Sunway:Still a high-growth company,despite slower progress in wireless charging

Initial setback, but remains the long-term winner of WPC trend

    We used to argue that Apple will change the design of wireless powercharging (WPC) module from “FPC-based" (in iPhone 8/X) to “copper coilbased"(in iPhone 9/XI), and Sunway could win 50% market share in the newdesign. Our latest supply chain check indicates the design change is takingplace, but Sunway might only take 10%-15% market share. However, we stillregard Sunway as a key beneficiary of the WPC trend. In 2018, it could gainhigher market share in Samsung WPC modules, and start initial shipments ofWPC TX (transmitter) modules to auto OEMs. Long term, it remains wellpositioned to become a primary supplier of iPhone WPC modules. Retain Buy.

    Update on WPC – some losses in iPhone but some gains in Samsung and auto

    We attribute Sunway’s miss (in not being the primary supplier for iPhone) tothe lack of experience in Apple’s WPC solution. The competitor, Luxshare, hasbeen supplying wireless charging pads for Apple Watch and other devicessince 2015. But, leveraging the expertise in coil-type solutions (NFC antenna)and WPC modules for Samsung Galaxy S/Note, we believe Sunway has a goodchance of growing its market share to 40%+ or 50% by 2019or 2020. On apositive note, we expect Sunway to grow its Samsung WPC market share from~15% in 2017to 25%-30% in 2018, after it recently set up a pilot runproduction line in Korea (to provide better on-the-ground service). In addition,Sunway might start to deliver WPC TX modules for European auto OEMs in2018(for their high-end vehicles).

    EMI shields, Lightning connectors, and VCM/dual cam frames remain on track

    The progress of multiple projects for iPhone remains unchanged. First, Sunwayhas already penetrated into lightning connectors, serving as the third supplier,and will start shipping in 2018. Second, Sunway expects a continually risingcontribution from camera-related mechanical parts (dual cam supportingframes and VCM shielding cases), given all three models could have dual camdesign in 2H18. Last, the company expects to win more EMI shielding caseslots, or gain higher shares in the current slots.

    Valuation and investment risks

    We trim 2017/18/19EPS forecasts by 2%/9%/10% (slower progress in iPhonewireless charging module business) and reduce TP from RMB60to RMB52.Our new TP is still based on 0.8x PEG (in line with regional peers), or 33.5x2018PER. Risks: market share loss, slow spec upgrade, and iPhone weakness.