4 116.1 28.5 43.5 72.2 33.4 26.0 2.8 6.6% 0.2% Sanan 600703.SS N 7.5 13.4 12.57 7% 10.9 21.4 25.5 19.1 27.3 22.5 17.9 2.8 12.5% 1.3% JCET 600584.SS U 2.8 12.6 18.51 -32% 114.0 47.6 39.0 63.7 172.3 116.8 84.0 2.5 1.7% 0.1%

H-share

Hardware

AAC 2018.HK O 10.9 86.9 68.85 26% 25.5 27.2 20.3 24.3 19.2 15.1 12.6 4.5 29.7% 2.6% Sunny 2382.HK O 5.3 44.6 37.35 19% 50.3 34.1 25.1 36.1 31.7 23.7 18.9 6.1 26.0% 1.0% Tongda 0698.HK N 1.6 2.2 2.15 2% 37.1 24.2 12.9 24.3 12.8 10.3 9.1 2.5 21.7% 2.9% Truly 0732.HK N 1.1 3.3 2.92 13% -13.3 9.3 17.0 3.5 11.6 10.6 9.1 1.1 9.9% 3.3% FIH 2038.HK N 2.6 2.8 2.50 12% -61.7 59.2 13.0 -11.7 29.3 18.4 16.3 0.7 3.7% 2.7%

BYDE 0285.HK N 2.0 6.2 6.73 -8% 38.5 9.5 4.7 16.7 10.7 9.8 9.3 1.0 10.7% 1.0%

OEM

Coolpad 2369.HK U 0.5 0.6 0.73 -18% 85.9 -64.0 -168.1 -176.9 -6.0 -16.6 24.4 0.7 -4.2% 0.0%

Average 27.4 34.0 13.9 14.5 38.3 25.1 21.5 2.8 12.3% 1.2%

Median 25.5 34.1 25.1 25.1 29.3 22.5 17.9 2.8 12.4% 1.0%

Source: RAVE, Credit Suisse estimate, pricing as of 8, Dec, 2016

Figure 12: CS vs consensus—our non-consensus calls on Tongda and Truly

Company Ticker CS 17E EPS CS vs Consensus CS Rating Street Rating

∆ 16E 17E 18E Buy Hold Sell

AAC 2018.HK ↔ -1% 3% 7% O 22 9 1

Sunny 2382.HK ↑ 3% 0% -1% O 22 6 9

Tongda 0698.HK ↓ 7% -6% -10% N 17 0 0

Truly 0732.HK ↓ 14% -20% -21% N 8 1 1

Coolpad 2369.HK ↓ 71% -218% -56% U 1 0 9

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse estimates

0

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Average: 12.8x

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+1SD: 16.3x

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Average: 32.0X

12 December 2016


Shipment slowing down but upgrades just taking off Post the strong double-digit shipments growth (11%, based on MIIT's first ten-month data)

in the China market in 2016, we now see shipments growth slowing down to 4% in 2017,

but the upgrade trend should continue, which supports our positive view on key

components. A potential major inventory correction is more likely to happen in May/June

2017, and, if that happens, margins diverge in the supply chain.

The impossible trinity: Shipments growth, upgrade

demand, and inventory correction

As the smartphone market matures in China, it seems like an impossible trinity for the

industry to achieve shipments growth, spec/ASP upgrades, and avoid inventory correction

at the same time, in our view. Overall, we see 2017 to be a much slower year for

shipments growth (low single digit) but the upgrade trend should continue, with a potential

major inventory correction risk in May/June.

■ Low single-digit YoY demand growth: We see the key volume drivers in China

market slowing down or taking a backseat in 2017, including upgrade demand in lower-

tier markets, 4G replacement, and a low base effect. Although exports to high growth

markets such as India could help China brands' shipments, we see volume demand in

China slowing down from low-teens in 2016 to low single-digit in 2017, as the market

saturates, and smartphone ASPs could see upside risks on cost pressures.

■ Upgrade demand continues: Despite the shipments slowdown, we see the upgrade

demand in China still continuing. For e.g., we estimate there were roughly 450mn sub-

Rmb1000 smartphones sold in China in 2015/16. Even if we assume 50% of these

were upgraded to above-Rmb1000 phones (so c225mn), we only see at most one-

fourth of the demand getting converted to actual sales in 2016 (see Figure 9).

■ Inventory correction in May/June: May/June is historically a major inventory

correction season for China smartphones, as most brands need to deplete old model

stocks before new flagship models are launched in 3Q. For 1Q17, we expect inventory

correction, if any, would be very mild as upstream key components are still short of

supply. But for May/June, we see the possibility of a bigger-than-seasonal correction,

as China brands might overbook beforehand to avoid a conflict with iPhone in 3Q17.

Figure 13: China shipments (demand) to grow 4% in

2017E

Figure 14: 4G upgrade will slow down after 2017E

Source: MIIT, Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

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12 December 2016


Figure 15: We estimate only 1/4 of upgrade demand

(from sub-Rmb1000) was converted in 2016

Figure 16: June was a correction month for 2015/16

Source: Coolpad, Sino Research Market Ltd, Credit Suisse estimates Source: MIIT

The divergence of margins in supply chain

Besides the market argument on shipments, a key swing/surprising factor for China

smartphone supply chain in 2017 could be margin pressure, in our view. Although the

upgrade demand and rising ASPs YTD in 2016 have helped supply chain's margins, the

continuous shortage of key upstream components and fast rising specs might generate a

margin dilemma for China smartphone brands and therefore impact the whole supply

chain in 2017. Overall, we believe the profit pie is still in favour of key component suppliers

and is unfavorable to obsolete/overcapacity components and assemblers.

■ Key components still in shortage: With the fast spec upgrades in flagship models in

China, we see continuous shortage of key components such as high-end displays

(LTPS and OLED), AP, memory, new casings (2.5D/3D glass and ceramic), and dual-

cam lens. This broad shortage helps to protect or even drive up component ASPs,

which we seldom saw in consumer electronic supply chains. Considering the upside in

retail prices to be limited as many smartphone players still target volume growth, we

see increasing margin headwinds for brand names.

■ Supply chain consolidating: The Chinese smartphone component supply chain

actually consolidated in 2015/16, which is also a reason for the supply chain shortage.

Due to the volatile macro and trade environment, we saw many supply chain

companies getting into financial trouble or even going bankrupt in the past two years.

This, on the other hand, drove leading smartphone makers to concentrate orders on a

few suppliers (normally 3+1), especially listed companies because clients can see and

analyse their quarterly/interim financial data.

■ Margins will go two ways: Overall, we see the profit pie still favours key component

suppliers, as Android phones get more homogenised and compete on hardware specs.

However, we see the margin pressure at smartphone brands will pass through to

supply chain, especially for those obsolete or overcapacity components (such as touch

panel and metal casing) or assemblers.

■ Innovation on software: To solve the cost challenge, we see innovation on software

could be a way forward for Chinese smartphone makers, after many years of

competition on hardware specs. For e.g., software will gradually act as a key

differentiator behind dual-cam performance after the first wave of hardware adoptions.

■ Stock implications: Overall, we still see the value pool continuing to favour upstream

names (semi and components) more than downstream ones (assembly and OEMs)

when smartphones compete on hardware specs. We have OUTPERFORM ratings on

key component makers, such as Sunny, AAC, GoerTek, and Lens Tech.

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12 December 2016


Figure 17: Memory in shortage and ASP hike Figure 18: Panel supply remains tight

Source: Trendforce, WIND Source: IHS Technology

Figure 19: HCM market consolidating

Figure 20: We expect upstream (semi & component)

to outperform downstream (assembly & OEM) on

GMs


The race on dual-cam

We see dual-cam as probably the most consensus upgrade area for Chinese smartphone

brands in 2017, with continuous feature evolvements. And with the continuous upgrade of

HCM (handset camera module), we see the module supply chain entering a relatively

supply-constraint status in 2016/17. We see both trends as positive to industry leaders

such as Sunny.

■ Fast adoption of dual-cam: We saw multiple dual-cam flagship model launches in the

past two months, such as Huawei Mate 9, Vivo XPlay6, and ZTE Axon 7 Max. Our latest

supply chain checks suggest further upsides to our 2017 penetration rate assumption of

10-15%, vs. 20%+, according to Android handset camera module vendors. In addition,

we also see continuous upgrades in hardware designs and software features for dual-

cams. We see the trend for three cameras (dual-cam plus a single cam) to become a

default setting for Android phones in the next few years, and expect to see four-camera

models (both front and back are dual-cams) in China market in 2017.

■ Supply demand tightened: With the fast adoption of high-end specs such as 13MP+,

OIS, and dual-cam, the complexity of manufacturing has increased a lot for the supply

chain. On the other hand, Chinese smartphone supply chain has become more

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12 December 2016


consolidated to top suppliers. Both factors lead to a relatively supply-constraint situation

for HCM supply chain and therefore we've seen Sunny, O-film, QTech (1478.HK, Not

Covered), and Truly gaining market share and having good earning performances.

■ The start of Iris recognition: Although we see the innovation on camera module to be

mainstream in the market, we would start to see small adoption of Iris recognition

modules in China market in 2017.

■ Positive implications to Sunny: We still see Sunny as a major beneficiary of the

dual-cam trend in 2017 under our coverage, because of its leading expertise in dual-

cam module manufacturing and the gradually ramp-up of dual-cam lens shipments. We

raise Sunny's estimates and TP slightly for higher dual-cam shipments in 2017/18E.

Maintain OUTPERFORM on Sunny.

Figure 21: Dual cam model list

Figure 22: Dual-cam lens to help Sunny shipment to

grow 20%+ in 2017E

Vendor Model Launch time

HTC One M8 2014-Mar

Huawei P9 2016-Apr

Huawei Honor V8 2016-May

Coolpad Cool 1 dual 2016-Aug

360 Q5 2016-Aug

Apple iPhone 7 2016-Sep

Xiaomi Mi 5S/5S Plus 2016-Sep

ZTE Axon 7 Max 2016-Oct

Huawei Mate 9 2016-Nov

Vivo XPlay6 2016-Nov


Metal casing approaching a turning point

Metal back-casing has been a key feature and a differentiating factor in the past 3-4 years.

Entering 2017, while we still expect the adoption rate for metal casing to rise due to

marketing purpose and lower costs, we see the total demand for metal casing peaking in

2017 for the global smartphone market and in 2018 for Chinese smartphones.

■ Glass casing to ramp up: As we mentioned in our Lens Tech upgrade (on 6 Nov, see

here), glass back-casing has gradually become a multi-year trend for smartphone

industry, due to: (1) design style changes, (2) wireless charging, and (3) 5G in the long-

run. We now estimate 5%/11%/22% adoption rates for glass casing in Chinese

smartphones in 2016-18E.

■ Metal demand in China still rising until 2018E: Due to the different product mix

(more to mid/low-end) and marketing considerations (metal casing is still a good selling

point), we see Chinese smartphones' demand on metal could still grow 29%/17% YoY

in 2017/18E by shipments, then start declining from 2019E.

■ Metal frame helps on demand: For double-sided glass designs, a metal frame is

needed to support the whole smartphone. So this added part/value could also help on

industry demand on metal processing capacities. Actually with the help from metal

frame demand, the demand for CNC capacity will keep increasing into 2019/20E, even

considering yield improvement.

■ Downgrade Tongda to NEUTRAL: We still see demand for metal casing to increase

for Tongda, while glass casing & new projects at Apple could be catalysts in 2017.

However, we see the core metal casing business growth slowing down in 2017/18E

and likely facing more pressure on pricing/margin. We cut 2017/18E EPS slightly by

https://plus.credit-suisse.com/u/V6g8AJ1AN-Wd1W

12 December 2016


1%/2%. Our new TP of HK$2.20 (from HK$2.10) is based on an updated upcycle P/E

of 10.3x with our EPS base rolling over half year to 2018E, and we downgrade the

stock to NEUTRAL from Outperform.

■ Valuation difference between casing and others: Some investors might question

why we prefer high P/E stocks (Sunny at 24x and AAC at 15x 2017E P/E) over low P/E

ones (casing stocks at c10x). First, historically casing stocks have been trading at a

discount to other components, mostly due to the heavy capex and high asset obsolete

risks (if casing changes from metal to other materials or processing). Secondly, with

the recent development of casing industry we mentioned above, we don't expect the

P/E valuation gaps to narrow in the future.

Figure 23: Global metal casing demand peaks in 2017 Figure 24: While China peaks in 2018


Semi: Fabless to benefit from rising local content

We see the following key drivers in China's semiconductor industry in 2017: (1) increasing

domestic content driven by policies and downstream demand, (2) capacity expansion in

foundry and OSAT companies, and (3) acquisition/JV in China semis. The long-term

growth target of 20% CAGR remains as an encouraging guideline for the industry.

■ IC design continues to lead semi growth: China's IC industry achieved 17% YoY

growth in 9M16 and sales of Rmb298 bn (69% of 20% YoY growth target). The IC

design sector grew 25% YoY vs IC manufacturing's 17% and IC assembly and

packaging's 11% YoY. We believe the IC design sector will continue to outgrow in

2017, driven by increasing domestic content and upgrade cycle. China expects to

cultivate 2-3 leading fabless generating US$4-10 bn annual sales and 5-10 fabless with

US$1-3 bn.

■ Fabless to enjoy domestic upgrade trend: HiSilicon (privately held)/Spreadtrum

(privately held) are moving to 16nm for baseband/AP on 4G demand, according

company announcements; Market also sees Goodix (603160.SS, Not Covered)

continuing to gain share in fingerprint sensors; Ingenic (300223.SZ, Not

Covered)/GalaxyCore (privately held) will see increasing needs for higher resolution

CMOS image sensors on camera upgrade as Ingenic recently announced it would

acquire image senor companies Omnivision (privately held) and Superpix (privately

held); GigaDevice (603986.SS, Not Covered) will benefit on mobile memory/storage

and recently announced it would acquire memory company ISSI (privately held).

Rockchip (privately held)/ Allwinner (300458.SZ, Not Covered) expect to capture VR

pickup in 2H17, given their latest unveiled roadmaps.

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12 December 2016


■ Two tails in M&A: (1) We believe Listco is likely to acquire overseas assets which

have been acquired by Chinese PE. (2) Given rising regulatory risks for overseas

acquisition, Chinese semi companies tend to set up JVs for business cooperation and

technology transfer. The China government aims to consolidate the IC industry to

enhance its competitiveness. We believe some private IC design companies may need

fund raising through capital market for acquisition activities and employee rewards.

Many design houses are in preparation for listing in 2017-18, including Rockchip,

GalaxyCore, Goke Microelectronics (privately held), etc.

■ OSAT to slow down capex and improve profitability: We see major acquisitions

were completed in 2015/16 and China OSATs are in the process of further expanding

their advanced packaging capabilities and improving their profitability. We forecast

OSATs (JCET, TSHT and NFME) capex to decrease 33% YoY to US$643 mn but

remain at a high level as in 2015. We expect China OSAT to improve its operation due

to higher utilisation, improving yield in advanced packaging, and leveraging synergies

from the merger. Given the profitability and valuation, we reiterate our OUTPERFORM

rating on TSHT, NEUTRAL on NFME and UNDERPERFORM on JCET.

Figure 25: 9M16 China IC industry reached 17% YoY Figure 26: OPM to improve in 2017


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12 December 2016


iPhone8 up-cycle with spec upgrades Despite the recent market volatilities in iPhone7 demand or orders, the street relatively has

positive expectations on the iPhone8 cycle from 2H17. We see increasing adoption for

glass casing, OLED, dual-cam, haptic, and wireless charging in iPhone8, and expect

Chinese smartphones to copy (or be front-runners).

Glass casing, wireless charging, and haptics

Apple business has been another key earnings driver for Chinese component supply chain,

besides Chinese smartphones. After the very challenging period in 1H16, with iPhone

order and ASP cuts, we see Apple supply chain gradually stabilising in the iPhone7 cycle.

