China Handset Supplychain - Credit Suisse

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24 July 2015

Asia Pacific/China&Taiwan

Equity Research

Electronic Equipment & Instruments (Technology - TFT LCD TW

(Asia)/Technology - IC Deisgn TW (Asia)/Technology - LED TW

(Asia)/Technology - IC Design TW (Asia))

China Handset Supplychain SECTOR REVIEW

Supply chain visit takeaways: Focus on higher

value-added plays

Figure 1: Smartphone resolution migration is accelerating

0%

20%

40%

60%

80%

2010 2011 2012 2013 2014 2015E 2016E 2017E

HD+ % of total smartphone

Source: Company data, DisplaySearch, Credit Suisse estimates.

We attended Mobile World Congress (MWC) Shanghai 2015 on 15-17 July and

met multiple smartphone brands, equipment suppliers and component makers

in the past two weeks. The following are the key summary points, with additional

company details provided later in the report.

■ Competition intensifying for smartphone makers. Competition among

Chinese smartphone makers remains intense in the domestic and emerging countries. We believe the non-Apple component pull-in will start to slow down in late 3Q, after a strong 2Q rebound (still up QoQ), despite multiple brands' plans to launch their flagship models in the next few months. We see downside to 2015 shipment targets for Xiaomi and other Tier 2 brands.

■ More high-end displays and fingerprint sensors. Multiple brands are adopting high-end displays for their new phones, besides camera module upgrades and adding fingerprint sensors for differentiation. We believe the higher resolution trend is not reversing (positive for DDI plays) and expect more fingerprint-enabled devices in 2H15.

■ Adopting 4.5/Pre5G to solve the rising data traffic issue. ZTE and Huawei

have been working with operators to deploy the 4.5G/Pre5G technology onto the 4G network with minor modification on hardware and software. Since this could increase the transmission speed by 4-6 times (vs TD-LTE), it could further support telecom equipment makers' growth before 5G takes off.

■ Stock calls. ZTE remains our top pick in the China telecom equipment and handset space as its growth is driven by not only 4G BTS builds, but also wireline upgrades and Gov/Enterprise projects. In the Taiwan display space, we like leaders in the driver IC supply chain (Novatek, Chipbond, ChipMOS) as the resolution migration trend is irreversible. We think TPK could see more upside in 2016, given the potential change of the touch structure for its major smartphone customer and the ramp of the IFS fingerprint solution for Goodix. We lower TP for Coolpad (to HK$1.95 from HK$2) and TCL Comm (to HK$9 from HK$12), and reduce our 2015/16 EPS estimates for Coolpad, TCL Comm and Focal Tech.

Research Analysts

Jerry Su

886 2 2715 6361

[email protected]

Derrick Yang

886 2 2715 6367

[email protected]

24 July 2015

China Handset Supplychain 2

Focus charts and tables Figure 2: Smartphone panel ASP continue to decline Figure 3: Smartphone resolution migration is accelerating

15

20

25

30

35

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

US$

5" FHD LTPS

0%

10%

20%

30%

40%

50%

60%

70%

80%

2010 2011 2012 2013 2014 2015E 2016E 2017E


Source: DisplaySearch Source: Company data, DisplaySearch, Credit Suisse estimates

Figure 4: ZTE's Pre5G BTS with Massive MIMO solution Figure 5: Huawei also introducing TDD+ for 4.5G

Source: Company data Source: Company data

Figure 6: Egis has a wide range of fingerprint solutions Figure 7: Goodix's fingerprint solutions

Figerprint sensor with cover glass Figerprint sensor with hard coating

Source: Company data, Credit Suisse Source: Company data

Figure 8: Material changes Price Price Rating* Target Price Year EPS EPS FY1E EPS FY2E EPS FY3E

Company ccy 23 Jul 15 Prev. Cur. Prev. Cur. End Ccy Prev. Cur. Prev. Cur. Prev. Cur.

Coolpad Group (2369.HK) HK$ 2.12 — U 2.00 1.95 Dec 14 HK$ — 0.14 0.17 0.16 0.32

FocalTech (3545.TW) NT$ 29.05 — N — 28.00 Dec 14 NT$ 1.40 0.65 2.22 1.94 2.63 2.46

TCL Comm (2618.HK) HK$ 6.12 — O 12.00 9.00 Dec 14 HK$ 1.32 1.00 1.58 1.21 —

ZTE Corporation (0763.HK) HK$ 19.42 — O — 24.00 Dec 14 Rmb — 0.86 — 1.03 — 1.10

*O – Outperform, N – Neutral, U – Underperform, R – Restricted [V] = Stock considered volatile (see Disclosure Appendix).

24 July 2015


Supply chain visit takeaways: Focus on higher value-added plays We attended Mobile World Congress (MWC) Shanghai 2015 on 15-17 July and met multiple

smartphone brands, equipment suppliers and component makers in the past two weeks. Our

channel checks suggest the competition among Chinese smartphone makers remains

intense in the domestic and emerging countries, and several brands might miss their full-

year targets. On the component side, we believe display remains a key component for

product differentiation, besides camera module upgrades and adding biometric identification

sensors onto the new smartphones. For fingerprint sensors, our checks suggest Fingerprint

Card currently has the greater share in China, but Egis (Taiwan) and Goodix (China) are

catching up and both will ramp up their shipments later this year.

ZTE and Huawei also showcased their Pre5G and 4.5G (TDD+) technologies, which use

some of the 5G technologies and could be adopted onto the current 4G network with minor

modification on hardware and software. Both companies have been working with leading

operators like China Mobile and Softbank, and claim it could increase the transmission

speed by 4-6 times (vs current TD-LTE) and could be run on the existing 4G handsets. We

think this could further support their growth in the next few years before 5G takes off.

In terms of stocks, we continue to like ZTE and believe the market has underestimated its

growth potential as ZTE's business now is not only driven by the 4G BTS builds, but also

wireline upgrades and government/enterprise projects. For the handset brands, we lower

our shipment forecasts and earnings estimates for TCL Comm and Coolpad. We favour

TCL Comm over Coolpad on more stable margin profile and attractive valuation.

In the Taiwan display space, we cut our estimates for FocalTech as we expect 3Q15 sales

could only grow 3% QoQ vs consensus of 20%+ QoQ due to weaker smartphone growth and

TDDI push out. We continue to like leaders in the driver IC supply chain (Novatek, Chipbond,

ChipMOS) as the resolution migration for smartphone panels is irreversible. We also think

TPK could see more upside in 2016, given the potential change of the touch structure for a

major US brand, as well as the ramp of the IFS fingerprint solution for Goodix.

