LUXSHARE:BUY,Upcoming strong 2H16momentum

Key takeaways from our 2016 TMT conference

    Luxshare attended our 2016 TMT conference this week. Keytakeaways include: (1) its continued share gain at Apple (type Cconnector related and others), (2) stronger momentum in 2H16, and(3) acoustic and antenna products represent mid- to long-termopportunity. Management maintains FY16 sales guidance for a 20-40% y-y increase with top customer contribution up by 30-40% y-y.

    What drives strong 2H16 momentum?

    2016 is another backend-loaded year and we expect strong salesmomentum to start from 3Q16, driven mainly by (1) Apple iPhone’sdongle (convertor), (2) Macbook external power cord (Type C) , and(3) new iPhone lightning cable. On 1Q16’s lower base, we expect2Q16 sales to rise 31% q-q, followed by 42% q-q growth in 3Q16.

    Dominant position in global Type C connector area

    Management says it currently has 70% global market share in thetype C connector area and targets to maintain this at the 30% level inthe long run. We see an ongoing type C connector trend in consumerelectronics, especially in the NB space. Asus and HP are ahead ofpeers on aggressively adopting type C on their NBs, in our view,while Dell tends to use type C on higher-end models.

    Reiterate Buy with a TP of RMB36

    In the A-share TMT universe, we continue to prefer Luxshare mainlyon its continued share gain story and superior market position tobenefit from the upcoming type C connector demand. The messagefrom management reinforced our positive view and we reiterate ourBUY rating with a TP of RMB36, based on 30x FY16E P/E.