CDW HOLDING LIMITED
D38.SI
4Q15 May Be a Pivotal Quarter
- We visited CDW’s factories in China and were positive on what we witnessed. However, due to its key customer losing market share, we slashed our smartphone backlight unit sales estimates, and our FY15F/FY16F recurring NPAT falls by 46%/45%.
- Coupled with a weak outlook, we downgrade to NEUTRAL with a lower SGD0.17 DCF-backed TP (from SGD0.18, 1% upside). With new initiatives implemented, 4Q15 earnings could be the key to look out for any potential turnaround.
With a taste of Japan.
- We discovered that most of the managers and operation heads running the factories are able to communicate in both Japanese and Chinese, which is hugely beneficial given that CDW’s single largest customer is in Japan. Phase 3 of its crystal display components factory has just undergone a renovation, and its production line will be mostly automated going forward.
In talks with other LCD panel providers.
- Currently, CDW mainly deals with its key customer in Japan – which means that it could be easily affected if its key customer loses market share. However, management has revealed that it is in talks with other liquid crystal display (LCD) panel providers in China, Taiwan and Japan to supply its backlight units to. If secured, this will be a major positive for CDW in terms of demand and would reduce their key customer concentration risk as well.
An eye over 4Q15.
- Management has implemented many initiatives to improve the demand for its current products. In addition, its major key customer has also launched a new model of touch LCDs in June to compete with that of JDI. The results of all these initiatives may only be seen in 4Q15.
Downgrade to NEUTRAL with a DCF-backed TP of SGD0.17.
- In light of recent updates, we have slashed our smartphone backlight unit sales projection. As a result, our FY15 and FY16 recurring NPAT falls by 46% and 45% respectively and our DCF-backed TP drops to SGD0.17 (WACC 12%, TG 0%). However, the company still has net cash of SGD0.14/share and is backed by a strong FY15 dividend yield of 10%.
- Downgrade to NEUTRAL on a weak 3Q15 ahead, while we await further details on the initiatives for a potential turnaround in 4Q15.
Jarick Seet | http://www.rhbgroub.com/ RHB Securities 2015-09-01
0.17
Down
0.18