Competition intensifying for smartphone makers

Competition among Chinese smartphone makers remains intense in the domestic and

emerging countries, especially after carrier's subsidy cut since mid-2014 and the strong

iPhone sell-through post September 2014 launch. Although overall smartphone demand

for non-Apple brands was soft in 1Q15 and several brands already lowered their full-year

estimates in Mar-Apr, component shipments still saw a strong rebound in 2Q15. We

believe the non-Apple component pull-in will start to slow down in late 3Q, despite multiple

brands' plan to launch their flagship models in 2H15.

We also noted emerging smartphone makers like Intex (India), Fly (Russia) and BLU (the

US) are becoming more aggressive in the South East Asia, Middle East and Latin America

markets, which could pose more threat to Chinese smartphone makers. Specifically, Intex

has been making good progress at its home market, and its expansion into other regions

seems to be more focused on building brand image, rather than profitability.

Nevertheless, we believe Tier 1 brands like Huawei and ZTE should still meet their full-

year targets (100 mn+ and 55 mn, respectively) on better product portfolio and wider sales

channel. ZTE has also launched its new flagship Axon phone recently with superior specs

and affordable pricing. We believe Xiaomi and other Tier 2 makers like Coolpad and TCL

Comm are facing more pressure and competition, given share loss to Apple/Samsung in

China, as well as forex fluctuation in emerging markets. We now estimate Xiaomi

shipment of 70 mn+ in 2015 (vs 80-100 mn target), 44 mn for Coolpad (flattish YoY) and

51 mn for TCL Comm (vs 55 mn target).

ZTE is our top pick in the

China telecom equipment

and handset space

Leaders in the DDI supply

chain and TPK will benefit

on display spec upgrade

Xiaomi, Coolpad and TCL

Comm might miss their full-

year shipment targets

24 July 2015


Figure 9: Intex product offerings

Company Intex Intex Intex Intex Intex Intex Intex

Model name AQUA Y2 Power AQUA Y2 ultra AQUA Q5 STAR II HD AQUA Power+ AQUA 4G+ AQUA Extreme II

Image

Technology 3G 3G 3G 3G 3G LTE 3G

Operating System Android 4.4.2 Android 4.4.0 Android 4.4.2 Android 4.4.2 Android 5.0 Android 5.0 Android 4.4.2

Pixels 800 x 480 800 x 480 854 x 480 1280 x 720 1280 x 720 1280 x 720 1280 x 720

RAM 512MB 1GB 1GB 1GB 2GB 2GB 2GB

ROM 4GB 8GB 8GB 8GB 16GB 16GB 16GB

Display 4.0" 4.0" 4.5" 5.0" 5.0" 5.0" 5.0"

Camera 5MP + 2MP 5MP + 0.3MP 8MP + 2MP 8MP + 5MP 13MP + 5MP 13MP + 5MP 13MP + 5MP

Battery 2900mAh 1400mAh 1600mAh 2000mAh 4000mAh 2300mAh 2000mAh

CPU Speed 1.2GHz 1.2GHz 1.3GHz 1.2GHz 1.3GHz 1.3GHz 1.4GHz

Processor Chip SC7731 SC7731G SC7731G SC7731 MT6582 MT6735 MT6592M

Multi-core Quad Quad Quad Quad Quad Quad Octa

Price (US$) 71 71 80 104 140 150 151 Source: Company data, Credit Suisse

Display is still the key component for differentiation

Our supply chain checks support our view that display remains a key component for

product differentiation, besides camera module upgrade and adding biometric

identification sensors. We learned that multiple smartphone brands are working on higher

value-added displays such as WQHD screen, narrow border, slim design, in-cell/on-cell

and better power consumption. We hold our view that the display size shift has reached a

limit but the resolution migration remains intact and is accelerating, given the falling panel

pricing on cost reduction, oversupply and catch up of Chinese panel makers.

Most of the new models that we saw last week or those planned for a near-term launch

are mostly equipped with 5.0”-5.5” and HD/FHD resolution displays. We noted there are

few flagship models that are adopting WQHD (i.e. 2K screen) panels, and the new LTPS

fab that will start mass production in 2016-17 in China might accelerate the adoption of

WQHD panels on pricing competition.

Figure 10: Flagship models with WQHD display

Company LeTV ZTE HTC LG Gionee Motorola Samsung

Model name One Pro Axon One E9+ G4 Elife E8 Moto X Pro Galaxy S

Image

Technology TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE

Operating System Android 5.0 Android 5.1 Android 5.0 Android 5.1 Android 5.1 Android 5.0 Android 5.0.2

Pixels 2560 x 1440 2560 x 1440 2560 x 1440 2560 x 1440 2560 x 1440 2560 x 1440 2560 x 1440

RAM 4GB 3GB 3GB 3GB 3GB 3GB 3GB

ROM 32GB 32GB 32GB 32GB 64GB 32GB 32GB

Display 5.5" 5.5" 5.5" 5.5" 6.0" 5.96" 5.1"

Camera 13MP + 4MP 13MP/2MP + 8MP 20MP + 13MP 16MP + 8MP 24MP + 8MP 13MP + 2MP 16MP + 5MP

Battery 3000mAh 3000mAh 2800mAh 3000mAh 3500mAh 3220mAh 2550mAh

CPU Speed 2.0GHz 2.0GHz 2GHz 1.8GHz 2.0GHz 2.7GHz 2.1GHz

Processor Chip Snapdragon 810 MSM8994 MT6795M Snapdragon808 MT6795 Snapdragon 805 Exynos 7420

Multi-core Octa Octa Octa Octa Octa Quad Octa

Price (RMB) 2,499 2,699 2,999 3,999 3,999 4,299 4,480 Source: Company data, Credit Suisse

We continue to see more smartphone models adopting embedded touch solutions (in-

cell/on-cell), especially with JDI’s hybrid in-cell design, but the adoption of full in-cell has

Resolution migration is still

on track

24 July 2015


slowed down, given higher resolution (i.e., FHD) TDDI are still not available for mass

production in 2Q15. Our discussion with smartphone brands indicated that they are

evaluating the new FHD TDDI chipsets from Synaptics and FocalTech, but clearly pricing

is still an important factor, especially TFT and touch panel pricing continues to decline.

