Valuation Method and Risk Statement We derive our price target based on 30x 2016E PE. Downside risks: 1) lower-thanexpecteddemand for high-power laser equipment; 2) products developed by thecompany being unable to satisfy market demand; and 3) slower-than-expecteddevelopment in the robotics industry. Upside risks: 1) higher-than-expecteddemand for laser equipment used to make electronics devices, helped by thelaunch of Apple's next-gen iPhone.

Dual camera module shipments to increase Our recent survey shows that domestic smartphone manufacturers are likely to startusing two cameras for their products (especially low-cost dual camera options). Weexpect dual cameras to become popular in 2017. With O-Film's dual camera productsbecoming more mature, we expect shipments to increase in H216. Meanwhile, theincreasing contribution of the company's high-pixel camera module products is likely tohelp improve the ASP of its camera modules. Ramp-up of FPM shipments Fingerprint module (FPM) has become a standard configuration for smartphones, asmost newly launched low-end smartphones (priced at cRmb600) are equipped with thisfeature. In our previous report, we raised O-Film’s 2016E FPM shipments to 166m units(from 151m). The company announced that June shipments were close to 20m units. Both the strong demand and supply were in line with our expectations. We maintainour 2016E FPM revenue of Rmb6.3bn for the company. Raising our earnings estimates Given that demand for dual camera modules is likely to increase, we raise our 2017Eproduction capacity by 10% and capacity utilisation rate from 80% to 90% for O-Film. Overall, we raise our 2017-18E camera module revenue to Rmb9.7/10.3bn. As a result,we raise our 2017-18E revenue by 7%/9%. In our view, the market may recently havebeen overly optimistic about the company's thin-film touchscreen business moving intothe OLED value chain in 2017. As the progress of this business remains to be seen, wemaintain our 2017-18E revenue for the company's touchscreen business. We maintainour gross margin estimates for the company's various product categories and raise our2017-18E net profit by 6%/9%. Valuation: Raising PT to Rmb36.00 (from Rmb32.00) Our DCF-derived price target of Rmb36.00 (WACC=7.8%) implies 29x 2017E PE, belowthe historical average (33x) but slightly higher than peers (28x). O-Film's net profitCAGR in 2015-17 is likely to reach 65%, well above the industry average (c18%). Wemaintain our Buy rating, as we believe the PT-implied valuation is reasonable.

Faster earnings growth. Hikvision reported H116 revenue/net profit of Rmb12.6bn/2.6bn, up 29%/18% YoY. Q2 revenue/net profit jumped 33%/26% YoY to Rmb7.4bn/1.5bn. Earnings have beenrising steadily. Overseas revenue grew c40% YoY in H1, and its share in total revenuerose to 29%. Factoring in the acquisition of British security firm SHL in May, weforecast the company to maintain fast overseas earnings growth in H2. Steadily higher gross margin. Hikvision had an overall gross margin of 40% in H116, up from 38% in H215. Grossmargin on front-end audio and video products, the biggest revenue contributor, was47%, up 2ppt from H215; gross margins on other major products (eg, back-end audioand video products) were flat. Meanwhile, the overseas business posted a 5ppt HoHincrease in gross margin to 48%, the historical average, helping boost overall GM. Likely to enjoy 10% tax rate again. Recently, the Ministry of Finance, State Administration of Taxation, NDRC and MIITissued a circular saying companies meeting the criteria of a national key softwareenterprise may enjoy a preferential tax rate in 2015 and 2016. We estimate Hikvisioncould see its applicable tax rate fall to 10% from the current 15% from H216 onwards. Also, the company could obtain a refund for taxes it overpaid in 2015, which would beaccretive to earnings. Valuation: Maintain Buy rating. Hikvision is trading at 18x 2016E PE and 14x 2017E PE (historical average -1 S.D.),respectively. Our DCF-based price target of Rmb31.00 assumes a WACC of 6.8%. Wemaintain our Buy rating.

