Sunway:Persistent market share gain on both Apple and Android sides

Intact growth outlook in 2017; reiterating Buy

    Despite the high base (100%+ EPS growth in 2015/2016), we expect Sunwayto carry on strong EPS growth momentum in coming years, driven by marketshares in i-device and Android handset antenna and the successful penetrationinto new business (EMI shield, wireless charging module, etc). In i-device, weanticipate growth to come from EMI shield share gain and rising contributionfrom high-ASP Mac antenna. In Android camp, we forecast growth to comefrom Samsung (wireless charging) and the new Nokia. Retaining Buy rating.

    Ongoing i-device market share expansion

    In the core business (iPhone Wi-Fi/BT/GPS antenna), we expect Sunway tokeep gaining market share from 40%+ in iPhone 7to 50%+ in iPhone 8.Sunway started iMac/Macbook antenna shipment in 2016with order allocationof 5-10%. Based on current visibility, Sunway believes it can grow marketshare to 20%-30% in 2017. ASP of Mac antenna is as high as USD10+ (vs sub-USD1.5for iPhone). Leveraging its high precision tooling, and stampingexpertise, Sunway penetrated into iPhone EMI shields in 4Q15with ~10%market share (key competitor is UK-based Laird). We expect Sunway to doubleits market share in 2017due to its superior cost structure (vs. global peers) andsolid execution. EMI shield is a metal case mounted onto PCBs to reduce EMI(electromagnetic interference) between components.

    What’s new in Android camp: Nokia orders + rising Samsung WPC orders

    In the Android camp, we expect growth to come from share gains inSamsung’s wireless charging module (from 10%-15% in 2016to 20%-25% in2017) and Nokia’s return to the smartphone business. The new Nokia (run by aprivate firm HMD, founded by ex-Nokia top managers) will focus on Androiddevices. Our supply chain check indicates that Nokia will launch 4-5newmodels with a shipment target of 5mn-8mn units in 2017. We expect Sunwayto be the primary supplier of antennas, jumper cables, O-clip connectors, andEMI shields for both smartphones and feature phones (annual shipment of 70-80mn units) with ASP of USD1.5-2and sub-USD0.5respectively.

    Valuation and investment thesis

    We maintain our Buy rating and raise our 2017/2018E EPS by 2%/4% to factorin further share gain in iOS and Android mobile devices. We raise our targetprice to RMB29from RMB28.4(still based on 1x PEG, in line with A-sharepeers, or 35x 2017EPS). Key risks include share losses and price competition.