Figure 11: Smartphone panel pricing still declining—5"

FHD LTPS panel ASP dropped 44% since Jan-2014

Figure 12: Smartphone resolution migration is

accelerating

15

20

25

30

35

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

US$

5" FHD LTPS

0%

10%

20%

30%

40%

50%

60%

70%

80%

2010 2011 2012 2013 2014 2015E 2016E 2017E


Source: DisplaySearch Source: Company data, DisplaySearch, Credit Suisse estimates

We also noted several Chinese brands introduced their flagship smartphones with narrow

border display (some call it borderless display), and checks suggest that there are more

brands (including international brands) to follow in 2H15-2016. Despite the value-add of

narrow border display being more on the panel makers and some for the cover glass

design/manufacturing, our checks suggest in-cell touch is facing certain technology

barriers on sensitivity and production yield, which might allow add-on type touch panel

makers to regain their market share for smartphones with narrow border displays. We

believe this could be positive for TPK as it is currently working with its major customer on

slim Glass/Glass touch solutions.

Figure 13: Nubia Z7 (ZTE sub-brand) borderless

smartphone

Figure 14: Nubia's proprietary aRC (arc Refractive

Conduction) created visually borderless design


In terms of stocks, we continue to favour driver IC supply chain over panel makers, given

that there will be nearly eight more new LTPS fabs being built in 2016-17, and the

smartphone panel pricing is likely to stay on a downward trend on oversupply.

Nevertheless, we believe the resolution upgrade for smartphone panels is irreversible and

Multiple brands working on

narrow border displays

24 July 2015


the faster adoption of HD/FHD/WQHD resolution will benefit technology leaders like

Novatek, as well as DDI backend makers (ChipMOS/Chipbond) on more wafer

consumption and longer testing time. We retain our NEUTRAL rating on Himax and

FocalTech, given that Himax still highly relies on Samsung, while FocalTech continues to

face push-out on in-cell and fingerprint take-offs.

Figure 15: TDDI could reduce over touch cost if production yield picks up

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

GFF multi-finger GF 2-finger On-cell (singlelayer) 2-chip

Hybrid in-cell 2-chip

Hybrid in-cellTDDI

Full in-cell TDDI

Assembly w/SMT Sub/FPC + additional main Mask TFT, insulator

Mask on TFT, metal ITO on top of CF ITO on Film

OCA Cover lens

Source: Synaptics, Credit Suisse estimates

Biometric identification expected to take off in 2016

Biometric identification has become one of the new features for Chinese smartphone

brands, especially after Samsung also adopted fingerprint sensor on its flagship models in

March 2015. Unlocking the device, payment authentication and the protection of certain

documents/apps are the main selling points for biometric-identification-enabled devices.

Area-type capacitive fingerprint sensors have now become the mainstream technology

and there are multiple new players from Asia competing with global leaders like Synaptics

and Fingerprint Card. Besides placing the fingerprint sensor on the back of the

smartphone or at the home bottom, there have been increasing design activities for

integrating the fingerprint sensors to the volume bottoms, which is located at the side of

the smartphone, as some brands believe it provides better user experience.

Figure 16: Egis has a wide range of fingerprint solutions Figure 17: Goodix's fingerprint solutions

Figerprint sensor with cover glass Figerprint sensor with hard coating


Egis and Goodix are

catching up on fingerprint

solutions

24 July 2015


Other than using area-type capacitive fingerprint sensors for biometric identification,

Eyeverify’s Eyeprint ID, which detects blood vessels in the whites of the eye with the front

camera, also received multiple design wins from Alcatel (Idol 3) and Vivo (X5 Pro), after it

being adopted by ZTE’s Grand S III smartphone in March.

Within China smartphone brands, we noted Fingerprint Card currently maintains a leading

position in fingerprint sensors and has the most design wins. There have been several

Chinese and Taiwanese fingerprint solution providers such as Egis, Goodix, Elan and

FocalTech trying to enter this market, and we believe Egis and Goodix seem to be more

ahead than Elan and FocalTech, as the former companies have successfully developed

their own chips and algorithms, and have won multiple new projects from local brands for

the 2H15-2016 ramp. As a result of emerging Asian players and the continued cost decline,

we believe the price point for smartphones to adopt fingerprint sensors might drop to

Rmb600-800 in 2016, from the current Rmb1,000+.

Figure 18: China smartphone with fingerprint identification

Company Coolpad Meizu Huawei ZTE LeTV OPPO Huawei

Model name Dazen Note 3 MX5 Honor 7 Axon Le Max R7 Plus Ascend Mate 8

Image

Technology TD LTE TD LTE TD LTE TD/FDD-LTE TD/FDD-LTE TD/FDD-LTE TD LTE

Operating System Android 5.1 Android 5.0 Android 5.0 Android 5.1 Android 5.1 Android 5.1 Android 5.1

Pixels 1280 x 720 1920 x 1080 1920 x 1080 2560 x 1440 2560 x 1440 1920 x 1080 2560 x 1440

RAM 2GB 3GB 3GB 3GB 4GB 3GB 3GB

Storage 16GB 16GB 16GB 32GB 32GB 32GB 32GB

Display 5.5" 5.5" 5.2" 5.5" 6.33" 6.0" 6.0"

Camera 13MP + 5MP 20.7MP + 5MP 20MP + 8MP 13MP/2MP + 8MP 21MP + 4MP 13MP + 8MP 20.7MP + 8MP

Battery 3000mAh 3150mAh 3100mAh 3000mAh 3400mAh 4100mAh TBD

CPU Speed 1.5GHz 2.2GHz 2.2GHz 2.0GHz 2.0GHz 1.5GHz 2.4GHz

Processor Chip MT6753 MT Helio X10 Kirin 935 MSM8994 MSM8994 MSM8939 Kirin 950

Multi-core Octa Octa Octa Octa Octa Octa Octa

Price (RMB) 899 1,799 1,999 2,699 2,999 2,999 TBD Source: Company data, Credit Suisse

Early adoption of 5G technology on 4.5G/Pre5G to

solve the rising data traffic issue

Several networking equipment makers including Nokia, Alcatel-Lucent, ZTE and Huawei

showcased their preliminary 5G technologies, though the 5G standard setting process has

not started yet. According to Huawei, it expects to begin trial test with operators in 2018

and commercial deployment by 2020. ZTE also released its 5G architecture in June 2014

and announced last week that it signed a MOU with KT Corporation to work on the

commercialisation of 5G technology. Based on the technology development trend, 5G is

expected to have 1,000 times the capacity of 4G, which will help solve the rising data

traffic issue in large cities, enhance user experience on video streaming, and increase the

number of devices the network can handle to meet IoT demand.

