Luxshare Precision Industry (002475 CH) Luxshare Pr Ecision Industr Y

China Industrials 22 October 2019

Luxshare Precision Industry (002475 CH) Luxshare Pr ecision Industr y

Target price: CNY36.00 (from CNY34.00) Share price (22 Oct): CNY29.88 | Up/downside: +20.5%

Promising prospects on strong position and execution Kylie Huang (886) 2 8758 6248  Near-term outlook solid on strong iPhones sales with increased orders [email protected]  We see earnings growth of 37-55% YoY in 2019-21 on multiple drivers Steven Yang (886) 2 8758 6245  Reiterating Buy (1); lifting TP to CNY36; a preferred sector pick [email protected]

What's new: Luxshare’s strong 3Q19 results reaffirm our positive thesis Forecast revisions (%) (see Initiation: multiple drivers for a bright earnings outlook, 7 Year to 31 Dec 19E 20E 21E October) and our optimistic view on new iPhones sales due to attractive Revenue change 9.8 6.1 6.0 Net profit change 4.9 5.1 2.6 pricing (see our sector report), while our recent industry research shows a Core EPS (FD) change 4.9 5.1 2.6 rise in orders in iPhones. We reiterate our Buy (1); it remains a preferred Source: Daiwa forecasts sector pick. Share price performance

What's the impact: 3Q19 results beat. Luxshare’s 3Q19 net profit of (CNY) (%) CNY1.4bn (+57% QoQ; +67% YoY) was ahead of our and the consensus 30 180 estimates by 28-36% and the midpoint of guidance by 30%, driven by 25 150 better revenue from strong shipments in iPhones and AirPods, on top of the 20 120 15 90 ongoing share gains and margin expansion on a favourable product mix 10 60 and increasing operating efficiency, in our view (see our memo). Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Luxshare P (LHS) Relative to SZASHR Index (RHS) Near-term outlook solid; increased orders for new iPhones. We have highlighted market expectations for new iPhones sales as too conservative. 12-month range 10.10-29.88 The sales status of new iPhones reaffirms our confidence; currently, the Market cap (USDbn) 22.61 wait time remains 1-3 weeks for most models vs. <3 days for last-year’s 3m avg daily turnover (USDm) 232.67 Shares outstanding (m) 5,349 models over the same period (see page 5), while our industry research also Major shareholder The Wang family (45.3%) shows a 5-8% order increase for iPhone component vendors. We now forecast new iPhones shipments of 76.5m in 2H19 (vs.72.5m earlier). We Financial summary (CNY) view Luxshare as a major beneficiary of strong iPhones sales on its major Year to 31 Dec 19E 20E 21E supplier position in LCP antenna, haptics, acoustics, etc. We also see the Revenue (m) 56,350 72,800 93,000 upcoming new AirPods in 4Q19 as another revenue growth driver. Overall, Operating profit (m) 5,195 7,659 10,379 Net profit (m) 4,228 6,334 8,663 we forecast Luxshare’s 4Q19 revenue to come in at CNY18.5 bn (+13% Core EPS (fully-diluted) 0.790 1.184 1.620 QoQ; +35% YoY), with flattish QoQ earnings of CNY1.3bn (-3% QoQ; EPS change (%) 19.5 49.8 36.8 +26% YoY) on higher operating expense due to new project development Daiwa vs Cons. EPS (%) 6.9 15.2 24.5 costs and employee compensation, vs. its guidance of CNY1.1-1.3bn. PER (x) 37.8 25.2 18.4 Dividend yield (%) 0.1 0.3 0.4 DPS 0.038 0.079 0.118 Robust earnings likely in 2019-21E. We expect Luxshare to deliver PBR (x) 7.3 5.7 4.5 strong earnings growth of 37-55% YoY in 2019-21, led by multiple drivers: EV/EBITDA (x) 24.5 16.3 11.8 ROE (%) 21.9 25.5 27.2 1) market-share gains and new project wins in Apple products on its strong Source: FactSet, Daiwa forecasts execution and R&D capability, 2) increasing benefits from the upcoming 5G on its years of investment and Huawei’s support of domestic suppliers amid the US-China trade dispute, and 3) the margin expansion on improving operating efficiency and increasing benefits from vertical integration.

What we recommend: We raise our 2019-21E EPS by 3-5% on our more optimistic revenue assumptions. We reiterate our Buy (1) rating and raise our 12-month TP to CNY36 (from CNY34), still based on target PER of 30x on our revised 2020E EPS. Key risks: weak iPhone and AirPod sales.

How we differ: Our 2020-21E EPS are 15-25% above the consensus, likely as we are more positive on Luxshare’s margin expansion.

See important disclosures, including any required research certifications, beginning on page 10

Luxshare Precision Industry (002475 CH): 22 October 2019

Financial summary Key assumptions Year to 31 Dec 2014 2015 2016 2017 2018 2019E 2020E 2021E Computers sales (CNY mn) 3,339 3,890 4,612 4,348 3,733 3,437 3,836 3,944 Consumer electronics sales (CNY mn) 2,734 4,417 6,898 15,187 26,807 44,335 57,386 73,521 Automotive sales (CNY mn) 1,121 1,110 1,957 3,009 4,791 5,309 5,393 5,469 Communication sales (CNY mn) 415 842 903 1,131 1,728 2,266 2,719 3,317

