The Zhitong Finance App learned that SPDB International released a research report saying,Reiterating the “buy” rating of Teutai Technology (01478): This year, all three major business segments of Teutai are supported by structural fundamentals.1) Demand for mobile phone camera modules is expected to follow the industry's growth in the second half of the year. At the same time, periscope camera modules are expected to increase the proportion of high-end projects. 2) The revenue share of the non-mobile phone business is likely to reach 10% or more of the company's revenue, and it can also provide a positive gross profit contribution, which will gradually become a source of profit growth. 3) The fingerprint module product structure has been actively improved, which is expected to turn a loss into a profit. Qiutai is a relatively cost-effective company in this year's mobile phone supply chain beta launch opportunity. The adjusted target price corresponds to the 2023E/2024E 25.8x/14.9x target price-earnings ratio, respectively, and the valuation is quite attractive.
▍ The main views of SPDB International are as follows:
The phone camera module is expected to enter the recovery channel in 2H23:
The trend in the shipment volume of camera modules by Qiutai is roughly similar to that of global smartphones (especially Chinese Android brands) (see Sunyu's report). Camera module shipments performed well in March, mainly due to recent demand from customers to replenish inventory for new products.
Entering the second quarter, camera module shipments are expected to increase month-on-month, but overall demand is still weak. It is expected that the recovery of the industry in the second half of the year will drive an increase in shipments of Teutai camera modules.
The share of non-mobile phone business revenue is expected to increase significantly this year and provide a positive gross profit contribution:
In 2022, Teutai's revenue from non-mobile phones accounted for 4.8%. It is estimated that in 2023, the share of Teutai's non-mobile phone business is expected to rise to 10%. As the scale effect is reflected, the vehicle camera module is expected to contribute to providing positive gross profit, while the gross margin of the IoT camera module is expected to be close to the company average.
Looking at the longer term, the size of the automotive camera industry is expected to grow to half or more of the size of the mobile phone camera market, providing incremental growth for Qiutai over the long term.
Valuation: The DCF valuation method was used to value the Teutai.
Using a risk-free interest rate of 2.8%, assuming a growth rate of 5%-8% for Qiuti from 2028 to 2031 and a permanent growth rate of 3%, WACC is 26.5%. A target price of HK$5.0 was reached, with a potential increase of 18%.
Investment risk:
The recovery in demand for consumer electronics products such as smartphones fell short of expectations, and growth in the second half of the year was weak. The speed of inventory removal from mobile terminals and supply chains was weaker than expected, dragging down mobile phone brand shipments. Competition in the industry has once again intensified, and players' profit margins are under pressure. Non-mobile phone businesses such as automotive have invested heavily, dragging down profit performance.