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1、32,28,24,20,16,12,1,146,51.6,90,-55.6,7.3,15.5,1,2,Deutsche BankMarkets Research,RatingBuyAsiaChina,CompanySpreadtrum,Date29 October 2012Coverage Change,TechnologySemiconductor&Equipment,ReutersSPRD.OQ,BloombergSPRD UQ,Exchange TickerNMS SPRD,Price at 25 Oct 2012(USD)Price target-12mth(USD)52-week r
2、ange(USD)HANG SENG INDEX,22.1928.7029.29-13.2121,546,The value play in Asia baseband;,initiating with BuyAnother good way to benefit from fast-growing low-cost smartphone demandWe initiate coverage on Spreadtrum(SPRD)with a Buy and target price ofUS$28.7.We see SPRD as another major beneficiary of b
3、ooming low-costsmartphone demand from emerging markets,aside from MediaTek,in thecoming years.After a product transition this year,we expect SPRD to resumeits earnings growth in 2013.Thus,we suggest accumulating shares from now.Robust smartphone demand is the hot focusWe forecast the volume of the b
4、aseband chip market for China low-costsmartphones to grow by 284%/67%to 240m/400m units in 2012/2013,Jessica ChangResearch Analyst(+886)2 2192 Price/price relative,Daisy TsaiResearch Associate(+886)2 2192,respectively,up from 63m units in 2011.We expect chip revenue to grow by151%/53%/24%for 2012/13
5、/14,respectively,far above the global semimarkets 5%.Thus,we believe this is a hot sector on which to focus.,810/10,4/11 10/11SpreadtrumHANG SENG INDEX(Rebased),4/12,Multiple growth driversWe identify three major growth drivers for SPRD:1)increasingly strongsmartphone demand with market share gains;
6、2)its entry into the WCDMAsegment;and 3)its in-house connectivity IC solutions.We believe SPRD plays,Performance(%)AbsoluteHANG SENG INDEX,1m17.05.0,3m21.914.0,12m-10.313.0,a key role in TD,and that its importance should last into 4G TD LTE.Initiating coverage with Buy and target price of US$28.7;ri
7、sksSPRDs shares trade at 11.0 x and 9.3x its FY12-13E EPS,towards the low endof its global peers 10-24x range.Our US$28.7 target price is set at the low endof the indicative values of US$28.7 and US$35.4,derived from our EVA and BVvs.(ROE-g)/(COE-g)valuation appraisals,which translates into 12x FY13
8、E EPS.Hence,we believe our target price should be conservative.Our FY12-13E EPS,Stock dataMarket cap(USDm)Shares outstanding(m)Free float(%)Key indicators(FY1),are 7.5%and 13.6%higher than consensus estimates,respectively.Wesuggest investing in both SPRD and MediaTek to capture the most steam fromth
9、e robust low-cost smartphone demand growth.Between the two,we seeSPRD as more attractive on its lower valuation and potentially more upside toconsensus on its smartphone business.Risks include 1)demand for,ROE(%)Net debt/equity(%)Book value/share(USD)Operating profit margin(%),30.1,smartphone,2)its
10、progress in WCDMA and connectivity IC,and 3)competition.EPS Consensus,Forecasts And Ratios,YearEPS consensus,2012E1.87,2013E2.11,Year End Dec 31,2010A,2011A,2012E,2013E,2014E,(USD),Sales(USDm)Net IncomeDB EPS FD(USD),346671.25,6741342.52,7271042.01,8451242.39,9731372.66,DBe EPS(USD)DB over consensus
11、(%),2.017.5,2.3913.6,DB EPS growth(%)PER(x)Price/BV(x)ROE(%),8.15.043.0,101.17.93.652.8,-20.011.03.030.1,19.19.32.428.7,10.98.41.925.2,Source:Deutsche Bank estimates,company dataDB EPS is fully diluted and excludes non-recurring itemsMultiples and yields calculations use average historical prices fo
12、r past years and spot prices for current and future years,except P/B which usesthe year end close_Deutsche Bank AG/Hong KongAll prices are those current at the end of the previous trading session unless otherwise indicated.Prices are sourcedfrom local exchanges via Reuters,Bloomberg and other vendor