Profit and loss (CNYm) Year to 31 Dec 2014 2015 2016 2017 2018 2019E 2020E 2021E PC connector/cable 3,339 3,890 4,612 4,348 3,733 3,437 3,836 3,944 Mobile device & components 2,734 4,417 6,898 15,187 26,807 44,335 57,386 73,521 Other Revenue 1,223 1,832 2,253 3,291 5,310 8,578 11,577 15,535 Total Revenue 7,296 10,139 13,763 22,826 35,850 56,350 72,800 93,000 Other income 0 0 0 0 0 0 0 0 COGS (5,597) (7,819) (10,804) (18,260) (28,304) (44,573) (57,279) (73,098) SG&A (510) (505) (620) (887) (1,288) (2,138) (2,553) (3,093) Other op.expenses (312) (635) (1,008) (1,665) (2,678) (4,444) (5,309) (6,430) Operating profit 877 1,180 1,330 2,014 3,580 5,195 7,659 10,379 Net-interest inc./(exp.) (50) (44) (60) (75) (161) (216) (223) (217) Assoc/forex/extraord./others 37 156 119 100 (137) 171 175 182 Pre-tax profit 864 1,293 1,389 2,039 3,282 5,151 7,610 10,344 Tax (125) (161) (207) (291) (469) (773) (1,126) (1,531) Min. int./pref. div./others (109) (53) (26) (57) (91) (150) (150) (150) Net profit (reported) 630 1,079 1,157 1,691 2,723 4,228 6,334 8,663 Net profit (adjusted) 630 1,079 1,157 1,691 2,723 4,228 6,334 8,663 EPS (reported)(CNY) 0.757 0.858 0.546 0.533 0.662 0.790 1.184 1.620 EPS (adjusted)(CNY) 0.757 0.858 0.546 0.533 0.662 0.790 1.184 1.620 EPS (adjusted fully-diluted)(CNY) 0.757 0.858 0.546 0.533 0.662 0.790 1.184 1.620 DPS (CNY) 0.046 0.053 0.053 0.053 0.046 0.038 0.079 0.118 EBIT 877 1,180 1,330 2,014 3,580 5,195 7,659 10,379 EBITDA 1,080 1,471 1,769 2,663 4,564 6,661 9,930 13,395

Cash flow (CNYm) Year to 31 Dec 2014 2015 2016 2017 2018 2019E 2020E 2021E Profit before tax 864 1,293 1,389 2,039 3,282 5,151 7,610 10,344 Depreciation and amortisation 211 299 450 669 1,008 1,466 2,272 3,016 Tax paid (125) (161) (207) (291) (469) (773) (1,126) (1,531) Change in working capital (448) (809) (2,092) (1,781) (1,641) (971) (1,947) (2,704) Other operational CF items (16) 2 (21) (184) (123) (131) (135) (142) Cash flow from operations 485 624 (481) 452 2,058 4,741 6,675 8,982 Capex (881) (935) (1,911) (3,335) (4,414) (4,834) (4,373) (4,373) Net (acquisitions)/disposals (64) (31) (10) (52) (39) (90) (90) (90) Other investing CF items (215) (159) (374) (203) (282) (426) (511) (613) Cash flow from investing (1,160) (1,126) (2,295) (3,590) (4,735) (5,350) (4,974) (5,076) Change in debt 1,065 519 302 2,508 2,525 724 398 418 Net share issues/(repurchases) 0 0 0 0 0 0 0 0 Dividends paid (38) (67) (113) (170) (190) (206) (423) (633) Other financing CF items 1,235 (97) 0 0 0 0 0 0 Cash flow from financing 2,262 355 189 2,339 2,335 518 (25) (215) Forex effect/others 0 0 0 0 0 0 0 0 Change in cash 1,587 (146) (2,587) (799) (342) (90) 1,676 3,691 Free cash flow (396) (311) (2,392) (2,883) (2,356) (93) 2,302 4,609 Source: FactSet, Daiwa forecasts

Luxshare Precision Industry (002475 CH): 22 October 2019

Financial summary continued … Balance sheet (CNYm) Year to 31 Dec 2014 2015 2016 2017 2018 2019E 2020E 2021E Cash & short-term investment 2,242 2,042 4,637 4,055 3,840 4,834 6,360 9,900 Inventory 1,161 1,509 2,122 3,474 4,735 6,857 8,812 11,246 Accounts receivable 2,286 2,948 4,871 7,206 11,216 16,982 21,940 28,027 Other current assets 283 545 2,916 2,637 3,288 3,635 3,551 3,875 Total current assets 5,972 7,043 14,545 17,372 23,078 32,309 40,663 53,048 Fixed assets 2,434 3,078 4,550 7,235 10,665 14,033 16,134 17,491 Goodwill & intangibles 0 0 0 0 0 0 0 0 Other non-current assets 1,286 1,466 1,860 2,279 2,699 3,346 4,081 4,926 Total assets 9,692 11,587 20,955 26,886 36,441 49,687 60,878 75,466 Short-term debt 2,151 2,806 3,074 4,551 5,737 6,368 6,687 7,021 Accounts payable 1,754 2,136 4,291 6,341 10,238 17,096 21,970 28,038 Other current liabilities 502 582 1,242 819 1,204 1,610 1,618 1,691 Total current liabilities 4,407 5,524 8,607 11,712 17,179 25,075 30,275 36,750 Long-term debt 284 140 84 706 1,499 1,592 1,672 1,755 Other non-current liabilities 36 44 133 543 1,089 1,089 1,089 1,089 Total liabilities 4,727 5,708 8,825 12,961 19,767 27,756 33,035 39,594 Share capital 832 1,257 2,120 3,173 4,115 5,349 5,349 5,349 Reserves/R.E./others 4,132 4,621 10,010 10,752 12,560 16,583 22,494 30,523 Shareholders' equity 4,964 5,879 12,130 13,925 16,675 21,932 27,843 35,872 Minority interests 0 0 0 0 0 0 0 0 Total equity & liabilities 9,692 11,587 20,955 26,886 36,441 49,687 60,878 75,466 EV 160,022 160,732 158,350 161,030 163,225 162,955 161,827 158,704 Net debt/(cash) 194 904 (1,478) 1,202 3,397 3,127 1,999 (1,124) BVPS (CNY) 5.967 4.675 5.721 4.389 4.053 4.100 5.205 6.706

