LUXSHARE(002475)：REITERATE BUY ON STRONGER 2H22 GROWTH; RECENT CORRECTION IS OVERDONE

We believe recent pullback offers good buying opportunities as we expect Luxshare to deliver strong earnings growth of 59%/54% YoY in 3Q/4Q22E (vs 34%/14% YoY in 1Q/2Q), driven by Apple’s product launches in 3Q22 and margin recovery in 2H22E. In addition, following several strategic M&As in 2020/21, we believe Luxshare started to benefit from gaining share in iPhone’s top module, Macbook/iPad’s casing and Watch OEM in 2H22E. The stock now trades at 18.3x FY23E P/E, close to 1-sd below 5-yr average P/E. Reiterate BUY and rollover TP to RMB52.3, based on 30x FY23E P/E.

    Poised to benefit from Apple’s new products and margin recovery in 2H22E. As the major OEM/component supplier of Apple’s iPhone/ Watch/ Airpods, we believe Luxshare will benefit from Apple’s new products in 3Q22 and gradual margin recovery in 2H22E. In particular, we are positive on 1) share gain of top module in two iPhone models, 2) blended ASP hike of iPhone 14pro/pro max, and 3) share gain of Watch/Airpods OEM. As profitability continues to improve into 2H22E, we forecast earnings growth will accelerate to 59%/54% YoY in 3Q/4Q22E (vs 14%/34% YoY in 2Q/1Q22).

    Strategic cooperation with Chery to pave way for auto tier-1 business.

    Chery Auto announced on 16 Sep to invest RMB100bn in next five years to enhance competitiveness in smart EVs and partnership with supply chain as part of its Yaoguang 2025 programme. As the close partner with Chery Auto for both own-brand and JDM projects, Luxshare is well positioned to capture growth opportunities in auto components, starting from high-voltage cable/harness products. Luxshare started to expand into auto component products since 2011, and established a strong product offering, including special-purpose wiring harnesses/connectors, telematics control units (TCUs), central gateway modules, and camera/LiDAR system for NEVs.

    Recent correction is overdone; Reiterate BUY. We believe Luxshare’s operating efficiency will continue to improve with solid demand of iPhone/ Macbook/iPad products ahead, and its NPM will gradually recover through the learning curve. The stock now trades at 18.3x FY23E P/E based on our estimate, close to 1-SD below 5-year hist. avg P/E. Reiterate BUY with rollover TP of RMB52.3 (64% upside). Catalysts include iPhone share gain, Watch/Airpods shipment upside and NEV business progress.