BYD Electronic | 285.HK

Rating Neutral Maintain Samsung remains a double sword Target Price HKD 5.19 From HK$9.85 Current price HKD 5.03 Upside 3.2% %

1H15 results disappoint , dragged by HTC & , still in early 31 August 2015 stages of metal casing learning curve

BYDE has handed in a set of disappointing results with revenue only up 5% yoy to RMB9.56bn (13.3% below consensus and accounted Hayman Chiu for 40% of our estimates), while EPS also came in 33.3% lower than [email protected] consensus at RMB0.20 (down 22.7% Yoy and accounted for 33% of (852) 2235 7677 our FY15E estimate). We would attribute the miss to 1) sales decline from HTC and Nokia/Microsoft and 2) 1H15 GPM was down 156bps to 10.1% due to short term disruption of Trading data Samsung’s order (Galaxy S6 and S6 edge), which led to a lower 52-Week Range (HK$) 13.94/4.16 utilization rate. While we also believe BYDE is still on its 3 Mth Avg Daily Vol (m) 8.65 learning curve, as GPM only slightly improved 40bps HoH. No of Shares (m) 2,253.2

Market Cap (HK$m) 11,333.6 Metal/PMH casing adoption story goes on, GPM to ramp up Major Shareholders (%) BYD (65%) We continue to see mid-end smartphones (both international and Chinese players) continue to diffrentiate themselves from low-ends Auditors Ernst & Young through adopting metal casings. With the increasing adoption rate Result Due FY15: Mar 2016 (from ~20% in 2014 to ~33% in 2016E), this would benefit BYDE’s metal casing revenue to grow at ~37% CAGR in FY14-16E. Since the Company description GPM of metal/PMH casing is ~2.0x of company’s average, through the rising meta/ PMH casing contribution, we expect BYDE’s GPM to Established in 2002, BYDE is a leading gradually climb to >12.0% in FY16E and FY17E. manufacturer of handset components and modules, such as plastic casing, metal casings, Benefit from Chinese 4G camp but Samsung’s still at risk and keypads. It also provides assembly services Though we expect Samsung will continue to adopt metal casings in for handsets. Its parent company, BYD (1211.HK) their flagship smartphones, with BYDE’s increasing reliance on keeps some of handset components and Samsung (through their support on BYDE’s CNC machine CAPEX in modules, such as LCD displays, FPCs, and the form of prepayments), their sales volume/ shipment still maintains camera modules. Its customers include Samsung our concerns (RMB~2bn sales and contributed ~34% of segment (005930 KS), Nokia (NOK.US), , BBK, nd revenue) and only being the 2 tier supplier to Chinese 4G camp , Toshiba (6502.JP), Asus (2357.TT), HTC such as Huawei according to our channel checks. With the likely (2498.TT) and HP (HPQ.US). launch of iPhone 6S/6S+ next month, intensifying competition from Chinese vendors, Samsung’s sales volume, which would end up posting a drag on BYDE’s utilization rate and hence GPM. Price chart

Cut FY15E/FY16E estimates, maintain Neutral with TP HK$5.19 We lower our FY15E/16E earnings by 15.4%/8.3%, mainly due to lower sales and GPM assumption. BYDE is trading at 6.2x FY16E PER, its valuation is at 32.8% discount to peers like Catcher (2474.TT), FIH (2038.HK) and Tongda (698.HK). Despite BYDE’s stock price tumbled >30% YTD (vs. HK listed peers average at -8%), we still believe current market consensus still have not factored in the potential drag that Samsung may post on BYDE. We maintain our NEUTRAL rating on BYDE with TP slashed from HK$9.85 to HK$5.19, based on 7.8x FY16E PER (15% discount to HK and Taiwan listed peers). Sources: Bloomberg, CIRL RMB mn FY12A FY13A FY14A FY15E FY16E

Revenue 14,091 16,062 19,832 22,331 24,789 Net Profit 379 648 902 1,237 1,515 Consensus NP 1,193 1,414 EPS (RMB) 0.17 0.29 0.40 0.55 0.68 P/E (x) 24.7 14.5 10.4 7.6 6.2 Sources: Bloomberg, CIRL estimates

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Exhibit 1: Lowers BYDE’s earnings forecast