Key ratios (%) Year to 31 Dec 2014 2015 2016 2017 2018 2019E 2020E 2021E Sales (YoY) 58.9 39.0 35.7 65.9 57.1 57.2 29.2 27.7 EBITDA (YoY) 77.7 36.2 20.2 50.6 71.4 45.9 49.1 34.9 Operating profit (YoY) 77.3 34.5 12.7 51.4 77.8 45.1 47.4 35.5 Net profit (YoY) 85.4 71.2 7.2 46.2 61.0 55.3 49.8 36.8 Core EPS (fully-diluted) (YoY) 22.0 13.3 (36.4) (2.3) 24.2 19.5 49.8 36.8 Gross-profit margin 23.3 22.9 21.5 20.0 21.0 20.9 21.3 21.4 EBITDA margin 14.8 14.5 12.9 11.7 12.7 11.8 13.6 14.4 Operating-profit margin 12.0 11.6 9.7 8.8 10.0 9.2 10.5 11.2 Net profit margin 8.6 10.6 8.4 7.4 7.6 7.5 8.7 9.3 ROAE 15.6 19.9 12.8 13.0 17.8 21.9 25.5 27.2 ROAA 7.9 10.1 7.1 7.1 8.6 9.8 11.5 12.7 ROCE 14.7 14.5 11.0 11.7 16.6 19.3 23.2 25.7 ROIC 16.8 17.3 13.0 13.4 17.4 19.6 23.8 27.4 Net debt to equity 3.9 15.4 n.a. 8.6 20.4 14.3 7.2 n.a. Effective tax rate 14.5 12.5 14.9 14.3 14.3 15.0 14.8 14.8 Accounts receivable (days) 101.1 94.2 103.7 96.6 93.8 91.3 97.6 98.1 Current ratio (x) 1.4 1.3 1.7 1.5 1.3 1.3 1.3 1.4 Net interest cover (x) 17.4 27.0 22.0 26.8 22.3 n.a. 34.4 47.8 Net dividend payout 6.1 6.2 9.8 10.0 7.0 4.9 6.7 7.3 Free cash flow yield n.a. n.a. n.a. n.a. n.a. n.a. 1.4 2.9 Source: FactSet, Daiwa forecasts

Company profile

Founded in 2004 with headquarters based in Shenzhen, China and listed on the Shenzhen Stock Exchange in 2010, Luxshare Precision Industry (Luxshare) started as a professional interconnect components supplier. After years of effort, M&A activities, solid execution and R&D capability, Luxshare has become a major supplier in the Apple supply chain and a global top tier supplier in connectors and cable solutions.

Luxshare Precision Industry (002475 CH): 22 October 2019

Luxshare: revisions to revenue and earnings forecasts Revised forecasts Previous forecasts Change TWDm 2019E 2020E 2021E 2019E 2020E 2021E 2019E 2020E 2021E

Revenues 56,350 72,800 93,000 51,300 68,600 87,700 9.8% 6.1% 6.0% Gross profit 11,777 15,521 19,902 10,311 13,994 18,031 14.2% 10.9% 10.4% Op. profits 5,195 7,659 10,379 4,915 7,299 10,121 5.7% 4.9% 2.6% Net profit 4,228 6,334 8,663 4,031 6,027 8,446 4.9% 5.1% 2.6% EPS (TWD) 0.79 1.18 1.62 0.75 1.13 1.58 4.9% 5.1% 2.6%

Margins (%)

Gross Margin 20.9% 21.3% 21.4% 20.1% 20.4% 20.6% Operating Margin 9.2% 10.5% 11.2% 9.6% 10.6% 11.5% Pre-tax margin 9.1% 10.5% 11.1% 9.5% 10.5% 11.5% Net Margin 7.5% 8.7% 9.3% 7.9% 8.8% 9.6%

Source: Daiwa forecasts

Luxshare: quarterly and annual P&L statements 2019E 2020E 2019E 2020E 2021E (TWDm) 1Q 2Q 3Q 4QE 1QE 2QE 3QE 4QE Net sales 9,019 12,422 16,395 18,514 12,841 14,513 19,769 25,677 56,350 72,800 93,000 Gross profit 1,704 2,421 3,618 4,034 2,568 2,903 4,369 5,681 11,777 15,521 19,902 Operating costs 983 1,308 1,926 2,364 1,455 1,651 2,123 2,634 6,582 7,862 9,523 Operating profit 721 1,113 1,692 1,669 1,114 1,252 2,246 3,047 5,195 7,659 10,379 Pre-tax income 724 1,091 1,742 1,593 1,094 1,242 2,231 3,044 5,151 7,610 10,344 Net income 616 886 1,386 1,341 903 1,026 1,881 2,523 4,228 6,334 8,663 EPS (TWD) 0.12 0.17 0.26 0.25 0.17 0.19 0.35 0.47 0.79 1.18 1.62

