Stainless steel metal frame get good work with glass back~cover

Casetek’s 3Q GM/OP/NP missed significantly again: Casetek (5264 TT, NotCovered) reported record-low GM at 11.8%, much worse than consensus of 23.1%, mainly due to (1) the delay of new NB (announced in Oct 27), and (2)severe ASP pressure at tablet casings. Although open-to-sales ratio declined to 7.9%, versus LT target of 8-9%, OP/NP of NT$0.3/0.4 bn still came in well below consensus at NT$1.2/1 bn. Casetek expects sequential revenue and GM improvement in 4Q but the growth magnitude may be subject to NB assemblers”capacity. 1Q 17 could be stronger than seasonality thanks to order push-out.

Confident of smartphone order wins in 2017, but it may not be the latest iPhone model: Management sees high possibilities for smartphone project wins in 2017, and Casetek’s Board approved US $66 mn capex budget today, which serves as a supporting evidence. However, the amount might not be justified for iPhone project wins for the latest model(s). Casetek is running at 90%+ utilisation rates (10K CNC) and the announced US$66mn capex could only transfer into ~1K CNC, while a 10% of iPhone casing orders will require 5K CNC, as per management comments earlier. Casetek expects new equipment pull-in by year-end or early 2017, which seems to be more pertinent to non-Apple’s ramping schedule. Recall Casetek had indicated during 2Q earnings call that it would also approach mid-to-high end models from non-Apple brands.

Stainless steel frame is better for glass back casing: According to Casetek management, stainless steel is stronger than aluminum and more suitable to support the fragile glass cover. Although existing glass-casing models (i.e.Samsung) adopt aluminum frame with die-casting process, Apple may not follow suit given its higher requirement for surface treatment and precision. Casetek reiterated CNC cycle time may not change much between inner frame and unibody casing, and stainless steel will consume even longer cycle time.

Implications to casing sector: We think Casetek’s potential smartphone orderwin is neutral to Catcher (OW) given the limited scale, while its comment on metal frame is quite constructive to Catcher and reaffirms our view that metal frame ASP decline for next year’s iPhone should be smaller than feared (see our Catcher note).

Collected by kaysuns.com