瑞银亚太地区科技硬件行业亚洲硬件洞察大公司会继续壮大吗201951433页

GlobalResearch14May2019AsiaHardwareInsightsWillthebigkeepgettingbigger?Notseeingthebenefits;downgradeHonHaitoSellBasedonourmarketshareconcentrationandrevenuebreakdownanalysis,webelievemarketshareconcentrationamongbrandedcompanieshasnotboostedrevenuegrowthforTaiwaneseEMS/ODMs.WhileshipmentsmayreboundseasonallyinH219,webelievethemarketisnotyetfactoringinthepotentialforaYoYdeclineinrevenueandfurthermargincompression,especiallywithinthesmartphonesupplychain.WethereforedowngradeHonHaitoSellandmaintainourcautiousviewsonPegatronandWistron.Onarelativebasis,weholdamoreconstructiveviewonQuantaandInventec.MarketshareconcentrationamongbrandedcompaniesThecombinedmarketshareamongthetopthreebrandedPCvendorsinunittermshasrisenfrom40.6%in2011to60.4%in2018.Insmartphones,Chinesesmartphonebrandedcompanies'marketshareinunittermshasrisenfrom3.4%in2011to35.1%in2018.Despitethepotentialforadditionaloutsourcingordersfromlargerplayers,wethinktheslowdowninindustrygrowthhasservedasaheadwind.Onanaggregatebasis,wefindtheTaiwaneseEMS/ODMindustryonlygenerateda5.5%revenueCAGRduring2011-18,basedonourestimates.AlackofconsolidationwithintheTaiwaneseEMS/ODMsectorIndustryconsolidationcouldhelpTaiwaneseEMS/ODMstodeliverbettergrowth;however,overthepastdecade,meaningfulconsolidationhasyettomaterialise,especiallyamongthelargerplayers,suchasHonHai,Quanta,Inventec,Pegatron,andWistron.Inourview,thekeychallengeisthatmergersandacquisitionsdonotnecessarilyleadtoanincreaseinscalebecauseorderscanbeeasilyshiftedfromoneassemblycompanytoanother.Givenlimitedconsolidation,webelievepricingpowerhastendedtofavourlargerbrandedcompaniesratherthanassemblycompanies.IntensecompetitionfororderallocationsAnotheroptionforTaiwaneseEMS/ODMstoimprovemarginsandprofitabilitywouldbeviainternaloperatingefficiencyimprovements;eg,cuttingcosts,clusteringproduction,verticalintegrationandautomation.However,despiteprogressinoperationalefficiency,increasedcompetitionforprocurementorders,especiallyinthesmartphonesupplychain,continuedtoputdownwardpressureonmargins.TheTaiwaneseEMS/ODMsector'snetmargindeclinedfrom1.8%(2011)to1.4%(2018).Most-andleast-preferredlistforTaiwaneseEMS/ODMsNewOldShrpriceEPSgrowth(%)PE(x)P/BV(x)ROE(%)Div.yield(%)CompanyRatingPTPT14-May19E20E19E20E19E20E19E20E19E20EMostpreferredQuantaBuy65.0065.0057.4010.16.713.412.61.61.612.212.76.16.9InventecBuy28.0028.0023.154.54.59.99.51.51.515.215.96.46.7LeastpreferredHonHaiSell71.5086.5079.70(6.7)4.211.310.90.90.98.08.04.44.1PegatronSell49.0049.0050.80(4.4)5.812.611.90.90.86.87.16.85.8WistronSell17.5017.5023.203.413.913.211.60.90.86.97.56.56.5Source:Bloomberg,UBSestimatesEquitiesAsiaTechnologyHardware&[e-mail][e-mail][e-mail][e-mail][e-mail][e-mail][e-mail][e-mail][phone]AsiaHardwareInsights14May20192AsiaHardwareInsightsUBSResearchTHESISMAPMOSTFAVOUREDLEASTFAVOUREDQuanta(2382.TW),Inventec(2356.TW)HonHai(2317.TW),Pegatron(4938.TW),Wistron(3231.TW)PIVOTALQUESTIONSQ:WillmarketshareconcentrationamongbrandedcompaniesboostrevenuegrowthforTaiwaneseEMS/ODMs?No.WebelievemarketshareconcentrationamongbrandedcompanieswillnotboostrevenuegrowthforTaiwaneseEMS/ODMsgivenalackofconsolidationwithintheassemblyindustry.Despitethepotentialforadditionaloutsourcingordersfromlargerplayers,weseetheslowdowninindustrygrowthasamajorheadwind.moreQ:WillindustryrationalizationboostscaleandmarginsforTaiwaneseEMS/ODMs?No.WedonotbelievethereissufficientindustryconsolidationyettoboostscaleandmarginsforTaiwaneseEMS/ODMs.Despiteprogressinoperationalefficiency,increasedcompetitionforprocurementorders,especiallywithinthesmartphonesupplychain,continuestoexertdownwardpressureonmargins.moreWHAT'SPRICEDIN?ImprovementinshipmentsandmarginsinH219.GiventhereboundinsharepricesforTaiwaneseEMS/ODMssinceJanuary,webelievethemarkethasfactoredintheprospectthattheworstisoverandshipmentsandmargincouldreboundinH219.However,whileshipmentsmayshowaQoQuptrendinH2onaseasonalbasis,webelievethemarketisnotfactoringinthepotentialforaYoYdeclineinrevenueandfurthermargincompression,especiallywithinthesmartphonesupplychain,duetointensepricecompetition.UBSVIEWCautiousonthesmartphonesupplychain,constructiveonPC/servercompanies.Webelievemarketexpectationscouldbetoooptimisticforthesmartphonesupplychainintermsofrevenuegrowthandmarg