Our US Apple analyst Kulbinder Garcha holds a positive view on the iPhone 8 super cycle

(see his 31 August 2016 report).

■ iPhone8 upgrades: Kulbinder expects a number of features and upgrades, including

an OLED screen, full glass display, no home button, enhanced Taptic Engine,

improved camera, and wireless charging in the iPhone 8.

■ Glass casing, wireless charging, and haptics most relevant: These three upgrades

are most relevant to our coverage. We estimate iPhone 8 will use two-sided 2.5D

glasses, in which Lens Tech holds major shares, and upgraded the stock on 9 Nov

2016 (see here). It's very likely that iPhone 8 will support wireless charging, in which

Luxshare could provide the charging module. For haptics, we expect AAC to still

maintain a major supplier position and benefit from further content increase.

■ Other potential Implications: Besides the three most relevant upgrades above, we

also see increasing possibility on acoustic upgrade, which if it happens, could benefit

AAC, GoerTek, and Luxshare (through Merry). O-film could be a potential OLED touch

sensor provider. In addition, further upgrades on camera (more adoption of dual-cam,

and add-in of second OIS) could lead Chinese smartphone makers to follow, and

therefore benefit Sunny Optical. We don't expect O-film could become front-cam

supplier for iPhone 8 generation yet, although it acquired a Sony factory recently.

■ Stock implications: We have OUTPERFORM ratings on AAC, Lens Tech, GoerTek,

and Luxshare for their rising content in Apple supply chain. We're NEUTRAL on O-film

for the uncertainty in its potential Apple HCM and touch sensor business, plus the

negative FCFs. Timing-wise, we see late 1Q17 or early 2Q17 to be the best time window

as most iPhone8 details such as prices and share allocations will be decided then.

https://plus.credit-suisse.com/r/V6WLSn1AF-WElY95

https://plus.credit-suisse.com/r/V6g8AJ1AF-WElY95

12 December 2016


Figure 27: iPhone 8 expected features


Figure 28: The glass upgrade happens in both

Apple and China smartphone for Lens Tech

Figure 29: Haptic content still increases for AAC


Apple to drive OLED adoption

We believe the next iPhone will adopt OLED display despite the market still struggling with

two possibilities that only the premium model of next iPhone will adopt OLED display or

Samsung has sufficient OLED panel capacity for all iPhone models. We see China

smartphone makers are also eager to adopt OLED before Apple launches a new phone in

2H17. We see the sentiment will become strong post Apple's final decision to unveil in

March-April.

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Vibrator/haptic RF mechanical Others

12 December 2016


■ Increasing adoption mainly driven by Samsung and Apple: Our Korea research

team forecasts a base case of 21%/26% OLED penetration in global smartphones

market, mainly driven by Samsung and Apple. We also estimate 27/50mn OLED

smartphone shipments from China OEMs in 2017/18. From our China handset tracker,

we already see c.20% of top 20 models feature OLED panels. We believe the supply of

OLED display remains tight given over 90% of mobile OLED supply comes from

Samsung which prioritises Apple and its own brand. We see difficulty for China

smartphone brands to secure allocation especially in 2H17.

■ China panel makers moving to OLED: Besides LG, Sharp and JDI moving to OLED

for Apple, Chinese panel makers will likely spend a significant capex in 2017 to expand

OLED capacities, triggered by Apple's adoption of OLED panel along with a massive

subsidy from the government. Several panel makers have announced to accelerate

their OLED capacity build-up plans, including BOE (000725.SZ, Not Covered), Tianma

(000050.SZ, Not Covered), EverDisplay (privately held), Truly, Visionox (privately held),

Royole (privately held), etc.

■ Heavy capex and low yield drag profitability: We see more local panel makers

starting operation in 2016/17. OLED is generally a much more difficult technology to

master than TFT-LCD. The OLED supply chain is still dominated by Korea vendors.

We see a lack of local supply chain will likely prolong the cost reduction process for

China panel makers. Given the insufficient technology expertise and learning curve,

China panel makers still suffer from less than 50% production yield.

Figure 30: OLED penetration in global smartphones Figure 31: OLED on the rise in China smartphones

Source: Credit Suisse estimates Source: JD, Tmall, Credit Suisse Research

■ Downgrade Truly to NEUTRAL on slower OLED ramp up and Huizhou JV

breakeven: Truly has entered mass production for its G4.5 TFT LCD and AMOLED

production lines in Huizhou JV. Our checks suggested the current production for

AMOLED panels is 1-2" displays for non-smartphone applications. Truly has provided

samples to smartphone makers, including Huawei, Oppo, Vivo and Gionee for testing

and design. Even white brands or handset design houses are trialing their samples.

However, the development cycle may take at least six months for new models. We

believe the possible ramp up schedule may fall in end-2Q/early-3Q. Management

expects a lower operating loss in 2017 for Huizhou fab and breakeven is likely in terms

of cash cost. We see non-op loss pressure persisting while Huizhou automotive display

contribution may be realised only from 2018.

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TFT AMOLED LTPS Retina

12 December 2016


Figure 32: Despite improving operation, NM

declines in 2016/17 due to Huizhou JV impact

Figure 33: Production yield takes time for

improvement


Potential impact from the US elections

Our Asian Technology strategist Manish Nigam published a report on the topic recently

(see here). We see the overall impact would be limited to tech supply chain, but feel

potential fund flows and individual cases might from time to time put some pressure on

supply chain stocks in 2017, especially on Apple supply chain stocks.

■ Policy impact likely limited: (Extracted from Manish's report) Barring certain extreme

scenarios (which might lead to a wide-ranging trade war), we believe that most

scenarios should only have a marginal impact on Asian tech companies. However,

inflows from foreign investors could remain negative (there is lot more to sell, given the

large buying in 1H16). On the demand front, the US accounts for 15-25% of consumer

tech product demand – while a tax cut would be a positive; rising rates might hurt

demand (increased mortgage payments).

■ Impact more likely on legacy products and assembly: Tax incentives and public

relation pressures could drive some US companies to move assembly/downstream

production back to the US. Supply chain linkages, availability of components, and

labour costs are headwinds for this move-back. But it is still possible that some legacy

products (such as PC, notebook, or telecom equipment) with high-value, low volume,

and highly automated production could be impacted.

■ Potential individual cases and fund outflows: We noticed a sector correction and

net foreign selling in HK tech space in early November, which stabilised recently.

However, heading into 2017, we still see potential risks of individual trade-related

cases (on tariff, anti-monopoly, or international M&As) could drive negative sector

sentiment and from time to time put pressure on supply chain share prices.

Figure 34: Summary of our coverage companies revenue exposure to US or Apple Company Ticker US Export % of

revenue Comments

NFME 002156.SZ >40% AMD (US company) alone contributes to more than 40% of total revenue

TSHT 002185.SZ ~20% ~20% of total revenue is sourced from US.

JCET 600584.SS ~45% ~45% of revenue from US clients like Qualcomm, Intel, Broadcom, and Apple.

ZTE 000063.SZ ~10% ~10% of revenue sourced from US in 2015

Dahua 002236.SZ 15-20% Oversea as c40% of Dahua total revenue. We estimate 15-20% from US.

GoerTek 002241.SZ ~40% Apple business accounts for ~40% of revenue in 2015.

Hikvision 002415.SZ 7-8% We estimate North America accounts for 7-8% of total sales.

Luxshare 002475.SZ 35-40% Apple accounts for over 35% of total revenue.

AAC 2018.HK ~55% Apple contributed to ~55% of total sales in 2015.

Lens Tech 300433.SZ ~40% Apple accounts for ~40% of total revenue.


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https://plus.credit-suisse.com/r/V6iv6Q1AF-WElY95

12 December 2016


Figure 35: Net foreign buying by market

Source: the BLOOMBERG PROFESSIONAL™ service

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US$ mn

12 December 2016


Asia Pacific/China Electronic Components & Connectors

AAC Technologies Holdings Inc (2018.HK /

2018 HK) Rating OUTPERFORM Price (08-Dec-16, HK$) 68.85 Target price (12-mth, HK$) 86.90 Upside/downside (%) 26.2 Mkt cap (HK$/US$ mn) 84,548 / 10,899 Enterprise value (Rmb mn) 75,408 Number of shares (mn) 1,228 Free float (%) 59.6 52-wk price range (HK$) 90.20-44.70 ADTO-6M (US$ mn) 40.3 *Stock ratings are relative to the relevant country benchmark.

¹Target price is for 12 months.

Research Analysts

Sam Li

852 2101 6775

[email protected]

Pauline Chen

886 2 2715 6323

[email protected]

Kyna Wong

852 2101 6950

[email protected]

Accumulate for the 2017 growth

■ Accumulate for 2017. Despite recent headwinds, we feel confident about

AAC's 2017 growth, and therefore maintain our OUTPERFORM rating on the

stock and encourage investors to accumulate the stock post any weakness.

■ Near-term headwinds but positive on 2017. We believe AAC stock will face

several headwinds in the near term, but we hold a positive view on its 2017

growth prospects. Late 4Q and 1Q are normally low seasons for iPhone

supply chain, with potential order/price cuts newsflow. On the other side,

LeTV AR issue still remains an overhang. However, looking into 2017, the

company has guided for 20%+ top line growth. Meanwhile, we see

continuous upgrades for acoustic and haptics, and new projects wins in RF &

mechanical (plus 3D glass in 2H17).

■ Catalysts. We expect late 1Q17 and early 2Q17 to be the next window with

plenty catalysts, including better visibility on iPhone8 spec pricings and

allocations and strong 1H17 earnings.

■ Maintain OUTPERFORM. We maintain our 26%/27%/20% EPS growth

forecasts for 2016-18E, and TP of HK$86.90. Maintain OUTPERFORM on

growth prospects in 2017. Key downside risks: weaker shipments at key

clients, share/ASP/GM pressures on competition and slower tech upgrades.

Share price performance

The price relative chart measures performance against the

MSCI CHINA F IDX which closed at 6,227.72 on 08/12/16.

On 08/12/16 the spot exchange rate was HK$7.76/US$1

Performance 1M 3M 12M Absolute (%) -3.9 -20.5 26.1 Relative (%) -2.2 -14.6 23.7

Financial and valuation metrics

Year 12/15A 12/16E 12/17E 12/18E Revenue (Rmb mn) 11,738.9 15,105.7 18,924.5 22,419.1 EBITDA (Rmb mn) 4,097.7 5,577.5 7,220.6 8,530.8 EBIT (Rmb mn) 3,386.6 4,480.1 5,745.0 6,874.0 Net profit (Rmb mn) 3,106.9 3,900.6 4,962.3 5,970.8 EPS (CS adj.) (Rmb) 2.53 3.18 4.04 4.86 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rmb) n.a. 3.14 3.92 4.54 EPS growth (%) 34.1 25.5 27.2 20.3 P/E (x) 24.2 19.3 15.2 12.6 Dividend yield (%) 1.6 2.0 2.6 3.1 EV/EBITDA (x) 18.2 13.5 10.4 8.6 P/B (x) 6.65 5.49 4.50 3.69 ROE (%) 30.4 31.2 32.7 32.2 Net debt/equity (%) Net Cash 1.9 Net Cash Net Cash

Source: Company data, Thomson Reuters, Credit Suisse estimates

12 December 2016


AAC Technologies Holdings Inc (2018.HK / 2018 HK)

Price (08 Dec 2016): HK$68.85; Rating: OUTPERFORM; Target Price: HK$86.90; Analyst: Sam Li

Earnings Drivers 12/15A 12/16E 12/17E 12/18E

Dynamic components 6,152 7,884 9,176 9,684 Haptics and RF mechanical module

4,441 6,450 8,209 9,526 MEMS components 990.5 546.5 487.1 460.1 - - - - - - - -

Income Statement (Rmb mn) 12/15A 12/16E 12/17E 12/18E

Sales revenue 11,739 15,106 18,925 22,419 Cost of goods sold 6,867 8,822 10,986 13,041 SG & A 1,662 1,999 2,437 2,822 Other operating exp./(inc.) (888) (1,292) (1,719) (1,974) EBITDA 4,098 5,578 7,221 8,531 Depreciation & amortisation 711 1,097 1,476 1,657 EBIT 3,387 4,480 5,745 6,874 Net interest expense/(inc.) 22 50 33 19 Non-operating inc./(exp.) 76 20 0 0 Associates/JV (5) (8) (8) 8 Recurring PBT 3,435 4,443 5,704 6,863 Exceptionals/extraordinaries 0 0 0 0 Taxes 325 543 741 892 Profit after tax 3,110 3,900 4,962 5,971 Other after tax income 0 0 0 0 Minority interests 3 (1) 0 0 Preferred dividends 0 0 0 0 Reported net profit 3,107 3,901 4,962 5,971 Analyst adjustments 0 0 0 0 Net profit (Credit Suisse) 3,107 3,901 4,962 5,971

Balance Sheet (Rmb mn) 12/15A 12/16E 12/17E 12/18E

Cash & cash equivalents 2,224 1,549 1,729 3,123 Current receivables 4,196 5,177 6,486 7,683 Inventories 1,718 1,918 2,388 2,835 Other current assets 43 43 43 43 Current assets 8,181 8,687 10,646 13,685 Property, plant & equip. 7,337 10,029 12,069 13,564 Investments 386 378 370 378 Intangibles 245 231 218 204 Other non-current assets 272 272 272 272 Total assets 16,420 19,598 23,574 28,103 Accounts payable 2,919 3,409 4,246 5,040 Short-term debt 1,159 1,159 959 759 Current provisions 0 0 0 0 Other current liabilities 248 558 972 1,366 Current liabilities 4,326 5,126 6,177 7,165 Long-term debt 649 649 549 449 Non-current provisions 0 0 0 0 Other non-current liabilities 91 91 91 91 Total liabilities 5,066 5,866 6,817 7,705 Shareholders' equity 11,307 13,685 16,711 20,352 Minority interests 47 46 46 46 Total liabilities & equity 16,420 19,598 23,574 28,103

Cash Flow (Rmb mn) 12/15A 12/16E 12/17E 12/18E

EBIT 3,387 4,480 5,745 6,874 Net interest 0 0 0 0 Tax paid (325) (543) (741) (892) Working capital (266) (691) (943) (850) Other cash & non-cash items 964 1,068 1,442 1,638 Operating cash flow 3,760 4,314 5,503 6,770 Capex (2,087) (3,776) (3,501) (3,139) Free cash flow to the firm 1,673 538 2,002 3,631 Disposals of fixed assets 0 0 0 0 Acquisitions (80) 0 0 0 Divestments 0 0 0 0 Associate investments 0 0 0 0 Other investment/(outflows) (302) 0 0 0 Investing cash flow (2,469) (3,776) (3,501) (3,139) Equity raised 0 0 0 0 Dividends paid (931) (1,212) (1,522) (1,937) Net borrowings 300 0 (200) (200) Other financing cash flow (90) 0 0 0 Financing cash flow (721) (1,212) (1,722) (2,137) Total cash flow 570 (674) 280 1,494 Adjustments 51 0 0 0 Net change in cash 621 (674) 280 1,494

Per share 12/15A 12/16E 12/17E 12/18E

Shares (wtd avg.) (mn) 1,228 1,228 1,228 1,228 EPS (Credit Suisse) (Rmb)

2.53 3.18 4.04 4.86 DPS (Rmb) 0.99 1.24 1.58 1.90 BVPS (Rmb) 9.21 11.14 13.61 16.57 Operating CFPS (Rmb) 3.06 3.51 4.48 5.51

Valuation (x) 12/15A 12/16E 12/17E 12/18E

P/E 24.2 19.3 15.2 12.6 P/B 6.65 5.49 4.50 3.69 Dividend yield (%) 1.6 2.0 2.6 3.1 P/CF 20.0 17.4 13.7 11.1 EV/sales 6.4 5.0 4.0 3.3 EV/EBITDA 18.2 13.5 10.4 8.6 EV/EBIT 22.1 16.8 13.0 10.7

Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue 32.2 28.7 25.3 18.5 EBIT 30.3 32.3 28.2 19.7 Net profit 34.1 25.5 27.2 20.3 EPS 34.1 25.5 27.2 20.3 Margins (%) EBITDA 34.9 36.9 38.2 38.1 EBIT 28.8 29.7 30.4 30.7 Pre-tax profit 29.3 29.4 30.1 30.6 Net profit 26.5 25.8 26.2 26.6

ROE analysis (%) 12/15A 12/16E 12/17E 12/18E

ROE 30.4 31.2 32.7 32.2 ROIC 30.7 31.6 32.7 34.2 Asset turnover (x) 0.7 0.8 0.8 0.8 Interest burden (x) 1.0 1.0 1.0 1.0 Tax burden (x) 0.9 0.9 0.9 0.9 Financial leverage (x) 1.4 1.4 1.4 1.4

Credit ratios 12/15A 12/16E 12/17E 12/18E

Net debt/equity (%) (3.7) 1.9 (1.3) (9.4) Net debt/EBITDA (x) (0.10) 0.05 (0.03) (0.22) Interest cover (x) 154.28 89.69 173.26 361.59

12MF P/E multiple

12MF P/B multiple

Source: Credit Suisse, Thomson Reuters


12 December 2016


Asia Pacific/China IT Hardware

Coolpad Group Limited (2369.HK / 2369 HK) Rating UNDERPERFORM [V] Price (08-Dec-16, HK$) 0.73 Target price (12-mth, HK$) (from 0.90) 0.60 Upside/downside (%) -18.0 Mkt cap (HK$/US$ mn) 3,674 / 473.57 Enterprise value (HK$ mn) 1,635 Number of shares (mn) 5,033 Free float (%) 60.7 52-wk price range (HK$) 1.69-0.70 ADTO-6M (US$ mn) 3.4 *Stock ratings are relative to the relevant country benchmark.


