Lower TP to HK$5.0 to reflect adjustment in optical business
出处:        时间:2020-01-23
  FIT HON TENG(06088)
  We expect 2019 net profit to be US$248mn, 6% YoY
  We expect FIT to report 2019 bottom line of US$248mn, 9% lowerthan our previous forecast (US$273mn), mainly due to uncertaintyarising from the new business model in FIT’s optical modules.
  We maintain our OUTPERFORM rating, but cut our TP to HK$5.0,based on 16x 2020e P/E, mainly due to the earnings revision. Withcontinued integration of the FIT and Belkin business, we still awaitsynergy effect in 2020/2021.We think auto business related to theHon Hai-FCA JV will benefit the company in the mid to long term.
  Trends to watch
  Auto business to benefit from Hon Hai-FCA JV after 2022. Asreported by CX tech, FIT’s parent company Hon Hai has announcedthat it will set up a JV with FCA to focus on EV development in China.We believe FIT will be also involved, being responsible for supplyingauto components for the JV, including E-cockpit, auto connector, autocamera module, and EV chargers. If this business can developsmoothly, which usually needs 18-months of construction, we believethis may become an important driver of FIT’s business after 2022.
  New business model for optical transreceiver may lower grossmargin, but also lower R&D burden. As reported by CFOL, FIT willreturn its optical transreceiver R&D team to Broadcom, and willcontinue to provide ordering, delivery, and inventory managementfor clients. After shifting to this business model, we cut segment GMfor 2019/2020e from 24/24% to 20/10%, with company R&Dintensity of 2019/2020e down from 6.3/6.4% to 6.1/4.6%.
  Synergy effect to be seen in 2020/2021. We still believe FIT canimprove Belkin’s efficiency by leveraging its powerful supply chainand manufacturing technology. With new Vietnam factory seeingimproved efficiency, we expect this synergy effect to benefitcompany’s 2020/2021 results.
  Valuation and recommendation
  FIT is now trading at 10.0/9.0x 2019/2020e P/E. We lower our2019/2020 EPS forecasts by 9/13% to US$0.04/ 0.04. We introduce2021 EPS at US$0.05. We maintain OUTPERFORM but lower TP by20% to HK$5.0 (16x 2020e P/E, 78% upside).
  Risks
  Slower-than-expected progress in integration of Belkin.
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