Operating ratios Gross margin 18.9% 19.5% 22.1% 21.8% 20.0% 20.0% 22.1% 22.1% 20.9% 21.3% 21.4% Operating margin 8.0% 9.0% 10.3% 9.0% 8.7% 8.6% 11.4% 11.9% 9.2% 10.5% 11.2% Pre-tax margin 8.0% 8.8% 10.6% 8.6% 8.5% 8.6% 11.3% 11.9% 9.1% 10.5% 11.1% Net margin 6.8% 7.1% 8.5% 7.2% 7.0% 7.1% 9.5% 9.8% 7.5% 8.7% 9.3%

YoY (%) Net revenue 67% 88% 62% 35% 42% 17% 21% 39% 57% 29% 28% Gross profit 60% 86% 63% 36% 51% 20% 21% 41% 56% 32% 28% Operating income 71% 132% 59% 4% 54% 12% 33% 83% 45% 47% 36% Net income 85% 80% 67% 26% 47% 16% 36% 88% 55% 50% 37%

QoQ (%) Net revenue -34% 38% 32% 13% -31% 13% 36% 30% Gross profit -42% 42% 49% 11% -36% 13% 51% 30% Operating income -55% 54% 52% -1% -33% 12% 79% 36% Net income -42% 44% 57% -3% -33% 14% 83% 34%

Source: Company, Daiwa forecasts

Luxshare: 1-year forward PER Luxshare: 1-year forward PBR (CNY) (CNY) 50 50

40 40

30 30

20 20

10 10

0 0

Apr-15 Oct-15 Apr-17 Oct-17 Oct-18 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-16 Oct-16 Apr-18 Apr-19 Oct-19

Apr-12 Oct-14 Apr-17 Oct-19 Oct-11 Oct-12 Apr-13 Oct-13 Apr-14 Apr-15 Oct-15 Apr-16 Oct-16 Oct-17 Apr-18 Oct-18 Apr-19 Luxshare 15x 25x 35x 45x Luxshare 2.5x 4x 5.5x 7x

Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts

Luxshare Precision Industry (002475 CH): 22 October 2019

iPhone production volume by model (m units) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19E 2016 2017 2018 2019E iPhone 5S/SE 6.0 9.0 8.0 7.5 5.5 5.5 2.0 2.5 2.5 3.0 3.0 0.5 0.0 0.0 0.0 0.0 30.5 15.5 9.0 0.0 iPhone 6/6 Plus 7.5 5.5 3.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 16.5 0.0 0.0 0.0 iPhone 6S/6S Plus 33.5 28.5 14.0 7.5 4.5 4.0 1.5 4.5 7.5 6.0 5.5 2.0 1.5 1.0 0.5 0.5 83.5 14.5 21.0 3.5 iPhone 7/7 Plus 0.0 0.0 22.5 61.0 41.0 32.0 22.0 11.0 9.5 7.0 7.0 5.5 5.5 5.0 3.5 1.0 83.5 106.0 29.0 15.0 iPhone 8/8 Plus 0.0 0.0 0.0 0.0 0.0 0.0 19.0 29.0 19.0 17.0 10.0 9.5 11.0 10.0 9.0 10.5 0.0 48.0 55.5 40.5 iPhone X 0.0 0.0 0.0 0.0 0.0 0.0 1.5 30.5 15.0 7.0 1.5 0.5 2.0 1.5 0.5 0.0 0.0 32.0 24.0 4.0 iPhone XR/XS/XS Max 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 21.0 49.5 21.0 18.0 8.5 4.0 0.0 0.0 70.5 51.5

- XR 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.5 30.0 14.0 12.0 5.5 4.0 0.0 0.0 32.5 35.5

- XS/XS Max 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 18.5 19.5 7.0 6.0 3.0 0.0 0.0 0.0 38.0 16.0 iPhone 11/11 Pro/11 Pro Max 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 25.0 51.5 0.0 0.0 0.0 76.5

- 11 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 11.5 27.5 0.0 0.0 0.0 39.0

- 11 Pro/11 Pro Max 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13.5 24.0 0.0 0.0 0.0 37.5

Total 47.0 43.0 48.0 76.0 51.0 41.5 46.0 77.5 53.5 40.0 48.0 67.5 41.0 35.5 47.0 67.5 214.0 216.0 209.0 191.0

Source: Daiwa estimates and forecasts; Note: This table represents Daiwa’s iPhone production estimates and forecasts, which differ slightly from the iPhone sales figures reported by Apple

Four weeks after availability for iPhone 11/11 Pro/11 Pro Max iPhone 11 iPhone 11 Pro iPhone 11 Pro Max Country Carriers/Apple Store

2-3 weeks 2-3 weeks In stock In stock 1-2 weeks 1-2 weeks 1-2 weeks 1-2 weeks Verizon US 2-3 weeks 2-3 weeks In stock In stock 1-2 weeks 1-2 weeks 1-2 weeks 1-2 weeks Apple Store Out of stock Out of stock In stock In stock Out of stock Out of stock Out of stock Out of stock EE UK 16-23 days 9-16 days 2 days 2 days 6-10 days 6-10 days 9-16 days 9-16 days Apple Store Hong Kong 17-24 days 10-17 days 4 days 4-17 days 9-16 days 9-16 days 9-16 days 9-16 days Apple Store Order available Order available In stock In stock Order available Order available Order available Order available NTT Docomo Japan 17-24 days 9-17 days 3 days 3-17 days 9-17 days 9-24 days 9-17 days 5-17 days Apple Store Out of stock Out of stock In stock In stock Out of stock Out of stock Out of stock Out of stock China Mobile China 2-3 weeks 2-3 weeks In stock In stock 2-3 weeks 1-3 weeks 3-5 days 1-2 weeks Apple Store Source: Company, Daiwa estimates; Note: As of 21 October 2019