ZTE and Huawei also showcased their Pre5G and 4.5G (TDD+) technologies, which use

some of the 5G technologies, and could be adopted on the current 4G network with minor

modification on hardware and software. Both companies have been working with leading

operators like China Mobile and Softbank, and claim it could increase the transmission

speed by 4-6 times. Notably, the Pre5G and 4.5G technologies could be run on the

existing 4G handsets, hence are expected to be deployed for field operation in the next

few years before 5G takes off (2020 at the earliest).

4.5G/Pre-5G could support

ZTE and Huawei's growth

before 5G takes off

24 July 2015


Figure 19: ZTE's Pre5G BTS with Massive MIMO solution Figure 20: Huawei also introducing TDD+ for 4.5G


Stock picks ZTE (0763.HK, OUTPERFORM, TP HK$24.0)

Beneficiary of China infrastructure investment

ZTE saw strong revenue and earnings growth in 1H15, thanks to the accelerating 4G BTS

deployment in both domestic and international markets, wireline infrastructure expansion

and broadband bandwidth upgrade, and increasing smart-city and other projects in the

government/enterprise business. We believe the momentum will continue into 2H15 as it

will book more revenue from 4G BTS, as well as telecom infrastructure upgrades.

At its global analyst meeting ahead of the MWC Shanghai on 12-13 July, management

noted it expects its wireless division (60% of networking sales) to see 15% YoY growth in

2015, mainly driven by revenue booking for the domestic 4G business. It noted the 4G

BTS builds from domestic carriers have been accelerating, given rapid growth of

subscribers. It expects more 4G BTS bidding to take place in 2H15 (mainly China

Telecom's phase 3), which should support its revenue momentum in 2016. For its wireline

business, it expects the infrastructure expansion and the upgrade of broadband speed will

lead to YoY growth for this business. Overall, we estimate networking sales to grow 19%

YoY in 2015.

ZTE's handset business was a drag to the company's overall operation in 2013 given the

intense competition in the China market. However, it has started the restructuring in 2H13

and shifted its focus toward the overseas and premium segments, which helped its

margins and turned around the operation. ZTE said it has become the second largest

brand in the US prepaid market, and the top player in the Australia prepaid market.

It has announced its latest flagship smartphone Axon on 15 July in the US and 22 July in

China, featuring a 5.5" WQHD display (534 PPI), dual camera, fingerprint sensor, 300mAH

battery, antimicrobial gorilla cover glass, etc. ZTE sets the price from $450 (4GB RAM +

32GB ROM), which seems attractive for a flagship model, in our view.

We reiterate our OUTPERFORM rating on ZTE with TP of HK$24, based on 20x 12M P/E.

We believe the market has underestimated ZTE's growth potential as its business now is

driven by not only the 4G BTS builds, but also wireline upgrades and

government/enterprise projects.

ZTE is our top pick in the

China telecom equipment

and handset space

24 July 2015


Figure 21: ZTE recent new smartphone models

Company ZTE ZTE ZTE ZTE ZTE

Model name Blade S6 Blade S6+ Axon Grand S III Nubia Z9

Image

Technology LTE LTE TD/FDD-LTE LTE LTE

Operating System Android 5.0 Android 5.0 Android 5.1 Android 4.4 Android 5.0

Pixels 1280 x 720 1280 x 720 2560 x 1440 1080 x 1920 1080 x 1920

RAM 2GB 2GB 3GB 3GB 3GB

Storage 16GB 16GB 32GB 16GB 32GB

Display 5.0" 5.5" 5.5" 5.5" 5.2"

Camera 13MP + 5MP 13MP + 5MP 13MP/2MP + 8MP 16MP + 8MP 16MP + 8MP

Battery 2400mAh 3000mAh 3000mAh 3100mAh 2900mAh

CPU Speed 1.5GHz 1.7GHz 2.0GHz 2.5GHz 1.5GHz

Processor Chip MSM8939 MSM8939 MSM8994 MSM8974 MSM8994

Multi-core Octa Octa Octa Quad Octa

Price (RMB) 1,600 1,860 2,699 2,999 3,499 Source: Company data, Credit Suisse

Figure 22: ZTE focus on premium smartphone growth Figure 23: ZTE share price vs forward P/E

10%

20%

35%39%

22%

35%40% 42%

15%

22%

47%

59%

0%

10%

20%

30%

40%

50%

60%

70%

2012 2013 2014 1H15

Mid to high end Open channels LTE

0

5

10

15

20

25

30

35

40

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

HK$ Stock Price vs. forward PE

Stock Price 5.0x 10.0x 15.0x 20.0x 25.0x Source: Company data, Credit Suisse Source: Company data, Credit Suisse

TCL Comm (2618.HK, NEUTRAL, TP HK$9.0)

Full-year targets might be impacted by weaker macro and rising competition

TCL Comm's 2Q smart device shipment of 11.1 mn (up 27% YoY) is largely in line with our

expectation. Overall handset shipment of 19 mn units were up 16% YoY, ahead of the

prior estimate of 13% YoY growth on better feature phone sales. During the quarter,

shipment in the overseas market accounted for 87% of total shipments vs 90% in 2Q14,

as the company partnered with China Telecom and China Unicom introducing cost-

effective 4G mobile handsets domestically.

TCL Comm also announced several new products at MWC in March and the volume is

expected to ramp up from 2Q15 and 3Q15. We believe the company will launch more new

models in the September IFA show, but expect the weaker macro environment, forex

fluctuation and intensifying competition to impact its full-year targets. We now estimate

TCL Comm's 2015 smartphone shipment of 51 mn units, versus prior assumption of 54 mn

units (vs 55 mn guidance), given weaker demand in Europe and emerging countries.

We cut our 2015 revenue growth assumption from up 30% YoY to up 21% YoY, as a

result of the lower shipment assumption and ASP pressure on forex depreciation for the

emerging markets. We reduce our 2015/16 EPS from HK$1.32/1.58 to HK$1.00/1.21 and

lower our TP to HK$9.0, based on 9x 2015 P/E (same multiple) vs historical range of 6-

14x. We retain OUTPERFORM on TCL Comm as we believe the negatives are largely

priced-in as it is now trading at trough valuation of 6x 2015 P/E.

