2013E_ANNUAL_INVESTMENT_STRATEGY_-_CHINA_ELECTRONICS_SECTOR-2013-01-15.ppt

11-01,11-02,11-03,11-04,11-05,11-06,11-07,11-08,11-09,11-10,11-11,11-12,12-01,12-02,12-03,12-04,12-05,12-06,12-07,12-08,12-09,12-10,12-11,equityresearchreport/sectorresearch/electronics,15%,-15%,0%,-30%,a-share elec- 沪深300,2013e annual investment strategy - china electronics sector new landscape for mobile smart ter- minals: change and opportunity 25 dec 2012 outperform (reiterate) investment highlights,new landscape for mobile smart terminals in 2013e: four trends. we believe mobile smart terminals will remain the focus of investment in the near future for the electronics industry. as apples hardware advantage rapidly dwindles, user experience and eco-system of android steadily matures, and reference design plans significantly lower costs and shorten r and 4) traditional pcs/nbs: pace of rebound projected to remain slow prior to 2h13e. opportunities from changes in parts and components. we believe the,citic securities research angus lin tel:email: practicing license no: s1010512030001 performance relative to the index a股电子元器件 s&p/citic 300 tronics -45% -60%,investment opportunities in parts and components are closely linked to the,source:,citic,securities,quantitative,supply chain. taking four dimensions into account - import substitution, competition and supply-demand, pricing trends, earnings potential, we pre- dict trends and investment focus of key sub-sectors as follows: touch-screens: vertical integration and technology diversification is essential to success, “the strong will endure“; 2) battery module: clear trend of in- dustry migration, with the mainland manufacturers replicating their taiwan competitors historical growth; 3) camera module: affordable “thou- sand-rmb“ smart phones continue to drive higher-pixel upgrades; 4) acoustic module: mainland manufacturers dominate; 5) structural parts: in- st ternational 1 -tier clients enable development leap. 6) led backlight: tablet demand surge will lead to industry inflection point. industry cycle and investment analysis: cyclical weak recovery, focus on growth stocks. in terms of semi-conductor cycle, industry inventory, and terminal shipment, our analysis indicates that this round of industry cycle is similar to that in mid-2005, starting a weak recovery after recession, with the cycle of cyclical fluctuation changing from large cycle to small cycle. cyclical stocks may offer trading opportunity. major growth stock have been trading below 20x pe. we believe the mid-to-long-term growth rationale hasnt changed (product trends, industry migration, large clients), even though the growth stocks valuations are heading south in the overall market, the major electronic growth stocks may see significant abnormal returns in 2013e. potential risks. raw material prices and exchange rate; macro economic downturn; excess industry capacity. please read the disclaimer at the end of the report,investment analysis system,8,8,2013e annual investment strategy - china electronics sector reiterate “outperform“ rating for the sector, recommend a combination of growth stock. based on industry cycle, growth potential of the supply chain, visibility of companies profit growth, and taking safety margins into account, we recommend the following growth stocks for 2013e: o-film tech (002456) (sam- sung, amazon, domestic smart phones), sunwoda (300207) (amazon, domestic smart phones), everwin precision (300115) (apple, samsung, domestic smart phones), speed wireless (300322) (samsung, do- mestic smart phones), as well as key apple suppliers such as goertek (002241) and desay battery (000049). earnings forecast, valuation, and investment ratings for major listed companies,company,stock price (rmb),11,eps (rmb) 12e 13e,14e,11,pe (x) 12e 13e,14e,rating,desay battery (000049) goertek (002241) o-film tech (002456) everwin precision (300115) sunwoda (300207) speed wireless (300322) refond optoelectronics (300241) jufei optoelectronics (300303),28.43 35.79 37.12 22.99 10.74 16.42 13.10 11.15,0.87 0.98 1.50 0.62 1.07 1.68 0.11 1.71 2.30 0.62 0.80 1.25 0.34 0.36 0.61 0.39 0.56 0.86 0.31 0.55 1.01 0.59 0.71 1.03,2.05 2.26 3.00 1.81 0.82 1.18 1.70 1.41,33 58 337 37 32 42 42 19,29 33 22 29 30 29 24 16,19 21 16 18 18 19 13 11,14 16 12 13 13 14,buy (initiation) buy (reiterate) buy (reiterate) buy (reiterate) buy (reiterate) buy (reiterate) buy (reiterate) buy (reiterate),source: wind, citic securities quantitative