Excerpts from CGS-CIMB report

Analyst: Ray Kwok

Cowell e Holdings Inc (SEHK: 1415)
Get ready to soar on new product launches
■ Cowell is very attractive at 6.7x 2022F P/E, in our view, given its solid market share in Apple’s supply chain, and its pipeline of potential new products.


Share price: 


■ Likely to win Apple’s new camera project, and expand its optoelectronic product offering to automobile and AR/VR applications.

■ Reiterate Add; our TP dips to HK$6.95, now based on 10x 2022F P/E.

Cowell trades at attractive valuation on strong earnings outlook
Cowell iPhone6.21Cowell develops camera modules for Apple, and optoelectronic products for automobiles.We see Cowell e Holdings’ (Cowell) current valuation of 6.7x 2022F P/E as very attractive given its bright earnings outlook (c.19% EPS CAGR over FY20-23F) and strong balance sheet (US$89m net cash on hand at end-FY20), underpinned by its solid market share in the supply chain of front-facing camera modules for Apple products.

Luxvisions Innovation Ltd (Luxvisions, unlisted) completed its general offer for Cowell shares (HK$5.87/share) on 18 Feb.

We believe Luxvisions will accelerate Cowell’s new products launches and help it to gain new customers, leveraging the strong technology and management support of Luxshare Precision (002475 CH, Not Rated).

Cowell aims to become a key optoelectronics player
We understand that Cowell’s new management post Luxvisions’s acquisition kept its R&D team and all its engineers.

To boost its board and employee incentive, Cowell on 25 May set up a new share option scheme and granted 45.45m option shares (exercise price: HK$4.144/sh) to its Chairman, three directors and 99 employees.

Management said Cowell will expand its customer portfolio and aims to become a key optoelectronics supplier for smartphone, automobile and Internet of Things (IoT) applications.

Increases R&D; aims to win Apple’s new camera module project
Cowell’s R&D team currently comprises approx. 200 engineers; it plans to add another 20-40 this year to accelerate the rollout of new products.

Management said it will boost its R&D investment on new camera modules for Apple and on automobile optoelectronic products e.g. light detection and ranging (LiDAR), vehicle camera modules and Head-UP Display (HUD) as well as new-generation augmented reality/virtual reality (AR/VR) products.

We expect Cowell to launch sensing components for automobiles in 4Q21F and that these will be its new revenue stream.

Meanwhile, we believe Cowell could substantially increase its FY22F capex to US$50m-60m (c.US$20m for FY21F) to set up new production facilities, if it secures orders for Apple’s new camera modules.

Reiterate Add; TP lowered to HK$6.95 (upside 50%)
We cut our FY21-23F EPS by c.16-34% as we believe Cowell will double its R&D expenses to accelerate new product rollouts.

We reiterate Add in view of its cheap valuation.

Our TP dips to HK$6.95, now based on a higher 2022F P/E of 10x (previously 8x), on par with smaller-sized handset component makers, to reflect its growth potential on the back of new Apple products.

Share price catalysts include new products for Apple and strong iPhones sales.

Risks: lower-than-expected GPM and weak iPhone sales.

Full report here.