|Summary:||PCB sector DEC sales broadly in-line heading into light season: Upstream Apple suppliers including CCL maker Elite Material, HDI maker Compeq, Flexium, etc., saw flattish or softer sales in NOV, followed by sales declines in DEC, but the magnitude of decrease was slightly better than we had expected thanks to demand from non-Apple handset and NB vendors.
PCB/FPC: Apple-related FPC makers Zhen Ding (4958 TT, Buy)ís and Flexium (6269 TT, Neutral)ís DEC sales benefitted from deferred shipment for dual lens components, and pre-CNY pull-in, but this sets the stage for softening sales starting from as early as JAN. Flexiumís DEC sales at NT$1.9bn (+4.89% MoM) beat our expectation. Wait for better entry point after low season ends. For automotive PCB specialist Chin-Poon (2355 TT, Buy), we raise our TP to NT$72 on the view its high GM is sustainable over the mid/long term.
Upstream materials: Copper clad laminate (CCL) manufacturer Elite Material (2383 TT, Neutral) posted relatively strong DEC sales of NT$1.92bn (-5.14% MoM) thanks to solid networking product shipment and ASP hikes. HDI maker Compeq (2313 TT, Neutral)ís DEC sales held steady at NT$4.77bn (-0.99% MoM), as a US clientís handset and NB shipment both fared well. For upstream CCL supplier ITEQ, sales stayed strong, and we see a positive growth outlook on the initiation of pull-in for server applications. As expected, Taiwan Union Technology Corp (6274 TT)ís DEC sales were flattish (-1.12% MoM), supported mainly by strong shipment of networking products. We expect a modest decline in JAN sales.
Buy Zhen Ding (4958 TT), TP at NT$75 (11x 2017 P/E): DEC sales were NT$8.63bn (-10.0% MoM), including rush orders for older handset models, and earlier-than-expected pull-in from dual-lens camera after their yield rates improved.
Buy Chin-Poon (2355 TT), TP of NT$72 (11x 2017 P/E): DEC sales were stable at NT$2.0bn (-50.7% MoM), with 4Q16 sales at NT$5.96bn (-0.11% QoQ, +4.74% YoY). We estimate 4Q16/2016 EPS forecast at NT$1.53/NT$6.12. Sales strength will carry over to JAN. Ongoing factory efficiency gains, and sequentially rising yield and technology content at its Thailand plant will all help strengthen future operation. For 2017, we project Chin-Poonís sales at NT$25.12bn (+4.83% YoY), GM at 18.2%, and net profit at NT$2.56bn (+6.62% YoY), or EPS at NT$6.57.
Buy ITEQ (6213 TT), TP at NT$38 (10.5x 2017 P/E): DEC sales set a new high of NT$1.83bn (+9.11% MoM) on product price hikes and ramping shipment of new products. We estimate 4Q16 EPS at NT$0.82. Even after 2-3 CCL price hikes in DEC, the company still doesnít rule out the possibility of another hike in 1Q17. We see positive outlooks for server and automotive applications in 2017.