TCL Comm is trading at

trough valuation of 6x

2015E P/E

24 July 2015


Figure 24: TCL Comm quarterly P/L

HK$ mn 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E 2014 2015E 2016E

Revenue 7,779 10,695 6,690 7,735 9,678 12,965 30,691 37,068 42,678

Gross profit 1,481 2,055 1,278 1,458 1,824 2,431 5,918 6,992 7,951

Operating profit 308 398 203 224 334 577 1,180 1,338 1,695

Net profit 294 368 185 201 302 536 1,093 1,224 1,476

EPS (HK$) 0.25 0.31 0.15 0.16 0.25 0.44 0.92 1.00 1.21

Gross margin (%) 19.0 19.2 19.1 18.9 18.9 18.8 19.3 18.9 18.6

Operating margin (%) 4.0 3.7 3.0 2.9 3.5 4.5 3.8 3.6 4.0

Net margin (%) 3.8 3.4 2.8 2.6 3.1 4.1 3.6 3.3 3.5

Source: Company data, Credit Suisse estimates

Coolpad (2369.HK, UNDERPERFORM, TP HK$1.95)

Need more time for restructuring

We lower our shipment forecast for Coolpad and now expect no growth in 2015 due to

sluggish market demand and inventory adjustment. We also lower our gross margin

assumptions as a result of smaller revenue scale and its business model change. We think

the company will provide more ODM service for its second largest shareholder LeTV, as

well as its JV brand QiKu, which will be margin-dilutive, in our view.

For 1H15, we forecast operating profit to decline 44% YoY, due to smaller revenue scale

(down 20% YoY) and lower GM (down 0.8 pp YoY to 12.8%). We expect its adjusted net

profit/EPS (excluding one-time gain) to decline 48% YoY. Nevertheless, the company

already announced in mid-June that it will book a US$300 mn one-off gain from asset

disposal and revaluation, which would significantly boost its GAAP earnings.

We fine-tune our model and lower our 2015/16 adjusted EPS by 3-5% to reflect lower

shipment and weaker ASP, offset by an opex cut and lower non-op losses. We trim our TP

to HK$1.95, based on the same 13x 2015-16 average P/E. We retain UNDERPERFORM

and continue to favour TCL Comm over Coolpad, given better mix and more stable margin.

Figure 25: Coolpad semi-annual P/L

HK$ mn 1H13 2H13 1H14 2H14 1H15E 2H15E 2014 2015E 2016E

Revenue 9,632 9,992 14,935 9,966 11,952 13,866 24,900 25,818 28,965

Gross profit 1,254 1,276 2,026 990 1,530 1,622 3,015 3,152 3,293

Operating profit 275 186 514 181 287 485 695 772 831

Net profit (GAAP) 213 136 413 100 2,541 370 513 2,911 688

Net profit (CS adj) 213 136 413 100 216 370 513 586 688

EPS (HK$) – GAAP 0.05 0.032 0.097 0.024 0.600 0.087 0.121 0.685 0.162

EPS (HK$) – CS adj 0.05 0.032 0.097 0.024 0.051 0.087 0.121 0.138 0.162

Gross margin (%) 13.0 12.8 13.6 9.9 12.8 11.7 12.1 12.2 11.4

Operating margin (%) 2.9 1.9 3.4 1.8 2.4 3.5 2.8 3.0 2.9


FocalTech (3545.TW, NEUTRAL, TP NT$28)

2H15 weaker than expected on continued push-out of in-cell TDDI

FocalTech's 2Q15 sale saw strong rebound (up 32% QoQ) after a slower 1Q (down 15%

QoQ). We believe its gross margin in 2Q should also improve sequentially, given better

mix for both DDI and touch IC, as management said earlier that 2Q HD/FHD resolution

accounts for 60% of DDI shipments (vs 40-50% in 1Q) and the mix of higher-margin

mutual capacitance touch IC also improved QoQ. We estimate its 2Q15 GM of 17.7% (up

2.2 pp QoQ) and OPM of 1.5% (vs -6% in 1Q), which will help its bottom line to turn

profitable in 1H15.

No growth in 2015

smartphone shipment

3Q15 sales might only grow

3% QoQ vs consensus of

20%+ QoQ

24 July 2015


Although we expect the momentum will continue into 3Q15 and the DDI/touch IC

shipments can continue to see single digit growth QoQ, we believe 3Q revenue growth

might only be low single digit QoQ, given ASP erosion. Our checks also suggest its TDDI

ramp up has continued being pushed out on limited design wins (currently only Coolpad)

and falling panel ASP. As a result, we estimate its 3Q15 sales to grow 3% QoQ, below

market expectation of 20%+ QoQ growth.

For 2015, we expect sales to decline 14% YoY on slower smartphone demand in China,

as well as push out of TDDI into 2016. We lower our 2015/16/17E EPS from

NT$1.40/2.22/2.63 to NT$0.65/1.94/2.46 to reflect weaker smartphone growth and TDDI

push out. We maintain our target price at NT$28, as we roll over our valuation to 14x

2016E P/E. The stock is protected by NT$3/share capital reduction and NT$0.31/share

dividend (total ~11% yield).

Figure 26: FocalTech quarterly P/L (pro-forma basis for 2014)

NT$ mn 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E 2014 2015E 2016E

Revenue 3,355 2,866 2,429 3,202 3,305 3,509 14,416 12,446 15,358

Gross profit 654 362 376 566 593 664 2,890 2,199 2,925

Operating profit 57 (146) (146) 49 72 134 841 110 813

Net profit 82 (153) (56) 75 96 156 809 272 809

EPS (NT$) 0.20 (0.37) (0.13) 0.18 0.23 0.37 1.97 0.65 1.94

Gross margin (%) 19.5 12.6 15.5 17.7 17.9 18.9 20.0 17.7 19.0

Operating margin (%) 1.7 (5.1) (6.0) 1.5 2.2 3.8 5.8 0.9 5.3

Net margin (%) 2.4 (5.3) (2.3) 2.3 2.9 4.4 5.6 2.2 5.3


Egis (6462.TWO, not rated)

Emerging fingerprint identification player

Founded in 2007, Egis has been focusing on the development of biometric identification

ICs and the software service. Egis has built capability in both sensor IC design and

algorithm for swipe-type and area-type fingerprint solutions, with more than 100 patents

worldwide. In 2014, Egis generated 59% of its revenues from the biometric application,

29% from data security application and 12% from services.