investment analysis system, closing prices as of 30th nov, 2012 please read the disclaimer at the end of the report,2013e annual investment strategy - china electronics sector,contents,new landscape for mobile smart terminals in 2013e .1,mobile smart terminals remain the key focus of investment in electronics industry 1 context behind the landscape of new mobile smart terminal 1,trends and changes in mobile smart terminals .5,trend i: apple implements multi-product line strategy and eliminates samsung components .5 trend ii: samsung continues the offensive and will make breakthroughs in both smart phones and tablets.7 trend iii: other android terminal camps are catching up by leveraging on innovative business model and emerging markets .9 trend iv: slow recovery for traditional pc/nb . 11,component investment opportunities . 11,industry cycle analysis: weak recovery cycle, mobile smart terminal is a standout18,semi conductor is in a weak recovery cycle, usher in an era of shortened cycles .18 little pullback in inventory turnover .19 terminal shipment: shipment slump across all segments except mobile smart terminals 20,investment strategy and major recommendations 21,1h12 electronics sector performance 21 industry rating .22 industry investment strategy: growth and cyclical stocks will remain diverse, continue to allocate into growth stock 23,potential risks 25,key recommendations .25,important disclaimer at the end of the report,2013e annual investment strategy - china electronics sector,figures,fig. 1: stock performance of tier 1 international technology companies .1,fig. 2: market capitalization of top overseas semiconductor companies 1,fig. 3: changing shipment trends in mobile phone screens ppi2,fig. 4: iphone share of high-res screens will slide 2,fig. 5: sales volume of ios, android apps 3,fig. 6: android overtaking ios in smart phones 3,fig. 7: android catching up to ios in the tablet segment.3,fig. 8: global tablet shipment 3,fig. 9: breakdown of global tablet market share .3,fig. 10: mtk and qualcomm platform evolution map .5,fig. 11: iphone sales volume .6,fig. 12: ipad sales volume.6,fig. 13: breakdown of global smart phone shipment 8,fig. 14: samsungs share of android market .8,fig. 15: samsung using key component advantage to fill the various segments with multiple device models.8,fig. 16: samsung, apple and microsoft advertising expense 8,fig. 17: samsung, apple and microsoft advertising expense as proportion of operating revenue 8,fig. 18: samsung smart phone sales forecast 9,fig. 19: samsung tablet sales forecast9,fig. 20: forecasted shipment volume of domestic smart phones by brand 10,fig. 21: domestic 3g new user penetration has stabilized .10,fig. 22: global market shares for camera module 16,fig. 23: procurement cost of acoustic components for apple mobile terminal products .17,fig. 24: procurement cost of acoustic componentsfor samsung mobile terminal products17,fig. 25: connector industry migration trend 18,fig. 26: procurement scale of samsung mobile phones antennas 18,fig. 27: global semiconductor sales and annual growth rates19,fig. 28: adjusted global semiconductor sales and annual growth rates19,fig. 29: north american semiconductor equipment b/b value 19,fig. 30: inventory of phlx semiconductor constituents 20,important disclaimer at the end of the report,2013e annual investment strategy - china electronics sector,fig. 31: inventory of a-share electronic companies.20,fig. 32: global pc shipment 20,fig. 33: global smart phone shipment .20,fig. 34: global mobile phone shipment .21,fig. 35: lcd tv panel shipment21,fig. 36: main indices (ytd 2012) 21,fig. 37: quarterly returns for the electronics sector and the broad market .21,fig. 38: a-share 2012 annual returns by sector (ytd) 22,fig. 39: a-share electronics sector 2012 annual returns (ytd) 22,fig. 40: a-share electronics industry profit growth.22,fig. 41: taiwans electronics industry profit growth .22,fig. 42: electronics industry market capitalization and pe range23,fig. 43: static pe of csi 300 constituency and electronics sector 23,fig. 44: static pe premium of a-share electronics sector relative to csi 300 .23,fig. 45: growth stocks and cyclical stocks continue to diverge.24,important disclaimer at the end of the report,2013e annual investment strategy - china electronics sector,tables,table 1: hardware of ios and android flagship phones 2,table 2: growth forecast of the tablet market 4,table 3: major tablet computers in 2h12 .4,table 4: mtk and qualcomm platforms start taking over both high and low end phone categories 5,table 5: industry trend on components in the apple supply chain.7,table 6: industry trend on components in the apple supply chain.7,table 7: companies linked to the samsung supply chain .9,table 8: amazons supply chain and concept companies .10,table 9: mtk smart phone chip shipment volume.10,table 10: smart phone component supply chain. 