We had a conference call with Tiancai Holdings' management and investors. The company decided on a project with Tencent's connected car network. Tiancai is the only supplier of Shenyan. This car camera has ADAS features similar to MobilEye
The company maintains its view on the rapid growth of Netgear IP cameras in 2016. Although recent shipments of GoPro sports cameras have been under pressure, it is expected that starting in the second quarter of 2016, GoPro's order demand for the whole year will become clear
Maintaining the buying rating, target price of HK$3.36, based on a 2016 forecast price-earnings ratio of 8.0 times
BAT Internet of Vehicles Project Launched: Tencent's Eye
Tencent announced the Internet of Vehicles product at Jingdong crowdfunding yesterday. According to Tiancai's management, Tiancai is Shenyan's sole supplier and is responsible for the design and assembly of Shenyan hardware. Similar to Mobileye, it is equipped with an advanced driver assistance system (ADAS) that issues remote collision warning (FCW) and lane departure warning (LDW). Mobileye targets the high-end automobile market, but we anticipate that Sheneye will address the mass market's demand for ADAS. Coupled with GoPro-like features, users can record video in real time and share it on the Tencent Map platform through the built-in 3G module to enhance the driving experience. The difference between Shenyan and ordinary car lenses on the market is the function of ADAS. This system has high requirements for hardware, including chips, lenses, and images. The factory price is expected to be higher than 100 US dollars. The estimated retail price will also be between 1000-2000 yuan, far higher than the car lens without an ADAS function. Taking the 360 car lens as an example, the retail price of the 360 car lens is 359 yuan. Tiancai is expected to begin shipping in February, with the first batch shipping volume of about 10,000 units. We expect that as long as Shenyan shipped more than 400,000 units in 2016, its contribution to Tiancai's revenue in 2016 will already exceed 10%, or about HK$300 million. Currently, 360 car lenses without ADAS function are shipped about 200,000 units per month.
The home video (Netgear) business is growing rapidly, and the outlook is optimistic
Management maintains a positive view of the rapid growth of the home imaging business. The main customer, Netgear's Arlo product, is the only wireless, waterproof IP camera that can be placed outdoors. This product sells very well in the US and ranks first in market share. Coupled with strong demand for the second-generation indoor IP camera Arlo Q, which was launched in November, shipments are expected to grow rapidly in 2016. We expect the compound annual growth rate of home imaging revenue in 2015-17 to reach 35%. As for GoPro, management said there was no sharp decline in sports camera revenue in the first quarter of 2016, and the revenue is expected to be the same as the first quarter of last year. However, due to errors in the product positioning of the Hero 4 Session, which was manufactured by Taiwan's Chicony last year, GoPro is optimizing its product structure and price positioning. Management believes that after the March results are released, GoPro's order requirements for the whole year will be relatively clear.
Dragged down by weak GoPro and oversold, reiterated buy rating
We believe that the market overreacted GoPro's influence on Tiancai. Currently, Tiancai's stock price is 4.8 times that of Tiancai's forecast price-earnings ratio in 2016, with a 34% discount compared to peers. We maintain our buy rating, with a target price of HK$3.36, based on a 2016 price-earnings ratio forecast of 8.0 times. Downside risks include weaker than expected demand for IP cameras and cameras.