[V] = Stock Considered Volatile (see Disclosure Appendix)

Research Analysts

Kyna Wong

852 2101 6950

[email protected]

Sam Li

852 2101 6775

[email protected]

Business headwinds persist in 2017

■ Headwinds persist in 2017. We forecast 20mn smartphone shipments in

2017 driven by overseas sales and spec upgrades. Overseas smartphones

accounted for 52% of total shipments in 3Q16. We now forecast 45%/55% of

Coolpad brand shipments to export market in 2017/18E vs 30% in 2015,

indicating 56%/41%% growth YoY. However, severe competition and channel

expansion in domestic market will result in GM pressure and higher opex. We

expect 19% YoY decline in domestic smartphone shipments on continuous

share loss.

■ Limited visibility on LeEco cooperation. According to IDC, LeEco shipped

16.5mn units in 9M16, which has exceeded its 15mn full-year target. Our

checks suggest LeEco starting to settle overdue payments with vendors,

which implies shipments resuming. We still have limited visibility on LeEco

handset business for Coolpad, but the potential to expedite the cooperation in

2H17 will lead to better synergies, in our view.

■ Catalysts. LeEco's cashflow issues and disappointing 2H16 results are near-

term negative catalysts. Share loss in China smartphone market will likely

drive it back towards underperformance.

■ Maintain UNDERPERFORM. We revise 2016/17 loss per share estimates

from HK$0.15/0.05 to HK$0.12/0.04 due to its recent disposal of loss-making

"ivvi" brand. We lower 2018 EPS by 6% to HK$0.03 given lower margin from

potential LeEco business. We cut our TP by 33% to HK$0.60 which is based

on DCF-based valuation (6.8% WACC and 1.5% terminal growth). Our new

TP implies 0.6x 2018E P/B (vs prior 0.9x) which is in line with its 2.8% ROE.

Key risks: better demand, spec upgrade for ASP increase, stabilising

competition, better execution and forex risks.





Performance 1M 3M 12M Absolute (%) -31.8 -53.8 -46.2 Relative (%) -30.1 -47.9 -48.6


Year 12/15A 12/16E 12/17E 12/18E Revenue (HK$ mn) 14,667.9 8,882.0 12,055.0 18,996.8 EBITDA (HK$ mn) (414.6) (682.9) (322.3) (87.5) EBIT (HK$ mn) (508.9) (788.6) (429.3) (197.8) Net profit (HK$ mn) (331.5) (616.1) (221.5) 150.8 EPS (CS adj.) (HK$) (0.07) (0.12) (0.04) 0.03 Change from previous EPS (%) n.a. - - (5.5) Consensus EPS (HK$) n.a. (0.10) 0.04 0.07 EPS growth (%) n.m. n.m. n.m. n.m. P/E (x) (9.8) (6.0) (16.7) 24.5 Dividend yield (%) 0.0 0.0 0.0 0.3 EV/EBITDA (x) (6.1) (2.3) (6.1) (26.3) P/B (x) 0.44 0.67 0.70 0.68 ROE (%) (6.2) (9.6) (4.1) 2.8 Net debt/equity (%) Net Cash Net Cash Net Cash Net Cash


12 December 2016


Coolpad Group Limited (2369.HK / 2369 HK)

Price (08 Dec 2016): HK$0.73; Rating: UNDERPERFORM [V]; Target Price: (from HK$0.90) HK$0.60; Analyst: Kyna Wong


Sale of mobile phones and related accessories

- - - - Wireless application service - - - - Finance service income - - - - - - - - - - - -

Income Statement (HK$ mn) 12/15A 12/16E 12/17E 12/18E

Sales revenue 14,668 8,882 12,055 18,997 Cost of goods sold 13,079 7,889 10,593 16,670 SG & A 1,929 1,611 1,722 2,356 Other operating exp./(inc.) 74 65 62 58 EBITDA (415) (683) (322) (88) Depreciation & amortisation 94 106 107 110 EBIT (509) (789) (429) (198) Net interest expense/(inc.) 0 (40) (5) (8) Non-operating inc./(exp.) 349 (1,564) 238 350 Associates/JV (185) (226) (45) 25 Recurring PBT (345) (2,539) (232) 185 Exceptionals/extraordinaries 2,657 0 0 0 Taxes 35 1 1 28 Profit after tax 2,277 (2,540) (233) 157 Other after tax income 0 0 0 0 Minority interests (48) (34) (11) 6 Preferred dividends 0 0 0 0 Reported net profit 2,325 (2,506) (222) 151 Analyst adjustments (2,657) 1,890 0 0 Net profit (Credit Suisse) (331) (616) (222) 151

Balance Sheet (HK$ mn) 12/15A 12/16E 12/17E 12/18E

Cash & cash equivalents 2,516 3,456 3,063 2,735 Current receivables 1,749 973 1,222 1,770 Inventories 1,687 692 842 1,187 Other current assets 2,586 2,586 2,586 2,586 Current assets 8,538 7,707 7,713 8,279 Property, plant & equip. 1,001 994 995 1,011 Investments 4,093 1,841 1,796 1,821 Intangibles 103 93 82 69 Other non-current assets 548 548 548 548 Total assets 14,283 11,184 11,134 11,728 Accounts payable 1,916 648 842 1,279 Short-term debt 1,205 1,205 1,205 1,205 Current provisions 0 0 0 0 Other current liabilities 3,520 3,520 3,520 3,532 Current liabilities 6,641 5,374 5,567 6,016 Long-term debt 156 156 156 156 Non-current provisions 0 0 0 0 Other non-current liabilities 70 80 70 70 Total liabilities 6,867 5,609 5,792 6,242 Shareholders' equity 7,327 5,519 5,297 5,436 Minority interests 90 56 45 51 Total liabilities & equity 14,283 11,184 11,134 11,728

Cash Flow (HK$ mn) 12/15A 12/16E 12/17E 12/18E

EBIT (509) (789) (429) (198) Net interest 0 0 0 0 Tax paid (35) (1) (1) (28) Working capital 2,733 503 (205) (456) Other cash & non-cash items (1,841) (1,408) 340 468 Operating cash flow 348 (1,695) (296) (214) Capex (139) (89) (96) (114) Free cash flow to the firm 209 (1,784) (393) (328) Disposals of fixed assets 0 0 0 0 Acquisitions 0 0 0 0 Divestments 3,170 0 0 0 Associate investments 0 0 0 0 Other investment/(outflows) 91 2,026 0 0 Investing cash flow 3,121 1,937 (96) (114) Equity raised 74 698 0 0 Dividends paid (43) 0 0 0 Net borrowings (830) 0 0 0 Other financing cash flow 90 0 0 0 Financing cash flow (709) 698 0 0 Total cash flow 2,760 940 (393) (328) Adjustments (33) 0 0 0 Net change in cash 2,727 940 (393) (328)

Per share 12/15A 12/16E 12/17E 12/18E

Shares (wtd avg.) (mn) 4,450 5,068 5,068 5,068 EPS (Credit Suisse) (HK$)

(0.07) (0.12) (0.04) 0.03 DPS (HK$) 0.00 0.00 0.00 0.00 BVPS (HK$) 1.65 1.09 1.05 1.07 Operating CFPS (HK$) 0.08 (0.33) (0.06) (0.04)

Valuation (x) 12/15A 12/16E 12/17E 12/18E

P/E (9.8) (6.0) (16.7) 24.5 P/B 0.44 0.67 0.70 0.68 Dividend yield (%) 0.0 0.0 0.0 0.3 P/CF 9.3 (2.2) (12.5) (17.3) EV/sales 0.2 0.2 0.2 0.1 EV/EBITDA (6.1) (2.3) (6.1) (26.3) EV/EBIT (4.9) (2.0) (4.6) (11.6)

Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue (41.1) (39.4) 35.7 57.6 EBIT (293.5) (55.0) 45.6 53.9 Net profit (164.6) (85.9) 64.0 168.1 EPS (163.7) (63.2) 64.0 168.1 Margins (%) EBITDA (2.8) (7.7) (2.7) (0.5) EBIT (3.5) (8.9) (3.6) (1.0) Pre-tax profit (2.4) (28.6) (1.9) 1.0 Net profit (2.3) (6.9) (1.8) 0.8


ROE (6.2) (9.6) (4.1) 2.8 ROIC (12.7) (16.2) (12.1) (4.3) Asset turnover (x) 1.0 0.8 1.1 1.6 Interest burden (x) 0.7 3.2 0.5 (0.9) Tax burden (x) 1.0 1.0 1.0 0.8 Financial leverage (x) 1.9 2.0 2.1 2.1


Net debt/equity (%) (15.6) (37.6) (31.9) (25.0) Net debt/EBITDA (x) n.a. n.a. n.a. n.a. Interest cover (x) n.a. n.a. n.a. n.a.

12MF P/E multiple

12MF P/B multiple



12 December 2016



GoerTek Inc. (002241.SZ / 002241 CH) Rating OUTPERFORM [V] Price (08-Dec-16, Rmb) 27.85 Target price (12-mth, Rmb) 41.30 Upside/downside (%) 48.3 Mkt cap (Rmb/US$ mn) 42,520 / 6,183 Enterprise value (Rmb mn) 46,318 Number of shares (mn) 1,527 Free float (%) 49.5 52-wk price range (Rmb) 36.00-22.15 ADTO-6M (US$ mn) 47.7 *Stock ratings are relative to the relevant country benchmark.



Research Analysts

Sam Li

852 2101 6775

[email protected]

First full year for the VR driver

■ 2017 a better year. We see 2017 as the first full contribution year for

GoerTek on the two major business drivers, acoustic and VR. GoerTek

remains the best early stage proxy for investment in the VR cycle, in our

view, due to its frontrunner and dominant positions in Oculus and Sony VR

supply chains.

■ First full year for the two drivers. We expect the two major business drivers

to drive better growth in 2017: (1) GoerTek is likely to remain the sole

assembly supplier for Oculus and Sony VR headsets, which implies VR

shipments could more than double in 2017. (2) Chinese smartphones are

upgrading in acoustic, while iPhone8 acoustic content could probably further

increase. (3) Other IoT (Internet of Things) products, such as drones and

smart watches, could lead to additional upsides on earnings.

■ Catalysts. We see Sony PlayStation VR sales numbers, any news on VR

ecosystem updates and improving earnings as the positive share price

catalysts.

■ Maintain OUTPERFORM. We maintain our 27%/35%/15% EPS growth

forecasts for 2016-18E and our TP of Rmb41.30. Maintain OUTPERFORM

for the even better outlook for 2017. Key downside risks: slower-than-

expected progress in new businesses, weak global smartphone demand,

competition and ASP pressure, and forex risks.



Shanghai Shenzhen CSI300 index which closed at

3,470.19 on 08/12/16. On 08/12/16 the spot exchange rate

was Rmb6.88/US$1

Performance 1M 3M 12M Absolute (%) -9.3 -5.7 -12.7 Relative (%) -12.3 -10.3 -8.1


Year 12/15A 12/16E 12/17E 12/18E Revenue (Rmb mn) 13,656.0 18,451.6 23,132.7 26,875.2 EBITDA (Rmb mn) 2,336.7 2,964.6 3,735.2 4,171.5 EBIT (Rmb mn) 1,640.0 2,015.6 2,657.1 3,016.2 Net profit (Rmb mn) 1,251.1 1,584.9 2,133.2 2,451.8 EPS (CS adj.) (Rmb) 0.82 1.04 1.40 1.61 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rmb) n.a. 1.09 1.40 1.62 EPS growth (%) (24.8) 26.6 34.6 14.9 P/E (x) 34.0 26.8 19.9 17.3 Dividend yield (%) 0.0 0.0 0.0 0.0 EV/EBITDA (x) 19.1 15.7 12.4 10.9 P/B (x) 4.52 3.87 3.24 2.73 ROE (%) 14.1 15.5 17.7 17.1 Net debt/equity (%) 22.4 35.6 29.7 18.5


12 December 2016


GoerTek Inc. (002241.SZ / 002241 CH)

Price (08 Dec 2016): Rmb27.85; Rating: OUTPERFORM [V]; Target Price: Rmb41.30; Analyst: Sam Li


Acoustic products 9,546 10,485 11,386 12,423 Electronic accessories 3,807 7,664 11,444 14,149 - - - - - - - - - - - -


Sales revenue 13,656 18,452 23,133 26,875 Cost of goods sold 10,256 14,325 18,075 21,150 SG & A 1,760 2,111 2,401 2,709 Other operating exp./(inc.) (697) (949) (1,078) (1,155) EBITDA 2,337 2,965 3,735 4,171 Depreciation & amortisation 697 949 1,078 1,155 EBIT 1,640 2,016 2,657 3,016 Net interest expense/(inc.) 240 188 164 140 Non-operating inc./(exp.) 90 36 17 12 Associates/JV (0) 0 0 0 Recurring PBT 1,491 1,864 2,510 2,889 Exceptionals/extraordinaries 0 0 0 0 Taxes 250 313 400 461 Profit after tax 1,240 1,551 2,110 2,428 Other after tax income 0 0 0 0 Minority interests (11) (34) (24) (24) Preferred dividends 0 0 0 0 Reported net profit 1,251 1,585 2,133 2,452 Analyst adjustments 0 0 0 0 Net profit (Credit Suisse) 1,251 1,585 2,133 2,452


Cash & cash equivalents 4,379 2,605 2,641 3,665 Current receivables 3,843 5,242 6,445 7,488 Inventories 2,147 2,743 3,462 4,051 Other current assets 275 275 275 275 Current assets 10,643 10,865 12,822 15,477 Property, plant & equip. 6,705 9,066 10,269 10,945 Investments 253 256 263 272 Intangibles 1,497 1,324 1,125 906 Other non-current assets 150 150 150 150 Total assets 19,248 21,660 24,629 27,751 Accounts payable 2,561 3,505 4,423 5,175 Short-term debt 2,767 2,767 2,767 2,767 Current provisions 0 0 0 0 Other current liabilities 571 572 572 572 Current liabilities 5,900 6,844 7,762 8,515 Long-term debt 3,742 3,742 3,742 3,742 Non-current provisions 0 0 0 0 Other non-current liabilities 109 109 109 109 Total liabilities 9,751 10,695 11,613 12,366 Shareholders' equity 9,405 10,989 13,120 15,570 Minority interests 92 (24) (105) (185) Total liabilities & equity 19,248 21,660 24,629 27,751


