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PC Partner: (01263.HK/1263 HK)
PC Partner: (01263.HK/1263 HK)
PC Partner
(01263.HK/1263 HK)
Impact
Key message 3Q18 results below expectation. 3Q18 sales are expected to drop 30-40% QoQ and
3Q18 results were below expectation, on weak over 40% YoY, on soft demand from the gaming market ahead of the new GPU launch
replacement demand from gamers and and an absence of crypto-mining demand. PC Partner has cut prices to clear inventories,
absence of crypto-mining demand. High prices which led to a drop in gross margin to 6-7% in 3Q18 and a net loss for the period. Amid
of flagship RTX 2080 and 2080 Ti are the US-Sino trade war, the company expects to completely clear inventories of GTX 10
dampening demand from gamers, which is bad series, worth HK$2.6bn as at end-June, by 1Q19.
for new product shipments amid the US-Sino
trade war. If Nvidia (US) does not cut prices of High prices of RTX2080 & 2080 Ti dampening replacement demand. With a
the new GPUs, we expect PC Partner’s sales to reference price of US$999, the flagship RTX 2080 Ti graphics card market prices are
fall off. Maintain Neutral. US$1,100-2,200 due to a supply shortage of GPUs and relatively low production yields.
This price is literally too high for gamers, compared to around US$780 for GTX 1080 Ti.
Trading data Nonetheless, the mid-end RTX 2070 priced at at least US$499, rolled out on October 17,
Mkt cap (HK$bn/US$mn) 1.068 / 136.2 is a more affordable option for gamers. After all, currently no game supports real-time ray
Outstanding shares (mn) 372.1 tracing, a unique feature of Nvidia RTX 20 series, discouraging replacement for gamers.
Thus, we are conservative on PC Partner’s sales momentum in 4Q18F. The company has
Free Float (%) 36.5
revised down 2018F sales growth forecast from 30% to 20% YoY or above.
3M avg. daily trading (mn) 1.19
2.87 –7.55
Preparing for US-Sino trade war. The US’s tariffs of 10% on imports from China apply
52-week trading range (HK$)
to individually-sold graphics cards assembled in China, and the tariffs will rise to 25% in
Performance 3M 6M 12M
2019. PC Partner generated 12.8% of revenue from North and Latin America in 1H18. In
Absolute (%) -56.7 -45.6 -21.8
view of the situation, PC Partner plans to engage a Taiwanese OEM for the assembly of
Relative (%) -45.1 -28.3 -11.8 graphics cards exported to the US.
7.40
216
193
To reflect expected graphics card shipments decline, we revise down 2018-19F net profit
6.40
5.40
169
146
by 17-40%. If Nvidia does not cut prices on RTX 20 series, we expect replacement
demand from gamers to drop off. Based on 3.9x 2019F PE (1 SD below average to reflect
4.40 123
3.40 99
worsening competitive landscape, previously 5.3x), we cut our target price to HK$2.87
2.40 76
70
60
50
40
30
20
10
(previously HK$6.43). With limited upside, we maintain our Neutral rating.
10-17 12-17 02-18 04-18 06-18 08-18
Figure 1: Average price of GTX 1070 Ti graphics card fell Figure 2: Average price of GTX 1060 graphics card fell less
12% from June to October on fall in crypto-mining demand by around 7% from June to October, on a better price to
& gamers’ wait-&-see ahead of RTX 20 series launch performance ratio
GTX 1070 Ti graphics card average price, US$ GTX 1060 graphics card average price, US$
900 500
800 450
700 400
600 350
500 300
400 250
Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18
(303 HK), and its founders bought out the business in Hong Kong EMS business
PC related
in 1997. The company produces and sells computer electronics products 6.1
10.1
products under its own brands, Zotac, Inno3D and Manli, and
provides electronics manufacturing services (EMS) for ODM/ OEM
customers. Key products include video graphics card (VGC),
83.7
motherboards and mini PCs. The company produces Nvidia-based Video graphics
cards
(US) VGCs under the Zotac brand, and manufactures AMD-based
(US) VGCs for Sapphire Technology (HK). The company was listed
on the main board of HKEx in January 2012.
Source: KGI Research Source: Company data; KGI Research
2,000 0.20
0 0.00
Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F
12.50% 8.0
12.1%
12.00% 7.0
11.50% 6.0
11.2%
10.9% 5.0
11.00%
10.7%
10.50% 4.0
10.1%
10.00% 3.0
2.0
9.50%
Jan-18F
Apr-18F
Jul-18F
Oct-18F
Jan-17A
Apr-17A
Jul-17A
Oct-17A
9.00%
Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F
2.9%
0.40
3.10%
Jan-18F
Apr-18F
Jul-18F
Oct-18F
Jul-17A
Jan-17A
Apr-17A
Oct-17A
2.60%
Dec-16A Dec-17A Dec-18F Dec-19F Dec-20F
Price Close
Date Rating Target Price
8.40 Recommendations & Target Price
2018-08-28 Neutral 6.43 6.09
5.10
6.10
6.60
7.70
9.00
6.43
2018-07-19 Outperform 9.00 7.09
7.40
2018-04-12 Outperform 7.80 5.16
7.80
6.40 2018-04-09 Outperform 7.70 5.10
2018-01-25 Outperform 6.60 4.73
5.40
2018-01-05 Outperform 6.10 4.16
4.40 2017-09-25 Outperform 5.10 2.91
2017-08-31 Outperform 5.10 3.78
3.40
KGI Locations China Shanghai Room 1507, Park Place, 1601 Nanjing West Road, Jingan District,
Shenzhen Room 24D1, 24/F, A Unit, Zhen Ye Building, 2014 Bao’annan Road,
Hong Kong 41/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong
Singapore 068807
Outperform (OP) We take a positive view on the stock. The stock is expected to outperform the expected total
return* of the KGI coverage universe in the related market over a 12-month investment horizon.
Neutral (N) We take a neutral view on the stock. The stock is expected to perform in line with the expected
total return* of the KGI coverage universe in the related market over a 12-month investment
horizon.
Underperform (U) We take a negative view on the stock. The stock is expected to underperform the expected total
return* of the KGI coverage universe in the related market over a 12-month investment horizon.
Restricted (R) KGI policy and/or applicable law regulations preclude certain types of communications, including an
investment recommendation, during the course of KGI's engagement in an investment banking
transaction and in certain other circumstances.
Disclaimer This information has been compiled from sources we believe to be reliable, but we do not hold ourselves responsible for its
completeness or accuracy. It is not an offer to sell or solicitation of an offer to buy any securities.
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mentioned herein. KGI Asia Limited (or one of its affiliates) may from time to time perform investment banking or other services or
solicit investment banking or other business for any company mentioned in this report. All opinions and estimates included in this
report constitute our judgment as of this date and are subject to change without notice.