13、s.Data is sourced from Deutsche Bank and subjectcompanies.Deutsche Bank does and seeks to do business with companies covered in its research reports.Thus,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider
14、 this report as only a single factor in making their investment decision.DISCLOSURES ANDANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MICA(P)072/04/2012.,29 October 2012Semiconductor&EquipmentSpreadtrum,Model updated:28 October 2012,Fiscal year end 31-Dec,2009,2010,2011,2012E,2013E,2014E,Running
15、the numbers,Financial Summary,AsiaChinaSemiconductor&EquipmentSpreadtrum,DB EPS(USD)Reported EPS(USD)DPS(USD)BVPS(USD)Weighted average shares(m)Average market cap(USDm),-0.39-0.390.002.349140,1.251.250.003.754546,2.522.520.095.8531,056,2.012.010.367.3521,146,2.392.390.369.4521,146,2.662.660.3611.752
16、1,146,Reuters:SPRD.OQ,Bloomberg:SPRD US,Enterprise value(USDm),115,364,832,933,820,696,Valuation Metrics,Buy,P/E(DB)(x)P/E(Reported)(x),nmnm,8.18.1,7.97.9,11.011.0,9.39.3,8.48.4,Price(25 Oct 12)Target Price52 Week rangeMarket Cap(m),USD 22.19USD 28.70USD 13.21-29.29EURm 886USDm 1,146,P/BV(x)FCF Yiel
17、d(%)Dividend Yield(%)EV/Sales(x)EV/EBITDA(x)EV/EBIT(x),2.345.70.01.1nmnm,4.9827.90.01.14.65.3,3.59nm0.51.25.36.1,3.022.91.61.36.88.3,2.373.31.61.05.26.1,1.903.91.60.74.04.7,Company Profile,Income Statement(USDm),Spreadtrum,Communications,Inc.,is,a,fabless,Sales revenue,105,346,674,727,845,973,semico
18、nductor company that designs,develops andmarkets baseband processor,radio frequency(RF)transceiver and turnkey solutions for the wirelesscommunications and mobile television market.TheCompany offers a portfolio of integrated basebandprocessor solutions that support a range of wirelesscommunications
19、standards,including global system formobile communications(GSM),general packet radio.Price Performance322824201612,Gross profitEBITDADepreciationAmortisationEBITNet interest income(expense)Associates/affiliatesExceptionals/extraordinariesOther pre-tax income/(expense)Profit before taxIncome tax expe
20、nseMinoritiesOther post-tax income/(expense)Net profitDB adjustments(including dilution)DB Net profit,46-1180-190001-18100-190-19,163801006920037570067067,3011562001362-101215015001340134,299137240113400011714-101040104,343157240133600014017-101240124,388172230149700015619001370137,8Oct 10 Jan 11Apr
21、 11 Jul 11 Oct 11Jan 12Apr 12 Jul 12,Cash Flow(USDm),Cash flow from operations,20,168,122,89,108,117,SpreadtrumMargin Trends3020100,HANG SENG INDEX(Rebased),Net CapexFree cash flowEquity raised/(bought back)Dividends paidNet inc/(dec)in borrowingsOther investing/financing cash flowsNet cash flowChan
22、ge in working capital,-1280044-71-19-9,-16152001-1104370,-157-350-566447140,-56330-18-39472340,-70380-18591116111,-73440-18694126124,-10-20,09,10 11EBITDA Margin,12E,13EEBIT Margin,14E,Balance Sheet(USDm)Cash and other liquid assetsTangible fixed assetsGoodwill/intangible assets,702729,2272938,33642
23、95,28543105,4044697,5335090,Growth&Profitability,Associates/investmentsOther assets,4549,55159,13196,40180,42195,43223,25020015010050,6040200-20,Total assetsInterest bearing debtOther liabilitiesTotal liabilitiesShareholders equityMinorities,21944611051150,508452643101990,6811122563683112,6537319927
24、23792,784782202974843,939832503346033,0,09,10,11,12E,13E,14E,-40,Total shareholders equityNet debt,115-26,199-182,313-224,381-212,487-326,606-449,Sales growth(LHS),ROE(RHS),Key Company Metrics,Solvency0-20-40-60,Sales growth(%)DB EPS growth(%)EBITDA Margin(%)EBIT Margin(%)Payout ratio(%)ROE(%)Capex/
25、sales(%),nm2.8-10.9-18.4nm-16.911.0,229.6na23.020.00.043.04.5,94.7101.123.220.23.652.823.3,7.8-20.018.815.517.730.17.7,16.219.118.615.814.928.78.3,15.210.917.715.313.425.27.5,-80-100,09,10,11,12E,13E,14E,Capex/depreciation(x)Net debt/equity(%)Net interest cover(x),1.5-22.6nm,1.5-91.5nm,7.9-71.6nm,2.