Figure 27: Egis quarterly revenue trend Figure 28: Egis revenues and margin trend

-200%

-100%

0%

100%

200%

300%

400%

500%

600%

700%

0

10

20

30

40

50

60

70

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Revenues (NT$mn) Growth (QoQ) Growth (YoY)

-700%

-600%

-500%

-400%

-300%

-200%

-100%

0%

100%

200%

0

50

100

150

200

250

2011 2012 2013 2014 1Q15

Revenues (NT$mn) Gross margin Operating margin


Egis started to provide the algorithm for Samsung's flagship smartphones in 2015,

although Synpatics provides the sensor chip. However, management said it has

developed its own fingerprint sensors with various designs (round, square, rectangle) and

they could be installed on the back, at the side, or on the front of the device. Egis believes

it has a very compatible cost structure versus peers, given its design leads to more

die/wafer. It currently manufactures its sensors using 8" 0.18um process and LGA/BGA

packaging technologies.

24 July 2015


Egis has been working with FIDO Alliance for fingerprint authentication standards and

believes this is one of the important factor for it to differentiate from other Taiwanese and

Chinese competitors. It targets to receive 20 design wins in 2015, mainly for Chinese

smartphone brands, and expects the price point for smartphones with fingerprint to drop to

Rmb 600-800 in the future, from the current Rmb 1000+.

Goodix (Unlisted)

Ahead of Asian touch IC peers on diversification into fingerprint sensors

Founded in 2002, Goodix has been focusing on the development and marketing of touch

controller IC and fingerprint sensor IC for mobile devices. After years of efforts, Goodix

has established itself among international mobile device and panel players, including

Samsung, Panasonic, Kyocera, HTC, HP, Dell and JDI, as well as domestic brands

including ZTE, Huawei, Meizu, OPPO, VIVO and Lenovo. Goodix has a strategic

partnership with MediaTek, which has a 24% stake in Goodix.

Goodix said it is expanding its touch IC portfolio from mid-range products to the high-end

segment. It believes it could continue its share gain in China as one of its main competitor

MStar is not putting more resource post the merger with MediaTek. Goodix said it is one of

the two touch IC makers (the other one is Synaptics) to penetrate into Samsung's

AMOLED on-cell touch and JDI's hybrid in-cell.

The company also stated that its fingerprint solutions have received qualifications from

Chinese smartphone brands, and expects the volume to ramp up in 2H15. This is ahead of

its Asian peers such as FocalTech, Elan and EETI. Goodix currently manufactures its

fingerprint chips at the 8" 0.18um process and uses LGA packaging technology. The

company said its sensing technology can handle coating thickness of 100um, while some

of its peers can only handle 50um. Goodix currently works with module makers like Truly

and O-Film.

Goodix develops its Invisible Fingerprint Sensor (IFS) with TPK, which integrates the

sensor under the cover glass and doesn’t need industrial design change of front cover

glass or back casing. Management noted IFS solution has received qualification from

major local customers and will start mass production in 4Q15. We believe the ramp of the

IFS solution from 4Q15 should help TPK gain more business for non-Apple smartphones

and further support its earnings growth.

Figure 29: Goodix revenues and margin trend Figure 30: Goodix IFS solution

0%

10%

20%

30%

40%

50%

60%

70%

0

100

200

300

400

500

600

700

800

2011 2012 2013

Revenues (RMB mn) Gross margin Operating margin


24 July 2015


Companies Mentioned (Price as of 23-Jul-2015)

Alcatel-Lucent (ALUA.PA, €3.32) Apple Inc (AAPL.OQ, $125.22) China Telecom (0728.HK, HK$4.52) ChipMOS Technologies Inc. (8150.TW, NT$34.8, OUTPERFORM, TP NT$56.5) Chipbond (6147.TWO, NT$46.05, OUTPERFORM, TP NT$80.0) Coolpad Group Limited (2369.HK, HK$2.12, UNDERPERFORM[V], TP HK$1.95) EgisTec (6462.TWO, NT$112.5) Elan Microelectronics Corp (2458.TW, NT$35.6, NEUTRAL, TP NT$50.0) Fingerprint Card (Unlisted) FocalTech Corporation, Ltd. (3545.TW, NT$29.05, NEUTRAL[V], TP NT$28.0) Himax Technologies, Inc. (HIMX.OQ, $7.9, NEUTRAL[V], TP $8.4) Japan Display (6740.T, ¥403) MediaTek Inc. (2454.TW, NT$342.0) Nokia (NOK1V.HE, €6.16) Novatek Microelectronics Corp Ltd (3034.TW, NT$124.0, OUTPERFORM, TP NT$185.0) Samsung Electronics (005930.KS, W1,234,000) Synaptics (SYNA.OQ, $79.85) TCL Communication Technology Holdings Limited (2618.HK, HK$6.12, OUTPERFORM, TP HK$9.0) TPK Holdings (3673.TW, NT$138.0, OUTPERFORM[V], TP NT$240.0) ZTE Corporation (0763.HK, HK$19.42, OUTPERFORM, TP HK$24.0)

Disclosure Appendix

Important Global Disclosures

Jerry Su and Derrick Yang, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for ChipMOS Technologies Inc. (8150.TW)

8150.TW Closing Price Target Price

Date (NT$) (NT$) Rating

10-Apr-14 40.00 49.00 O *

14-May-14 40.95 51.00

11-Jul-14 40.70 52.00

12-Nov-14 38.85 53.00

13-Mar-15 47.00 56.50

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

24 July 2015


3-Year Price and Rating History for Chipbond (6147.TWO)

6147.TWO Closing Price Target Price


23-Aug-12 40.90 48.00 O

28-Sep-12 46.50 50.00

15-Oct-12 48.15 52.50

24-Oct-12 49.80 55.00

18-Nov-12 51.60 57.00

30-Nov-12 56.30 57.00 N

30-Jan-13 60.50 60.00

02-May-13 79.00 68.00

11-Jun-13 78.70 70.00

12-Aug-13 60.50 75.00 O

14-Oct-13 55.50 72.00

11-Dec-13 56.30 55.00 N

15-Jan-14 46.05 49.00

10-Apr-14 55.00 51.00

16-Sep-14 55.70 66.00 O

04-Nov-14 57.00 69.00

12-Jan-15 62.90 72.00

25-May-15 71.50 86.00

13-Jul-15 56.90 80.00


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for Coolpad Group Limited (2369.HK)

