As GoPro took inventory removal measures to resolve inventory issues, Tiancai Holdings received a request from GoPro to reduce orders for the fourth quarter of '15. Meanwhile, development of two new GoPro models is underway. Network cameras and smart imaging products are also progressing very smoothly. At current levels, we think the pressure from GoPro is mostly reflected in the price. The buy rating for the stock was maintained, and the target price was lowered to HK$3.50.
Key points to support ratings
GoPro orders for Q15 will fall short of expectations. The company's first 3 quarters of GoPro sales were in line with the company's expectations. However, in the fourth quarter of 2015, GoPro Inc. (GPRO.US/USD 25.92, no rating) and Tiancai Holdings are discussing order reduction, and sales of GoPro will fall short of the company's previous expectations. Meanwhile, the company is discussing the configuration of the two new models with GoPro.
GoPro's removal of inventory led to fewer orders. There was a sharp rise in GoPro inventory in Q3 '15. Furthermore, GoPro placed special emphasis on the HERO4 Session and HERO+LCD inventory being higher than the target level, but the situation with HERO+LCD was better than Session.
The development of network cameras and smart imaging products is progressing smoothly. Net Gear (NTGR.US/USD 44.08, unrated) The new network camera will be put into production in early December. Another 2-3 new network camera customers will also begin large-scale production. Law enforcement recorders and driving recorders will begin mass production in December.
Our GoPro sales forecast was lowered. We lowered our action camera sales forecast to reflect pressure from GoPro's business. Our current forecast assumes that sales of action cameras and accessories will grow by only 9.9% and 2.3% in 2015 and 2016, respectively. The main risks faced by ratings
GoPro sales fell short of expectations; management fees were higher than expected.
valuations
Maintain the buy rating with a target price of HK$3.50. We lowered our 2015 and 16 earnings forecasts by 20% and 23%, respectively, to reflect lower-than-anticipated sales of GoPro. We think the current price level has largely reflected the resistance of GoPro's business. Our target price is based on 10x the expected price-earnings ratio for 2016.