First weekend sales status for iPhone 11/11 Pro/11 Pro Max iPhone 11 iPhone 11 Pro iPhone 11 Pro Max Country Carriers/Apple Store

3 days 3 days 3 days 3 days 2-3 weeks 2-3 weeks 2-3 weeks 2-3 weeks Verizon US 3 days 3 days 3 days 3 days 2-3 weeks 2-3 weeks 2-3 weeks 2-3 weeks Apple Store Out of stock In stock In stock In stock Out of stock Out of stock Out of stock Out of stock EE UK 10-15 days 1 day 1 day 1 day 2-3 weeks 2-3 weeks 2-3 weeks 2-3 weeks Apple Store Hong Kong 3 days 3 days 3 days 3 days 17-24 days 17-24 days 17-24 days 17-24 days Apple Store Order available Order available Order available Order available Order available Order available Order available Order available NTT Docomo Japan 3 days 3 days 3 days 3 days 16-24 days 16-24 days 16-24 days 16-24 days Apple Store Out of stock Out of stock In stock In stock Out of stock Out of stock Out of stock Out of stock China Mobile China 2-3 weeks 2-3 weeks 7-10 days In stock 2-3 weeks 2-3 weeks 2-3 weeks 2-3 weeks Apple Store Source: Company, Daiwa estimates; Note: As of 22 September 2019

Four weeks after availability for iPhone XR/XS/XS Max iPhone XR iPhone XS iPhone XS Max Country Carriers/Apple Store

In stock In stock In stock In stock In stock In stock In stock In stock Verizon US In stock In stock In stock In stock In stock In stock In stock In stock Apple Store 1 day 1 day 1 day 1 day 1 day 1 day 1 day 1 day EE UK In stock In stock In stock In stock 1 day 1 day 1 day 1 day Apple Store Hong Kong 3 days 3 days 3 days 3 days 3 days 3 days 3 days 3 days Apple Store In stock In stock In stock In stock In stock In stock In stock In stock NTT Docomo Japan In stock In stock In stock In stock 1 day 1 day 1 day 1 day Apple Store In stock In stock In stock In stock In stock In stock In stock In stock China Mobile China In stock In stock In stock In stock In stock In stock In stock In stock Apple Store Source: Company, Daiwa estimates; Note: As of 21 October 2018 for XS/XS Max, 26 November 2018 for XR

First weekend sales status for iPhone XR/XS/XS Max iPhone XR iPhone XS iPhone XS Max Country Carriers/Apple Store

3-5 days 3-5 days 3-5 days 3-5 days 3-5 days 3-5 days 1-2 weeks 1-2 weeks Verizon US n.a** n.a** n.a** n.a** 3-5 days 3-5 days 1-2 weeks 1-2 weeks Apple Store 5 days 5 days 5 days 5 days 1 day 1 day 1 day 1 day EE UK 3-5 days 3-5 days 3-5 days 3-5 days 5-9 days 5-9 days 9-16 days 9-16 days Apple Store Hong Kong 6-10 days 6-10 days 6-10 days 6-10 days 10-12 days 10-12 days 12-19 days 12-19 days Apple Store Order available Order available In stock In stock Order available Order available Order available Order available NTT Docomo Japan 3-5 days 3-5 days 3-5 days 3-5 days 6-10 days 6-10 days 10-18 days 10-18 days Apple Store In stock In stock In stock In stock Out of stock Out of stock In stock In stock China Mobile China 3-5 days 3-5 days 3-5 days 3-5 days 3-5 days 3-5 days 1-2 weeks 1-2 weeks Apple Store Source: Company, Daiwa estimates; Note: As of 23 September 2018 for XS/XS Max, 28 October 2018 for XR; **Sales status was not available for XR in Apple US store

