Keystone
On December 7th, we visited Xinli Shanwei factory. We focus on the two long-term growth points of Telecom Lee International: 3D sensing modules and vehicle panels. The 3D sensing module is expected to achieve rapid growth from the third quarter of 2018. The car panel with high profit margin is expected to become a cash cow business. In addition, considering the valuation premium, we believe that Xinli Shanwei's proposed listing on the Shenzhen Stock Exchange is expected to further enhance the company's market capitalization. Therefore, we reiterate our recommended rating and target price of HK $5.1.
The 3D sensor module business is expected to contribute sales revenue from the third quarter of 2018. We expect sales of CCM camera modules to grow significantly by 44.2% in 2018 and 25% in 2019, mainly because 3D sensing modules will contribute revenue from the third quarter of 2018. The company has successfully developed a 3D structured light camera module and TOF solution. We believe that the company may have signed a cooperation agreement with international suppliers of algorithms and optical components for 3D structured light solutions. Considering the significant increase in shipments of 3D sensor modules and the considerable ASP premium, we believe that CCM is expected to become the biggest growth point in smartphone-related business.
The increase in the proportion of sales revenue of the vehicle panel business is expected to significantly increase the overall gross profit margin. The company announced that it will start the large-scale production of Shanwei plant phase 1 from the first quarter of 2018 (with a production capacity of 65000 yuan / month). The company is the sixth largest manufacturer of car panels in the world, with a market share of 6.4% in 2016. We believe that the company is expected to further expand its market share through existing distribution channels and close cooperation with automotive OEM manufacturers and first-tier suppliers, and we expect the company's market share to reach 12.6% in 2019. In addition, considering that the gross profit margin of the car panel business is as high as 20%, we believe that with the increase in the proportion of sales of car panel products, the company's overall gross profit margin is expected to increase.
Suggestion
Considering the outbreak of 3D sensor module business and the relative stagnation of other smartphone-related businesses, we adjusted our revenue forecasts for 2018 and 2019 by + 1.8% and by 4.2%, respectively, and our net profit expectations by + 25.1% and 14.7%, respectively. We maintain the SOTP target price of HK $5.10, of which Xinli Shanwei is valued at the A-share display industry average (25 times 2018 price-to-earnings ratio) and the other subsidiaries at 13 times earnings.
Risk
The customer expansion of the car display screen is not up to expectations.