$比亚迪电子(00285)$ MORGAN STANLEY ASIA LIMITED+
May 1, 2017 03:30 PM GMT

Price Target HK$10.5

Bull HK$15.5

Base HK$10.5

Bear HK$6.5

Why Equal-weight

Rising adoption of metal casings in

smartphones: 1) increasing adoption of

external metal casing for differentiation, and

2) adoption of metal for internal structure,

for better support given larger display.

Samsung and Chinese OEMs to drive

BYDE’s metal casing revenue contribution in

2017/2018.

We see limited competition – capacity of

Taiwan's major casing players is occupied by

Apple.

Our new price target of HK$10.5 implies

9.8x 2017e P/E (up from 9.5x), vs. the

historical average of 10.3x since 2008. This

reflects better than expected Galaxy S8 sales

along with better yield improvement at BYDE.

Key Value Drivers

Revenue contribution from metal casing.

Gross margin on metal casing orders.

Potential Catalysts

Release of sell-through data of Samsung

Series/ Huawei P series

Potential penetration into Macbook supply

chain

Risks to Achieving Price Target

Downside: Samsung Galaxy S8 sellthrough

is worse than expected. Increasing

competition from other CNC players exerts a

further drag on blended ASP.

Upside: Glass casing development is faster

than expected – more 3D glass casing capacity

comes on stream with successful client

penetration. BYDE successfully cuts into

Apple supply chain.

Risk Reward

Fairly Valued on Our Increased Scenario Values

HK$15.5 (+30%)

HK$10.5 (-12%)

HK$6.5 (-45%)

HK$11.9

Source: Thomson Reuters, Morgan Stanley Research estimates

Base case, residual income valuation methodology.

12.9x 2017e bull case EPS

Increasing metal casing adoption rate from Chinese OEMs: ASP is sustained in

2017e/ 2018e, thanks to longer processing time.

9.8x 2017e base case EPS

Sales momentum from Samsung Galaxy S series and Huawei P series, along

with margin improvement: Metal casing volume to grow 55% YoY in 2017e and

25% in 2018e; ASP declines 5-6% YoY in 2017/2018; GM improved.

1x 2017e bear case BPS

Samsung sell-through worse than expected; fewer order allocations from

Chinese OEMs: Competition intensifies.