The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.
With smartphone shipments at its main client expected to recover in earnest from 2021, MCNEX, a supplier of core camera modules, is set to benefit. Its shares appear undervalued, given: 1) new product rollouts (autonomous driving components); and 2) expectations towards customer diversification.
Manufactures and develops camera module for mobile phones and automobiles. Address 47 Digital-ro 9-gil Geumcheon-gu, Seoul Geumcheon-Gu Korea, Republic of (South). - Korea supplier of camera module. Company Name: MCNEX Co., Ltd. Location: Hanshin IT Tower 2, 60-18, 6F,7F,8F,12F, Gasan-dong, Gumcheon-gu, Seoul. Further to these MIPI Camera modules, e-con Systems offers evaluation boards with these camera modules interfaced to various development boards featuring these processors. We provides extensive range of high performance and high quality MIPI CSI-2 camera modules (ranging 1 MP to 21 MP) based on Sony, ON Semiconductor and Omnivision image sensors.
Focus on higher smartphone sales at client and product/customer diversification
Reiterating a Buy rating, we raise our TP on MCNEX from W35,000 to W46,000. Our TP revision reflects: 1) a switch in the base year for our valuation (2020 → 2021); 2) a 20% hike in our target P/E multiple from 7.0x to 8.5x in consideration of recovering shipments at MCNEX’s client and likely customer diversification.
With its main domestic client’s smartphone sales expected to jump 18% y-y to 312mn units in 2021, MCNEX, as the client’s major supplier of camera modules, is set to benefit.
As for its automotive electronics unit, MCNEX is to begin mass production of domain control units (DCUs), a core component in self-autonomous vehicles, from 2H21. Moreover, the company is to diversify its client base to include a North American company from 2022.
Firm set to achieve its highest-ever annual earnings in 2021
Mcnex Camera
MCNEX should deliver consensus-satisfying earnings for 3Q20, led by rising sales at its main client. We estimate 3Q20 sales of W383.1bn (+9.6% y-y, +56.1% q-q) and OP of W22.8bn (-33.8% y-y; OPM of 6%).
Looking ahead to next year, we believe that the firm will chalk up its highest-ever earnings, projecting 2021 OP of W115.0bn (+93.8% y-y; OPM of 6.8%), supported by both greater shipments at its main client and new product rollouts at its automotive electronics unit.
Trading at a 2021F P/E of 6.3x, we view MCNEX’s shares as being undervalued. Moving ahead, its shares should increase gradually in line with an anticipated earnings recovery.
The authors are analysts of Shinhan Investment Corp. They can be reached at hyungwou@shinhan.com and ym.ko@shinhan.com, respectively. -- Ed.
Apple triggers momentum in automotive electronics parts
Momentum has spread from electric vehicle (EV) batteries to electronics components for self-driving cars. News of Apple’s push into self-driving cars and LG Electronics’ EV parts joint venture at the end of 2020 have raised the market’s attention in automotive electronics parts.
Mcnex Camera
If Tesla had brought to light the growth potential of EV batteries last year, Apple has sparked momentum in electronics parts for self-driving cars this year. As well as vendors in the Apple and Tesla supply chains, IT parts companies that generate a high share of sales from automotive electronics parts or have promising growth potential have started to see their share prices climb one after another.
Automotive camera suppliers poised for a re-rating
Among automotive electronics parts players, we focus on the possible share valuation gains of camera suppliers. Sales of smartphone camera modules should continue to rise, driven by post-COVID-19 demand recovery and wider adoption of triple/quadruple-lens cameras, but the pace of growth will likely be slower compared to the past. Meanwhile, automotive camera shipments are forecast to expand from 110mn units in 2020 to 190mn in 2022, owing to the increased adoption of ADAS (advanced driver assistance system) and LiDAR (light detection and ranging) solutions.
Sunny Optical Technology Group (2382.HK) and Mcnex are already enjoying a re-rating of shares. Sunny Optical’s PER rose from 23.4x in September 2020 to 44.9x and Mcnex from 8.7x to 12x during the same period. Automotive electronics parts are estimated to account for about 10%of sales at the two companies.
Focus on camera suppliers in the automotive parts supply chain
- LG Innotek: World’s second largest supplier of automotive cameras (based on second-tier vendors); camera development partner of clients at home and abroad; automotive camera bellwether (12% sales share of automotive electronics parts)
- Mcnex: Largest vendor market share at domestic clients (11%)
- Sekonix: World’s second largest supplier of camera lens (60%)
- Partron: Successful supply of new orders; steep growth expected for automotive camera sales (4%)