26、3-55.6nm,2.9-67.0nm,3.2-74.2nm,Source:Company data,Deutsche Bank estimates,Net debt/equity(LHS)Jessica Chang+886 2 2192 2838Page 2,Net interest cover(RHS),Deutsche Bank AG/Hong Kong,29 October 2012Semiconductor and 6)slower-than-expected recovery of global macro economy,which could result in weaker
27、mobilephone demand worldwide.,Deutsche Bank AG/Hong Kong,Page 3,29 October 2012Semiconductor potential re-rating in sight.5Initiating coverage with Buy.7Multiple growth drivers.7Smartphone the hottest segment.7Asia baseband investment recommendation Buy both SPRD and MediaTek tomaximize potential up
28、side.9TD-SCDMA the home turf.10Long-term efforts bearing fruit.10Overview of TD-SCDMA baseband market.13Competitive landscape for TD chip suppliers.14EDGE for emerging market.18A transition product,but seeing sound demand.18WCDMA a new opportunity.20The mainstream 3G standard.20LTE to accelerate in
29、China.22China Mobile showing aggressiveness on LTE.22Declining 2G business.242G market mature and competitive.24Weakening 2G feature phone demand.24Intense competition leads to sharp ASP declines.25SPRD still a solid player in 2G,but this segment becoming less significant.26In-house connectivity IC.
30、28Richer content increase chipset ASP.28Financial analysis.29Sound profitability.29Appendix A:The TD market.34A proprietary segment located mainly in China.34CMs EDGE network seeing traffic jam.34Wi-Fi and TD-SCDMA to enhance CMs network quality.35TD network utilization still low at 15-20%.35Increas
31、ing availability of handset models good for TD demand.36TD handset procurement extended to CMs local branches.36Continued growth in TD-SCDMA subscriber base.37Appendix B:Company background.39A home-grown baseband fabless in China.39Early efforts on TD bearing fruit.39SPRD enables low-cost TD smartph
32、one.40WCDMA a new key focus for R&D.40Foundry and back-end.40,Page 4,Deutsche Bank AG/Hong Kong,29 October 2012Semiconductor potential re-rating in sightWe consider SPRDs valuation to be attractive.Its shares trade at 11.0 x and 9.3x itsFY12-13E EPS of US$2.01 and US$2.39,respectively,towards the lo
33、w end of the 10-24x range for its major peers worldwide.For instance,the average PERs on 2013Eearnings for Taiwan and US semi peers are 12.9x and 16.6x,respectively,comparedwith SPRDs 9.3x,even though SPRD enjoys higher ROEs and may deliver strongergrowth next year.SPRDs share price re-rated once in
34、 2010-2011,when it demonstratedan impressive turnaround.However,the share price has been consolidating within thecurrent range this year,which we attribute to its product transition and rising R&Dspend.Nevertheless,we expect SPRD to resume its YoY earnings momentum in 2Q13.Therefore,we suggest inves