Luxshare Precision Industry (002475 CH): 22 October 2019

Apple iPhone 11 and 11 Pro/11 Pro Max supply chain iPhone 11 iPhone 11 Pro/11 Pro Max Semiconductor Processor TSMC (2330 TT) 4G modem Intel (INTC US) Cellular PA IC Broadcom (AVGO US), Skyworks (SWKS US), Qorvo (QRVO US) Cellular PA foundry WinSemi (3105 TT), AWSC (8086 TT) WiFi module Murata (6981 JP) WIFI , Bluetooth, GPS Broadcom (AVGO US) NAND Flash Toshiba (6502 JP), SK Hynix (000660 KS), Western Digital (WDC US), Samsung (005930 KS) Mobile DRAM Samsung (005930 KS), SK Hynix (000660 KS), Micron (MU US) 3D sensing TX: laser diode Lumentum (LITE US), Winsemi (3105 TT), Finisar (FNSR US) 3D sensing TX: WLO/DOE AMS (AMS SW), TSMC (2330 TT), Xintech (3374 TT), VisEra (Private) NFC NXP (NXPI US) Wireless charging IC Broadcom (AVGO US) SiP module ASE Technology Holding (3711 TT), JCET (600584 CH) Proximity sensor: IC/WLO ST Micro (STM US)/ Himax (HIMX US) Display AMOLED N/A Samsung (005930 KS), LGD (034220 KS) Out-cell TFT-LCD Japan Display (6740 JP), LGD (034220 KS) N/A X-Y touch sensor Nissha Printing (7915 JP), O-film (002456 CH) Nissha Printing (7915 JP) X-Y touch module GIS (6456 TT), TPK (3673 TT) Samsung (005930 KS) Display driver IC Synaptics (SYNA US) Samsung (005930 KS) Backlight module Minebea Mitsumi (6479 JP) N/A Components 3D sensing module LG Innotek (011070 KS), Hon Hai (2317 TT), Sharp (6753 JP) 3D sensing RX: lens sets Genius Optical (3406 TT), Largan (3008 TT) 3D sensing RX: CMOS sensor ST Micro (STM US) 3D sensing RX: filter Viavi (VIAV US) Rear camera module LG Innotek (011070 KS), Sharp (6753 JP), O-Film (002456 CH) Front camera module O-film (002456 CH), Cowell (1415 HK), Hon Hai (2317 TT) Rear camera lens sets Largan (3008 TT), Genius Optical (3406 TT), Kantatsu (Private) Front camera lens sets Genius Optical (3406 TT), Largan (3008 TT) Front/rear camera: CMOS SONY (6758 JP) VCM/OIS module ALPS (6770 JP), Minebea Mitsumi (6767 JP) Acoustic AAC (2018 HK), Merry (2439 TT), Goertek (002241 CH) Haptics AAC (2018 HK), Luxshare (002475 CH), ALPS (6770 JP), Nidec (6594 JP) Casing: metal frame Hon Hai (2317 TT), Foxconn Tech (2354 TT), Catcher (2474 TT), Jabil (JBL US) Casing: glass cover Lens Technology (300433 CH), Biel Crystal (Private) Waterproofing o-ring Jabil (JBL US), Tongda (698 HK) Crystal TXC (3042 TT), Seiko Epson (6724 JP), NDK(6779 JP), Daishinku (6962 JP), Kyocera (6971 JP) MLCC Murata (6981 JP), SEMCO (009150 KS), Taiyo Yuden (6976 JP), TDK (6762 JP), Kyocera (6971 JP) Connector, cable and charger Luxshare (002475 CH), FIT (6088 HK), JAE (6807 JP), Cheng Uei (2392 TT), Hon Hai (2317 TT), Flextronics (FLEX US) ZD Tech (4958 TT), Flexium (6269 TT), Murata (6981 JP), NOK (7240 JP), Sumitomo (5802 JP), DSBJ (002384 CH), Career (6153 TT), Interflex (051370 KS), Flexible PCB Fujikura (5803 JP) ZD Tech (4958 TT), Compeq (2313 TT), Unitech (2367 TT), Unimicron (3037 TT), Interflex (051370 KS), BH (090460 KS), SEMCO (009150 KS), YoungPoong RF-PCB (Private), LG Innotek (011070 KS) Substrate-like PCB AT&S (ATS AV), TTM (TTMI US), Kinsus (3189 TT), Compeq (2313 TT), Ibiden (4062 JP), Unimicron (3037 TT), ZD Tech (4958 TT) Wireless charging module Luxshare (002475 CH) Battery cell TDK (6762 JP), Tianjin Lishen (Private), Samsung SDI (006400 KS), LG Chemical (051910 KS) Battery packaging Simplo (6121 TT), Desay (000049 CH), Sunwoda (300207 CH) Assembly Assembly Hon Hai (2317 TT), Pegatron (4938 TT) Hon Hai (2317 TT), Wistron (3231 TT): 11 Pro Max only

Source: Company data, Daiwa research

Daiwa’s Greater China Apple plays and revenue contribution iPhone % of total sales Apple % of total sales Company Ticker Rating Price 2019E 2020E 2019E 2020E Luxshare 002475 CH Buy 29.9 30-35% 25-30% 65-70% 70-75% Largan 3008 TT Buy 4,390 45-50% 45-50% 45-50% 45-50% Hon Hai 2317 TT Outperform 79.5 ~50% ~50% 50-55% 50-55% Catcher 2474 TT Hold 258.5 55-60% 55-60% 75-80% 75-80% AAC 2018 HK Hold 48.7 40-45% 40-45% 40-45% 40-45% GIS 6456 TT Hold 114.0 30-35% 15-20% ~90% ~90% Casetek 5264 TT Hold 55.8 15-20% 30-35% 85-90% 85-90% TPK 3673 TT Hold 63.0 40-45% 35-40% 50-60% 50-60% WinSemi 3105 TT Buy 305.5 20-30% 20-30% 20-30% 20-30% ASE Holding 3711 TT Buy 78.0 10-15% 10-15% 20-25% 20-25% TSMC 2330 TT Outperform 294.0 15-20% 15-20% 15-20% 15-20% Pegatron 4938 TT Hold 58.5 55-60% 55-60% 55-60% 55-60%

Source: Company, Daiwa forecasts; Note: *Based on 22 October 2019 closing prices

Luxshare Precision Industry (002475 CH): 22 October 2019

iPhone specs comparison Name iPhone 11 Pro Max iPhone 11 Pro iPhone 11 iPhone XS Max* iPhone XS* iPhone XR