2369.HK Closing Price Target Price

Date (HK$) (HK$) Rating

05-Jun-14 1.92 2.00 N *

22-Aug-14 1.78 1.85

13-Jan-15 1.51 1.60

24-Mar-15 1.50 1.25 U

11-May-15 2.80 2.00


N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Elan Microelectronics Corp (2458.TW)



17-Aug-12 48.15 48.00 N

22-Oct-12 49.05 60.00 O

29-Jan-13 49.20 62.00

23-Apr-13 73.30 92.00 *

02-Aug-13 56.60 80.00

07-Aug-13 51.20 76.00

15-Sep-13 49.05 60.00

18-Feb-14 54.70 65.00

22-Apr-14 59.30 74.00

17-Jul-14 52.10 72.00

29-Jul-14 49.30 65.00

20-May-15 47.30 50.00 N


N EU T RA L

O U T PERFO RM

24 July 2015


3-Year Price and Rating History for FocalTech Corporation, Ltd. (3545.TW)



12-Mar-14 52.10 360.00 O *

13-Oct-14 41.30 290.00

25-Feb-15 38.00 40.00 N

16-Apr-15 33.15 30.00 U

18-May-15 28.30 28.00 N


O U T PERFO RM

N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for Himax Technologies, Inc. (HIMX.OQ)

HIMX.OQ Closing Price Target Price

Date (US$) (US$) Rating

02-May-13 5.95 R

12-Mar-14 15.65 19.00 O *

15-Apr-14 9.32 17.00

09-May-14 6.68 13.00

24-Jul-14 5.97 8.50

08-Aug-14 7.40 9.00

15-Sep-14 8.46 11.00

27-Oct-14 7.71 12.00

09-Feb-15 7.58 8.40 N

16-Apr-15 6.31 6.00

27-Apr-15 6.16 5.90

15-May-15 6.14 5.70

29-Jun-15 7.90 8.40


REST RICT ED

O U T PERFO RM

N EU T RA L

24 July 2015


3-Year Price and Rating History for Novatek Microelectronics Corp Ltd (3034.TW)



07-Aug-12 86.30 107.00 O

07-Sep-12 100.00 R

10-Sep-12 100.00 107.00 O

11-Sep-12 100.50 118.00

28-Sep-12 106.00 123.00

06-Nov-12 115.00 135.00

10-Apr-13 127.50 157.00

08-May-13 155.00 157.00 N

19-Jul-13 122.50 135.00

07-Aug-13 116.00 120.00

06-Nov-13 111.50 118.00

15-Jan-14 130.00 104.00 U

12-Feb-14 130.50 107.00

06-May-14 150.00 158.00 N

21-Jul-14 147.50 162.00

06-Aug-14 155.50 169.00

06-Nov-14 154.50 174.00

14-Jan-15 182.50 210.00 O

16-Apr-15 156.00 193.00

06-May-15 154.00 190.00

29-Jun-15 148.00 185.00


O U T PERFO RM

REST RICT ED

N EU T RA L

U N D ERPERFO RM

3-Year Price and Rating History for TCL Communication Technology Holdings Limited (2618.HK)



05-Jun-14 9.26 11.70 O *

15-Aug-14 10.18 12.50

24-Oct-14 7.40 11.50

03-Mar-15 7.80 12.00


O U T PERFO RM

24 July 2015


3-Year Price and Rating History for TPK Holdings (3673.TW)



09-Aug-12 357.00 475.00 O

07-Nov-12 406.50 495.00

05-Dec-12 496.50 680.00

26-Feb-13 552.00 710.00

04-Jul-13 408.50 535.00

06-Aug-13 325.00 485.00

21-Oct-13 232.00 380.00

01-Nov-13 192.50 207.00 N

19-Feb-14 180.50 175.00

22-Apr-14 223.00 210.00

07-Jul-14 275.00 300.00

24-Jul-14 238.50 270.00

23-Oct-14 147.00 155.00

10-Feb-15 202.00 210.00

30-Apr-15 191.00 200.00

08-Jun-15 191.00 240.00 O


O U T PERFO RM

N EU T RA L

3-Year Price and Rating History for ZTE Corporation (0763.HK)



09-Aug-12 10.02 9.58 N

23-Aug-12 9.83 10.00

30-Aug-12 8.63 9.79

25-Oct-12 9.10 9.17

07-Jan-13 11.65 13.96 O

14-Mar-13 12.33 14.37

01-Apr-13 11.17 13.75

26-Apr-13 10.33 13.08

05-Jul-13 10.00 10.42 N

05-Jun-14 12.75 15.83 O *

18-Aug-14 14.00 16.67

16-Oct-14 14.05 16.67 *

26-Mar-15 14.42 18.33

16-Apr-15 19.17 22.92

24-Apr-15 20.58 23.33

14-Jul-15 18.38 23.40

21-Jul-15 19.06 24.00


N EU T RA L

O U T PERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analy st's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms represen ting the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representi ng the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Am erican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned

24 July 2015


where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

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*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

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Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 48% (25% banking clients)

Neutral/Hold* 36% (44% banking clients)

Underperform/Sell* 13% (38% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

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Price Target: (12 months) for ChipMOS Technologies Inc. (8150.TW)

Method: Our 12-month forward target price of NT$56.5 for ChipMOS is based on 13.5x 2016 EPS plus 15% premium for potential restructuring of corporate structure.

Risk: Key risks to our target price of NT$56.5 for ChipMOS include: (1) weaker-than-expected demand for display driver IC and memory, (2) market share loss to peers, (3) delay take-off of 4K2K TVs, and (4) intense price competition.

Price Target: (12 months) for Chipbond (6147.TWO)

Method: Our 12-month forward target price of NT$80 for Chipbond is based on 15x 2016 P/E (price-to-earnings), peak cycle multiple vs its 10-15x historical range.

Risk: Key risks to our target price of NT$80 for Chipbond include: (1) weaker-than-expected demand for smartphones, tablet PCs, NBs, monitors and TVs , (2) market share loss, and (3) NTD appreciation.

Price Target: (12 months) for Coolpad Group Limited (2369.HK)

Method: Our target price of HK$1.95 for Coolpad is based on a 2015-16E P/E (price-to-earnings) of 13x, versus the historical range of 8-18x.

