1. Analysts: Weifeng Liang,Bowen Wu

2. Sector: Technology
Current Price: $ 109.83(As of Nov 3rd)
Market Cap: 591.81B
Beta: 1.55
Dividend Yield: 2.01%
52 Week High: $ 123.82
52 Week Low: $ 89.74
63%11%
10%
5%
11%
FY2016 Revenue Breakdown
iPhone
Macintosh
iPad
Other Products
Services
Hardware
91% Profits
Service
9% Profits
Tons of
Profits
General Information

3. Investment Thesis
Market’s
Overreaction
to Recent
Negative
News is
Creating a
Better Buy-in
Opportunity
iPhone 7/
Plus Sales
Potential
and
Samsung
Note 7’s
Recall
Cell Phone
Upgrade
Demand
&
To-be-released
Milestone
Product in 10th
Anniversary
Long-term
Sales
Growth in
China
Driven by
Blooming
Mid-Class
Recommendation: Strong Buy
Target Price: $147
MOS: 25.29%

4. Investment Thesis 1

5. Market’s Overreaction Is Mispricing Apple
Is Apple starting to Decline?

6. Investment Thesis 2 & 3

7. Strong Cell Phone Upgrade Demands

8. Sales Units FY2015 FY2016 FY2017 FY2018
iPhone 231,218,000 211,870,000 226,715,880 283,394,850
YOY% 7.00% 25.00%
Average
Unit Price
FY2015 FY2016 FY2017 FY2018
iPhone $670.54 645.21 $670 $690
YOY% 3.84% 3.00%
New Products Will Drive iPhone Sales & Average Unit Price Rising

9. Investment Thesis 4

10. China’s Blooming Mid-Class

11. Assumptions:
1. iPhone Sales Target Group: Affluent, Upper Mid-Class and 50% of Massive Mid-Class
2. iPhone Market Share of China: 15%
Known Condition:
1. Incremental Target Group from 2002--2022: 250million households,1 billion Population
2. Average Incremental Target Group Population: 50million Per Year.
Results:
Incremental iPhone Sales Units: 7.5million per year
Scenario:
iPhone Revenue Accounts for At Least 60% of Total Revenue
Assume Revenue Growth Rate 7%, iPhone Sales Units Have To Increase by 4.2%,
Approximately 10million iPhone Sales Units per year.
Conclusion: 7% Growth Rate is Reasonable
Incremental Target Group Will Bloom Revenue Growth
Take iPhone as an Example:

12. DCF Analysis

13. Future Revenue Breakdown Analysis
Sales
Units
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018
iPhone 72,293,000 125,046,000 150,257,000 169,219,000 231,218,000 211,870,000 226,715,880 283,394,850
YOY% 7% 25%
iPad 32,394,000 58,310,000 71,033,000 67,977,000 54,856,000 45,590,000 37,339,666 30,582,378
YOY% 21.82% -4.30% -19.30% -16.89% -18.10% -18.10%
Macintosh 16735000 18,158,000 16,341,000 18,906,000 20,587,000 18,484,000 18,959,757 19,447,759
YOY% 8.50% -10.01% 15.70% 8.89% -6.11% 2.57% 2.57%
Revenue
(in millions)
FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018
Services 9,373.00 12,890.00 16,051.00 18,063.00 19,909.00 24,348.00 29,563.19 35,895.44
YOY% 37.52% 24.52% 12.54% 10.22% 22.30% 21.42% 21.42%
Other
Products
4,474.00 5,145.00 5,706.00 6,093.00 10,067.00 11,132.00 13,547.32 16,486.69
YOY% 15.00% 10.90% 6.78% 65.22% 10.58% 21.70% 21.70%
Revenue
(in millions)
FY2017 FY2018
iPhone $670/unit $151,900.00 $690/unit $195,542.00
iPad $452.47/unit $16,895.00 $452.47/unit $13,838.00
Macintosh $1400/unit $26,544.00 $1400/unit $27,227.00
Services N/A $29,563.19 N/A $35,895.44
Other Products N/A $13,547.32 N/A $16,486.69
Total $238,449.51 $288,989.13
YOY% 11% 21%

14. DCF Results
Current Price: $109.83
Target Price: $147
MOS: 25.29%
Assumption:
Revenue(2019-2026) Growth Rate: 7%
Constant Growth rate: 3%
Discount Rate: 11%
6% 6.50% 7% 7.50% 8%
10.00% $160.00 $164.00 $168.00 $173.00 $177.00
10.50% $150.00 $153.00 $157.00 $161.00 $165.00
11.00% $140.00 $143.00 $147.00 $150.00 $154.00
11.50% $132.00 $135.00 $138.00 $141.00 $145.00
12.00% $124.00 $127.00 $130.00 $133.00 $136.00
Sensitivity Analysis
Growth Rate
WACC

15. Relative Valuation

16. Key Ratios Comparison
P/E
FY2015
P/B
FY2015
ROE
FY2015
ROA
FY2015
Finl Lev
FY2015
Revenue
FY2015
(in million)
Profit
Margin
FY2015
Gross
Profit
Margin
FY2015
Apple 13.65 4.69 46.30% 20.47% 1.41 $233,715.01 23.10% 40.10%
Samsung 9.98 0.93 9.75% 7.91% 2.26 $177,404.21 9.32% 38.46%
Industry Average 23.70 3.44 15.22% 8.02% 2.87 $72,224.81 10.92% 38.73%
0
5
10
15
20
25
P/E P/B Finl Lev
Apple Samsung Industry Average
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
ROE ROA Profit
Margin
Gross Profit
Margin
Apple Samsung Industry Average

17. 0
5
10
15
20
P/B P/E Beta ROA:Y Log Revenue
Regression VS Industry
Apple Industry
P/B P/E Beta ROA Log Revenue
Apple 3.6721 19.9444 1.0301 14.83172 11.33262
Industry 3.337909 11.58833 1.088756 7.460472 10.34025
Regression Analysis

18. Precedent Transactions
Scenario Median Multiple Implied Price
Margin of
Safety
Price/Free Cash Flow 14.0376681 138.27 0.192955811
EV/EBITDA 11.98141098 146.86 0.240160697
Price/Sales 2.181178093 87.26 -0.278821912
Median Implied Price 138.27 0.192955811

19. Risk and Apple’s hedging strategy
China’s Regulatory risk
ü $1 Billion investment in Didi to shore up relationship
with government
Apple faces a flattening innovation curve
ü Heavy investment in R&D and still staying ahead of the
industry
Services Revenues Are Tied To Device Sales
ü Change of customers’ behavior in emerging markets

20. Valuation Spread
Margin of Safety Number of Valuations
10% > MOS 2
20% > MOS > 10% 7
30% > MOS > 20% 14
MOS > 30% 8
Total 31

21. Conclusion
1. Market overreaction to recent negative news is creating a
better buy-in opportunity
2. iPhone 7/Plus sales potential and Samsung Note 7’s
recall
3. To-be-released milestone product in apple’s 10th
anniversary
4. Growth prospects in Chinese market
We recommend a strong buy of Apple with a target
price of $147 and a margin of safety of 25.29%