Casetek’s 3Q GM/OP/NP missed significantly again: Casetek (5264 TT, NotCovered) reported record-low GM at 11.8%, much worse than consensus of23.1%, mainly due to (1) the delay of new NB (announced in Oct 27), and (2)severe ASP pressure at tablet casings. Although opex-to-sales ratio declined to7.9%, versus LT target of 8-9%, OP/NP of NT$0.3/0.4bn still came in wellbelow consensus at NT$1.2/1bn. Casetek expects sequential revenue and GMimprovement in 4Q but the growth magnitude may be subject to NB assemblers''capacity. 1Q17 could be stronger than seasonality thanks to order push-out.

Confident of smartphone order wins in 2017, but it may not be the latestiPhone model: Management sees high possibilities for smartphone project winsin 2017, and Casetek''s Board approved US$66mn capex budget today, whichserves as a supporting evidence. However, the amount might not be justified foriPhone project wins for the latest model(s). Casetek is running at 90%+utilisation rates (10K CNC) and the announced US$66mn capex could onlytransfer into ~1K CNC, while a 10% of iPhone casing orders will require 5KCNC, as per management comments earlier. Casetek expects new equipmentpull-in by year-end or early 2017, which seems to be more pertinent to non-Apple’s ramping schedule. Recall Casetek had indicated during 2Q earningscall that it would also approach mid-to-high end models from non-Apple brands.

Stainless steel frame is better for glass back casing: According to Casetekmanagement, stainless steel is stronger than aluminum and more suitable tosupport the fragile glass cover. Although existing glass-casing models (i.e.Samsung) adopt aluminum frame with die-casting process, Apple may notfollow suit given its higher requirement for surface treatment and precision.Casetek reiterated CNC cycle time may not change much between inner frameand unibody casing, and stainless steel will consume even longer cycle time.

Implications to casing sector: We think Casetek’s potential smartphone orderwin is neutral to Catcher (OW) given the limited scale, while its comment onmetal frame is quite constructive to Catcher and reaffirms our view that metalframe ASP decline for next year’s iPhone should be smaller than feared (see ourCatcher note). 不锈钢展-2017第十八届广州国际不锈钢工业展-效果最好的不锈钢展会-The 17th China(Guangzhou)Int''l Stainless Steel Industry Exhibition