Japan Display (6740 JP) (Downgrade to Underperform)8 We see elevated risk to 2H guidanceDamian Thong We believe JDI will miss FY guidance due to sales shortfalls vis-¨¤-vis its main customer. JDI¡¯s ability to secure stable net profit remains challenging. We cut our rating to Underperform from Neutral with a TP of 50 from 100 previously. Eye on Asia9 MacVisit: Chongqing Brewery10 MacVisit: Fuling Zhacai11 MacVisit: Luzhou Laojiao12 MacVisit: Qianhe Condiment and Food13 MacVisit: Taiwan Cement14 Wuliangye Yibin (A-Share) (000858 CH) (Neutral)15 Xiaomi (1810 HK) (Outperform)16 AGC (5201 JP) (Neutral)17 JP FinTech: Banks¡¯ Cashless Initiatives18 Toyobo (3101 JP) (Outperform)19 SPC Samlip (005610 KS) (Outperform)20 Star Petroleum Refining (SPRC TB) (Upgrade to Outperform)21 Thai banks22 2Please refer to page 49 for important disclosures and analyst certification, or on our websitemacquarie/research/disclosures.20 November 2018 Greater ChinaEQUITIES InsideHK/China consumer valuation table 2Baijiu top players will eventually be themarket winners 4Beer companies work hard to upgradeproduct portfolios 14Condiment industry going for scale andrestaurant catering channels 19Moutai (A-Share) (600519 CH) 23Wuliangye Yibin (A-Share) (000858 CH) 26MacVisit: Luzhou Laojiao 29MacVisit: Chongqing Brewery 34MacVisit: Fuling Zhacai 39MacVisit: Qianhe Condiment and Food 44Analysts Macquarie Capital Limited Linda Huang, CFA+852 3922 4068linda.huang@macquarieTerence Chang +852 3922 3581terence.chang@macquarieSunny Chow +852 3922 3768sunny.chow@macquarieCici Yu +86 21 2412 9078cici.yu@macquarieHugo Shen +86 21 2412 9077hugo.shen@macquarieChina consumer tour takeawaysAlcohol and condimentsKey points We hosted a visit to alcohol and condiment companies in SouthwesternChina. Condiments industry going for scale & restaurant catering channels. The top players in Baijiu will eventually be the market winners; beercompanies are working hard to upgrade product portfolios. Top Consumer sells: CRB, Hengan, Dali Foods and Samsonite; top buys:Sun Art, CITS and Moutai.Conclusion We hosted a visit to alcohol and condiment companies in Southwestern China.Some companies are worried about the impact of the macro slowdown and are¡°cautiously optimistic¡± on the outlook. We expect baijiu companies under ourcoverage to see revenue growth moderate from 20% in 2018 to 13-15% in2019. The baijiu industry will continue to consolidate, while the beer andcondiment industries go through a consumption upgrade.Impact Top players in Baijiu will eventually be the winners. Most industry expertsand companies agree that China¡¯s baijiu industry will remain in oversupply.However, consumers are increasingly brand-discerning and the key playersshould consolidate the market. They said the off-the-cliff demand contractionseen in the last downcycle (2012 anti-corruption drive) was unlikely to occuragain, as most of the companies have learned their lessons and are managingchannel inventories prudently. Moutai still holds the strongest brandingnationwide, with limited product availability.Beer companies working hard to upgrade product portfolios. The beerindustry is dominated by Chongqing Brewery (83% market share) inChongqing and CRB Snow (60%+ market share) in Sichuan. According toindustry experts, Anheuser-Busch InBev¡¯s (ABI BB, €68.00, Neutral, TP:€66.00) sales have grown at 40-50% YoY in the past few months in theSichuan restaurant channel, with teens growth in the Key Account (KA) andnightclub channels as the company offers the full range of the productportfolio. Chongqing Brewery is leveraging its high-end products to penetrateSichuan, with an 8.8% market share there as of 2017. The beer upgrade trendis obvious. However, beer companies are unlikely to hike prices like-for-likeagain in 2019, due to market share concerns amid fierce competition. Condiments industry going for scale and restaurant catering channels.We believe the condiments industry remains in a sweet spot, due to theongoing consumption upgrade trend. As such, we believe the smaller playerswithout branding power face eventual extinction, with the leaders consolidatingthe market. Meanwhile, rapid growth in restaurant dining and in deliveryservices will keep the restaurant catering channel in the spotlight.Outlook We maintain our cautious view on the consumer sector.For the consumer sector overall: top sells: CRB, Hengan, Dali Foods andSamsonite; top buys: Sun Art, CITS and Moutai. 