EBIT 1,640 2,016 2,657 3,016 Net interest 0 0 0 0 Tax paid (250) (313) (400) (461) Working capital 111 (1,052) (1,004) (879) Other cash & non-cash items 908 795 923 1,019 Operating cash flow 2,409 1,445 2,176 2,695 Capex (2,036) (3,137) (2,082) (1,613) Free cash flow to the firm 373 (1,691) 95 1,083 Disposals of fixed assets 0 0 0 0 Acquisitions 0 0 0 0 Divestments 0 0 0 0 Associate investments 0 0 0 0 Other investment/(outflows) (192) 0 0 0 Investing cash flow (2,228) (3,137) (2,082) (1,613) Equity raised 26 0 0 0 Dividends paid (153) (1) (1) (2) Net borrowings (277) 0 0 0 Other financing cash flow 24 (82) (57) (57) Financing cash flow (380) (83) (58) (59) Total cash flow (199) (1,774) 36 1,024 Adjustments 13 0 0 0 Net change in cash (186) (1,774) 36 1,024

Per share 12/15A 12/16E 12/17E 12/18E



Valuation (x) 12/15A 12/16E 12/17E 12/18E


Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue 7.5 35.1 25.4 16.2 EBIT (20.8) 22.9 31.8 13.5 Net profit (24.5) 26.7 34.6 14.9 EPS (24.8) 26.6 34.6 14.9 Margins (%) EBITDA 17.1 16.1 16.1 15.5 EBIT 12.0 10.9 11.5 11.2 Pre-tax profit 10.9 10.1 10.9 10.7 Net profit 9.2 8.6 9.2 9.1




Net debt/equity (%) 22.4 35.6 29.7 18.5 Net debt/EBITDA (x) 0.91 1.32 1.04 0.68 Interest cover (x) 6.84 10.72 16.18 21.60

12MF P/E multiple

12MF P/B multiple



12 December 2016


Asia Pacific/China Semiconductor Devices

Jiangsu Changjiang Electronics

Technology Co., Ltd (600584.SS / 600584 CH) Rating UNDERPERFORM [V] Price (08-Dec-16, Rmb) 18.51 Target price (12-mth, Rmb) 12.60 Upside/downside (%) -31.9 Mkt cap (Rmb/US$ mn) 19,175 / 2,788 Enterprise value (Rmb mn) 25,112 Number of shares (mn) 1,036 Free float (%) 77.5 52-wk price range (Rmb) 21.22-15.24 ADTO-6M (US$ mn) 63.1 *Stock ratings are relative to the relevant country benchmark.



Research Analysts

Kyna Wong

852 2101 6950

[email protected]

Sam Li

852 2101 6775

[email protected]

Improving STATS operation but GM/financial

burden persists in 2017

■ Improving STATS operation, yet GM and financial burden persists.

Management expects Korea STATS and Singapore STATS to turn profitable

in 2017, while Shanghai STATS may improve its profitability after moving to

Jiangyin in 2H17. Despite improving STATS operation, we still see margin

pressure due to competition and heavy interest expenses on its high yield

USD senior notes and bank loans. JCET still needs to spend Rmb800/728

mn on interest expense in 2017/18.

■ Lower capex and improving cash flow. JCET will likely generate Rmb5.6

bn in negative cashflow from operations and investment in 2016 due to heavy

capex and poor operation, but that will be likely funded by new share

placements from SMIC by as soon as end-4Q16 or 1Q17. We forecast JCET

to spend US$350 mn capex (down 38% YoY) in 2017 mainly for eWLB (fan-

out) expansion, SiP (system-in-package) and 12" bumping. Besides

advanced packaging, new customers (MTK and Novatek) will also drive the

growth in 2017.

■ Catalysts. We see the completion of equity placement may support its share

price in the near term, but the STATS burden will continue to drive it back

towards underperformance.

■ Maintain UNDERPERFORM. Our TP of Rmb12.60 is based on a trough

cycle P/B of 1.7x NTM EPS. We maintain our UNDERPERFORM rating as

we see JCET will continue with a weak balance sheet due to low ROE and

margin dilution from its STATS merger. Key risks: post-deal execution risk,

better cost control, higher demand from key clients and forex risk.





was Rmb6.88/US$1

Performance 1M 3M 12M Absolute (%) -6.9 2.6 -15.9 Relative (%) -9.9 -2.0 -11.4


Year 12/15A 12/16E 12/17E 12/18E Revenue (Rmb mn) 10,807.0 18,825.0 20,882.2 22,957.2 EBITDA (Rmb mn) 1,987.1 3,054.0 3,706.4 4,080.7 EBIT (Rmb mn) 454.2 371.0 928.9 1,096.3 Net profit (Rmb mn) 52.0 111.3 164.2 228.2 EPS (CS adj.) (Rmb) 0.05 0.08 0.12 0.17 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rmb) n.a. 0.16 0.53 0.82 EPS growth (%) (71.6) 63.1 47.6 39.0 P/E (x) 368.8 226.1 153.2 110.3 Dividend yield (%) 0.1 0.1 0.1 0.1 EV/EBITDA (x) 14.4 8.2 6.6 5.9 P/B (x) 4.45 2.57 2.53 2.48 ROE (%) 1.3 1.6 1.7 2.3 Net debt/equity (%) 139.9 48.6 44.1 39.3


12 December 2016


Jiangsu Changjiang Electronics Technology Co., Ltd (600584.SS /

600584 CH) Price (08 Dec 2016): Rmb18.51; Rating: UNDERPERFORM [V]; Target Price: Rmb12.60; Analyst: Kyna Wong


IC packaging and testing 10,481 18,398 20,460 22,527 IC sales 260.8 329.7 308.9 306.2 Other 65.01 97.51 113.1 124.4 - - - - - - - -


Sales revenue 10,807 18,825 20,882 22,957 Cost of goods sold 8,880 16,633 17,996 19,698 SG & A 1,473 1,821 1,958 2,163 Other operating exp./(inc.) (1,533) (2,683) (2,777) (2,984) EBITDA 1,987 3,054 3,706 4,081 Depreciation & amortisation 1,533 2,683 2,777 2,984 EBIT 454 371 929 1,096 Net interest expense/(inc.) 416 709 611 567 Non-operating inc./(exp.) (129) 108 (51) (131) Associates/JV (31) (16) (27) (27) Recurring PBT (122) (246) 240 370 Exceptionals/extraordinaries 0 0 0 0 Taxes 36 92 36 112 Profit after tax (158) (338) 204 258 Other after tax income 0 0 0 0 Minority interests (210) (449) 40 30 Preferred dividends 0 0 0 0 Reported net profit 52 111 164 228 Analyst adjustments 0 0 0 0 Net profit (Credit Suisse) 52 111 164 228


Cash & cash equivalents 2,579 7,977 5,914 6,396 Current receivables 2,015 3,059 3,164 3,478 Inventories 1,294 1,986 2,317 2,673 Other current assets 921 702 702 702 Current assets 6,809 13,723 12,097 13,250 Property, plant & equip. 15,095 16,546 16,268 16,074 Investments 366 336 313 289 Intangibles 3,082 3,062 2,916 2,636 Other non-current assets 207 243 243 243 Total assets 25,559 33,910 31,838 32,491 Accounts payable 2,544 4,070 4,305 4,712 Short-term debt 4,556 5,946 4,446 4,446 Current provisions 0 0 0 0 Other current liabilities 3,211 2,338 2,338 2,338 Current liabilities 10,312 12,354 11,089 11,496 Long-term debt 7,378 7,750 6,750 6,750 Non-current provisions 0 0 0 0 Other non-current liabilities 1,180 2,033 2,033 2,033 Total liabilities 18,869 22,136 19,871 20,279 Shareholders' equity 4,308 9,785 9,936 10,150 Minority interests 2,381 1,989 2,031 2,063 Total liabilities & equity 25,559 33,910 31,838 32,491


EBIT 454 371 929 1,096 Net interest 0 0 0 0 Tax paid (36) (92) (36) (112) Working capital (356) 126 (202) (263) Other cash & non-cash items 1,684 (2,539) 2,112 2,282 Operating cash flow 1,746 (2,134) 2,803 3,003 Capex (2,364) (3,824) (2,355) (2,509) Free cash flow to the firm (618) (5,958) 449 494 Disposals of fixed assets 0 0 0 0 Acquisitions (3,952) 0 0 0 Divestments 0 0 0 0 Associate investments 0 0 0 0 Other investment/(outflows) 105 221 0 0 Investing cash flow (6,211) (3,603) (2,355) (2,509) Equity raised 333 5,305 0 0 Dividends paid (10) (10) (14) (14) Net borrowings 1,893 (572) (2,500) 0 Other financing cash flow 1,930 1,144 2 2 Financing cash flow 4,146 5,867 (2,511) (12) Total cash flow (319) 131 (2,063) 482 Adjustments 83 34 0 0 Net change in cash (236) 165 (2,063) 482

Per share 12/15A 12/16E 12/17E 12/18E


0.05 0.08 0.12 0.17 DPS (Rmb) 0.01 0.01 0.01 0.01 BVPS (Rmb) 4.16 7.20 7.31 7.47 Operating CFPS (Rmb) 1.69 (1.57) 2.06 2.21

Valuation (x) 12/15A 12/16E 12/17E 12/18E

P/E 368.8 226.1 153.2 110.3 P/B 4.45 2.57 2.53 2.48 Dividend yield (%) 0.1 0.1 0.1 0.1 P/CF 11.0 (11.8) 9.0 8.4 EV/sales 2.6 1.3 1.2 1.0 EV/EBITDA 14.4 8.2 6.6 5.9 EV/EBIT 62.8 67.1 26.3 21.9

Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue 68.1 74.2 10.9 9.9 EBIT (1.1) (18.3) 150.4 18.0 Net profit (66.8) 114.0 47.6 39.0 EPS (71.6) 63.1 47.6 39.0 Margins (%) EBITDA 18.4 16.2 17.7 17.8 EBIT 4.2 2.0 4.4 4.8 Pre-tax profit (1.1) (1.3) 1.2 1.6 Net profit 0.5 0.6 0.8 1.0


ROE 1.3 1.6 1.7 2.3 ROIC 5.6 3.0 4.5 4.5 Asset turnover (x) 0.4 0.6 0.7 0.7 Interest burden (x) (0.3) (0.7) 0.3 0.3 Tax burden (x) 1.3 1.4 0.9 0.7 Financial leverage (x) 3.8 2.9 2.7 2.7



12MF P/E multiple

12MF P/B multiple



12 December 2016



Lens Technology Co., Ltd (300433.SZ / 300433 CH) Rating OUTPERFORM [V] Price (08-Dec-16, Rmb) 26.92 Target price (12-mth, Rmb) 33.20 Upside/downside (%) 23.3 Mkt cap (Rmb/US$ mn) 58,729 / 8,540 Enterprise value (Rmb mn) 59,181 Number of shares (mn) 2,182 Free float (%) 100.0 52-wk price range (Rmb) 79.42-23.31 ADTO-6M (US$ mn) 26.2 *Stock ratings are relative to the relevant country benchmark.



Research Analysts

Sam Li

852 2101 6775

[email protected]

A multi-year upcycle for glass

■ OUTPERFORM for a multi-year cycle. We see the glass processing sector

is entering a multi-year up-cycle. The total addressable market for glass in

smartphones is likely to more than double, due to: (1) new stylish designs, (2)

increased RF capabilities, and (3) curved screens. Lens Tech could be a key

beneficiary of the trend for its leading technology and high-end clients

exposures.

■ Not just one-time upgrade. Although talks of the iPhone to adopt double-

sided glass in 2H17 have been gaining ground for a while, we observe

several new factors which drive our upgrade on Lens Tech. First, we see a

multi-year upcycle for the whole sector rather than one-time upgrade to

double-sided glass for iPhone in 2H17. Second, content per phone could rise

from c.US$3 to US$15-20 or more. Thirdly, Lens' strong 3Q gross margin

also increases our confidence.

■ Catalysts. We expect more 2.5D, 3D, double-sided glass model launches at

Chinese, Korean, and US clients, and fast improving quarterly earnings to be

the main share price catalysts.

■ Valuation. We expect 49%/42% strong EPS growth for 2017/18E due to

glass upgrades at both Apple and Chinese smartphones. Our TP of

Rmb33.20 is based on 22x sector average P/E. Key downside risks:

Worse-than-expected demand for key clients' products, product design

changes, competition and pricing pressure, and forex risk.





was Rmb6.88/US$1

Performance 1M 3M 12M Absolute (%) -1.2 10.2 -60.1 Relative (%) -4.1 5.7 -55.5


Year 12/15A 12/16E 12/17E 12/18E Revenue (Rmb mn) 17,227.4 16,390.4 20,435.8 25,042.6 EBITDA (Rmb mn) 3,833.9 4,355.0 5,608.5 7,131.1 EBIT (Rmb mn) 1,715.3 1,665.4 2,556.1 3,731.1 Net profit (Rmb mn) 1,542.8 1,554.4 2,322.0 3,294.1 EPS (CS adj.) (Rmb) 2.35 0.71 1.06 1.51 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rmb) n.a. 0.70 1.12 1.51 EPS growth (%) 21.1 (69.7) 49.4 41.9 P/E (x) 11.5 37.8 25.3 17.8 Dividend yield (%) 4.1 1.0 1.2 1.7 EV/EBITDA (x) 16.5 13.5 10.2 7.7 P/B (x) 1.74 4.02 3.61 3.16 ROE (%) 17.3 12.4 15.0 18.9 Net debt/equity (%) 43.6 1.3 Net Cash Net Cash


12 December 2016


Lens Technology Co., Ltd (300433.SZ / 300433 CH)

Price (08 Dec 2016): Rmb26.92; Rating: OUTPERFORM [V]; Target Price: Rmb33.20; Analyst: Sam Li


Smartphone cover lens 11,004 11,364 15,135 19,670 Tablet cover lens 1,833 1,702 1,691 1,762 Others 4,213 3,263 3,548 3,548 - - - - - - - -


Sales revenue 17,227 16,390 20,436 25,043 Cost of goods sold 13,121 12,024 14,749 17,730 SG & A 2,392 2,701 3,131 3,582 Other operating exp./(inc.) (2,119) (2,690) (3,052) (3,400) EBITDA 3,834 4,355 5,609 7,131 Depreciation & amortisation 2,119 2,690 3,052 3,400 EBIT 1,715 1,665 2,556 3,731 Net interest expense/(inc.) 129 96 79 75 Non-operating inc./(exp.) 152 161 187 169 Associates/JV (0) 0 0 0 Recurring PBT 1,738 1,731 2,664 3,824 Exceptionals/extraordinaries 0 0 0 0 Taxes 196 178 342 530 Profit after tax 1,542 1,552 2,322 3,294 Other after tax income 0 0 0 0 Minority interests (1) (2) 0 0 Preferred dividends 0 0 0 0 Reported net profit 1,543 1,554 2,322 3,294 Analyst adjustments 0 0 0 0 Net profit (Credit Suisse) 1,543 1,554 2,322 3,294


