闻泰科技(600745)

　　Wingtech1H24sales were up15%YoY to RMB33.6bn,driven by strong ODMsales(up27%YoY),partially offset by weaker semiconductor sales(down8%YoY).NP declined89%YoY to RMB140mn,as GPM deteriorated to9.5%in1H24(vs.17.6%/14.7%in1H23/2H23).Semi.GPM showed signs of recovery(up7.7ppt in2Q).We expect ODM GPM to improve in2H24to5.0%from2.5%in1H24.We think1H24should likely be the bottom.Maintain BUY,with a newTP of RMB48.

　　Semi.business showed signs of recovery with6%QoQ revenuegrowth and7.7ppt increase in GPM in2Q.Semi.sales dropped toRMB3.4bn in1Q(-10%YoY/-5%QoQ)but managed to grew6%QoQ toRMB3.6bn in2Q.The weakness was mainly due to a soft demand for autosemi(63%of1H24segment rev.),as the sector was experiencing inventorycorrection.GPM dipped to31.0%in1Q(-2.8ppt/10.7ppt vs.4Q23/1Q23)butrebounded to38.7%in2Q.We expect GPM to maintain at2Q level in2H,considering mixed impacts of1)ongoing inventory digestion in auto market,2)an improving utilization rate,3)a favorable product mix and4)costoptimization.We project segment sales to grow12%YoY and GPM toincrease to40%in2025on lower channel inventory and better demand.

　　ODM business grew on new orders from overseas clients;mobile-related ASP slid,reflecting a challenging market with consumptiondowngrade trend and intensified competition.ODM revenue grew21%YoY to RMB12.4bn in1Q and another10%QoQ to RMB13.7bn in2Q.However,GPM deteriorated to3%/2%in1Q/2Q(vs.9%for1H23),due tolow-margin orders and rising material/headcount costs.ODM segmentposted a net loss of RMB350mn in1H24.Mgmt.expects NP to breakevenin3Q and turn positive in4Q.We project ODM segment sales to grow12%YoY in2025on better consumer sentiment and GPM to increase to6.3%(still lower than previous8%-10%range),reflecting effective cost controlagainst the backdrop of ongoing consumption downgrade pressure.

　　Maintain BUY,as the worst is behind.We have lowered our earningsestimates by73%/42%for2024/25E,given the GPM challenges.Weestimate Wingtech’s sales to grow low-teens HoH/YoY in2H24/2025,withgradual margin recovery(up2.8ppt in2H vs.1H,up2.2ppt in2025).Our TPis trimmed to RMB48,based on23.5x2025E P/E,close to1SD below1-yrhist.avg.,reflecting persist challenges from ongoing inventory correction ofpower semi in auto market and consumption downgrade pressure on ODMGPM.