35、tors begin accumulating SPRD.Our target price of US$28.7 is set at the low end of the indicative values of US$28.7 andUS$35.4 derived from our EVA and BV vs.(ROE-g)/(COE-g)appraisals,which translatesinto 12x FY13E EPS.Hence,we believe that our target price should be conservative.Wesee potential for
36、SPRD to be further re-rated if its smartphone progress is moresuccessful than we modelled.Figure 1:Peers valuation comparison,Deut sche Bank est im at e NT$New TW GAAP,Rat ing,Current Price Target PriceNT$NT$,EPS(NT$)P/E12E 13E 12E,(x)13E,P/B12E,(x)13E,P/S12E,(x)PEG(x)13E 12E 13E,RO E12E,(%)M kt cap
37、13E US$m n,SPRD.O Spreadtrum2379.TW Realtek,BUYHOLD,22.252.7,28.757,2.04.3,2.4 11.04.1 12.3,9.312.9,3.01.4,2.41.4,1.61.0,1.41.0,NA0.4,0.5NA,30.111.9,28.711.0,1,146898,2454.TW Mediatek,BUY,318.5,435,12.4 15.1 25.8,21.0,2.2,2.3,4.1,3.6 118.3 0.9,10.3,11.2,14,689,2458.TW Elan3034.TW Novatek3227.TWO Pix
38、art3545.TW Orise,BUYBUYHOLDBUY,45.3106.562.332.8,691118945,2.77.23.73.0,3.6 16.78.2 14.85.9 16.83.7 10.9,12.713.010.68.9,2.92.71.41.6,2.62.51.31.5,2.61.82.10.8,2.21.61.40.6,0.10.9NA0.1,0.40.90.20.4,18.918.98.515.3,21.820.113.017.6,6452,195282155,3697.TW MStar6286.TW Richtek,BUYHOLD,246.0164.5,311168
39、,11.5 14.1 21.412.0 12.8 13.7,17.512.9,3.93.8,3.63.4,3.52.1,3.41.9,NA0.8,0.81.9,18.429.0,21.427.7,4,478841,8081.TW GMT,BUY,94.8,118,8.3,9.1 11.4,10.4,2.0,1.9,1.7,1.6,4.8,1.1,17.9,18.9,279,8299.TWO Phison,HOLD,223.0,238,15.3 16.9 14.6,13.2,3.2,2.9,1.2,1.0,3.2,1.3,23.8,23.2,1,372,Average,15.4,12.9,2.6
40、,2.4,2.0,1.8 16.1 0.8,18.5,19.5,Current Price Target Price EPS(US$),P/E,(x),P/B,(x),P/S,(x),PEG(x),RO E,(%)M kt cap,Deut sche Bank est im at e US$,US$,US$,12E 13E 12E,13E,12E,13E,12E,13E 12E 13E,12E,13E US$m n,ADI.N,ADI,HOLD,38.7,38,2.1,2.4 18.1,15.9,2.9,2.7,4.3,4.0,NA,1.1,16.3,17.1,11,565,BRCM.O Br
41、oadcomMRVL.O MarvellNVDA.O NvidiaQCOM.O Qualcomm,BUYHOLDHOLDBUY,31.67.712.257.4,4091470,1.20.50.93.5,1.3 27.30.5 15.40.9 12.93.8 16.4,23.714.713.715.3,2.30.92.22.2,2.10.91.51.9,2.31.42.53.9,2.11.41.73.4,NA3.10.10.4,1.6NANA2.0,9.46.115.920.1,9.46.512.318.2,17,8344,3617,54597,823,TXN.N,Texas Instrumen
42、ts,HOLD,28.1,28,1.6,1.7 17.5,16.5,3.0,3.5,2.6,2.4,NA,2.8,16.4,16.3,31,528,Average,18.0,16.6,2.2,2.1,2.8,2.5,1.2,1.9,14.0,13.3,Current Price,EPS(US$),P/E,(x),P/B,(x),P/S,(x),PEG(x),RO E,(%)M kt cap,Consensus,US$,12E 13E 12E,13E,12E,13E,12E,13E 12E 13E,12E,13E US$m n,ADI.NALTR.O,ADIAltera,38.730.2,2.1
43、1.7,2.5 18.31.9 17.4,15.516.2,2.82.9,2.62.6,4.35.4,3.94.9,NANA,0.92.2,16.317.8,17.417.2,11,5659,684,BRCM.O Broadcom,31.6,1.2,1.6 27.0,20.3,2.4,2.1,2.0,1.9,NA,0.6,23.9,20.4,17,834,CY.N,Cypress,10.1,0.1,0.3 187.2,30.0,6.4,5.7,1.9,1.7,NA,0.1,26.0,41.4,1,473,HIMX.O,Himax,1.8,0.3,0.3,6.2,5.2,NA,NA,0.4,0.
