Given this mixed bag, we only make minor short-term estimate changes, lowering sales by 9% for 2019 and 2% for 2020. We increase our EBIT for the same periods to SEK 59m and 168m, from previously SEK 16m and 118m, due to lower OPEX (see below for a brief summary). We keep our valuation with a base case of SEK 9 per share and a bear and bull case of SEK 5 and SEK 20 respectively.
Total phone volumes on the market decreased by about 13 percent from Q4’18, driven by non-FPC customers (the likes of Apple & Samsung) and normal seasonality. However, FPC’s sales dropped sequentially by 19%, despite increased market shares and the fact that its customers were better off than the total market drop. Thus, the lower sales than our estimates seem to be solely related to a weaker ASP from the 1511, which in our view could make sales growth challenging during the coming quarters.
The growth will be very much dependent on the success of the 1610 optical sensor, since in-display according to FPC will account for more than half of the market value in 2019 (equal to, we believe, at least some 15 % of total volumes). Our take is that this is bad news since FPC’s position in in-display is not as strong as the one in capacitive. Competitors, such as Goodix has won several models for optical in-display, although it should be mentioned that there have been performance problems. Thus FPC might be lucky and get a second chance but we keep our in-display hopes low before we see some solid traction.
As mentioned above, we have lowered our OPEX estimates. The Q1 gross margin of 23% (expected 24%) includes a positive 1511 effect but there should be more to come. FPC is also working on a new generation capacitive sensor that will be even more cost efficient, which was a positive surprise from a future gross margin perspective. However, we believe there could be a negative gross margin effect from T-Shape (but a significantly higher ASP). All in all, we maintain our gross margin assumptions.
There were no news or surprises from the important smartcard area. FPC is involved in all of the 19 currently ongoing contactless pilots for payment cards, meaning a really strong positioning as we see no good case for contact-based payment cards (VISA and Mastercard require contactless). As previously mentioned, we believe that the Gemalto deal for a couple of hundred thousand sensors is a 2020 thing and that most of it are not for instant delivery.
This note will not be followed by a written update since there is no longer a commissioned research agreement between FPC and Redeye. For the time being, we will maintain our coverage of the company, meaning we will keep our valuation and our estimates updated, until further notice. However, we will not write any more research reports.
The analyst does not hold shares in Fingerprint Cards
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