Cash & cash equivalents 1,826 6,187 7,639 10,068 Current receivables 3,257 2,834 3,533 4,329 Inventories 1,916 1,753 2,110 2,537 Other current assets 736 736 736 736 Current assets 7,735 11,510 14,018 17,670 Property, plant & equip. 11,170 11,455 11,491 11,120 Investments 25 61 98 134 Intangibles 1,068 1,046 1,023 1,000 Other non-current assets 494 494 494 494 Total assets 20,492 24,566 27,124 30,418 Accounts payable 2,604 2,742 3,444 4,140 Short-term debt 6,122 6,122 6,122 6,122 Current provisions 0 0 0 0 Other current liabilities 618 357 587 879 Current liabilities 9,345 9,221 10,154 11,141 Long-term debt 255 255 255 255 Non-current provisions 0 0 0 0 Other non-current liabilities 459 459 459 459 Total liabilities 10,059 9,936 10,868 11,856 Shareholders' equity 10,426 14,626 16,251 18,557 Minority interests 7 5 5 5 Total liabilities & equity 20,492 24,566 27,124 30,418


EBIT 1,715 1,665 2,556 3,731 Net interest 0 0 0 0 Tax paid (196) (178) (342) (530) Working capital (1,051) 724 (354) (527) Other cash & non-cash items 2,951 2,715 3,123 3,457 Operating cash flow 3,420 4,926 4,984 6,131 Capex (3,344) (2,950) (3,065) (3,005) Free cash flow to the firm 75 1,976 1,918 3,126 Disposals of fixed assets 0 0 0 0 Acquisitions 0 0 0 0 Divestments 0 0 0 0 Associate investments 0 0 0 0 Other investment/(outflows) (2) 0 0 0 Investing cash flow (3,346) (2,950) (3,065) (3,005) Equity raised 1,514 3,112 0 0 Dividends paid 0 (727) (466) (697) Net borrowings (1,183) 0 0 0 Other financing cash flow (318) 0 0 0 Financing cash flow 13 2,385 (466) (697) Total cash flow 87 4,360 1,452 2,429 Adjustments 187 0 0 0 Net change in cash 274 4,360 1,452 2,429

Per share 12/15A 12/16E 12/17E 12/18E

Shares (wtd avg.) (mn) 656 2,182 2,182 2,182 EPS (Credit Suisse) (Rmb)


Valuation (x) 12/15A 12/16E 12/17E 12/18E


Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue 18.8 (4.9) 24.7 22.5 EBIT 26.9 (2.9) 53.5 46.0 Net profit 31.1 0.8 49.4 41.9 EPS 21.1 (69.7) 49.4 41.9 Margins (%) EBITDA 22.3 26.6 27.4 28.5 EBIT 10.0 10.2 12.5 14.9 Pre-tax profit 10.1 10.6 13.0 15.3 Net profit 9.0 9.5 11.4 13.2




Net debt/equity (%) 43.6 1.3 (7.8) (19.9) Net debt/EBITDA (x) 1.19 0.04 (0.22) (0.52) Interest cover (x) 13.32 17.43 32.32 49.66

12MF P/E multiple

12MF P/B multiple



12 December 2016



Luxshare Precision Industry Co., Ltd

(002475.SZ / 002475 CH) Rating OUTPERFORM Price (08-Dec-16, Rmb) 21.29 Target price (12-mth, Rmb) 26.90 Upside/downside (%) 26.4 Mkt cap (Rmb/US$ mn) 45,136 / 6,563 Enterprise value (Rmb mn) 41,753 Number of shares (mn) 2,120 Free float (%) 67.7 52-wk price range (Rmb) 23.00-16.67 ADTO-6M (US$ mn) 32.0 *Stock ratings are relative to the relevant country benchmark.


Research Analysts

Sam Li

852 2101 6775

[email protected]

Awaiting more new catalysts

■ Share gain thesis intact. We see our key thesis of content increase in Apple

supply chain and share gains in global connector markets remains

unchanged for Luxshare. In our view, 2017 will see a strong recovery post

the 2016 headwinds.

■ 2017 a strong year for recovery. While Luxshare's 2016 earnings were hurt

by project delays and margin pressure at the ramp-up stage, we believe 2017

would be a strong recovery year: (1) We expect the new dongle to continue to

be "in box" for iPhone8, and therefore could contribute to full-year revenues.

GM would also improve to corporate average as automation ramps up. (2)

We see potential wireless charging and other projects in the 2H17 product

cycle. (3) Other businesses such as telecom connector and Type C cable are

additional drivers.

■ Catalysts. We view new projects at major clients, any new progress in the

Merry deal, and recovering quarterly earnings results as share price

catalysts.

■ Valuation. We expect FY16 results to be unexciting, but forecast 50%/30%

EPS growth for 2017/18E when new projects come in and GM recovers.

Maintain OUTPERFORM with a TP of Rmb26.90. Key downside risks:

Worse-than-expected demand for key clients' products, execution risks on

new business, pricing and margin pressures, and M&A and forex risks.





was Rmb6.88/US$1

Performance 1M 3M 12M Absolute (%) -0.6 5.3 -8.0 Relative (%) -3.5 0.7 -3.4


Year 12/15A 12/16E 12/17E 12/18E Revenue (Rmb mn) 10,139.5 12,693.2 16,106.5 19,610.7 EBITDA (Rmb mn) 1,522.5 1,856.1 2,657.4 3,387.8 EBIT (Rmb mn) 1,180.0 1,364.0 1,974.9 2,588.1 Net profit (Rmb mn) 1,078.5 1,166.3 1,744.2 2,259.0 EPS (CS adj.) (Rmb) 0.86 0.55 0.82 1.07 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rmb) n.a. 0.63 0.91 1.12 EPS growth (%) 13.3 (35.9) 49.5 29.5 P/E (x) 24.8 38.7 25.9 20.0 Dividend yield (%) 0.4 0.3 0.4 0.5 EV/EBITDA (x) 30.2 22.3 15.7 12.2 P/B (x) 4.84 4.04 3.54 3.06 ROE (%) 21.3 14.0 14.6 16.4 Net debt/equity (%) 15.6 Net Cash Net Cash Net Cash


12 December 2016


Luxshare Precision Industry Co., Ltd (002475.SZ / 002475 CH)

Price (08 Dec 2016): Rmb21.29; Rating: OUTPERFORM; Target Price: Rmb26.90; Analyst: Sam Li


PC connectors 3,890 3,985 4,046 3,844 Other connectors 6,249 8,708 12,060 15,767 - - - - - - - - - - - -


Sales revenue 10,139 12,693 16,106 19,611 Cost of goods sold 7,819 9,779 12,300 14,913 SG & A 1,140 1,550 1,832 2,109 Other operating exp./(inc.) (342) (492) (683) (800) EBITDA 1,522 1,856 2,657 3,388 Depreciation & amortisation 342 492 683 800 EBIT 1,180 1,364 1,975 2,588 Net interest expense/(inc.) 44 66 (33) (14) Non-operating inc./(exp.) 154 93 96 115 Associates/JV 2 0 0 0 Recurring PBT 1,293 1,392 2,104 2,717 Exceptionals/extraordinaries 0 0 0 0 Taxes 161 215 335 433 Profit after tax 1,132 1,177 1,769 2,284 Other after tax income 0 0 0 0 Minority interests 53 11 25 25 Preferred dividends 0 0 0 0 Reported net profit 1,079 1,166 1,744 2,259 Analyst adjustments 0 0 0 0 Net profit (Credit Suisse) 1,079 1,166 1,744 2,259


Cash & cash equivalents 2,042 6,618 6,299 6,748 Current receivables 2,948 3,206 4,024 4,900 Inventories 1,509 1,616 1,999 2,423 Other current assets 545 545 545 545 Current assets 7,043 11,984 12,867 14,616 Property, plant & equip. 3,287 4,263 5,602 6,576 Investments 143 150 159 170 Intangibles 923 915 906 898 Other non-current assets 191 191 191 191 Total assets 11,587 17,503 19,725 22,450 Accounts payable 2,110 2,362 2,938 3,562 Short-term debt 2,820 2,820 2,820 2,820 Current provisions 0 0 0 0 Other current liabilities 594 603 664 718 Current liabilities 5,524 5,786 6,422 7,100 Long-term debt 140 140 140 140 Non-current provisions 0 0 0 0 Other non-current liabilities 44 44 44 44 Total liabilities 5,708 5,970 6,606 7,284 Shareholders' equity 5,527 11,171 12,733 14,754 Minority interests 351 362 387 412 Total liabilities & equity 11,587 17,503 19,725 22,450


EBIT 1,180 1,364 1,975 2,588 Net interest 0 0 0 0 Tax paid (161) (215) (335) (433) Working capital (610) (113) (626) (676) Other cash & non-cash items 78 512 803 918 Operating cash flow 487 1,548 1,817 2,397 Capex (1,046) (1,460) (2,013) (1,765) Free cash flow to the firm (559) 88 (196) 632 Disposals of fixed assets 0 0 0 0 Acquisitions 0 0 0 0 Divestments 0 0 0 0 Associate investments 0 0 0 0 Other investment/(outflows) (185) 0 0 0 Investing cash flow (1,231) (1,460) (2,013) (1,765) Equity raised 131 4,600 0 0 Dividends paid (67) (113) (122) (183) Net borrowings 496 0 0 0 Other financing cash flow (83) 0 0 0 Financing cash flow 478 4,487 (122) (183) Total cash flow (266) 4,575 (319) 449 Adjustments 90 0 0 0 Net change in cash (177) 4,575 (319) 449

Per share 12/15A 12/16E 12/17E 12/18E



Valuation (x) 12/15A 12/16E 12/17E 12/18E


Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue 39.0 25.2 26.9 21.8 EBIT 34.5 15.6 44.8 31.1 Net profit 71.2 8.1 49.5 29.5 EPS 13.3 (35.9) 49.5 29.5 Margins (%) EBITDA 15.0 14.6 16.5 17.3 EBIT 11.6 10.7 12.3 13.2 Pre-tax profit 12.7 11.0 13.1 13.9 Net profit 10.6 9.2 10.8 11.5




Net debt/equity (%) 15.6 (31.7) (25.5) (25.0) Net debt/EBITDA (x) 0.60 (1.97) (1.26) (1.12) Interest cover (x) 26.97 20.78 n.a. n.a.

12MF P/E multiple

12MF P/B multiple



12 December 2016


Asia Pacific/China Semiconductor Devices

Tianshui Huatian Technology Co., Ltd

(002185.SZ / 002185 CH) Rating OUTPERFORM [V] Price (08-Dec-16, Rmb) 12.85 Target price (12-mth, Rmb) 15.30 Upside/downside (%) 19.1 Mkt cap (Rmb/US$ mn) 13,692 / 1,991 Enterprise value (Rmb mn) 13,043 Number of shares (mn) 1,066 Free float (%) 66.9 52-wk price range (Rmb) 14.41-8.99 ADTO-6M (US$ mn) 37.4 *Stock ratings are relative to the relevant country benchmark.



Research Analysts

Kyna Wong

852 2101 6950

[email protected]

Sam Li

852 2101 6775

[email protected]

2017 growth outlook on track

■ 2017 growth drivers. We are confident on its 26% YoY revenue growth in

2017 driven by (1) 20-30% capacity increase, (2) improving market demand,

(3) better mix from image sensors, fingerprint and MEMS and (4) customer

gains (Fingerprint Card, Spreadtrum, etc.).

■ Maintain margins on mix and higher utilisation. Despite market

competition persisting, we expect GM to stay at the current level or improve

slightly due to better mix and higher utilisation. Besides, loss from acquired

subsidiaries - FlipChip International and MIC Optoelectronics will be reduced

and likely reach breakeven in 2017. Net-net, we forecast net income to grow

32%/33% YoY to Rmb477/635 mn in 2017/18.

■ Catalysts. We see any pick-up in demand or margin recovery, FCI/LED

breakeven and progress in new business/co-operation to be share price

catalysts.

■ Maintain OUTPERFORM: Our TP of Rmb15.30 is based on 2.8x NTM P/B

(+0.5SD of historical average). We like the stock on its cost advantage,

upside from fingerprint/MEMS and relatively attractive valuation. Key risks:

execution risk in FCI/MIC, slower demand, pricing pressure, forex risk, etc.





was Rmb6.88/US$1

Performance 1M 3M 12M Absolute (%) 0.9 4.9 -1.4 Relative (%) -2.1 0.3 3.1


Year 12/15A 12/16E 12/17E 12/18E Revenue (Rmb mn) 3,874.0 5,410.1 6,843.4 8,113.6 EBITDA (Rmb mn) 676.1 880.5 1,190.4 1,460.0 EBIT (Rmb mn) 311.0 384.9 509.1 703.0 Net profit (Rmb mn) 318.5 361.6 477.5 635.5 EPS (CS adj.) (Rmb) 0.35 0.34 0.45 0.60 Change from previous EPS (%) n.a. 0.0 0.0 0.0 Consensus EPS (Rmb) n.a. 0.37 0.48 0.60 EPS growth (%) 5.3 (2.1) 32.1 33.1 P/E (x) 37.1 37.9 28.7 21.5 Dividend yield (%) 0.5 0.4 0.5 0.7 EV/EBITDA (x) 18.2 14.9 11.2 9.2 P/B (x) 2.54 2.84 2.62 2.37 ROE (%) 9.0 7.6 9.5 11.6 Net debt/equity (%) Net Cash Net Cash Net Cash Net Cash


12 December 2016


Tianshui Huatian Technology Co., Ltd (002185.SZ / 002185 CH)

Price (08 Dec 2016): Rmb12.85; Rating: OUTPERFORM [V]; Target Price: Rmb15.30; Analyst: Kyna Wong


IC packaging and testing 3,792 5,262 6,606 7,781 - - - - - - - - - - - - - - - -


Sales revenue 3,874 5,410 6,843 8,114 Cost of goods sold 3,079 4,456 5,621 6,586 SG & A 484 569 713 824 Other operating exp./(inc.) (365) (496) (681) (757) EBITDA 676 881 1,190 1,460 Depreciation & amortisation 365 496 681 757 EBIT 311 385 509 703 Net interest expense/(inc.) 32 22 12 6 Non-operating inc./(exp.) 99 94 100 85 Associates/JV (0) (0) (0) (0) Recurring PBT 377 457 597 782 Exceptionals/extraordinaries 0 0 0 0 Taxes 49 67 88 115 Profit after tax 328 390 509 667 Other after tax income 0 0 0 0 Minority interests 10 28 32 32 Preferred dividends 0 0 0 0 Reported net profit 319 362 477 635 Analyst adjustments 0 0 0 0 Net profit (Credit Suisse) 319 362 477 635


Cash & cash equivalents 2,122 1,196 923 853 Current receivables 708 935 1,220 1,446 Inventories 529 831 1,014 1,202 Other current assets 395 737 792 798 Current assets 3,754 3,699 3,948 4,299 Property, plant & equip. 3,013 3,284 3,744 4,196 Investments 45 71 84 99 Intangibles 211 235 225 216 Other non-current assets 45 6 6 6 Total assets 7,069 7,295 8,008 8,817 Accounts payable 738 986 1,244 1,457 Short-term debt 360 332 332 332 Current provisions 0 0 0 0 Other current liabilities 155 127 145 168 Current liabilities 1,252 1,446 1,721 1,958 Long-term debt 357 263 263 263 Non-current provisions 0 0 0 0 Other non-current liabilities 173 164 164 164 Total liabilities 1,782 1,872 2,147 2,385 Shareholders' equity 4,649 4,820 5,226 5,766 Minority interests 637 603 635 667 Total liabilities & equity 7,069 7,295 8,008 8,817


