FIT 6088 NDR Takeaways (From CMBI)

FIT Hon Teng Ltd. (6088 HK)- NDR takeaways: Accelerated auto/smart home transition

v Positive outlook with accelerated transition in FY18E. We hosted FIT’s NDR in Shanghai and Hong Kong in past two weeks.

Overall, investors were interested about
1) share allocation in Apple’s iPhone/iPad,
2) Belkin’s outlook,
3) optical module competition, and
4) M&A progress in automobile segment.

As global 4th largest connector player, FIT is poised to accelerate expansion into smart home/ IoT and automotive segments, and expected to deliver double digit sales growth in FY18E and 20%+ YoY growth in FY19E, thanks to 1) share gain in Apple’s biz, 2) strong demand of optical modules, 3) expansion of Belkin’s smart home/IoT, and 4) further of Honhai’s automobile biz (Shartp’s JV, Honhai’s smart key biz).

v Mobile: Share gain in Apple’s connectors and Belkin’s smart home/IoT. Mgmt indicated stable sales growth in mobile biz in FY18-19E, given higher share allocation (35%, vs 30% in FY17) in Apple’s connector biz (connector/sim tray/cable/earphone), partly offset by  disposal of dongles in 2H18 new iPhones. To accelerate expansion into smart home/IoT segments, FIT announced in 1H18 to acquire Belkin, a premium brand in accessories and smart home ecosystem (30%+ GPM). The acquisition is under review by TW govt. and the result will be announced on 20th Aug. By leveraging its strong capability in supply chain management and manufacturing expertise, FIT targeted to improve NPM to 6% in FY18E (vs 0.5% in FY17), offsetting the loss of dongles biz to certain extent.

v Automotive: Solid product roadmap via M&A. FIT targeted to expand its automotive segment (Telsa’s charging biz) with organic growth of 20-30% YoY in FY18E. Mgmt also indicated to boost biz transition via M&A in FY18-19E: 1) establishing a JV with Sharp on auto camera module in Feb for HK$107.87 mn (as part of ADAS); 2) purchasing Hon Hai’s auto electronics division in May for HK$131.58 mn (mainly smart key); 3) further integration of in-vehicle display and infotainment system as sole automotive platform for Hon Hai Group.

v Comm. Infra.: high-end products posted strong growth. Despite slow demand of copper-based product, mgmt. expected 40G/100G optical modules to ramp up by 40% YoY in FY18E, partly offset by 30% price erosion. The major growth drivers came from its largest customer, Cisco, and other datacenters such as Huawei and Google. Mgmt expects 400G products will start mass production in FY19E, thus further improving product mix and profitability.

v Emerging leader in smart home/automotive connectors. Leveraging its solid technology expertise and manufacturing capability, FIT continues to expand into non-PC/mobile markets in next 3-5 years, which should drive earnings growth beyond FY19-20E. Based on Bloomberg consensus, the stock now trades at 14.0x/12.5x FY18/19E P/E, compared to 13%/13% FY18/19E EPS growth. Upcoming catalysts include 1H18 results in Aug and Belkin results on 20th Aug.

Disclaimer: The Notes above was circulated from CMBI and is from a public source. This Blog and Owner of the Blog is not soliciting any investment or whatsoever and is not liable for losses of any kind resulted from the above summary.