3 Please refer to page 3 for important disclosures and analyst certification, or on our websitemacquarie/research/disclosures.20 November 2018 Greater China EQUITIES Camera module peers valuationCompany Ticker RMkt cap(US$m)3MADTO(US$ m)TP (lcy)Up- side(%)Hon Hai 2317 TT O 33,462 1 110 48Sunny Optic. 2382 HK U 10,499 104 60 -20Sharp 6753 JP NR 7,969 32O-Film 002456 CH O 5,029 87 20 56Lite-On Tech 2301 TT NR 2,918 1 NA NAHolitech 002217 CH2,228 41 NA NALG Innotek 011070 KS O 2,111 2 165,000 65Lianchuang 002036 CH NR 807 6 NA NAQ-Tech 1478 HK NR 687 4 NA NAPrimax 4915 TT NR 597 6 NA NASource: Bloomberg, Macquarie Research, November2018Prices as of close on Nov 16, 2018.Analysts Macquarie Capital Limited Allen Chang +852 3922 1136allen.chang@macquarieVerena Jeng +852 3922 3766verena.jeng@macquarieJin Guo +86 21 2412 9054jin.guo@macquarieHeidi Leung +852 3922 3783heidi.leung@macquarieFiona Liu +852 3922 1368fiona.liu@macquarie Macquarie Capital Limited, Taiwan Securities BranchLynn Luo +886 2 2734 7534lynn.luo@macquarieCamera modulesTougher; the end of a strong cycle Key points Negative outlook: oversupply, intensifying competition, low margin due totransparent BOM cost structure, and weak 3D sensing solutions.Unlikely to see ASP/margin improvement in the long term given enhancingsoftware capabilities continue to simplify module design.De-rating after years of strong cycle. Top sell ideas: Sunny Optical, AAC,Largan; Top buy ideas: Luxshare, O-Film. We believe camera lens & modules industry has peaked in 2018 1) Weak smartphones, we expect shipments to fall 1% YoY in 2019E (vs.street¡¯s high expectation of +4% YoY, Smartphone Tracker v.15, link); 2)volume increase but not ASP increase from tri-camera, which is already instreet¡¯s expectation, evidenced by the consensus bullish view on Largan (link,Nov 5). We believe street¡¯s expectation is way too high and expect furtherearnings cuts; we¡¯ve already considered a bullish scenario of 20% tri-camadoption in 2019E; 3) oversupply: numerous suppliers, aggressive capacityexpansion, price competition; 4) simplified design via better software: dual- cam can be realized by 1+1 (two single-cam modules), and tri-cam could be2+1, limited room for camera module to expand GM; 5) weak 3D sensing:evidenced by recent guidance cut from Lumentum (link), AMS (link), and IQE(link), Fig 1. O-Film also guides China smartphone brands have higher interestin tri-cam than 3D sensing. We have a bearish view on Handset lenses (link). Impact O-Film, 1H18 shipments at 245m (+23% YoY), GM at 15.2%: We expect+33%/+31% YoY shipment growth in 2018/19E. Monthly capacity expansion:1) single-cam for China smartphones, up to 60m in 4Q18 from 35m in 1H18; 2)dual-cam for China smartphones up to 20m+ in 4Q18 from 17m in 1H18; 3)dual-cam for iPhones to start mass production in 2H19. Tri-cam: shipments at4-5m units in 9M18, targeting to ship 50m units in 2019E. Sunny Optical, 1H18 shipments at 178m (+16% YoY), GM at 9.4%: 10M18shipments at 344m (+28% YoY), and we model +26%/+10% YoY shipmentgrowth in 2018/19E. Monthly capacity up to 65m in 2018 from 55m in 2017. Luxshare (Lite-On Tech CCM): As we highlighted on Mar 1 (link, EnterCamera), Lite-On Tech sold its camera module business to LuxVisions, whichis owned by Luxshare¡¯s founding family. Luxshare targets to drive itsefficiency, secure its market share in its existing customers (mainly Huawei),and kick off market share gain in 2019/20E. Q-Tech, 1H18 shipments at 103m (+23% YoY), GM at 3.3%: 10M18shipments at 207m (+41% YoY), with 10MPX+ at 44% of total shipment. Q- Tech¡¯s 10MPx+ shipment contribution was at 49% in Oct 2018 vs. 78% ofSunny Optical in 1H18, and 58% of O-Film in 2Q18.Many more small suppliers due to low entry barriers: O-Film is the globalmarket leader, but its market share was only 15% in 2017, showing the marketis fragmented. Top players include: O-Film, Sunny Optical, Q-Tech, Truly,Holitech, Imaging Tech, Sunwin, Hon Hai/Sharp, Zhongxin Rapid, ShineTech, Union Image, Sunrise Digital, Lian Chuang, Xin Feng Shi Jia,CameraKing Tech, KingCome, Primax, Kai Long, Seasons, etc. 4 ¡£¡£¡£¡£¡£¡£