By now, slowing Chinese demand for smartphones is well known – Apple's stock (AAPL) has fallen 6.5% this year, dragging its Asian suppliers with it. But there is evidence that smartphone component prices are bottoming, which bodes well for Asian component suppliers, according to Morgan Stanley.
Thanks to earthquakes in Taiwan and Japan, we have a window of opportunity to stock up component suppliers that are well positioned in the second-half this year, when Apple needs suppliers to churn out more components for its iPhone 7.
Morgan Stanley's favorite stock is AAC Tech (2018.Hong Kong), which supplies acoustics for Apple. Analyst Jasmine Lu wrote:
Apple iPhone 7 is expected to have the biggest refresh cycle in 2H16, with almost double the value content, featuring stereo effects and waterproof functions. Android OEMs continue to migrate from speakers to speaker boxes, and if Apple's waterproof-based speaker box gains traction in 2H16, it could further pressure Android OEMs to move in that direction.
And there are not too many competitors. AAC and GoerTek (002241.Shenzhen) are taking the lion's share of speaker boxes and receivers for all major OEMs.
Dual camera is another bright spot. Huawei's new flagship P9 already has dual cameras and is selling well, while Apple is expected to adopt the same dual cameras for iPhone 7. Largan Precision (3008.Taiwan) still dominates over 70-80% of the high-end market but Sunny Optical (2382.Hong Kong) is catching up.
Display is a third good place to be at. Prices for mid-range smartphone display modules have rebounded 15-20% in the first-half, Morgan Stanley finds, in part because of "the earthquake in Tainan, Taiwan, this February at CPT, Hannstar and Innolux;" The bank likes China's Tianma (000050.Shenzhen).
Source: Are Smartphones Set For A Rebound?
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