FY15 (new) FY15 (old) Diff FY16 (new) FY16 (old) Diff

Revenue 22,331 23,760 -6.0% 24,789 26,289 -5.7%

Net Profit 1,237 1,462 -15.4% 1,515 1,651 -8.3%

EPS (RMB) 0.55 0.65 -15.4% 0.68 0.74 -8.3%

Source: Company data, CIRL

Exhibit 2: Financial statement

Income statement Cash flow Year to Dec (RMB mn) FY12A FY13A FY14A FY15E FY16E Year to Dec (RMB mn) FY12A FY13A FY14A FY15E FY16E Revenue 14,091 16,062 19,832 22,331 24,789 Pre-tax profit 430 752 1,012 1,405 1,722 Gross profit (reported) 1,190 1,679 2,105 2,635 3,128 Taxes paid -38 -97 -105 -77 -169 EBITDA 1,124 1,390 1,921 2,419 3,023 Depreciation 558 631 903 1,008 1,296 Depreciation -691 -631 -903 -1,008 -1,296 Associates 0 0 0 0 0 EBIT 433 759 1,018 1,411 1,727 CFO bef. WC change 950 1,286 1,811 2,336 2,849 Net interest income (exp.) -3 -7 -6 -6 -6 Change in working cap -322 326 536 -141 -107 Associates 0 0 0 0 0 Cashflow from operation 628 1,611 2,347 2,195 2,742 Exceptionals/others 0 0 0 0 0 CAPEX -912 -927 -1,391 -2,200 -1,100 Profit before tax 430 752 1,012 1,405 1,722 Free cash flow -284 685 956 -5 1,642 Tax expenses -51 -103 -111 -169 -207 Dividends 0 65 0 124 0 Minority interest 0 0 0 0 0 Balance sheet adj. 321 -82 0 0 0 Net profit 379 648 902 1,237 1,515 Sharse issued -116 0 -217 0 0 Others 0 -134 146 124 -124 Balance sheet Net cash flow -79 534 886 243 1,518 Year to Dec (RMB mn) FY12A FY13A FY14A FY15E FY16E Net cash (debt) start 2,207 2,128 2,662 3,548 3,790 Cash & equiv 2,128 2,662 3,548 3,790 5,309 Net cash (debt) at year-end 2,128 2,662 3,548 3,790 5,309 Trade receivables 2,751 3,437 4,285 4,871 5,459 Other receivables 0 0 0 0 0 Ratios Inventories 1,739 1,862 2,286 2,530 2,772 Year to Dec FY12A FY13A FY14A FY15E FY16E Other current assets 562 828 828 828 828 Growth rate (%) Fixed assets 3,914 4,210 4,697 5,889 5,694 Revenue (11.20) 14.0 23.5 12.6 11.0 Intangible assets 8 9 9 9 9 EBITDA (17.01) 23.6 38.3 25.9 25.0 Investment, associates etc 787 868 868 868 868 EBIT (35.84) 75.3 34.1 38.6 22.4 Total assets 11,889 13,877 16,521 18,786 20,938 Net profit (37.14) 71.1 39.1 37.1 22.5 EPS (37.04) 70.6 39.1 37.1 22.5 Account payables 2,691 3,834 4,857 5,546 6,269 Margins (%) Other payables 0 0 0 0 0 Gross margin 8.4 10.5 10.6 11.8 12.6 Short-term debt 0 0 0 0 0 EBITDA 8.0 8.7 9.7 10.8 12.2 Other current liabs 944 1,208 1,999 2,091 2,129 EBIT 3.1 4.7 5.1 6.3 7.0 Long-term debts 0 0 0 0 0 Net margin 2.7 4.0 4.5 5.5 6.1 Deferred tax and others 0 0 0 0 0 Other ratios Other long-term liabs 0 0 0 0 0 ROE (%) 4.6 7.3 9.3 11.1 12.1 Total liabilities 3,634 5,042 6,856 7,637 8,398 ROA (%) 3.2 4.7 5.5 6.6 7.2 Net gearing (%) (25.8) (30.1) (36.7) (34.0) (42.3) Share capital 217 217 0 0 0 Interest coverage (x) 171.8 104.7 184.0 255.1 312.3 Reserves 8,037 8,617 9,665 11,149 12,541 Receivables days 71.3 78.1 78.9 79.6 80.4 Shareholders' equity 8,254 8,834 9,665 11,149 12,541 Payables days 76.1 97.3 100.0 102.8 105.6 Minorities 0 0 0 0 0 Inventory days 49.2 47.3 47.1 46.9 46.7 Total equity 8,254 8,834 9,665 11,149 12,541 Effective tax rate (%) 11.9 13.7 10.9 12.0 12.0 Net cash (debt) 2,128 2,662 3,548 3,790 5,309 Source: Company data, CIRL estimates