Major competitor cuts production and raises prices. We noticed that Sanan's main competitor, Epistar, tried to improve profitability in Q216by shutting down some inefficient capacity, raising LED chip's ASP and exiting someterminal application markets. In our view, as China's largest LED chip manufacturer,Sanan's competitive environment is likely to improve notably. Based on our calculations,Sanan is now producing at its full capacity and LED chip prices have been steady orrising. These should help Sanan improve its LED business revenue and gross marginfrom Q216 onward. Obtained subsidy for purchased equipment; participated in industrial fund. Sanan recently announced that it received a subsidy of Rmb209m in full for itspurchased equipment. While this subsidy will be recognized by instalments, weestimate it to help increase Sanan's non-operating income by cRmb26m in 2016. Apartfrom this, Sanan participated in the establishment of Fujian Anxin Industrial InvestmentFund, together with the National Integrated Circuit Industry Investment Fund andindustrial equity investment funds in Fujian Province. The Anxin fund is likely to reachRmb7.5bn, which is planned to be all invested in the integrated circuit industry. Thismay help bring Sanan more project investments from government-sponsored industrialfunds. Compound semiconductor likely to gradually contribute to earnings. Sanan entered the compound semiconductor industry in 2013 and began a productcertification process in H215. We expect this segment to start contributing revenue in2016. The company also recently announced plans to wholly acquire GCS Holdings, Inc(GCS) for US$226m, aiming to bolster its strength in designing and producingcompound semiconductors. We estimate incremental net profit of over Rmb60m p.a. ifthe transaction is completed. Meanwhile, c70% of the Rmb7.5bn Anxin fundmentioned above will be invested in the compound semiconductor industry. This mayhelp Sanan to further accelerate its presence in compound semiconductor business. Valuation: Maintain Buy rating. Sanan is now trading at 13x 2017E PE, below its lowest historical forward PE of 14x. We derive our price target of Rmb33.80 based on the DCF methodology (WACC7.1%). Maintain Buy rating.

净利润增长符合预期 三安光电前三季度录得营业收入和净利润分别为36.0亿元和14.5亿元,同比分别增长3.6%和37.8%;第三季公司分别实现营业收入和净利润13.1亿元和5.4亿元,同比分别增长0.7%和41.4%。前三季度公司净利润增长符合我们预期(2015年同比增长36%),但收入增长低于我们预期(2015年同比增长30%),主要是由于:1)新增投产设备数量低于预期;2)第三季度LED产品业务收入确认延迟;以及3)公司化合物半导体产线刚刚投产,产品送样尚未贡献收入所致。 LED产品收入确认延迟导致第三季度毛利率下滑 第三季度三安光电实现毛利率42.5%,低于第一季度48.4%和第二季度48.0%的水平;前三季度公司实现毛利率46.1%,略高于我们全年毛利率预测(44.4%)。我们认为,第三季度公司毛利率下降,主要是由于:1)LED芯片业务毛利率有所下降;以及2)高毛利的LED产品业务第三季度收入确认延迟所致。 存货天数下降帮助持续改善营运效率 我们注意到公司近期营业效率提升明显,第三季度营业周期从第一季度的245天,下降到169天。这主要是由于公司第三季度存货周转天数从第一季度257天下降到158天,达到历史最好水平所致。 估值:受惠于国家集成电路产业政策,维持“买入”评级 我们认为三安光电是国内少数能够获得设备补贴的LED企业,国家集成电路产业基金入股,有望帮助公司进一步拓展化合物半导体业务,同时也给公司带来外延式发展机会。三安光电目前股价对应大约18倍2016年PE,相当于公司历史平均PE估值-1倍标准差的水平。我们维持公司33.80元目标价,目标价基于25倍2016年PE得出,该估值与行业可比公司平均水平相当。我们维持三安光电“买入”评级。

苹果手表业务影响上半年净利润。 环旭电子公告,上半年收入和净利润分别实现96亿元和2.4亿元,同比分别增长38%和下滑31%,符合前期公司预告。上半年苹果手表业务集中计提,导致全资子公司环维亏损接近1.6亿元,影响了公司上半年利润率水平。公司上半年毛利率为9.6%,同比、环比分别下滑4.3和2.8个百分点,是业绩下滑的主要原因。 三季度业绩或重启增长。 不过我们看到,随着苹果手表出货量逐渐增长,6月该业务已现盈利,我们预计第三季度开始环维有望扭亏为盈。同时,全新iPhone有望在第三季度量产,新产品除了继续采用环旭电子目前生产的WiFi模组(预计单价6美元,50%份额),还有望采用公司全新生产的触摸/显示模组(预计单价5美元,50%份额),我们预计新增项目将进一步帮助公司第三季度业绩重启增长。 股权激励带来长期利好。 公司同时公告股权激励草案,拟向1406位公司核心人员以15.54元行权价格,授予3000万份股票期权,占公司总股本1.38%。我们认为,环旭电子之所以能够持续获得苹果新项目,离不开其微型化模组生产技术和高效的生产管理,本次股权激励期权等待期为2年,且分为5期行权,有助于稳定核心技术、管理人员,将保障公司竞争优势和长期发展。 估值:维持“买入”评级。 环旭电子目前股价对应17倍2016年PE,低于公司历史估值最低水平(18倍),也低于A股可比公司平均水平(25倍)。我们认为,公司是少数能够在苹果各类新产品中持续获得全新项目的供应商,我们预计,随着苹果新产品的投放,2015年下半年开始,环旭电子的收入规模和毛利率水平有望得到持续提升。我们维持公司“买入”评级以及29.00元的目标价。