EBIT 311 385 509 703 Net interest 0 0 0 0 Tax paid (49) (67) (88) (115) Working capital (58) (281) (210) (201) Other cash & non-cash items 479 (1,229) 702 814 Operating cash flow 684 (1,192) 914 1,201 Capex (897) (1,120) (1,132) (1,200) Free cash flow to the firm (214) (2,312) (219) 2 Disposals of fixed assets 0 0 0 0 Acquisitions (156) (40) 0 0 Divestments 0 0 0 0 Associate investments 0 0 0 0 Other investment/(outflows) (472) (435) 0 0 Investing cash flow (1,524) (1,595) (1,132) (1,200) Equity raised 2,011 0 0 0 Dividends paid (42) (49) (54) (72) Net borrowings (51) (119) 0 0 Other financing cash flow 430 (63) 0 0 Financing cash flow 2,348 (231) (54) (72) Total cash flow 1,507 (3,019) (273) (70) Adjustments (2) 2 0 0 Net change in cash 1,506 (3,017) (273) (70)

Per share 12/15A 12/16E 12/17E 12/18E

Shares (wtd avg.) (mn) 919 1,066 1,066 1,066 EPS (Credit Suisse) (Rmb)

0.35 0.34 0.45 0.60 DPS (Rmb) 0.06 0.05 0.07 0.09 BVPS (Rmb) 5.06 4.52 4.90 5.41 Operating CFPS (Rmb) 0.74 (1.12) 0.86 1.13

Valuation (x) 12/15A 12/16E 12/17E 12/18E

P/E 37.1 37.9 28.7 21.5 P/B 2.54 2.84 2.62 2.37 Dividend yield (%) 0.5 0.4 0.5 0.7 P/CF 17.3 (11.5) 15.0 11.4 EV/sales 3.2 2.4 2.0 1.7 EV/EBITDA 18.2 14.9 11.2 9.2 EV/EBIT 39.5 34.0 26.3 19.1

Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue 17.2 39.7 26.5 18.6 EBIT (1.1) 23.8 32.3 38.1 Net profit 6.8 13.5 32.1 33.1 EPS 5.3 (2.1) 32.1 33.1 Margins (%) EBITDA 17.5 16.3 17.4 18.0 EBIT 8.0 7.1 7.4 8.7 Pre-tax profit 9.7 8.4 8.7 9.6 Net profit 8.2 6.7 7.0 7.8




Net debt/equity (%) (26.6) (11.1) (5.6) (4.0) Net debt/EBITDA (x) (2.08) (0.68) (0.28) (0.18) Interest cover (x) 9.58 17.54 42.67 124.54

12MF P/E multiple

12MF P/B multiple



12 December 2016



Sunny Optical Technology Group

Co.Limited (2382.HK / 2382 HK) Rating OUTPERFORM [V] Price (08-Dec-16, HK$) 37.35 Target price (12-mth, HK$) (from 43.80) 44.60 Upside/downside (%) 19.4 Mkt cap (HK$/US$ mn) 40,973 / 5,283 Enterprise value (Rmb mn) 35,054 Number of shares (mn) 1,097 Free float (%) 61.6 52-wk price range (HK$) 42.35-15.72 ADTO-6M (US$ mn) 34.8 *Stock ratings are relative to the relevant country benchmark.



Research Analysts

Sam Li

852 2101 6775

[email protected]

Pauline Chen

886 2 2715 6323

[email protected]

Kyna Wong

852 2101 6950

[email protected]

Key beneficiary of the dual-cam boom in 2017

■ 2017 another strong upgrade year. We see 2017 to be another upgrade

year for Sunny's three major business lines: HCM, handset lens, and vehicle

lens. Sunny should be a major beneficiary due to its leading position in each

of these markets.

■ Three segments all in up-trend. We see incremental signals for the uptrend

for Sunny's major business lines, especially on dual-cam module and lens: (1)

Several Chinese smartphone brands launched dual-cam flagship models

recently. The launch speed was faster than our expectations, implying upside

to 2017. (2) Being the leader in dual-cam module, we estimate Sunny also

started dual-cam lens shipment at major Chinese clients, which provides

strong support to our growth assumption for handset lens in 2017. (3) Vehicle

lens could maintain a strong growth as ADAS adoption rises.

■ Catalysts. We see more dual-cam module launches at Chinese

smartphones, further improving monthly shipment numbers, and SZ-HK-

Connect as the key share price catalysts.

■ Maintain OUTPERFORM. We raise 2017/18E EPS by 1%/2% for slightly

higher dual-cam shipments. Our new TP of HK$44.60 (up from HK$43.80) is

based on an updated ADAS upstream average P/E of 24x (from 23x). Key

downside risks: Weakening China smartphone demand, pricing and margin

pressures due to competition, and slower-than-expected spec upgrades.





Performance 1M 3M 12M Absolute (%) 0.5 -3.2 95.8 Relative (%) 2.2 2.7 93.4


Year 12/15A 12/16E 12/17E 12/18E Revenue (Rmb mn) 10,696.2 14,799.8 17,256.6 19,572.0 EBITDA (Rmb mn) 1,159.7 1,613.7 2,170.5 2,686.4 EBIT (Rmb mn) 914.0 1,274.0 1,735.8 2,161.4 Net profit (Rmb mn) 761.6 1,144.9 1,535.1 1,919.7 EPS (CS adj.) (Rmb) 0.70 1.05 1.41 1.77 Change from previous EPS (%) n.a. 0.0 0.9 2.0 Consensus EPS (Rmb) n.a. 1.08 1.41 1.76 EPS growth (%) 34.1 49.9 34.1 25.1 P/E (x) 47.1 31.4 23.4 18.7 Dividend yield (%) 0.5 0.7 1.0 1.3 EV/EBITDA (x) 30.1 21.7 15.9 12.6 P/B (x) 9.37 7.62 6.10 4.90 ROE (%) 21.5 26.8 28.9 29.0 Net debt/equity (%) Net Cash Net Cash Net Cash Net Cash


12 December 2016


Sunny Optical Technology Group Co.Limited (2382.HK / 2382 HK)

Price (08 Dec 2016): HK$37.35; Rating: OUTPERFORM [V]; Target Price: (from HK$43.80) HK$44.60; Analyst: Sam Li


Optical components 2,534 3,227 4,128 4,976 Optoelectronic products 8,218 11,661 13,318 14,832 Optical instruments 194.8 178.2 186.2 234.6 - - - - - - - -


Sales revenue 10,696 14,800 17,257 19,572 Cost of goods sold 8,933 12,362 14,221 16,009 SG & A 854 1,169 1,306 1,408 Other operating exp./(inc.) (250) (345) (440) (531) EBITDA 1,160 1,614 2,170 2,686 Depreciation & amortisation 246 340 435 525 EBIT 914 1,274 1,736 2,161 Net interest expense/(inc.) (23) (38) (35) (45) Non-operating inc./(exp.) (73) 52 35 41 Associates/JV (2) (11) 0 12 Recurring PBT 862 1,353 1,806 2,259 Exceptionals/extraordinaries 0 0 0 0 Taxes 99 208 271 339 Profit after tax 764 1,145 1,535 1,920 Other after tax income 0 0 0 0 Minority interests 2 0 0 0 Preferred dividends 0 0 0 0 Reported net profit 762 1,145 1,535 1,920 Analyst adjustments 0 0 0 0 Net profit (Credit Suisse) 762 1,145 1,535 1,920


Cash & cash equivalents 2,097 1,954 2,437 3,237 Current receivables 3,003 3,730 4,349 4,933 Inventories 897 1,173 1,349 1,519 Other current assets 21 21 21 21 Current assets 6,017 6,877 8,155 9,709 Property, plant & equip. 1,278 1,782 2,279 2,752 Investments 179 168 168 180 Intangibles 0 0 0 0 Other non-current assets 162 162 162 162 Total assets 7,636 8,989 10,765 12,803 Accounts payable 2,918 3,296 3,791 4,268 Short-term debt 683 683 683 683 Current provisions 0 0 0 0 Other current liabilities 139 224 327 436 Current liabilities 3,739 4,203 4,801 5,387 Long-term debt 0 0 0 0 Non-current provisions 0 0 0 0 Other non-current liabilities 52 52 52 52 Total liabilities 3,791 4,255 4,853 5,439 Shareholders' equity 3,831 4,720 5,897 7,350 Minority interests 14 14 14 14 Total liabilities & equity 7,636 8,989 10,765 12,803


EBIT 914 1,274 1,736 2,161 Net interest 0 0 0 0 Tax paid (99) (208) (271) (339) Working capital 554 (625) (300) (276) Other cash & non-cash items 332 429 505 610 Operating cash flow 1,701 871 1,670 2,156 Capex (411) (844) (932) (998) Free cash flow to the firm 1,290 28 738 1,158 Disposals of fixed assets 0 0 0 0 Acquisitions (44) 0 0 0 Divestments 0 0 0 0 Associate investments (1,349) 0 0 0 Other investment/(outflows) (129) 0 0 0 Investing cash flow (1,932) (844) (932) (998) Equity raised (71) 0 0 0 Dividends paid (133) (170) (256) (358) Net borrowings 162 0 0 0 Other financing cash flow (46) 0 0 0 Financing cash flow (88) (170) (256) (358) Total cash flow (318) (143) 483 800 Adjustments 1 0 0 0 Net change in cash (318) (143) 483 800

Per share 12/15A 12/16E 12/17E 12/18E



Valuation (x) 12/15A 12/16E 12/17E 12/18E


Earnings 12/15A 12/16E 12/17E 12/18E





Net debt/equity (%) (36.8) (26.8) (29.7) (34.7) Net debt/EBITDA (x) (1.22) (0.79) (0.81) (0.95) Interest cover (x) n.a. n.a. n.a. n.a.

12MF P/E multiple

12MF P/B multiple



12 December 2016



Tongda Group Holdings Ltd (0698.HK / 698 HK) Rating (from OUTPERFORM) NEUTRAL Price (08-Dec-16, HK$) 2.15 Target price (12-mth, HK$) (from 2.10) 2.20 Upside/downside (%) 2.3 Mkt cap (HK$/US$ mn) 12,355 / 1,593 Enterprise value (HK$ mn) 12,828 Number of shares (mn) 5,746 Free float (%) 52.3 52-wk price range (HK$) 2.34-1.19 ADTO-6M (US$ mn) 5.4 *Stock ratings are relative to the relevant country benchmark.


Research Analysts

Sam Li

852 2101 6775

[email protected]

Kyna Wong

852 2101 6950

[email protected]

Downgrade for slowing cycle and fair valuation

■ Downgrade to NEUTRAL, We downgrade Tongda to NEUTRAL from

Outperform, as we see the metal casing cycle slowing down in 2017/18E and

the stock is fairly valued at current levels.

■ Metal casing approaching peak. We see the metal casing demand growth

slowing down in 2017/18E and shipments peaking in 2018E for Chinese

smartphones, due to a higher base and the ramp-up of glass casings.

Therefore, we expect Tongda's handset casing revenue YoY growth to slow

down to 15% in 2018E from 29% in 2016E, with a bit higher margin pressure.

Although we believe new glass casing models and water-proof parts projects

could start to contribute, our 2017/18E EPS growth drops to 24%/13% from

the 37% in 2016E, due to the slowdown in metal casing business.

■ Catalysts. We see new glass casing model launches at key clients, new

project wins at Apple, and solid earnings to be the key share price catalysts.

■ Slightly revise down estimates. We cut 2017/18E EPS by 1%/2% for lower

metal casing revenues and GMs. Our new TP of HK$2.20 (up from HK$2.10)

is still based on 10.3x P/E with the EPS base rolling over half year to 2018E.

Key risks: Weakening China smartphone demand, pricing/margin pressure,

product launches at key clients, notebook PC demand and China electrical

appliance outlook.





Performance 1M 3M 12M Absolute (%) 2.9 26.5 58.1 Relative (%) 4.6 32.4 55.7


Year 12/15A 12/16E 12/17E 12/18E Revenue (HK$ mn) 6,074.1 7,243.5 8,419.3 9,507.3 EBITDA (HK$ mn) 1,132.1 1,450.4 1,747.3 1,971.1 EBIT (HK$ mn) 926.2 1,188.4 1,437.1 1,610.2 Net profit (HK$ mn) 702.8 963.5 1,196.9 1,351.0 EPS (CS adj.) (HK$) 0.12 0.15 0.19 0.21 Change from previous EPS (%) n.a. 0.4 (1.2) (2.3) Consensus EPS (HK$) n.a. 0.17 0.20 0.23 EPS growth (%) 27.9 29.1 21.8 11.8 P/E (x) 18.1 14.0 11.5 10.3 Dividend yield (%) 1.7 2.4 2.9 3.3 EV/EBITDA (x) 11.6 8.8 7.2 6.2 P/B (x) 3.13 2.87 2.50 2.17 ROE (%) 18.7 22.0 23.5 22.7 Net debt/equity (%) 18.2 9.7 4.1 Net Cash


12 December 2016


Tongda Group Holdings Ltd (0698.HK / 698 HK)

Price (08 Dec 2016): HK$2.15; Rating: (from OUTPERFORM) NEUTRAL; Target Price: (from HK$2.10) HK$2.20; Analyst: Sam Li


Electrical fittings 4,780 5,780 6,678 7,517 Ironparts 471.9 353.9 353.9 353.9 Communication facilities and others 821.9 1,110 1,387 1,637 - - - - - - - -


Sales revenue 6,074 7,244 8,419 9,507 Cost of goods sold 4,562 5,382 6,210 7,031 SG & A 594 679 779 873 Other operating exp./(inc.) (214) (268) (317) (368) EBITDA 1,132 1,450 1,747 1,971 Depreciation & amortisation 206 262 310 361 EBIT 926 1,188 1,437 1,610 Net interest expense/(inc.) 48 63 56 50 Non-operating inc./(exp.) (6) 16 26 28 Associates/JV (0) 1 1 1 Recurring PBT 872 1,143 1,408 1,589 Exceptionals/extraordinaries 0 0 0 0 Taxes 134 185 211 238 Profit after tax 738 958 1,197 1,351 Other after tax income 0 0 0 0 Minority interests 35 (5) 0 0 Preferred dividends 0 0 0 0 Reported net profit 703 963 1,197 1,351 Analyst adjustments 0 0 0 0 Net profit (Credit Suisse) 703 963 1,197 1,351


Cash & cash equivalents 762 940 1,072 1,302 Current receivables 2,683 2,852 3,268 3,691 Inventories 1,606 1,744 1,996 2,259 Other current assets 484 484 484 484 Current assets 5,535 6,020 6,820 7,735 Property, plant & equip. 2,876 3,208 3,487 3,697 Investments 3 5 7 8 Intangibles 0 0 0 0 Other non-current assets 175 175 175 175 Total assets 8,589 9,408 10,489 11,615 Accounts payable 1,572 1,741 2,043 2,313 Short-term debt 976 976 976 976 Current provisions 0 0 0 0 Other current liabilities 517 627 704 755 Current liabilities 3,065 3,344 3,723 4,044 Long-term debt 519 419 319 219 Non-current provisions 0 0 0 0 Other non-current liabilities 965 965 965 965 Total liabilities 4,550 4,729 5,008 5,228 Shareholders' equity 4,057 4,703 5,505 6,410 Minority interests (18) (23) (23) (23) Total liabilities & equity 8,589 9,408 10,489 11,615


EBIT 926 1,188 1,437 1,610 Net interest 0 0 0 0 Tax paid (134) (185) (211) (238) Working capital (479) (138) (366) (416) Other cash & non-cash items 219 214 280 339 Operating cash flow 532 1,079 1,140 1,295 Capex (986) (594) (589) (570) Free cash flow to the firm (454) 485 550 724 Disposals of fixed assets 0 0 0 0 Acquisitions 0 0 0 0 Divestments 1 0 0 0 Associate investments 0 0 0 0 Other investment/(outflows) (296) 0 0 0 Investing cash flow (1,282) (594) (589) (570) Equity raised 22 0 0 0 Dividends paid (164) (208) (318) (395) Net borrowings 1,396 (100) (100) (100) Other financing cash flow (37) 0 0 0 Financing cash flow 1,216 (308) (418) (495) Total cash flow 467 178 132 229 Adjustments (65) 0 0 0 Net change in cash 402 178 132 229

Per share 12/15A 12/16E 12/17E 12/18E


0.12 0.15 0.19 0.21 DPS (HK$) 0.04 0.05 0.06 0.07 BVPS (HK$) 0.69 0.75 0.86 0.99 Operating CFPS (HK$) 0.09 0.17 0.18 0.20

Valuation (x) 12/15A 12/16E 12/17E 12/18E


Earnings 12/15A 12/16E 12/17E 12/18E





Net debt/equity (%) 18.2 9.7 4.1 (1.7) Net debt/EBITDA (x) 0.65 0.31 0.13 (0.05) Interest cover (x) 19.26 18.97 25.57 32.20

12MF P/E multiple

12MF P/B multiple



12 December 2016


Asia Pacific/Hong Kong Electronic Components & Connectors

Truly International (0732.HK / 732 HK) Rating (from OUTPERFORM) NEUTRAL [V] Price (08-Dec-16, HK$) 2.92 Target price (12-mth, HK$) (from 4.60) 3.30 Upside/downside (%) 13.0 Mkt cap (HK$/US$ mn) 8,489 / 1,095 Enterprise value (HK$ mn) 14,222 Number of shares (mn) 2,907 Free float (%) 46.9 52-wk price range (HK$) 4.48-1.62 ADTO-6M (US$ mn) 6.2 *Stock ratings are relative to the relevant country benchmark.



