Credit Suisse initiated coverage of Skyworth Digital (00751) with an "outperform" rating, and a target price of HK$5.
The house believes sales of cloud TVs should become the key driver of TV business growth for Skyworth. It expects cloud TVs sales volume/value to increase 67%/49% YoY in FY3/15, accounting for 49%/63% of total domestic sales (vs. 31%/46% in FY3/14).
Credit Suisse expects FY3/15 TV shipment to grow 4% YoY, returning to the
uptrend after a setback in FY3/14 due to ex-subsidy effect. In 1H FY3/15, the company shipped 5.94 mn TVs, up 6% YoY, which was on track with its annual target of 12 mn units (i.e., +6% YoY). Any upside higher than the target growth for the rest of the year will be a positive surprise.
The target price is based on 8.5x adjusted CY15E P/E, at a discount to key industry players' five-year average forward P/E of 11x, due to subdued growth in the TV sector.
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