11,table 11: global nb sales forecast 11,table 12: multi-dimensional analysis of the mobile smart terminal component sub-sectors12,table 13: net margin of touch screen companies .13,table 14: projected trend for small size touch screen solutions13,table 15: projected trend for mid-to-large size touch screen solutions .13,table 16: global cover lens shipment volume .14,table 17: unit procurement cost for small to medium size backlight source.15,table 18: battery industry in taiwan and the mainland .15,table 19: specifications for mainstream domesticrmb1,000 priced smart phones in 201216,table 20: semiconductor annual growth rate cycle .19,table 21: earnings forecast, valuation, and ratings of key listed companies 24,table 22: earnings forecast and valuation of everwin precision .26,table 23: earnings forecast and valuation for o-film27,table 24: earnings forecast and valuation for sunwoda .28,table 25: earnings forecast and valuation for desay battery29,table 26: earnings forecast and valuation of goertek 30,important disclaimer at the end of the report,200801,200905,200909,200901,200905,200909,201001,201005,201009,201101,201105,201109,201201,201205,201205,200801,200905,200909,200901,200905,200909,201001,201005,201009,201101,201105,201109,201201,201209,201209,微软,intel,apple,amazon,1,2013e annual investment strategy - china electronics sector new landscape for mobile smart terminals in 2013e mobile smart terminals remain the key focus of investment in electronics industry since 2008, the wave of mobile smart terminals gave rise to continually diverging perfor- mance of stock prices of global tier-1 tech companies apple, amazon, samsung, micro- soft, intel, tsmc, and qualcomm. we project that in both the short term and long term, the trend of mobile smart terminals replacing desktop terminals as the dominant computing platform is a foregone conclusion, and as the penetration rate continues to rise, mobile smart terminals will remain the focus of investment going forward. fig. 1: stock performance of tier 1 international technology companies,苹果,亚马逊,samsung 三星电子 electronic,microsoft,英特尔,ndaq,sox,300% 250% 200% 150% 100% 50% 0% -50% -100% source: bloomberg, citic securities research fig. 2: market capitalization of top overseas semiconductor companies,160,us$ bn bn usd,intel 英特尔,qualcomm 高通,mtk 台积电,140 120 100 80 60 40 20 0 source: bloomberg, citic securities research context behind the landscape of new mobile smart terminal context 1: apples hardware advantage rapidly dwindles since the exponential growth of smart phones, android phones have taken a strategy to make up for shortcomings in operating system with advantages in hardware specs. comparing hardware specs between flagship apple and android phones since 2010, we see that iphones hardware advantage steadily dwindling: when iphone4 was launched in 2010, 326 ppi screens were substantially superior to other flagship brands, but with iphone5 debuting in 2012, apples hardware specs were almost trailing the pack. galaxy s3, which was launched earlier than iphone5, has a 319ppi display that is virtually iden- important disclaimer at the end of the report,2012e,2013e,2014e,2015e,2010,2011,iphone share,2,2013e annual investment strategy - china electronics sector tical, while the htc flagship products launched later which boast 440ppi and 1080ppi resolutions that were much superior to that of iphone5. in terms of the digitimes forecast on global mobile display ppi trends, the proportion of retina display screens will grow fur- ther in 2013e, while the share of iphones will continue to decline. table 1: hardware of ios and android flagship phones,2010,2012,representative phone,iphone4,galaxy s,htc desire hd,iphone5,galaxy s3,htc droid dna,picture,cpu display size resolution ppi display material touch screen camera,1ghz 3.5 inch 960x640 326 ips gg 5mp,1ghz 4 inch 800x480 233 super amoled on-cell 5mp,1ghz 4.3 inch 800x480 217 slcd gg 8mp,duo core 1ghz 4 inch 1136x640 326 ips in-cell front 1.2mp, back 8mp,quad core 1.4ghz 4.8 