Risk: Risks that could cause the share price to diverge from our HK$1.95 target price for Coolpad include the following: Downside -- (1) Weaker-than-expected smartphone shipment growth; (2) intense pricing competition which will impact its margins; and (3) potential component shortage. Upside -- (1) better-than-expected smartphone shipment growth; (2) faster-than-expected cost reduction to maintain margins; and (3) display shifts to larger sizes, which could help Coolpad's ASP.

24 July 2015


Price Target: (12 months) for Elan Microelectronics Corp (2458.TW)

Method: Our target price of NT$50 for Elan Microelectronics is based on 15x 12M P/E. The target P/E (price to earnings ratio) is based on its mid-cycle average P/E of 13-20x in the company's recent trading history vs fabless companies' average of 15-25x.

Risk: Risks that could impede achievement of our NT$50 target price for Elan Microelectronics include: (1) ASP decline on market competition, (2) market share loss to competitors, (3) failure to lower its costs, and (4) weaker-than-expected demand for global NB market.

Price Target: (12 months) for FocalTech Corporation, Ltd. (3545.TW)

Method: Our target price of NT$28 for FocalTech Corporation is based on 13x of 2016 EPS (earnings per share), a 15% discount to the average of its industry peers of 15x P/E (price-to-earnings) and at the lower end of 12-20x long-term range for fabless IC design houses in Taiwan.

Risk: Risks that could impede achievement of our NT$28 target price for FocalTech include: (1) Better-than-expected demand for smartphone. (2) Early ramp of its new products, such as integrated driver IC (IDC) and fingerprint sensor. (3) Better pricing environment.

Price Target: (12 months) for Himax Technologies, Inc. (HIMX.OQ)

Method: Our target price of US$8.4 for Himax Technologies is derived from our DCF (discounted cash flow) model, implying 18x 2016 P/E (price-to-earnings). We assume a neutral beta with a risk-free rate of 3.5%, equity risk premium of 8.0%, and terminal growth rate of 3.0%.

Risk: Risks that could impede achievement of our US$8.4 target price for Himax Technologies include: (1) Better/weaker-than-expected demand for smartphone and tablet PCs. (2) Better/slower-than-expected 4K2K penetration. (3) Intensifying pricing competition and failure to lower its manufacturing costs for DDI products. (4) Faster/slower ramp up of non-driver business.

Price Target: (12 months) for Novatek Microelectronics Corp Ltd (3034.TW)

Method: We apply peak cycle average of 15.5x P/E multiple (peak cycle multiple) to our 12M forward EPS (earnings per share) estimates to arrive at a target price of NT$185 for Novatek Microelectronics.

Risk: Risks to our target price of NT$185 for Novatek include: (1) Intense pricing pressure; (2) Slower-than-expected 4K2K proliferation; (3) Slower transition to HD720 and FHD smartphone; and (4) share loss over its peers on SOC products.

Price Target: (12 months) for TCL Communication Technology Holdings Limited (2618.HK)

Method: Our target price of HK$9.0 for TCL Communication Technology Holdings is based on a 2015E P/E (price-to-earnings) of 9x, which is the average of its 6-14x historical range.

Risk: Risks that could impede achievement of our HK$9.0 target price for TCL Communication Technology Holdings include: (1) weaker-than-expected smartphone shipment growth; (2) intense pricing competition which will impacts its margins; and (3) potential component shortage.

Price Target: (12 months) for TPK Holdings (3673.TW)

Method: Our 12-month target price of NT$240 for TPK Holdings is based on 14x 2016 P/E (fully diluted), average of historical range of 6-23x in 2010-11 when TPK was the main touch panel supplier for iPhone .

Risk: Our target price of NT$240 for TPK Holdings has the following risks: (1) high customer concentration (Apple), (2) competition heating up, (3) weaker demand on economic slowdown, and (4) shifts in technology trends.

Price Target: (12 months) for ZTE Corporation (0763.HK)

Method: Our target price of HK$24.0 for ZTE Corporation is based on a 20x 12M P/E (price-to-earnings), the peak P/E multiple in 2008-10 during China's 3G capex upcycle.

Risk: Risks that could impede achievement of our target price of HK$24.0 for ZTE Corporation include: (1) a delay in ramp or share loss of 4G BTS in China and other emerging markets; (2) unfavourable pricing for telecom equipment in the Chinese market; (3) severe price competition in smartphones in the domestic market; and (4) slower smartphone growth in the export channel.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (0763.HK, 3034.TW, 3545.TW, 3673.TW, HIMX.OQ, 005930.KS, AAPL.OQ, ALUA.PA, NOK1V.HE, 0728.HK, 2454.TW) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (3034.TW, 005930.KS, AAPL.OQ, ALUA.PA) within the past 12 months.

24 July 2015


Credit Suisse has managed or co-managed a public offering of securities for the subject company (AAPL.OQ) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (3034.TW, 005930.KS, AAPL.OQ, ALUA.PA) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (2458.TW, 3034.TW, 3545.TW, 3673.TW, 2369.HK, HIMX.OQ, 005930.KS, AAPL.OQ, ALUA.PA, NOK1V.HE, 0728.HK, 2454.TW) within the next 3 months.

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (2458.TW, 3673.TW, 6147.TWO, ALUA.PA, 0728.HK).

Credit Suisse has a material conflict of interest with the subject company (005930.KS) . Credit Suisse is acting as exclusive financial advisor to Samsung Electronics and Samsung Fine Chemicals in relation to the proposed sale of their ownership stakes in the semiconductor wafer joint ventures with SunEdison, SMP Ltd and MEMC Korea Company Ltd, to SunEdison.

As of the date of this report, an analyst involved in the preparation of this report has the following material conflict of interest with the subject company (AAPL.OQ). A Credit Suisse analyst involved in the preparation of this report has a long position in the common stock of AAPL.

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (0763.HK, 2458.TW, 2618.HK, 3034.TW, 3545.TW, 3673.TW, 6147.TWO, 2369.HK, 8150.TW, HIMX.OQ, 005930.KS, AAPL.OQ, AAPL.OQ, ALUA.PA, NOK1V.HE, 0728.HK, 2454.TW) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html.

The following disclosed European company/ies have estimates that comply with IFRS: (ALUA.PA, NOK1V.HE).

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (3034.TW, HIMX.OQ, AAPL.OQ, ALUA.PA, NOK1V.HE) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan based analysts on non-Taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse AG, Taipei Securities Branch ........................................................................................................................ Jerry Su ; Derrick Yang

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

24 July 2015


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