Photo

Launch Date 10 September, 2019 10 September, 2019 10 September, 2019 12 September, 2018 12 September, 2018 12 September, 2018 USD1,099 USD 999 USD 699 USD1,099 USD 999 USD 749** Price (64GB/256GB/512GB) (64GB/256GB/512GB) (64GB/128GB/256GB) (64GB/256GB/512GB) (64GB/256GB/512GB) (64GB/128GB/256GB) Cellular LTE/ 3G LTE/ 3G LTE/ 3G LTE/ 3G LTE/ 3G LTE/ 3G Dimensions 158.0 x 77.8 x 8.1 mm 144.0 x 71.4 x 8.1 mm 150.9 x 75.7 x 8.3 mm 157.5 x 77.4 x 7.7 mm 143.6 x 70.9 x 7.7 mm 150.9 x 75.7 x 8.3 mm Weight 226 g (7.97 oz) 188 g (6.63 oz) 194 g (6.84 oz) 208 g (7.34 oz) 177 g (6.24 oz) 194 g (6.84 oz) Stainless steel frame + Stainless steel frame + Aluminium + Stainless steel frame + Stainless steel frame + Aluminium + Casing 2.5D glass cover 2.5D glass cover 2.5D glass cover 2.5D glass cover 2.5D glass cover 2.5D glass cover Gold/Silver/Space Gold/Silver/Space White/Black/Green White/Black/Blue/Yellow Color Gold/Silver/Space grey Gold/Silver/Space grey grey/Midnight Green grey/Midnight Green /Yellow/Purple/Red /Coral/Red Fingerprint Scanner No No No No No No Face ID Yes Yes Yes Yes Yes Yes Embedded OS iOS 13 iOS 13 iOS 13 iOS 12 iOS 12 iOS 12 6.5" 5.8" 6.1" 6.5" 5.8" 6.1" Display Diagonal (Super Retina XDR) (Super Retina XDR) (Liquid Retina HD) (Super Retina HD) (Super Retina HD) (Liquid Retina HD) Display Feature No No No 3D Touch Display 3D Touch Display No Display Resolution 2688 x 1242 pixels 2436 x 1125 pixels 1792 x 828 pixels 2688 x 1242 pixels 2436 x 1125 pixels 1792 x 828 pixels CPU Apple A13 Bionic Apple A13 Bionic Apple A13 Bionic Apple A12 Bionic Apple A12 Bionic Apple A12 Bionic ROM capacity 64/256/512 GB 64/256/512 GB 64/128/256 GB 64/256/512 GB 64/256/512 GB 64/128/256 GB 802.11 ax 802.11 ax 802.11 ax 802.11 ac 802.11 ac 802.11 ac Wireless LAN Wi-Fi 6 with 2x2 MIMO Wi-Fi 6 with 2x2 MIMO Wi-Fi 6 with 2x2 MIMO Wi-Fi with MIMO Wi-Fi with MIMO Wi-Fi with MIMO 12MP+12MP+12MP; 12MP+12MP+12MP; 12MP+12MP; 12MP+12MP; 12MP+12MP; 12MP; Camera resolution Dual OIS Dual OIS Single OIS Dual OIS Dual OIS Single OIS Quad-LED Quad-LED Quad-LED Quad-LED Quad-LED Quad-LED Flash True Tone flash True Tone flash True Tone flash True Tone flash True Tone flash True Tone flash Camcorder 4K@60fps 4K@60fps 4K@60fps 4K@60fps 4K@60fps 4K@60fps Secondary Camera 12MP, HDR 12MP, HDR 12MP, HDR 7MP, HDR 7MP, HDR 7MP, HDR 5hr longer than 4hr longer than 1hr longer than 1.5hr longer than 30min longer than 1.5hr longer than Stand-by power iPhone XS Max iPhone XS iPhone XR iPhone X iPhone X iPhone 8 plus Wireless charging Yes Yes Yes Yes Yes Yes Two-way charging No No No No No No Fast charging Up to 50% in 30 min Up to 50% in 30 min Up to 50% in 30 min Up to 50% in 30 min Up to 50% in 30 min Up to 50% in 30 min Splash, water and dust IP68 IP68 IP68 IP68 IP68 IP67 resistant Dual-SIM Yes Yes Yes Yes Yes Yes Available Date 20-Sep-19 20-Sep-19 20-Sep-19 21-Sep-18 21-Sep-18 26-Oct-18 Pre-order Date 13-Sep-19 13-Sep-19 13-Sep-19 14-Sep-18 14-Sep-18 19-Oct-18 Available countries 30+ 30+ 30+ 58 58 58

Source: Company, Daiwa Note: *iPhone XS Max and iPhone XS are no longer on the Apple Store from 10 September 2019; **Apple lowered iPhone XR/iPhone 8 Plus/iPhone 8 price by USD150 to USD599/549/449 on 10 September 2019, from USD749/USD699/USD599, respectively

