20160111-GF Securities (Hong Kong) Brokerage Limited-丘钛科技-01478.HK-A 2016 earnings recovery play initiate at Buy.pdfVIP

Equity Research | Information Technology Dec 11, 2015 Q Technology (1478 HK) Buy (initiation) A 2016 earnings recovery play; initiate at Buy Target price: HK$1.98 Initiate at Buy Founded in 2007 and headquartered in Kunshan, Q Technology (Q Tech) is a manufacturer of CMOS camera modules (CCM) for smartphones. The company’s shares have fallen 29% YTD amid poor business performance and are now 44% below its IPO price of HK$2.79 (Dec 2004). We initiate coverage at Buy given 1) the prospect of an earnings recovery in 2016, underpinned by a ramp-up in sales to new customers and new products, and 2) its undemanding valuation following the 60% correction in share price since its peak in May (the stock is now trading at 7.1x 2016E P/E). Ramp-up in sales to new customers and new products to drive earnings recovery Q Tech had a disappointing 1H15 with a 29% YoY decline in net profit due to weak orders from some of its customers, a drop in ASP and margin erosion. We expect the negative Joseph Ho, CFA earnings momentum to have narrowed in 2H15 on the back of the ramp-up in