Main points of investment
What happened: on the morning of March 23, the company's share price fluctuated sharply. The 13:35 branch issued an announcement saying that it did not know the reasons for the fluctuations in the stock price and trading volume, while the board of directors announced that it might consider repurchasing shares on the floor.
At the same time, the company disclosed the main mobile phone models it is producing. At 14:00, the company held a conference call with investors, and the CFO exchanged information with investors about the company's operation.
Metal shell customer orders and shipments are normal. The company announced that the main mobile phone models being produced include Huawei Mate9, P10 and G9, Nova, Mai Mang 5, Glory 5C, Oppo R9, R9s, A37, A51 and A53, Hongmi 3 and 4, Hongmi Note 3 and Note 4 and XIAOMI Max. Among them, XIAOMI, Huawei and OPPO are still the largest major suppliers.
The OPPO model R11 is not available and goes directly to the next model, and the existing production capacity is transferred to Huawei and LG products. The company said it had no orders for OPPO's R11 model because it expected the model to be a short-term phone model, and the company surpassed the R11 and planned to supply OPPO directly to the next model, which is expected to ship by the end of the third quarter. We believe that this incident may be the most important factor causing the decline in the stock price. Considering that the company will timely transfer the production capacity of OPPO to customers such as Huawei and LG, it will not affect the overall shipments this year. Because OPPO cooperation has not been completely lost, then when the next model of OPPO is launched, Tongda will still be able to get a large number of orders, and the market worry will be relieved naturally.
The placement and reduction of major shareholders has been completed. On May 15, the company's controlling shareholder sold 3.8699 billion shares at a price of HK $2.85, equivalent to 6.36% of the company's issued share capital at that time. The controlling shareholder Wang's four brothers still held about 39.75%, and the controlling shareholder cashed out a total of about HK $1.1 billion.
The first reduction by controlling shareholders since the company went public for many years has increased the liquidity of the market equity, which may also have some impact on the market share price, but the placing price of HK $2.85 received by the placing should not be the main reason for the sharp fall in prices.
Investment advice: we believe that the sharp decline in share prices today is mainly due to the lack of access to R11 in the market, and investors are worried about its loss of OPPO supply, which will affect its performance. However, the company can transfer capacity to Huawei, LG and other brands in time, so we think this should have no impact on metal shell shipments this year. If the company can continue to supply the next model of OPPO, the market worry will be relieved naturally. In terms of the company's basic performance forecast, we have not adjusted the company's performance forecast model, so we maintain the previous "buy" investment rating.
Risk tips: increased competition in the industry, a decline in gross profit margin; customers failed to get orders for new models; downstream domestic mobile phone market share declined.