净利润增长36%,符合预期。 三安光电公告,2015年上半年公司收入和净利润分别为22亿元和9亿元,同比分别增长5%和36%,净利润增长符合我们的预期。截至2015年上半年,公司募投计划采购的100台MOCVD(金属有机物化学气相沉积)设备已经到货32台,上半年新增产能尚处于安装调试阶段,并未开始贡献产能和效益,导致公司上半年收入增速较低。 综合毛利率同比大幅提升7个百分点。 公司上半年综合毛利率为48.2%,同比大幅增长7.0个百分点,环比亦增长超过3.1个百分点。其中,LED相关业务毛利率达到44.4%,同比大幅增长7.3个百分点,环比亦增长超过3.4个百分点。我们认为这主要是由于:1)蓝宝石、黄金等原材料成本大幅下降;2)汽车LED照明等高端应用逐渐放量,帮助提升产品结构;3)公司上半年产能利用率较高所致。 预计2015/16年净利润复合增长率48%。 LED行业下半年进入旺季(从公司的历史平均来看,上下半年净利润占比约为45:55),加上公司新增产能(我们预计全年新增50台MOCVD设备)有望在下半年集中投放,我们预计下半年三安光电收入有望同比大幅增长。同时,我们预计2015年全年LED相关业务毛利率有望维持较高水平(预计约为45%),维持对于公司2015/16年净利润复合增长率48%的预测。 估值:维持“买入”评级以及目标价33.80元。 三安光电目前股价相当于19倍2016年PE,低于公司历史平均水平(22倍),以及A股和全球可比公司水平(27倍和21倍),我们维持公司“买入”评级,以及33.80元的目标,该目标价基于瑞银VCAM贴现现金流模型得出(WACC=9.4%),相当于25倍2016年PE。

苹果手表业务影响上半年利润. 环旭电子预告,在收入同比增长38%的情况下,上半年实现净利润2.4亿元,同比下滑31%,低于我们和市场预期。根据我们与公司的沟通,公司表示这主要是因为上半年苹果手表业务集中计提,亏损1.5亿元所致。不过6月份公司的苹果手表业务已经实现盈利,下半年苹果手表出货有望继续增长,或将实现扭亏。 触摸/显示模组7月开始出货. 随着全新iPhone的量产,下半年进入行业旺季。同时,全新iPhone除了继续采用公司生产的WiFi模组,还将采用公司生产的触摸/显示模组,我们预计该类产品7月开始出货,单价约为5美元,且环旭电子有望获得50%的份额。加上苹果手表业务,我们预计下半年环旭电子收入和净利润将重回增长。 资本支出额以及管理、财务费用率有望大幅下降. 公司对于新产品苹果手表和触摸/显示模组产线的投资在上半年已经完成,下半年资本支出将大大减少,有利于帮助提升现金流水平。同时,前期大规模研发投入和长期负债的增长,导致较高的公司管理和财务费用率。我们认为下半年随着新产品投产,研发费用将有所降低;随着公司偿还较高利率的长期负债,费用率水平将进一步降低。 估值:处于历史较低水平,维持买入评级. 随着苹果相关新产品持续导入生产,我们预计公司2015-16年净利润有望实现64%的年复合增长率,公司目前股价对应17倍2016EPE,大幅低于公司历史平均水平(29倍)以及可比公司平均水平(24倍)。我们维持买入评级和29.00元的目标价(基于33倍2016EPE得出)。