44、4,0.0,0.3,11.6,NA,313,LSI.O,LSI Logic,6.8,0.3,0.3 20.6,20.7,3.2,2.9,1.5,1.5,0.2,NA,33.6,25.9,3,764,MRVL.O Marvell,7.7,0.5,0.5 14.3,14.2,0.9,0.8,1.4,1.4,NA 77.3,9.0,8.4,4,361,NVDA.O NvidiaQCOM.O QualcommSPRD.O Spreadtrum,12.257.422.2,0.93.42.0,1.1 13.63.5 17.12.2 11.3,11.416.210.2,1.53.02.6,1.42.72.0
45、,1.75.21.5,1.64.51.3,NA0.6NA,0.62.90.9,13.518.928.0,14.317.925.1,7,54597,8231,043,SYNA.OTXN.NXLNX.O,SynapticsTexas InstrumentsXilinx,22.728.132.6,0.91.51.8,1.3 24.91.5 18.22.0 18.6,17.918.716.0,1.72.83.1,1.52.82.8,1.42.53.9,1.32.53.6,NANANA,0.5NA1.0,12.016.717.6,13.217.218.9,74831,5288,534,Average,1
46、7.3,15.2,2.4,2.2,2.6,2.4,0.3,8.7,18.2,17.8,Source:Deutsche Bank,Bloomberg Finance LP,company data.Close price as of Oct.25.,Deutsche Bank AG/Hong Kong,Page 5,0,8.6,29 October 2012Semiconductor&EquipmentSpreadtrumFigure 2:SPRD one-year forward-leading PER,45,$,4016X3514X,302520151050Mar-09 Jun-09 Sep
47、-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12Source:Deutsche Bank,Bloomberg Finance LPFigure 3:EVA valuationPV of Operating free cash flow($M)WACC(%)Value of operating cash flowsValue of the tax shieldAppraised value of the enterpriseValue of non-core assets
48、Value of debtValue of minoritiesAppraised value of the equityNumber of shares(m)Appraised share price($)Source:Deutsche Bank,company dataFigure 4:P/B valuation:(ROE-g)/(COE-g)BetaRisk free rate(%)Market risk premium(%)Cost of equity/discount rate(%)Average ROE 13-14(%)Perpetuity growth rate(%)ROE-g(
49、%)COE-g(%)Ratio(x)FY13F BVPS($)Fair value($)Source:Deutsche Bank,company dataPage 6,12X10X8X6X4X8.21,311(44)1,267285(73)1,4795228.71.012.95.726.92.024.96.63.89.435.4,Deutsche Bank AG/Hong Kong,29 October 2012Semiconductor&EquipmentSpreadtrumInitiating coverage with BuyMultiple growth driversWe initi
50、ate coverage of Spreadtrum(SPRD)with a Buy recommendation and targetprice of US$28.7 based on 12x our FY13E EPS.As the home-grown IC design house inChina and the second-largest handset baseband chip provider in Asia,we believe SPRDshould be another major beneficiary(alongside MediaTek)of the booming
