立訊精密(002475)

SUMMARY. We have met with Luxshare’s management recently to discuss the Company outlook for FY19/20E and potential opportunities for 5G era. Overall, we are optimistic on Luxshare’s growth strategy backed by 1) rapid product expansion and solid execution via strategic M&A/alliances (acoustics/haptics, wireless charging, optics), 2) “component-module-system” business model (Airpods, Apple Watch, smart speaker, BTS antenna), and 3) accelerated penetration into Apple supply chain (Airpod, acoustics/haptics) in FY19-20E.

Consumer electronics with robust growth momentum. Evolving from pure component supplier to module/system providers, Luxshare now offers a diversified product portfolio across various segments, ranging from traditional components (e.g. cable, connector) to more comprehensive and integratedmodules (e.g. LCP antenna, LRA, wireless charging Rx/Tx). Meanwhile, Luxshare strives to broaden penetration into different Apple products (from Macbook/iPad, iPhone to wearables), and expand share allocation in each product category (e.g. acoustics, haptics, Airpods), at the expense of AAC (acoustics/haptics) and Goertek (acoustics/Airpods). We expect near -term growth drivers will come from wearables (Airpods, Apple Watch) and haptics/acoustics in 2019-20E.

Capturing 5G opportunities in 2H19E. Mgmt. believed that Luxshare is well-positioned to capture growing 5G opportunities with an established product offerings, including 1) high-speed copper and optical cables/ connectors for 5G network, 2) massive MIMO-compatible RF/antenna on small-cell base stations, and 3) LCP antenna modules in upcoming iPhones. Additionally, in longer term, Luxshare is eyeing on fixed wireless unleashing a wider scope of IoT products and routers.

Valuation/Key risks. The stock now trades at 23.6x/18.1x FY19/20E P/E, compared to 44%/31% FY19/20E EPS growth. We believe there is further earnings upside for FY19-20E, on back of 1) strong growth momentum in consumer electronics, 2) communication interconnects benefiting from 5G network construction, and 3) healthy organic growth of automotive interconnects and potential opportunities with NEV.