TCL Communication's feature phone shipment soared 63%

But rising smartphone development cost will remain a threat.

According to Maybank Kim Eng, most of TCL Communication's shipment growth was still supported by its feature phone sales which accounted for 13% MoM / +63% YoY to 3.0m, representing 84% of total shipment (Feature phone accounted for 85% of total shipment in December 2012 or 93% of total shipment in January 2012). 

Here's more:

Total handset shipment is at 12% MoM / +81% YoY to 3.6m. Smartphone shipment is at 7% MoM / +322% YoY to 0.6m, representing 16% of total shipment (Smartphone accounted for 15% of total shipment in December 2012 or 7% in January 2012). 

Feature phone shipment is recorded at 13% MoM / +63% YoY to 3.0m, representing 84% of total shipment (Feature phone accounted for 85% of total shipment in December 2012 or 93% of total shipment in January 2012). 

Overseas shipment is 14% MoM / +64% YoY to 3.1m, representing 85% of total shipment (overseas shipment accounted for 87% of total shipment in December 2012 or 94% in January 2012). Lastly, China shipment is at 2% MoM / +343% YoY to 0.5m, representing 15% of total shipment (China shipment accounted for 13% of total shipment in December  2012 or 6% in January 2012). 

Action: The yearly growth of the total handset shipment in January was encouraging (the overseas shipment has been recovering since 4Q12F). But the shipment growth was still supported by its feature phone sales.

Therefore, we see a limited contribution to the total revenue growth. On the other hand, we expect the R&D and S&D costs in smartphone development continue to hike, which will put their earnings at risk. (It still shows a long way from achieving economies of scale in smartphones)

We keep our SELL rating and target price of HKD2.10 unchanged (We will review our earnings estimates after the 4Q12F result, which should be announced in the last week of February). 

To recap, the company already announced a profit warning for 4Q12F and FY12F in early January and expected to record a loss. The management said the ASP and gross profit margin of smartphone and feature phone were under pressure.