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Title:Passive Components
Download File:Passive component industry note_200706--sinopac.pdf 
Summary:Industry Report: Passive Components

SinoPac View: 1) MLCC and R-chip makers¡¯ share prices are correlated to product prices; 2) Passive component makers will ride the 5G wave; 3) TXC: concerns about the US ban on one of TXC¡¯s Chinese clients notwithstanding, we maintain our Buy rating on TXC in anticipation of QoQ growth in 2H20 fueled by pull-ins tied to its US handset client¡¯s new models; 4) Advanced Ceramic X (ACX): sales and earnings growth should resume in 2020, bringing upside to its share price; 5) Yageo: Financial consolidation of KEMET in 3Q20 will spark sharp growth in Yageo¡¯s operations and provide a valuation driver; 6) Walsin: company hiked product prices to channel clients in 3Q20 and continues to launch new capacity to meet demand; we estimate UTR reached 80% in 2Q20.

Our Buy picks: Yageo, Walsin, TXC, ACX

Share prices will take their cues from product prices (rising, we believe) in the short term; however, earnings growth will be the mid and long-term driver, and given our assumption component makers¡¯ earnings will ride the 5G wave, we see share price upside for our 4 Buy-rated component stocks.

--Yageo (2327 TT), TP of NT$480 (15x 2021F P/E)
--Walsin (2492 TT), TP of NT$255 (15x 2021F P/E)
--TXC (3042 TT), TP of NT$74 (16.0x 2021F P/E)
--Advanced Ceramic X (ACX, 3152 TT), TP of NT$510 (32x 2021F P/E)
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