闻泰科技(600745) Resilient 1Q semiconductor sales; nonprofitable ODM business to be deconsolidated

　　闻泰科技(600745)

　　Wingtech released its 1Q25 earnings. Revenue declined by 19.4% YoY toRMB13.1bn, while net profit surged by 82.3% YoY to RMB261mn. GPMrecovered to 14.0% (vs. 9.1%/9.2% in 4Q24/1Q24). By segment, ODM/ semiaccounted for 72%/28% of 1Q sales. The company has entered a transformationphase following the divestment of its ODM business. With a focus now solely onthe semi segment, we expect it will be the core growth driver, benefitted by 1)strong growth in AI servers, 2) recovering demand from consumer and industrialmarkets, 3) growing penetration of EVs and increasing dollar content per NEV(US$20-US$30 per ICE vehicle vs. up to US$100 per EV), and 4) emergingdemand drivers such as humanoid robotics. Maintain BUY with TP unchangedat RMB52.

　　Semi segment delivered resilient growth, with revenue up 8.4% YoY toRMB3.7bn in 1Q25, benefitted by volume surge (1Q shipment reachedthree-year high). Mgmt. said the company’s capacity was close to fullutilization. By geography, China (47% of FY24 segment revenue)outperformed at 24% YoY in 1Q25 with increasing demand from multiplemarkets, such as recoveries in industrial, consumer, auto markets andstrong growth in AI DC and server demand. The company continues toexpand its analog IC portfolio, targeting the commercialization of more than200 new SKUs in 2025. We expect Wingtech’s semi sales to reachRMB16.3bn (up 11% YoY) in 2025, with GPM remaining stable at 38.5%.We forecast its semi segment’s NP to be RMB2.6bn in 2025, implying 16%NPM (vs. 15.9%/15.6% in 2023/24).

　　ODM business to be deconsolidated post spin-off. The ODM segmentrecorded a revenue of RMB9.4bn (down 24% YoY) with a GPM of 4.3%,and incurred a net loss of RMB164mn (excluding RMB110mn CD-relatedexpenses). Mgmt. mentioned that the ODM-related assets have beentransferred in Jan 2025. Losses related to Android ODM business in 1Qwould be borne by Luxshare (report). Post spin-off, the non-profitable legacybusiness will have no impact on the company’s financials.

　　Maintain BUY with unchanged TP at RMB52. Following the completion ofthe divestiture, we expect the market to re-rate the company on a pure-playsemi basis. We have revised down our forecast on revenue, as we excludedODM segment from our calculations. NP is less affected, however, giventhat ODM business is close to breakeven (even though still not profitable).We cut FY25E NP forecast by 7% on a more conservative lower marginof the semi segment. Our TP is based on 26.5x FY25E P/E, close to itspeers’ average and higher than prev. 25x on better sentiment as Wingtechis phasing out its low margin business. Potential risks include: heightenedUS-China trade relations, unfavourable exchange rates, and weaker-thanexpected overseas auto inventory correction

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