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The electronics supply chain in Taiwan has benefitted considerably from Apple’s decision to adopt displays with the Mini LED backlight for its latest devices. FitTech, a local provider of LED testing equipment and outsourced processing services, was recently assigned a buy rating and a target EPS of NT$195 by Yuanta Investment Consulting. The company was listed in 2019, and this was the first time that it was awarded a buy rating. The main reason for this bullish call is that Apple’s aggressive pursuit of the Mini LED technology will very likely spur the growth of FitTech as a provider of outsourced processing services in 2021. Although FitTech is already recognized as a major provider of testing equipment in the global market, its outsourced processing services can generate a stable stream of monthly revenue as opposed to one-time sales of its hardware.
Established in 2004 and headquartered in Taiwan, FitTech currently has a workforce of 400 employees, of which around 100 are R&D specialists. The company has quickly become a global brand in LED testing / sorting systems, LD testing / sorting systems, and laser tools for various processing applications. Its business portfolio has also expanded beyond provisioning of equipment to encompass R&D, sales of technological solutions, and outsourced processing services. Regarding core competencies, FitTech is known for having cutting-edge expertise in LED, LD, and PD. The company has further branched into laser-based precision tools and OEM collaborations. FitTech boasts that its products and services address a broad range of applications such as LED, LCD, MEMS, fiber-optic communication, optoelectronics, semiconductor manufacturing, precision machining, chip packaging, and laser technologies for advanced industrial applications.
According to Yuanta, Apple will be releasing new devices featuring the Mini LED technology over these three quarters. The production volumes of these devices will vary depending on performances of the different sections of the supply chain with respect to available production capacity and output. Yuanta further points out that FitTech’s revenue from sales of testing and sorting equipment exceeds the industry’s average. Long-term growth is expected for its LD testing solutions and laser-based tools as well. Yuanta currently projects that FitTech’s EPS will increase by a whopping 190% for 2021 and another 18% for 2022. The company’s target P/E ratio is also projected to reach 20 (compared with the average of 19 for the rest of the international competitors). The target EPS in 2021 is currently estimated at NT$195.
Yuanta in its report states that outsourced processing services related to the Mini LED technology is expected to be FitTech’s primary source of revenue next year. In addition to Apple, there are many other potential customers that have demand for Mini LED solutions. This year, outsourced processing services related to the Mini LED technology are estimated to account for around 10% of FitTech’s revenue. Next year, the revenue share could increase to 20-25% if shipments of Apple devices containing the Mini LED technology reach 5-6 million units annually. Indeed, outsourcing activities pertaining to the Mini LED technology will probably begin to ramp up this October.
Besides Apple, many electronics brands as well as actors in the LED and display industries are proactively developing Mini LED products. Samsung has already announced that it will start mass production for its Mini LED TVs next year. Due to the rising demand, first-tier LED manufacturers in Taiwan and Mainland China will certainly depend on FitTech for equipment and outsourced processing services. Ultimately, FitTech is in the best position to take advantage of the Mini LED strategies formulated by Apple and other brands in the electronics market.
Yuanta notes that FitTech will be undertaking significant capacity expansion from the end of this year to the end of the first quarter of 2021. This indicates that the company has the support of some major customers. Yuanta also believes that FitTech has managed to build long-lasting relationships with these clients, so no competitor will be able to easily take its place in the short term.
Apart from LED-related applications, FitTech has also established itself in fields such as laser processing tools and EEL. The company therefore can leverage its diverse offerings to maintain long-term growth. For instance, FitTech has been collaborating with its clients in the development of LD testing equipment and customized laser processing tools in recent years. Its LD testing equipment has successfully entered the supply chains of end products used in the build-out of the 5G infrastructure. Moreover, the visibility of the orders for its customized laser processing tools has been extended well into 2021.
Yuanta’s report asserts that these two product categories together with Mini LED solutions will be the main growth contributors in the future, continuously driving up FitTech’s revenue even after two to three years. Taking account of the above-mentioned factors, the investment consultancy firm anticipates that FitTech’s revenue and profit will begin to take off in 4Q20.