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Exhibit 3: Peer comparison

bloomberg Year Mkt Cap Price Share Price Movement (%) PER (x) Yield (%) code End (HKD mn) (HKD) 1M 1YR YTD FY13 FY14A FY15E FY16E FY13 FY14E FY15E FY16E

HK Listed Peers GROUP 992 HK 03/2015 74,761 6.73 (21.8) (42.0) (34.0) 14.1 11.0 10.5 34.7 2.3% 3.9% 3.5% 1.6% AAC TECHNOLOGIES 2018 HK 12/2014 54,400 44.30 5.4 (8.2) 6.6 16.7 18.6 15.7 13.6 2.1% 2.2% 2.2% 2.6% FIH MOBILE LTD 2038 HK 12/2014 27,549 3.49 (14.9) (16.6) 3.3 43.3 20.1 12.7 10.8 0.0% 1.2% 1.8% 2.0% SUNNY OPTICAL 2382 HK 12/2014 14,393 13.12 (21.5) 27.1 (1.9) 23.5 19.7 15.8 12.6 1.2% 1.5% 1.7% 2.2% TCL COMM TECH HL 2618 HK 12/2014 6,926 5.50 (9.2) (39.9) (23.7) 20.0 6.0 6.0 5.8 0.9% 7.1% 6.0% 6.2% TRULY INTL HLDGS 732 HK 12/2014 5,640 1.94 (29.2) (53.8) (37.6) 3.4 5.1 5.0 4.5 11.3% 7.7% 6.7% 6.1% 2369 HK 12/2014 6,355 1.46 (18.4) (15.1) (4.6) 17.6 12.2 13.3 11.5 1.3% 0.7% 1.6% 1.2% TONGDA GROUP HLD 698 HK 12/2014 7,100 1.24 (13.3) 14.8 34.8 16.6 13.1 9.6 7.8 1.9% 2.4% 3.2% 4.1% JU TENG INTL HDG 3336 HK 12/2014 3,438 2.95 (14.7) (33.0) (22.8) 4.5 4.5 4.3 3.8 4.6% 5.1% 5.5% 6.0% Q TECHNOLOGY GRO 1478 HK 12/2014 1,482 1.45 (21.6) N/A (34.1) - 3.6 5.1 4.6 0.0% 3.5% 3.9% 4.4% VITAL MOBILE HOL 6133 HK 12/2014 1,088 1.28 (34.4) N/A N/A 7.8 4.2 - - 0.0% 0.0% 0.0% 0.0% SKY LIGHT HOLDIN 3882 HK 12/2014 2,321 2.90 (9.1) N/A N/A - - 6.2 6.6 0.0% 0.0% 3.4% 4.5% COWELL 1415 HK 12/2014 3,035 3.65 (30.1) N/A N/A 7.0 6.6 5.3 4.4 0.0% 0.0% 1.7% 2.2% WAI CHI HOLD 1305 HK 12/2014 406 2.03 (26.7) N/A (6.0) - 5.2 - - 0.0% 0.0% 0.0% 0.0% TK GROUP HOLDING 2283 HK 12/2014 1,852 2.24 (5.5) 96.5 38.3 10.2 11.8 9.2 7.2 1.3% 3.1% 3.6% 4.4% KA SHUI INTL HLD 822 HK 12/2014 661 0.74 (14.0) (17.8) (32.7) 10.9 8.6 - - 14.9% 2.2% 0.0% 0.0% SAS DRAGON HLDG 1184 HK 12/2014 874 1.40 (14.1) (40.7) (17.6) 4.3 5.7 - - 0.0% 8.6% 0.0% 0.0% PANASIALUM HOLDI 2078 HK 09/2013 1,032 0.86 0.0 (35.3) 0.0 4.5 - - - 5.5% 23.3% 0.0% 0.0% SCUD GROUP LTD 1399 HK 12/2013 1,134 1.04 0.0 (11.1) 18.2 22.2 - - - 0.0% 1.0% 0.0% 0.0% SIM TECH GROUP 2000 HK 12/2014 959 0.38 (13.8) (13.8) 4.2 -4.0 39.9 - - 0.0% 0.0% 0.0% 0.0% WILLAS-ARRAY ELE 2954 HK 12/2012 233 3.09 (38.2) (34.9) (26.4) 5.0 7.9 - - 9.4% 10.3% 0.0% 0.0% Average 10,269 (16.4) (14.0) (7.6) 13.6 11.3 9.1 9.8 4.7% 5.2% 3.5% 3.7%