Luxshare Precision Industry (002475 CH): 22 October 2019

Daiwa’s Asia Pacific Research Directory

HONG KONG SOUTH KOREA Takashi FUJIKURA (852) 2848 4051 [email protected] Sung Yop CHUNG (82) 2 787 9157 [email protected] Regional Research Head Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Jiro IOKIBE (852) 2773 8702 [email protected] Shipbuilding; Machinery Co-head of Asia Pacific Research Mike OH (82) 2 787 9179 [email protected] John HETHERINGTON (852) 2773 8787 [email protected] Banking; Capital Goods (Construction and Defence); Utilities; Steel Co-head of Asia Pacific Research Josh RHEE (82) 2 787 9124 [email protected] Craig CORK (852) 2848 4463 [email protected] Chemicals Regional Head of Asia Pacific Product Management Thomas Y KWON (82) 2 787 9181 [email protected] Paul M. KITNEY (852) 2848 4947 [email protected] Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Games Chief Strategist for Asia Pacific; Strategy (Regional) SK KIM (82) 2 787 9173 [email protected] Kevin LAI (852) 2848 4926 [email protected] IT/Electronics – Semiconductor/Display and Tech Hardware Chief Economist for Asia ex-Japan; Macro Economics (Regional) Henny JUNG (82) 2 787 9182 [email protected] Kelvin LAU (852) 2848 4467 [email protected] IT/Electronics – Semiconductor/Display and Tech Hardware (Small/Mid Cap) Head of Automobiles; Transportation and Industrials (Hong Kong/China) Minjoo KANG (82) 2 787 9176 [email protected] Fiona LIANG (852) 2532 4341 [email protected] Media Industrials (Hong Kong/China) Jay LU (852) 2848 4970 [email protected] TAIWAN Automobiles and Components (Hong Kong/China) Rick HSU (886) 2 8758 6261 [email protected] Leon QI (852) 2532 4381 [email protected] Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design Regional Head of Financials; Banking; Diversified financials; Insurance (Regional) (Hong Kong/China) Nora HOU (886) 2 8758 6249 [email protected] Kevin JIANG (852) 2532 4383 [email protected] Banking; Diversified financials; Insurance; Strategy Banking (China) Steven TSENG (886) 2 8758 6252 [email protected] Anson CHAN (852) 2532 4350 [email protected] IT/Technology Hardware (Automation & PC Hardware) Consumer (Hong Kong/China) Kylie HUANG (886) 2 8758 6248 [email protected] Adrian CHAN (852) 2848 4427 [email protected] IT/Technology Hardware (Handsets and Components) Consumer (Hong Kong/China) Helen CHIEN (886) 2 8758 6254 [email protected] Jonathan HO (852) 2848 4056 [email protected] Small/Mid Cap Consumer (Hong Kong/China) Andrew CHUNG (852) 2773 8529 [email protected] INDIA Head of Gaming (Hong Kong/China) Punit SRIVASTAVA (91) 22 6622 1013 [email protected] John CHOI (852) 2773 8730 [email protected] Head of India Research; Strategy; Banking/Finance Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap Saurabh MEHTA (91) 22 6622 1009 [email protected] Carlton LAI (852) 2532 4349 [email protected] Capital Goods; Utilities Small/Mid Cap (Hong Kong/China) Dennis IP (852) 2848 4068 [email protected] SINGAPORE Regional Head of Power, Utilities, Renewable and Environment (PURE); PURE Ramakrishna MARUVADA (65) 6228 6742 [email protected] (Hong Kong/China) Head of Singapore Research; Telecommunications (China/ASEAN/India) Anna LU (852) 2848 4465 [email protected] David LUM (65) 6228 6740 [email protected] Power, Utilities, Renewable and Environment (PURE) – IPP, Wind & Nuclear (China) Banking; Property and REITs Jonas KAN (852) 2848 4439 [email protected] Jame OSMAN (65) 6228 6744 [email protected] Head of Hong Kong and China Property Transportation – Road and Rail; Pharmaceuticals and Healthcare; Consumer Cynthia CHAN (852) 2773 8243 [email protected]

Property (China) JAPAN Selwyn CHENG (852) 2773 8716 [email protected] Yukino YAMADA (81) 3 5555 7295 [email protected] Custom Products Group Strategy (Regional) Jack CHAN (852) 2773 8731 [email protected] Custom Products Group

PHILIPPINES Renzo CANDANO (63) 2 737 3022 [email protected] Consumer Micaela ABAQUITA (63) 2 737 3021 [email protected] Property Gregg ILAG (63) 2 737 3023 [email protected] Utilities; Energy

Luxshare Precision Industry (002475 CH): 22 October 2019

Daiwa’s Offices Office / Branch / Affiliate Address Tel Fax DAIWA SECURITIES GROUP INC HEAD OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6753 (81) 3 5555 3111 (81) 3 5555 0661 Daiwa Securities Trust Company One Evertrust Plaza, Jersey City, NJ 07302, U.S.A. (1) 201 333 7300 (1) 201 333 7726 Daiwa Securities Trust and Banking (Europe) PLC (Head Office) 5 King William Street, London EC4N 7JB, United Kingdom (44) 207 320 8000 (44) 207 410 0129 Daiwa Europe Trustees (Ireland) Ltd Level 3, Block 5, Harcourt Centre, Harcourt Road, Dublin 2, Ireland (353) 1 603 9900 (353) 1 478 3469

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DAIWA INSTITUTE OF RESEARCH LTD HEAD OFFICE 15-6, Fuyuki, Koto-ku, Tokyo, 135-8460, Japan (81) 3 5620 5100 (81) 3 5620 5603 MARUNOUCHI OFFICE Gran Tokyo North Tower, 1-9-1, Marunouchi, Chiyoda-ku, Tokyo, 100-6756 (81) 3 5555 7011 (81) 3 5202 2021

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Luxshare Precision Industry (002475 CH): 22 October 2019

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Luxshare Precision Industry (002475 CH): 22 October 2019

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The following explains the rating system in the report as compared to relevant local indices, unless otherwise stated, based on the beliefs of the author of the report. "1": the security could outperform the local index by more than 15% over the next 12 months. "2": the security is expected to outperform the local index by 5-15% over the next 12 months. "3": the security is expected to perform within 5% of the local index (better or worse) over the next 12 months. "4": the security is expected to underperform the local index by 5-15% over the next 12 months. "5": the security could underperform the local index by more than 15% over the next 12 months.

Disclosure of investment ratings Rating Percentage of total Buy* 69.11% Hold** 23.76% Sell*** 7.13% Source: Daiwa Notes: data is for single-branded Daiwa research in Asia (ex Japan) and correct as of 30 September 2019. * comprised of Daiwa’s Buy and Outperform ratings. ** comprised of Daiwa’s Hold ratings. *** comprised of Daiwa’s Underperform and Sell ratings.

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