20180110-招商证券_香港_-China_Hardware_Technology_2018_outlook_Focus_on_2H18_upgrade_ahead_of_5G_boom_23页_3mb

China Hardware Technology Industry Report Summary

Core Content

This report provides an outlook on the China hardware technology industry in 2018, focusing on key trends and investment opportunities in the smartphone and broader tech sectors. It highlights the shift towards advanced features and the impact of the upcoming 5G era on AI, IoT, and robotics.

Main Trends and Outlook

• Smartphone Shipment Growth:

  • Global smartphone shipment growth is expected to be low-single-digit (1% YoY) in FY18E, driven primarily by Apple and HOVX (Huawei, Oppo, Vivo, Xiaomi).
  • Apple's shipment growth is forecasted at +7% YoY, while Xiaomi is expected to see +30% YoY growth.
  • The report anticipates a slow start in 1H18E due to a lack of innovation and BOM cost pressures, but a recovery in 2H18E with new design features like 3D sensing, glass casing, and wireless charging.

• Upgrade Trends in 2H18E:

  • Key features for 2018 include 3D sensing, AI chips, dual-cameras, acoustics (SLS), and wireless charging.
  • The adoption of 3D sensing is expected to benefit companies like Sunny Optical, AAC, ASMPT, and Truly.
  • Glass casing is anticipated to drive growth for Tongda and BYDE due to its role in signal transmission and wireless charging.

• Market Consolidation:

  • The report suggests that the smartphone market is consolidating, with the Big-4 Chinese brands (Huawei, Xiaomi, Oppo, Vivo) gaining market share globally.
  • It estimates that the top-5 Chinese OEMs will capture 41% of the global market share by FY19E.

• Component Cost Pressures:

  • Rising BOM costs (especially memory and passive components) are expected to slow down spec upgrades in FY18E.
  • However, selective upgrades in AI, dual-cam, and 3D sensing will still be key differentiators.

• Emerging Demand in AI, IoT, and Robotics:

  • The 5G era is expected to drive demand for AI, IoT, and robotics applications, which in turn will stimulate demand for sensors, semiconductors, and communication technologies.
  • Early development in 2018 will focus on sensors (optics and acoustics), semiconductors (GPU and memory), and communication (optical and data-center).

Key Investment Recommendations

• Top Picks:

  • AAC Tech (2018 HK): Strong earnings, breakthrough in hybrid lens for 3D sensing, and expected growth in Android acoustics.
  • Sunny Optical (2382 HK): Benefiting from 3D sensing and dual-cam adoption.
  • FIT Hon Teng (6088 HK): Global leader in connectors, with potential growth from wireless charging and optical modules.

• Market Performance:

  • The overall tech sector has underperformed the HSCEI by 6% in the past month, reflecting iPhone X order correction and Chinese smartphone weakness in 4Q17E.
  • The report recommends a BUY rating for AAC, Sunny, and FIT, citing strong fundamentals and growth potential.

Financial Highlights

Key Sectors and Companies

3D Sensing

• Expected to be a major upgrade trend in 2H18E.
• Android brands will start adopting 3D sensing, with AAC, O-Film, and Mantis Vision leading the supply chain.
• Huawei, Xiaomi, Oppo, and Vivo are developing their own strategies for 3D sensing and AI integration.

Acoustics

• Super linear speaker (SLS) adoption is expected to grow significantly on Android premium models.
• AAC is anticipated to maintain its leadership in this area with a 150 million unit adoption in 2018.
• AAC's SLS design is expected to lead to a 30-50% increase in ASP, with further upside from waterproof features.

Casing

• Shift from metal to 2.5D/3D glass casing is expected to gain traction ahead of the 5G era.
• The combination of metal mid-frame and 3D glass back cover is seen as a key design trend.
• AAC and Tongda are expected to benefit from this shift.

Wireless Charging

• 2018 is anticipated to be the starting year for major Android brands to adopt wireless charging.
• The technology is expected to expand beyond smartphones to include tablets, smartwatches, and laptops.
• FIT is highlighted as a major beneficiary due to its leadership in mobile connectors and potential to supply wireless charging solutions to major customers.

Catalysts for Growth

• CES 2018 in January
• Apple Results in February
• A/H-share Results in March

Conclusion

The report emphasizes the importance of 2H18E for hardware technology upgrades, driven by new smartphone features and the anticipation of the 5G era. It highlights the key players in the supply chain for 3D sensing, acoustics, and wireless charging, and recommends AAC, Sunny Optical, and FIT as top investment picks for the year.