Based on filings of Pegatron (iPhone OEM) on 28 Dec, Luxshare is expected to invest RMB 2.1bn for 62.5% stake of Pegatron’s iPhone assembly plant in Kunshan. After the deal close, Luxshare will become the 2nd largest iPhone assembler with 35%+ share after Foxconn, and Pegatron will target to reallocate resources and regional production capacity. Despite recent macro headwinds and iPhone’s pressure from Huawei’s comeback, we believe Luxshare is well-positioned for further share gain across Apple’s iPhone/ Watch/AirPods/Vision Pro supply chain in FY24/25E. We are positive on Luxshare’s synergy with recent acquisitions, fast-growing auto/comm. business and better operating efficiency in FY24/25E. The stock is trading at 22.2x/17.6x FY23/24E P/E (1-sd below 5-yr avg. P/E). Maintain BUY with the same TP of RMB46.96 (based on 24x FY24E P/E). Upcoming catalysts include Vision Pro ramp-up and auto tier-1 progress.
Luxshare to acquire Pegatron’s iPhone assembly plant in Kunshan, boosting iPhone assembly share. Luxshare will invest RMB 2.1bn in the Kunshan plant for 62.5% stake as capital expansion, and Pegatron’s stake in the facility will drop to 37.5%. After the expansion into iPhone assembly business since iPhone 14 Series, Luxshare has been gaining shares with order win of three iPhone 15 models in 2023, including premium 15 Pro. Foxconn, Pegatron and Luxshare are the three major iPhone assemblers with share allocation of 60%, 25% and 15%, based on our estimates. After the deal close, we believe Luxshare will surpass Pegatron to become the 2nd largest iPhone assembler after Foxconn.
Accelerated share gain across Apple product lines and strong outlook in auto/comm segments. Luxshare pre-announced FY23E net income growth at 17.5-22.5% YoY in 3Q23 earnings release, implying 31% YoY growth in 4Q23 (vs 15% in 3Q). We believe stronger earnings in 4Q23 was a result of Luxshare’s share gain in top module/ smartphone OEM biz and higher share allocation of high-end models, and we are positive on further iPhone OEM business upside in FY24/25E post Kunshan plant acquisition. In addition, comm./auto tier-1 business are poised to deliver solid growth and better margins with order wins and product portfolio expansion.
Attractive risk/reward; Reiterate BUY. We are positive on Luxshare’s share gain across Apple product lines and robust auto/comm. outlook, and market concerns on Huawei’s comeback are overdone. The stock is trading at 22.2x/17.6x FY23/24E P/E, close to 1-SD below 5-year hist. avg. P/E. Reiterate BUY with the same TP of RMB46.96 (24x FY24E P/E).