Title China Communication Industry
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Title:China Communication Industry
Download File:China communication industry note_190807 -- sinopac.pdf 
Summary:Richwave (4968 TT): Buy, TP at NT$200 (30x 2020 P/E): RF front-end module (FEM) supplier Richwave swung to profit in 2Q19 aided by its new FEM products. Shipment of FEMs for networking equipment has been ramping up in 2H19 as Chinese vendors continue to transfer orders away from US companies to Richwave, lacking any comparable options in China. We project EPS will rise to NT$6.58 in 2020 driven by order transfers (whose benefit shall carry through to end-2020), and the potential penetration of Chinese handset titans¡¦ WiFi FEM supply chains. We think the stock deserves a re-rating for its clear order visibility in its networking business and for prospective contribution from the long-anticipated handset-related business starting in 2020F. Win Semiconductors (3105 TT): Buy, TP at NT$324 (30x 2020 P/E): Considering Huawei¡¦s increased inhouse sourcing of PAs and the positive impact increased adoption of high-margin ToF rear camera will have on Win Semi¡¦s product mix in 2020, we estimate 2019 and 2020 EPS at NT$8.10 and NT$10.79 respectively. Huawei¡¦s wholly-owned subsidiary Hisilicon designs the PA ICs and outsources production to Win Semi. TSMC (2330 TT): Buy, TP at NT$285 (3.9x 2020 P/B): At the IC foundry segment, Huawei still relies heavily on TSMC, and we expect such reliance to grow even deeper along with the migration of handset IC fabrication toward more advanced nodes (e.g., 6nm/5nm). Meanwhile, as the 5G infrastructure buildout showed no signs of slowing despite the cloudy macro outlook, we project speedy improvement in TSMC¡¦s operations in 2H19 powered by escalating demand for high-end processes from handset and HPC products. We are also sanguine on TSMC¡¦s long-term outlook.
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