inch 1280x720 319 hd super amoled on-cell front 1.9mp, back 8mp,quad core 1.5ghz 5 inch 1920x1080 440 slcd front 2.1mp, back 8mp,source: zol, citic securities research,fig. 3: changing shipment trends in mobile,fig. 4: iphone share of high-res screens will,phone screens ppi,slide,(unit: mn units),150ppi,150-200ppi,200-300ppi,high-res screen 高精度面板,iphone,iphone占比,300-400ppi,400ppi,1000,80%,3000 2500 2000 1500 1000 500 0,mn unit s,800 600 400 200 0,60% 40% 20% 0%,2010 2011 2012e2013e2014e2015e,source: digitimes, citic securities research,source: gartner, digitimes, citic securities research,context ii: android user-experience and eco-system steadily matures google continuously improved the android system in the past few years, and introduced android 4.0 which also supports tablets. with the subsequent android 4.1, google rolled out project butter fundamental upgrade project (where 1) android frame rate is boosted to 60 fps; 2) interface cache upgraded to triple-buffering; and 3) the cpu will fully and in- stantly respond to a touch of the screen), making the system “buttery smooth“ and com- parable to ios. meanwhile, 3rd party software sales volume has surged due to rapid growth in android equipments market share. as of now, android phone and tablet user experience is close to that of ios. important disclaimer at the end of the report,3q10,4q10,1q11,2q11,3q11,4q11,1q12,2q12,1q09,2q09,3q09,4q09,1q10,2q10,3q10,4q10,3q10,4q10,1q11,2q11,3q11,4q11,1q12,2q12,3q12,3q12,android 近ios,ipad sales,ipad,market,global tablet sales,3,2013e annual investment strategy - china electronics sector fig. 5: sales volume of ios and android apps,iosapp,android app,80,10k units,万个 70 60 50 40 30 20 10 0,1q10,2q10,3q10,4q10,1q11,2q11,3q11,4q11,1q12,2q12,3q12,source: mobile statistics, citic securities research we predict that android tablet may well become the mobile smart terminal that beats ex- pectation the most in 2013e. in terms of sales volume trend, we see android replicating its feat of overtaking ios in smart phone market. as such, apples significant dominance in tablet market tends be shaken in 2013e. we project annual tablet shipment to stand at 228 mn units in 2013e, up 70% from 2012.,fig. 6: android overtaking ios in smart phone segment,fig. 7: android catching up with ios in tablet segment,35,mn units,ios,android android overtaking ios,20,mn units,ios,android,android catching up to ios,30 25 20 15 10 5,android ios,15 10 5,0 source: gartner, citic securities research fig. 8: global tablet shipment,0 source: gartner, citic securities research fig. 9: global tablet market share breakdown,全球平板销量 volume,ipad销量 volume,ipad市占率 share,other,12%,30 25,mn units,100% 80%,asus,lenovo 2%,20 15 10 5 0 source: idc, citic securities research important disclaimer at the end of the report,60% 40% 20% 0%,9% samsung 18% amazon 9% source: idc, citic securities research,apple 50%,4,2013e annual investment strategy - china electronics sector table 2: growth forecast of table market (mn units),2012e,2013e,yoy,ipad ipad mini asus nexus 7 kindle samsung win8 other total,56.0 10.0 8.0 10.0 17.0 3.0 30.0 134.0,52.0 48.0 15.0 20.0 35.0 8.0 50.0 228.0,-7% 380% 88% 100% 106% 167% 67% 70%,source: citic securities research table 3: major tablets in 2h12,product,kindle fire hd,surface(winrt),ipad mini,google nexus 7,galaxy note 10.1,picture,price thickness weight os display touch screen resolution processor memory storage camera 3g,$199/299/499 8.8mm 560g android 7 and 8.9 inch gg 8.9 寸 1920*1200 tiomap duo core 1.8 ghz 1g 16g/32g front hd camera has 3g version,comparable to arm-series tablets 9.3mm 676g windows rt 10.6 hd g1f 1366*768 nvidia tegra 3 1gb 32/64gb front and back hd camera n/a,$329 7.2mm 308g ios 6 7.85“ gf2 1024*768 apple a5 duo core 1gb 16gb front hd, back 5mp has 3g version,$199/$249 10.45mm 340g android 4.1 7 inch ogs 1280*800 nvidia tegra 3 quad core 1.3ghz 1gb 8/16gb front 1.3mp n/a,starting $449 8.9mm 583g android 4.0 10.1 inch lcd gff 1,280 x 800 exynos, quad core, 1.4ghz 2gb 16/32/64gb primary 5mp, second- ary 1.9mp supported,source: citic securities research context iii: mature reference design significantly lower costs and shorten r&d cycle similar to the mtk solution in the era of feature phones, exponential growth in android phone sales volume has similarly spawned demand for reference designs by brand ter- minal manufacturers. qualcomm and mediatek have rushed to establish proprietary ref- erence design ecosystems and roa