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US EQUITY RESEARCH
18 Jun 2024
Apple
Phenomenal new products and technological barrier to support growth
Company Overview
Apple Inc. (Apple) designs, manufactures, and markets smartphones, personal computers, tablets,
wearables, and accessories and sells a range of related services. The company’s products include iPhone
(52.1% of FY22 revenue), Mac (10.2%), iPad (7.4%), wearables, home, and accessories (10.5%) like AirPods,
Apple TV, Apple Watch, HomePod, and others. The company also has an online services business (19.8%),
which provides services like 1) operating platforms like the App Store and iTunes, which allow customers to
purchase and download applications and digital content; 2) offering digital content through subscription-
based services, including Apple Arcade, Apple Music, Apple News+, Apple TV+, and Apple Fitness+; and 3)
providing a range of other services, such as AppleCare, iCloud, Apple Card, and Apple Pay.
Investment Overview
New XR products to be a new growth driver. Apple’s XR products are expected to be launched in early 2024.
We expect it to be another phenomenal product for Apple on the back of its high user loyalties and product
quality. According to market estimations, the number of units estimated to be sold in 2024 would be
c.500,000 units and the price per unit would be USD3,499. The sales value would be USD1.5bn in 2024 and
is expected to grow at 98% annually, according to GlobalData Forecasts. The company is expected to reach
c.USD64bn in sales in 2030, accounting for 12% of total revenue. The promising XR product is going to be a
new growth driver for Apple in the coming five years.
Progressive premiumisation to support growth. While the volume growth of iPhone, iPad, and iWatch would
become less robust along with the incremental penetration rate, which was seen over the past few years,
we believe future growth will increasingly depend on price hikes for the company's products. Apple has
done a good job in the premiumisation of its products by launching the “Ultra”, “Max”, and “Pro” series for
its current products. iPhone has succeeded in hiking prices over the past few years, from an ASP of USD733
in FY20 to USD876 in FY22. News from industry research stated that the coming flagship iPhone model
“iPhone 15 Ultra” would cost USD200 more than the iPhone 14 Pro Max. We expect Apple’s successful
premiumisation to support the overall products’ ASP hike and moderate revenue growth for the coming few
years.
The technology breakthrough in semiconductor design. Apple not only continues its innovative
advancement across different product types but has also achieved technological breakthroughs in
semiconductors in recent years. In November 2020, Apple unveiled its first ARM-based silicon chip, the “M1”,
and moved away from Intel chips previously used on Mac computers. The silicon-based Macs have a much
better performance overall than those with Intel-based chips, including faster performance, better battery
life, and heat efficiency. Designing its own chips was a win for Apple, which no longer had to depend on
Intel's chips, and it led to better performing products. Mac sales rocketed 31% in 4Q20 after the M1 launch.
Apple has already dropped the M series chips into the iPad Pro. We expect Apple to continuously advance
the technology of their self-designed chips for other devices, including iPhones, Apple Watch, and other
headset models in the future. This will support Apple in keeping its competitive edge across all its product.
We are BUY on AAPL with a TP of USD243 per share. Our TP is based on 37x forward PE, 2.5 SD above its
peers' average due to its strong user loyalty, which supports long-term product growth and higher
shareholder return compared to its peers. AAPL’s share price has outperformed the NASDAQ YTD because
of its iPhone shipments and market share surpassing that of the global smartphone market. We expect
AAPL to achieve steady growth driven by the success of its promising premiumisation and leading product
technology in the long run.
Risks
New product launch delays may harm Apple's growth. After the market forecasted the delay of the XR
headset launch until early 2024, Apple has also scaled back on its ambitious self-driving plans for its future
electric vehicle and postponed the car's target launch date to 2026, as Bloomberg News reported. The delay
in its cars is expected to be due to it lacking manufacturing partners. The difference in the supply chain
between consumer electronics and electronic vehicles is causing uncertainty in this giant project of Apple.
The uncertainty may decrease the visibility of the contribution from the vehicle product in the long run.
Analysts
Jim Hin Kwong Au | [email protected]
Tsz Wang Tam | [email protected]
Key Financial Data
Bloomberg Ticker
AAPL US
Sector
Information
Technology
Share Price (USD)
214.24
DBS Rating
BUY
12-mth Target Price (USD)
243.0
Market Cap (USDb)
3,285.2
Volume (m shares)
97.8
Free float (%)
94.0
Dividend yield (%)
0.5
Net Debt to Equity (%)
-61.4
Fwd. P/E (x)
32.5
P/Book (x)
44.3
ROE (%)
147.2
Closing Price as of 13 Jun 2024
Source: Bloomberg, DBS HK
Indexed Share Price vs Composite Index Performance
Source: Bloomberg
% y
/
y
% y
/
y
% y
/
y
% y
/
y
VVAALLUUAATTIIOONN MMEETTRRIICCSS
- - - - -
- - - - -
CCRREEDDIITT && CCAASSHHFFLLOOWW MMEETTRRIICCSS
DBS Group Research
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Target Price & Ratings History
Source: DBS HK
Analysts: Jim Hin Kwong Au
Tsz Wang Tam
DBS Group Research recommendations are based on an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return, i.e., > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)
*Share price appreciation + dividends
Sources for all charts and tables are DBS HK unless otherwise specified.
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1
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1
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