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Foldable phone frenzy is supercharging gains in Chinese stocks
FOLDABLE phones are creating a buzz in the consumer electronics sector, and in China's equity market.
Display maker Tianma Microelectronics Co rallied 77 per cent this year through Wednesday, in the lead up to Samsung Electronics Co unveiling a US$1,980 smartphone with a foldable screen.
Fellow display producer BOE Technology Group Co has jumped 46 per cent since the start of year.
Turnover in both stocks soared as investors bet on hefty demand for screens, especially if Chinese smartphone makers like Huawei Technologies Co follow Samsung into foldable models.
More than US$612 million worth of Tianma shares traded on Wednesday, about 18 times the daily average turnover for last year, while over US$1 billion of BOE shares traded every day in the past week in Shenzhen, far outdoing Tencent Holdings Ltd, Asia's biggest stock by market value.
"The surge in flexible panel makers was partly due to valuation recovery, coupled with support from easing liquidity," said Mark Huang, an analyst with Bright Smart Securities. "Samsung's release of its foldable phone may kick off a new round of upcycle," he said.
Investors went beyond panel makers in the hunt for potential beneficiaries of a foldable phone frenzy.
Puyang Huicheng Electronic Material Co, which provides materials used in panels, has jumped 60 per cent this year and Shantou Wanshun Package Material Co is up 32 per cent.
China International Capital Corp counts both among its top picks for investors to capture the theme.
For Ray Kwok, an analyst with CGS-CIMB Securities Hong Kong Ltd, the trade has even further to run as valuations are below their historic averages.
"Investors who join the trade now may start to feel a little bit of pressure as stocks have gained in the past few weeks, though sector valuation catch-up will continue, adding fuel to the speculation," he said.
Tianma trades at about 18 times 12-month forward earnings, still 26 per cent below its five-year average.
BOE Technology is at 23 times, approaching its five-year average of 24. Mr Kwok's price targets suggest 33 per cent more upside for Tianma and 9 per cent for BOE from Wednesday's close.
Not everyone is that optimistic. He Qi, a fund manager at Huatai PineBridge Fund Management Co, said the stocks may soon face a reality check as gains so far have been driven by speculation rather than fundamentals.
"Flexible is still just an idea," He said of the phones. "It's not guaranteed that panel makers will be able to make a profit out of it - it normally takes two to three years before a new tech proves profitable."
Suppliers elsewhere have also been boosted by Samsung's new phone.
Equipment-maker Finetek Co jumped as much as 24 per cent on Thursday morning in Seoul, heading for its biggest two-day advance on record. Samsung's shares, though, fell as much as 1.5 per cent. BLOOMBERG