6M21 financial data from 161 sample downstream (components/EMS/IPC/auto) companies showed (1) post-1995 record-high raw material inventory days for power supply, connector and IPC, reflecting procurement anxiety amid IC supply tightness; (2) post-1995 record-high finished goods inventory days for connectors, lens, cooling and (rigid) PCB, reflecting customers’ slower pull-in from PC, handset and consumer electronics; (3) auto supply chain’s post-1995 record-high total inventory days reflecting business model change from just-in-time and IC supply disruption; (4) iPhone assemblers’ finished goods inventory level less a concern, but seeing raw material inventory growth acceleration (+27% YoY, vs sales +15%).

(5) record-high capex intensity in power supply (led by AcBel) and PCB (including CCL, substrates, FPC and RPCB); (6) deceleration in GM YoY expansion, except substrates/auto, reflecting cost inflation, utilisation rates volatility and difficulties in raising ASP; (7) record-high R&D intensity in connectors/FPC (for high-speed/high-frequency), lens (hurt by spec upgrade delay), passive/EMS (for new business opportunities); (8) record-high labour intensity in lens, RPCB and cooling, reflecting their limited exposure to non-Greater-China.

Stock calls: The set of data supports continued strength in substrates and EV ramp (due to accelerating YoY GM expansion and low finished-goods inventory) but cautiousness in PC/NB/smartphones (due to record-high finished-goods inventory). We highlighted our more cautious China smartphone builds in 4Q21 and attributed longer iPhone 13 wait times to noticeable supply constraints (in camera module). We would closely monitor the impact from China’s electricity restriction. Overall, we remain cautious on downstream supply chain with relative picks on Hulane (auto tech), Unimicron (better ABF pricing power) and TXC (attractive valuation for solidifying industry position).