BYD ELECTRONIC 285 HK 12/2014 11,334 5.03 (32.5) (29.6) (32.9) 14.5 10.4 7.6 6.2 0.7% 0.0% 1.3% 0.0%

Casing peers

FOXCONN TECHNOLO 2354 TT 12/2014 30,770 22.05 (3.5) 24.2 8.9 16.6 12.7 10.1 10.7 1.0% 1.4% 3.1% 3.2% CATCHER TECH 2474 TT 12/2014 60,029 77.90 (5.0) 5.9 31.8 16.2 12.9 10.6 9.2 2.2% 2.2% 2.6% 3.4% CASETEK HOLDINGS 5264 TT 12/2014 9,855 29.00 (33.3) (32.8) (32.6) 6.1 7.8 8.6 7.3 3.8% 6.0% 5.7% 6.4% COXON PRECISE IN 3607 TT 12/2014 1,540 12.39 (5.1) (4.1) (9.1) 13.3 8.0 6.6 - 0.0% 0.0% 0.0% 0.0% COMPAL ELECTRON 2324 TT 12/2014 19,516 4.36 (12.2) (30.1) (15.9) 29.3 10.5 8.1 7.6 4.2% 5.3% 7.7% 8.3% QUANTA COMPUTER 2382 TT 12/2014 54,268 14.05 (9.6) (30.4) (26.0) 11.1 11.2 12.4 10.9 6.7% 6.6% 6.3% 6.8% WISTRON CORP 3231 TT 12/2014 9,663 3.75 (20.1) (53.9) (43.8) 6.0 10.1 9.9 7.8 8.9% 9.1% 6.5% 8.7% PEGATRON CORP 4938 TT 12/2014 53,677 20.61 (5.0) 35.2 17.8 19.0 12.9 9.5 8.9 2.4% 4.2% 5.9% 6.8% INVENTEC CORP 2356 TT 12/2014 12,988 3.62 (17.0) (34.1) (29.3) 7.0 7.1 7.8 7.7 8.8% 9.9% 10.2% 10.1% TONGDA GROUP HLD 698 HK 12/2014 7,100 1.24 (13.3) 14.8 34.8 16.6 13.1 9.6 7.8 1.9% 2.3% 3.2% 4.1% JU TENG INTL HDG 3336 HK 12/2014 3,438 2.95 (14.7) (33.0) (22.8) 4.5 4.5 4.3 3.8 4.6% 5.5% 5.5% 6.0% Average 23,207 (13.5) (16.2) (9.5) 13.2 10.1 8.9 7.4 4.8% 5.7% 6.0% 6.7%

BYD ELECTRONIC 285 HK 12/2014 11,334 5.03 (32.5) (29.6) (32.9) 14.5 10.4 7.6 6.2 0.7% 0.0% 1.3% 0.0% Source: Bloomberg, CIRL

Exhibit 10: BYDE 12 month forward P/E Ratio Exhibit 1:

Pork 12 mths Forward P/E Ratio 25 avg. -1std. products

sold20 in

supermark a et 15counters

+1std. - 10

5 -1std.

0 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15

Source: Bloomberg, CIRL

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Rating Policy

Rating Definition Buy Outperform HSI by 15% Stock Rating Neutral Between -15% ~ 15% of the HSI Sell Underperform HSI by -15% Accumulate Outperform HSI by 10% Sector Rating Neutral Between -10% ~ 10% of the HSI Reduce Underperform HSI by -10%

Analysts List

Antony Cheng Research Director (852) 2235 7127 [email protected] Hayman Chiu Associate Director (852) 2235 7677 [email protected] Kenneth Li Senior Research Analyst (852) 2235 7619 [email protected] Lewis Pang Senior Research Analyst (852) 2235 7847 [email protected]

Johnny Yum Research Assistant (852) 2235 7617 [email protected]

Analyst Certification

I, Hayman Chiu, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was / were, is / are or will be directly or indirectly, related to the specific recommendations or views expressed in this report / note.

Disclaimer

This report has been prepared by the Cinda International Research Limited. Although the information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable, Cinda International cannot and does not warrant the accuracy or completeness of any such information and analysis. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Recipients should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. The report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Any opinions expressed in this report are subject to change without notice. The report is published solely for information purposes, it does not constitute any advertisement and should not be construed as an offer to buy or sell securities. Cinda International will not accept any liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this report. This document is for the use of intended recipients only, the whole or a part of this report should not be reproduced to others.

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