Research Analysts

Kyna Wong

852 2101 6950

[email protected]

Sam Li

852 2101 6775

[email protected]

Slower-than-expected AMOLED ramp up

■ Downgrade to NEUTRAL. We lower our 2017-18 estimates by 18-21% on

slower AMOLED ramp up, continuous loss from Huizhou JV. We downgrade

Truly to NEUTRAL from Outperform given low visibility on the Huizhou JV

breakeven and lack of near-term catalysts. We still like the stock given its

long-term growth on automotive displays after 2018 but AMOLED progress

remains a near-term swing factor to our investment view.

■ Operating growth offset by non-op loss. (1) Truly's AMOLED line entered

mass-production for non-smartphone products while MP for smartphones

may take some time before customer qualification/design wins, likely in

2Q/3Q16 than our prior expectation of 1Q16. (2) The Huizhou JV loss likely

persists and we revise our forecast to HK$306/243 mn loss from HK$151/77

mn in 2017/18. Besides, we see Rmb182 mn financial cost incurred in 2017

will also be a burden due to the previous HK$4.5 bn bank loans and Rmb750

mn PRC bonds. (3) We see several growth drivers in 2017/18: camera

upgrade, fingerprint, industrial/IoT as well as strong growth in automotive

from 2018. Though, the operating profit growth will likely be offset by non-op

impact.

■ Catalysts. We do not see many strong catalysts in the next few months while

settlement of LeEco overdue receivables may impact share price sentiment.

■ Valuation. Our new TP of HK$3.30 (down from HK$4.60) is based on mid-to-

upcycle P/E of 10.3x (from 12.9x) and rollover to 2018 EPS (from 2H17-

1H18). Key risks: volatility of China smartphones, losing share to in-cell/on-

cell TFT-LCD-based TP, fierce competition in TP/HCM, ramping schedule in

AMOLED panels, and dual cam yield improvement.





Performance 1M 3M 12M Absolute (%) -11.0 -22.5 77.0 Relative (%) -9.3 -16.6 74.6


Year 12/15A 12/16E 12/17E 12/18E Revenue (HK$ mn) 19,427.1 21,600.4 24,364.6 26,521.9 EBITDA (HK$ mn) 2,202.6 2,950.1 3,379.0 3,615.7 EBIT (HK$ mn) 1,278.7 1,531.6 1,753.5 1,962.2 Net profit (HK$ mn) 845.4 732.7 800.7 937.1 EPS (CS adj.) (HK$) 0.29 0.25 0.28 0.32 Change from previous EPS (%) n.a. (0.0) (18.1) (20.5) Consensus EPS (HK$) n.a. 0.29 0.35 0.42 EPS growth (%) (24.3) (13.3) 9.3 17.0 P/E (x) 10.0 11.6 10.6 9.1 Dividend yield (%) 3.4 3.3 3.3 3.9 EV/EBITDA (x) 5.1 4.9 4.4 3.8 P/B (x) 1.20 1.13 1.05 0.98 ROE (%) 11.9 10.0 10.3 11.2 Net debt/equity (%) 37.2 72.5 70.8 55.3


12 December 2016


Truly International (0732.HK / 732 HK)

Price (08 Dec 2016): HK$2.92; Rating: (from OUTPERFORM) NEUTRAL [V]; Target Price: (from HK$4.60) HK$3.30; Analyst: Kyna Wong


LCD 16,068 16,714 17,474 18,389 Consumer electronics products 3,359 4,886 6,890 8,133 - - - - - - - - - - - -


Sales revenue 19,427 21,600 24,365 26,522 Cost of goods sold 17,305 19,174 21,610 23,468 SG & A 843 895 1,001 1,091 Other operating exp./(inc.) (924) (1,418) (1,625) (1,654) EBITDA 2,203 2,950 3,379 3,616 Depreciation & amortisation 924 1,418 1,625 1,654 EBIT 1,279 1,532 1,754 1,962 Net interest expense/(inc.) 73 165 231 282 Non-operating inc./(exp.) (45) (45) (7) (14) Associates/JV (37) (258) (306) (243) Recurring PBT 1,123 1,062 1,209 1,423 Exceptionals/extraordinaries 0 0 0 0 Taxes 195 213 242 285 Profit after tax 929 850 967 1,138 Other after tax income 0 0 0 0 Minority interests 83 117 167 201 Preferred dividends 0 0 0 0 Reported net profit 845 733 801 937 Analyst adjustments 0 0 0 0 Net profit (Credit Suisse) 845 733 801 937


Cash & cash equivalents 2,055 2,126 3,974 3,905 Current receivables 5,004 6,155 6,608 7,194 Inventories 1,776 2,784 2,250 2,250 Other current assets 895 895 895 895 Current assets 9,730 11,960 13,728 14,244 Property, plant & equip. 7,013 9,678 11,644 11,518 Investments 1,300 1,042 736 492 Intangibles 0 0 0 0 Other non-current assets 190 190 190 190 Total assets 18,234 22,870 26,298 26,445 Accounts payable 5,652 6,566 7,105 7,394 Short-term debt 2,883 2,883 2,883 2,883 Current provisions 0 0 0 0 Other current liabilities 44 32 34 81 Current liabilities 8,579 9,481 10,021 10,358 Long-term debt 2,000 5,163 7,363 6,363 Non-current provisions 0 0 0 0 Other non-current liabilities 60 60 60 60 Total liabilities 10,639 14,703 17,444 16,781 Shareholders' equity 7,086 7,540 8,060 8,669 Minority interests 510 627 794 995 Total liabilities & equity 18,234 22,870 26,298 26,445


EBIT 1,279 1,532 1,754 1,962 Net interest 0 0 0 0 Tax paid (195) (213) (242) (285) Working capital 304 (1,245) 619 (296) Other cash & non-cash items 1,001 1,228 1,451 1,421 Operating cash flow 2,389 1,303 3,582 2,803 Capex (1,439) (4,104) (3,655) (1,591) Free cash flow to the firm 950 (2,801) (73) 1,211 Disposals of fixed assets 0 0 0 0 Acquisitions (22) 0 0 0 Divestments 0 0 0 0 Associate investments (592) 0 0 0 Other investment/(outflows) (820) 0 0 0 Investing cash flow (2,873) (4,104) (3,655) (1,591) Equity raised 0 0 0 0 Dividends paid (436) (291) (278) (280) Net borrowings (543) 3,163 2,200 (1,000) Other financing cash flow (44) 0 0 0 Financing cash flow (1,023) 2,872 1,922 (1,280) Total cash flow (1,506) 70 1,849 (69) Adjustments (66) 0 0 0 Net change in cash (1,572) 70 1,849 (69)

Per share 12/15A 12/16E 12/17E 12/18E


0.29 0.25 0.28 0.32 DPS (HK$) 0.10 0.10 0.10 0.11 BVPS (HK$) 2.44 2.59 2.77 2.98 Operating CFPS (HK$) 0.82 0.45 1.23 0.96

Valuation (x) 12/15A 12/16E 12/17E 12/18E


Earnings 12/15A 12/16E 12/17E 12/18E

Growth (%) Sales revenue (9.3) 11.2 12.8 8.9 EBIT (23.0) 19.8 14.5 11.9 Net profit (24.4) (13.3) 9.3 17.0 EPS (24.3) (13.3) 9.3 17.0 Margins (%) EBITDA 11.3 13.7 13.9 13.6 EBIT 6.6 7.1 7.2 7.4 Pre-tax profit 5.8 4.9 5.0 5.4 Net profit 4.4 3.4 3.3 3.5





12MF P/E multiple

12MF P/B multiple



12 December 2016


Companies Mentioned (Price as of 08-Dec-2016) AAC Technologies Holdings Inc (2018.HK, HK$68.85, OUTPERFORM, TP HK$86.9) All Winner Tech (300458.SZ, Rmb95.07) BOE Technology Group Co. Ltd (000725.SZ, Rmb2.93) BYD Electronic (International) Company Limited (0285.HK, HK$6.73, NEUTRAL[V], TP HK$6.2) Coolpad Group Limited (2369.HK, HK$0.73, UNDERPERFORM[V], TP HK$0.6) FIH Mobile (2038.HK, HK$2.5, NEUTRAL, TP HK$2.8) Gigadevice (603986.SS, Rmb177.97) GoerTek Inc. (002241.SZ, Rmb27.85, OUTPERFORM[V], TP Rmb41.3) Hangzhou Hikvision Digital Technology Co., Ltd. (002415.SZ, Rmb24.9, OUTPERFORM, TP Rmb36.9) HiSilicon (Unlisted) Ingenic (300223.SZ, Rmb44.0) Jiangsu Changjiang Electronics Technology Co., Ltd (600584.SS, Rmb18.51, UNDERPERFORM[V], TP Rmb12.6) Lens Technology Co., Ltd (300433.SZ, Rmb26.92, OUTPERFORM[V], TP Rmb33.2) Luxshare Precision Industry Co., Ltd (002475.SZ, Rmb21.29, OUTPERFORM, TP Rmb26.9) Nantong Fujitsu Microelectronics Co., Ltd (002156.SZ, Rmb11.63, NEUTRAL[V], TP Rmb11.63) Q Technology (1478.HK, HK$4.13) Sanan Optoelectronics Co. Ltd (600703.SS, Rmb12.57, NEUTRAL[V], TP Rmb13.4) Shenzhen Huiding (603160.SS, Rmb123.74) Shenzhen O-film Tech Co., Ltd (002456.SZ, Rmb38.02, NEUTRAL[V], TP Rmb40.7) Sunny Optical Technology Group Co.Limited (2382.HK, HK$37.35, OUTPERFORM[V], TP HK$44.6) Tianma Microelectronics Co. Ltd (000050.SZ, Rmb18.82) Tianshui Huatian Technology Co., Ltd (002185.SZ, Rmb12.85, OUTPERFORM[V], TP Rmb15.3) Tongda Group Holdings Ltd (0698.HK, HK$2.15, NEUTRAL, TP HK$2.2) Truly International (0732.HK, HK$2.92, NEUTRAL[V], TP HK$3.3) ZTE Corporation (000063.SZ, Rmb16.32, UNDERPERFORM, TP Rmb11.4) Zhejiang Dahua Technology Co., Ltd (002236.SZ, Rmb14.12, OUTPERFORM[V], TP Rmb18.8)

Disclosure Appendix

Analyst Certification Sam Li and Kyna Wong each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for AAC Technologies Holdings Inc (2018.HK)

2018.HK Closing Price Target Price

Date (HK$) (HK$) Rating

16-Dec-13 35.90 NR

04-Aug-14 47.45 51.00 N *

10-Nov-14 44.00 54.00 O

12-Jun-15 41.90 50.00

19-Oct-15 47.55 56.00 *

10-Nov-15 50.65 55.40 N

13-Nov-15 53.50 56.90

15-Jan-16 45.70 48.80

24-Mar-16 57.10 53.90

11-May-16 56.15 65.50 O

15-Jun-16 64.85 75.70

28-Aug-16 82.00 94.90

25-Oct-16 74.40 91.80

14-Nov-16 68.80 86.90

* Asterisk signifies initiation or assumption of coverage.

N O T RA T ED

N EU T RA L

O U T PERFO RM

12 December 2016


3-Year Price and Rating History for BYD Electronic (International) Company Limited (0285.HK)



10-Sep-15 4.78 5.00 N *

19-Oct-15 5.56 4.90

22-Feb-16 4.36 4.70

07-Jul-16 4.89 5.10

29-Aug-16 6.11 6.20


N EU T RA L

3-Year Price and Rating History for Coolpad Group Limited (2369.HK)



05-Jun-14 1.92 2.00 N *

22-Aug-14 1.78 1.85

13-Jan-15 1.51 1.60

24-Mar-15 1.50 1.25 U

11-May-15 2.79 2.00

24-Jul-15 2.02 1.95

22-Aug-15 1.49 1.40 N

21-Mar-16 1.34 0.90 U *

02-May-16 1.54 1.20

11-Jul-16 1.32 1.15

30-Aug-16 1.49 1.20

21-Nov-16 0.91 0.90


N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for FIH Mobile (2038.HK)



06-Jan-16 2.74 3.50 O *

25-Jan-16 2.73 3.40

11-Apr-16 3.22 3.31 N

06-May-16 2.38 2.93

12-Aug-16 2.58 2.80


O U T PERFO RM

N EU T RA L

12 December 2016


3-Year Price and Rating History for GoerTek Inc. (002241.SZ)

002241.SZ Closing Price Target Price

Date (Rmb) (Rmb) Rating

10-Sep-15 23.88 23.50 N *

20-Oct-15 27.38 24.40

28-Oct-15 25.64 24.30

24-Nov-15 33.91 41.80 O

07-Dec-15 31.40 40.80

18-Jan-16 27.95 39.10

01-Mar-16 24.33 36.10

22-Apr-16 28.78 36.50

08-Jun-16 29.31 36.80

18-Aug-16 28.71 37.70

25-Oct-16 31.76 41.30


N EU T RA L

O U T PERFO RM

3-Year Price and Rating History for Hangzhou Hikvision Digital Technology Co., Ltd. (002415.SZ)



01-Sep-15 24.92 34.23 O *

19-Oct-15 27.08 33.92

11-Nov-15 27.67 32.00

18-Feb-16 20.53 25.23

11-Apr-16 23.86 29.92

01-Jul-16 22.33 26.00

01-Aug-16 24.94 32.10

12-Oct-16 25.00 32.30

05-Dec-16 25.42 36.90


O U T PERFO RM

3-Year Price and Rating History for Jiangsu Changjiang Electronics Technology Co., Ltd (600584.SS)

600584.SS Closing Price Target Price


18-May-16 15.24 10.50 U *

11-Sep-16 18.04 11.00

28-Oct-16 19.36 12.60


UN D ERPERFO RM

12 December 2016


3-Year Price and Rating History for Lens Technology Co., Ltd (300433.SZ)



10-Sep-15 52.15 49.17 N *

26-Oct-15 66.37 49.25

18-Jan-16 53.73 51.33

01-Feb-16 54.33 56.33

18-Apr-16 58.25 55.58

25-Apr-16 61.11 57.42

28-Apr-16 60.67 21.30

19-Jul-16 25.76 24.00

07-Nov-16 27.48 33.20 O


N EU T RA L

O U T PERFO RM

3-Year Price and Rating History for Luxshare Precision Industry Co., Ltd (002475.SZ)



