Q Technology: Initiating Coverage With No Moat and HKD 4.70 Fair Value Estimate

We initiate coverage on camera module assembler Q Technology with a fair value estimate of HKD 4.70, no moat rating, and Standard Morningstar Capital Allocation Rating. We think Q Technology is fairly valued as the market has fully priced in the pickup in demand for smartphone camera upgrades and a recovery in smartphone sales after years of tepid demand. We believe intense competition among smartphone camera assemblers means that Q Technology will only benefit temporarily from the volume recovery as image-sensor and lens-set suppliers capture most of the margin expansion related to specification upgrades. Q Technology’s efforts to vertically integrate smartphone camera components and expand its nonsmartphone products should allow it to keep pace with its competitors.