|作者：||Kevin CHEN,Clint SU|
|摘要：||Report title:Hardware Technology - Stay defensive amid tech uncertainties
Analyst:Kevin CHEN,Clint SU
■ Recent news suggest possible easing of US sanctions on Huawei, but disruption and earnings revision are still likely for 2Q/3Q19
■ Prefer Telecom names as defensive play; maintain BUY on China Unicom (762 HK), China Telecom (728 HK), China Tower (788 HK)
Huawei pressure easing, but 2Q/3Q19 revisions likely
Tech hardware sector rebounded today (June 10), helped by expectations of US rate cuts and possible easing of Huawei sanctions (link). This follows recent news of Huawei restoring memberships at Wi-Fi Alliance, Bluetooth, SD Association, and Android Q Beta. It appears pressure on Huawei and suppliers may lessen near term. Still, we expect supply chain disruptions and earnings revisions for 2Q/3Q19 ahead. Huawei has reportedly cut its 2H19 smartphone forecast by 20-30%, while a number of US companies have trimmed their guidance outlook (figure 2).
What’s next? Google/Asia supply chain ban still possible
On hardware front, Huawei likely stockpiled enough components to sustain production for at least 6-12 months. For software, Google continues to provides Android updates to Huawei phones on a 90-day reprieve, but Huawei’s overseas smartphones business (~50% handset sales) could suffer meaningfully once the temporary license expires mid-August. There are also risks of component ban by other suppliers along the Asia supply chain, including TSMC (2330 TT) as the sole 7nm foundry, and Samsung (005930 KS) for memory/logic IC and components.
Valuation attractive, watch for buying opportunity
Market concerns for Huawei sanctions have weighed on the tech hardware sector, resulting in attractive valuation for some component suppliers, such as Sunny Optical (2382 HK). While Huawei accounts for 25-30% its total revenue, we believe the Huawei downside will be mitigated by share gains at Samsung (~10% revenue) and Oppo/vivo/Xiaomi (1810 HK) (OVX ~30% revenue). Assuming 50% of Huawei order loss in 2H19 were recovered at other customers, there could be a 10% downside to our earnings estimates and TP for Sunny Optical, still at >30% share price upside.
Uncertainties remain; prefer Sunny Optical
We continue to expect volatilities for tech hardware ahead, as trade tension and US sanctions may erode the strength of 2H19 recovery. For Hardware, we prefer Sunny Optical given our expectation of its margin improvement from 2H19, with attractive valuations (13x 2020E P/E). We believe further downside remain for Apple (AAPL US) and suppliers (such as AAC Tech), as the next US tariff hike (hearings on June 17) could hurt iPhone sales.