10-Sep-15 18.17 23.67 O *

13-Oct-15 20.72 24.33

16-Oct-15 21.94 24.93

07-Dec-15 22.97 31.47

18-Jan-16 18.03 29.20

26-Feb-16 18.73 29.80

01-Jul-16 19.15 29.40

11-Jul-16 17.98 26.00

10-Aug-16 18.65 24.80

20-Oct-16 22.71 26.90


O U T PERFO RM

3-Year Price and Rating History for Nantong Fujitsu Microelectronics Co., Ltd (002156.SZ)



11-Jan-16 10.06 11.54 N *

29-Feb-16 8.51 11.92 O

27-Apr-16 9.87 11.54

30-May-16 11.30 11.54 N

31-Oct-16 11.72 11.63


N EU T RA L

O U T PERFO RM

12 December 2016


3-Year Price and Rating History for Sanan Optoelectronics Co. Ltd (600703.SS)

600703.SS Closing Price Target Price


26-Sep-16 11.98 13.80 N *

28-Oct-16 12.12 13.40


N EU T RA L

3-Year Price and Rating History for Shenzhen O-film Tech Co., Ltd (002456.SZ)



10-Sep-15 20.85 15.20 U *

11-Nov-15 26.54 16.10

29-Feb-16 19.80 15.40

20-Apr-16 26.70 25.60 N

22-Aug-16 35.27 33.90

09-Nov-16 39.60 40.70


U N D ERPERFO RM

N EU T RA L

3-Year Price and Rating History for Sunny Optical Technology Group Co.Limited (2382.HK)



16-Dec-13 6.81 NR

04-Aug-14 9.82 11.00 N *

10-Mar-15 13.46 14.00

19-Oct-15 17.20 16.50 *

12-Feb-16 16.62 20.40 O

15-Mar-16 19.32 22.80

11-Apr-16 24.00 23.30 N

11-Jul-16 27.85 32.50 O

10-Aug-16 32.65 37.70

17-Aug-16 36.85 43.00

12-Sep-16 37.00 43.80


N O T RA T ED

N EU T RA L

O U T PERFO RM

12 December 2016


3-Year Price and Rating History for Tianshui Huatian Technology Co., Ltd (002185.SZ)



19-Nov-15 13.92 R

11-Jan-16 10.12 14.23 O *

25-Aug-16 12.06 14.00

22-Sep-16 13.21 15.00

31-Oct-16 12.68 15.30


REST RICT ED

O U T PERFO RM

3-Year Price and Rating History for Tongda Group Holdings Ltd (0698.HK)



19-Oct-15 1.53 1.70 O *

17-Mar-16 1.49 1.90

18-Mar-16 1.51 2.00

16-Aug-16 1.63 2.10


O U T PERFO RM

3-Year Price and Rating History for Truly International (0732.HK)



12-May-16 2.91 3.70 O *

02-Jun-16 3.50 4.10

27-Jun-16 3.54 4.20

28-Jul-16 4.28 5.40

18-Aug-16 4.13 5.00

23-Sep-16 3.49 4.70

17-Nov-16 3.02 4.60


O U T PERFO RM

12 December 2016


3-Year Price and Rating History for ZTE Corporation (000063.SZ)



16-Oct-14 12.29 13.17 N *

26-Mar-15 18.27 14.67

16-Apr-15 21.01 18.33

24-Apr-15 23.97 18.67

14-Jul-15 16.47 15.60

21-Jul-15 20.84 19.20

04-Jul-16 14.42 9.20 U *

14-Nov-16 16.65 11.40


N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Zhejiang Dahua Technology Co., Ltd (002236.SZ)



01-Sep-15 19.41 24.33 O *

26-Oct-15 18.28 23.33

29-Feb-16 17.17 27.39

29-Apr-16 13.87 19.70

18-Aug-16 15.80 19.20

19-Oct-16 14.32 20.60

05-Dec-16 14.28 18.80


O U T PERFO RM

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As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant count ry or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12 -month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

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12 December 2016


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Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 44% (64% banking clients) Neutral/Hold* 38% (60% banking clients) Underperform/Sell* 15% (54% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

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Target Price and Rating Valuation Methodology and Risks: (12 months) for AAC Technologies Holdings Inc (2018.HK)

Method: Our target price of HK$86.90 for AAC is based on up-cycle P/E (price-to-earnings) of 17.7x. Our OUTPERFORM rating is based on positive view on haptics and acoustic ASP trends.

Risk: Risks that could impede achievement of our OUTPERFORM rating and HK$86.90 target price for AAC include: (1) weaker or stronger China smartphone demand, (2)better or worse-than-expected ASP/GMs on competition.(3) tech upgrades.

Target Price and Rating Valuation Methodology and Risks: (12 months) for BYD Electronic (International) Company Limited (0285.HK)

Method: Our NEUTRAL rating and target price of HK$6.20 for BYD Electronic (International) Company Limited is based on BYDE's own historical average NTM P/E (price-to-earnings) of 9x. Our NEUTRAL rating is based on BYDE's increasing metal casing business in revenue mix but heavy CNC assets and relatively low utilization.

Risk: Risks that could cause the share price to diverge from our NEUTRAL rating and target price of HK$6.20 for BYD Electronic (International) Company Limited include client concentration risk, product design changes, pricing pressure and forex risk.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Coolpad Group Limited (2369.HK)

Method: Our target price of HK$0.60 for Coolpad is based on DCF based valuation (6.8% WACC and 1.5% terminal growth). Our TP also implied 0.6x 2018E P/B which is in-line with its 2.8% ROE. We rate the stock UNDERPERFORM due to (1) intensifying competition in the China smartphone market and (2) more time for open channels and mobile Internet business to emerge.

Risk: Risks to our HK$0.60 target price and UNDERPERFORM rating for Coolpad include the following: Upside -- (1) better-than-expected smartphone shipment growth; (2) faster-than-expected cost reduction to maintain margins; (3) smartphone spec upgrade, which could help Coolpad's ASP and (4) upside of mobile phone sales from LeTV cooperation.

Target Price and Rating Valuation Methodology and Risks: (12 months) for FIH Mobile (2038.HK)

Method: Our target price of HK$2.80 for FIH Mobile is based on 0.75x downcycle P/B (price-to-book) and 2017E BVPS (book value per share). Our NEUTRAL rating is based on the fair valuation on FIH's yield and cash value.

Risk: Key investment risks to our NEUTRAL rating and target price of HK$2.80 for FIH Mobile include: Weakening demand from smartphone customers, losing/gaining share on key customers' allocation, rising competition and pricing pressure, slower/faster than expected metal casing upgrade cycle and forex risk.

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12 December 2016


Target Price and Rating Valuation Methodology and Risks: (12 months) for GoerTek Inc. (002241.SZ)

Method: Our target price of Rmb41.30 for GoerTek Inc is based on its historical average P/E (price-to-earnings) of 27.5x.Our OUTPERFORM rating is based on the thesis that GoerTek will benefit from the VR (Oculus Rift and Sony PlayStation VR) and acoustic cycles in 2016E desipte 1Q headwind.

Risk: Risks that could impede achievement of our OUTPERFORM rating and target price of Rmb41.30 for GoerTek Inc include: slower-than-expected progress at new businesses, new competitors, higher-than-expected opex on new businesses, weak global smartphone demand, and FX risks.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Hangzhou Hikvision Digital Technology Co., Ltd. (002415.SZ)

Method: Our target price of Rmb36.9 for Hangzhou Hikvision Digital Technology Co., Ltd is based on its historical average P/E (price-to-earnings) of 20x. Our OUTPERFORM rating is based on Hikvision's strong leadership in video surveillance sector, sustainable growth and attractive valuation.

Risk: Risks to our OUTPERFORM rating and target price of Rmb36.9 for Hikvision include weak macro economy to impact global industry demand, price competition from Chinese followers, weak China public security sector demand due to government budget fluctuations, long-term potential internet competitors in home and SME markets, and local currency depreciation against USD is negative to the company’s overseas sales and competency.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Jiangsu Changjiang Electronics Technology Co., Ltd (600584.SS)

Method: Our target price of Rmb12.6 for JCET is based on 1.7x NTM P/B which is in line with its trough cycle P/B. Our UNDERPERFORM rating is based on the thesis that JCET will continue with a weak balance sheet, due to low ROE and margin dilution from its STATS merger in 2016/17.

Risk: Key investment risks to our UNDERPERFORM rating and Rmb12.6 target price for JCET include post-deal execution surprising on the upside, better control on costs post the merger, higher demand from key clients, and positive impact on the bottom line due to depreciation of the RMB.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Lens Technology Co., Ltd (300433.SZ)

Method: Our Rmb33.2 target price for Lens Technology Co., Ltd is based on updated sector average P/E (price-to-earnings) of 22x. Our OUTPERFORM rating is based on the up-cycle for glass industry and Lens' leading position.

Risk: Risks to our OUTPERFORM rating and Rmb33.2 target price for Lens Technology Co., Ltd include: Client concentration risks on Apple and Samsung, slower than expected upgrade progress, product design changes, pricing pressure, and FX risk.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Luxshare Precision Industry Co., Ltd (002475.SZ)

Method: Our target price of Rmb26.9 for Luxhare Precision Industry is based on the share's -0.5SD historical average NTM P/E of 28.5x. Our OUTPERFORM rating is based on Luxshare's business portfolio expansion, rising Type C adoption and Apple business and strong earnings growth.

Risk: Key investment risks to our OUTPERFORM rating and target price of Rmb26.9 for Luxhare Precision Industry are: worse-than-expected demand for key clients' products; execution risks on new businesses; pricing and margin pressures; M&A and forex risks.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Nantong Fujitsu Microelectronics Co., Ltd (002156.SZ)

Method: Our target price of Rmb11.63 for Nantong Fujitsu Microelectronics Co., Ltd is based on 2.7x 2017E P/B (price-to-book) which is in line with its mid-to-upcycle P/B. Our NEUTRAL rating is based on NFME's fair valuation and uncertainty on its plan of JVs' controlling power.

Risk: Risks to our Rmb11.63 target price and NEUTRAL rating for Nantong Fujitsu Microelectronics Co., Ltd include: (1) post-deal execution risk, (2) plan of rising controlling power over JVs, (3) slower-than-expected demand from key clients, and (4) currency exchange rates.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Sanan Optoelectronics Co. Ltd (600703.SS)

Method: Our target price of Rmb13.40 for Sanan Optoelectronics is based on trough-to-mid-cycle 24x 2017E P/E (price-to-earnings) which is also supported by the weighted DCF (discounted cash flow) value on the potential JV impact for RF business. Our NEUTRAL rating is based on the thesis that we like Sanan on its strong growth, leadership and profitability in LED, while we think the RF business is value accretive but will be a near-term earnings drag.

12 December 2016


Risk: Key investment risks to our NEUTRAL rating and Rmb13.40 target price for Sanan Optoelectronics include (1) slower LED demand, (2) aggressive capacity expansion in other Chinese players, (3) pricing pressure, (4) changes on government policy and support, (5) IP risks, (6) any potential disruptive technology in lighting area, (7) risk in GCS JV on RF business.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Shenzhen O-film Tech Co., Ltd (002456.SZ)

Method: Our target price of Rmb40.7 for Shenzhen O-film Tech is based on historical down cycle average P/E of 24.5x. Our NEUTRAL rating is based on O-film's rising fingerprint business and better cost control while valuation already full.

Risk: Key risks to our NEUTRAL rating and target price of Rmb40.7 for Shenzhen O-film Tech are: China smartphone demand, stronger/milder-than-expected competition on TP/HCM businesses, M&A risks and faster/slower-than-expected progress in new businesses.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Sunny Optical Technology Group Co.Limited (2382.HK)

Method: Our target price of HK$44.6 for Sunny Optical Technology Group Co., Limited is based on 24x P/E (price-to-earnings), which is in line with key ADAS upstream suppliers average P/E. Our OUTPERFORM rating is based on margin improvement cycle and long term vehicle lens thesis.

Risk: Risks that could affect our OUTPERFORM rating and HK$44.6 target price for Sunny Optical Technology Group Co., Limited include: slower progress at high-end or new products, weakening China smartphone demand/ vehicle demand, pricing and margin pressure on competition.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Tianshui Huatian Technology Co., Ltd (002185.SZ)

Method: Our target price of Rmb15.3 for Tianshui Huatian Technology (TSHT) is based on a 2.8x NTM P/B which is in line with +0.5SD of historical average. Our OUTPERFORM rating is supported by Huatian's higher-than-peers OPM derived from (1) cost advantage (2) strengthening packaging technology and client base, (3) ramping CIS/fingerprint/MEMS products as well as (4) relatively attractive valuation.

Risk: Key investment risks for our OUTPERFORM rating and target price of Rmb15.3 for Huatian include: post-deal execution risk, losing FCI customers, slower-than-expected demand from key clients, and forex risks.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Tongda Group Holdings Ltd (0698.HK)

Method: Our target price of HK$2.20 for Tongda Group Holdings Ltd is based on an upcycle P/E (price-to-earning) of 10.3x our 2018 estimates. Our NEUTRAL rating is based on slowing down metal cycle and fair valuation.

Risk: Risks that could impede achievement of our NEUTRAL rating and HK$2.20 target price for Tongda Group Holdings Ltd include: weakening China smartphone demand, pricing/margin pressure, product launches at key clients, notebook PC demand and China electrical appliance outlook.

Target Price and Rating Valuation Methodology and Risks: (12 months) for Truly International (0732.HK)

Method: Our target price of HK$3.3 for Truly International is based on 10.3x 2018E P/E (price-to-earnings) which is based on mid-to-up-cycle P/E. Our NEUTRAL rating is based on low visibility to Huizhou JV breakeven and lack of near term catalysts. We still like the stock given its long term growth on automotive displays after 2018 but AMOLED progress remains a near term swing factor to our investment view.

Risk: Risks to our HK$3.3 target price and NEUTRAL rating for Truly International include: volatility of China smartphones, losing share to in-cell/on-cell TFT-LCD-based TP, fierce competition in TP/HCM, ramping schedule in AMOLED panels, dual cam yield improvement.

Target Price and Rating Valuation Methodology and Risks: (12 months) for ZTE Corporation (000063.SZ)

Method: Our target price of Rmb9.2 for ZTE Corporation (A-share) is based on 14.2x historical down-cycle P/E and 17% discount for uncertainty from the investigation, and supported by its in line growth and lower ROE vs. peers. We rate ZTE Underperform as we see ZTE is still in a share gain momentum in global telecom equipment markets, although at slower pace due to the down cycle, but feel the US investigation would act as a big overhang for share price in a near term.

Risk: Risks to our target price of Rmb9.2 and UNDERPERFORM rating for ZTE Corporation (A-share) include: (1) better-than-expected results on the US investigation, (2) faster-than-expected share gains in China and overseas, (3) better-than-expected opex control, (4) high volatility in non-op items such as interest/FX/investment gains

Target Price and Rating Valuation Methodology and Risks: (12 months) for Zhejiang Dahua Technology Co., Ltd (002236.SZ)

12 December 2016


Method: Our target price of Rmb18.8 for Dahua is based on sector P/E (price-to-earnings) of 20x. Our OUTPERFORM rating is based on Dahua's accelerating solution business as overseas/domestic share gains story due to cost and R&D advantages as well as business recovery underway.

Risk: Risks to our OUTPERFORM rating and Rmb18.8 target price for Zhejiang Dahua Technology Co., Ltd include: Weak macro economy to impact global industry demand, price competition from Chinese followers, weak China public security sector demand due to government budget fluctuations, long-term potential internet competitors in home and SME markets, over-expense on new projects such as solution and oversea channels, and local currency depreciation against US$ is negative to the company’s oversea sales and competency.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (002185.SZ, 2038.HK, 000063.SZ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (2038.HK) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (2038.HK) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (2018.HK, 0732.HK, 2382.HK, 002185.SZ, 600703.SS, 2038.HK, 0285.HK, 002415.SZ, 000063.SZ) within the next 3 months. Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (002241.SZ).

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12 December 2016


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