Solid 1Q25 earnings w/ strong beat on margins

中际旭创(300308)
    Innolight has announced 1Q25 results. Revenue was up 38% YoY and 2% QoQto RMB6.7bn, driven by continued global cloud capex and growing demand for400G/800G optical transceivers. NP was up 57% YoY and 12% QoQ toRMB1.6bn, driven by growth in orders and a better margin. GPM improved to36.7% (vs. 32.8%/35.1% in 1Q24/4Q24), significantly above BBG consensus of31.9% despite that 1Q GPM was normally lower due to seasonality and priceadjustments. Mgmt. attributed the 1Q25 margin beat to 1) a favourable productmix (greater revenue contribution from 800G), 2) operation optimization, and 3)margin improvements from overseas factories. Maintain BUY on Innolight, asthe company is a key AI beneficiary. We revise TP to RMB151 based on 21.5x2025E P/E (vs. prior 27x), at par with the peers’ average and reflecting risinggeopolitical uncertainties and lower sector sentiment.
    Expect solid 400G/800G demand from overseas/domestic CSPs in2025; 1.6T shipments to accelerate starting in 2Q. Mgmt. remainsconfident in 800G sales, as overseas customers have largely transitionedfrom 400G to 800G deployments. While 400G shipments declinedtemporarily, the company noted a pickup in domestic demand, supported byrising domestic cloud capex, driving a recovery in 400G shipments in thecoming quarters. 1.6T contribution was lower than expected in 1Q but isforecasted to grow sequentially, per mgmt. We expect Innolight's revenue toincrease by 47% in FY25 (vs. 123% YoY in FY24), driven by continued cloudspending on AI infrastructure.
    We project the company's GPM to stay at around 35%-36% in FY25/26E,driven by continued 800G shipments, 1.6T ramp-up, and annual priceadjustments. The company's 1Q GPM was up 1.6ppt QoQ (vs. -3.2ppt/-2.6ppt for 1Q23/1Q24) and beat our estimate by 4.8ppt. We forecast its FY25GPM to be 35.3%.
    Tariff risks mitigated by offshore capacity. Mgmt. noted minimal tariffexposure with all shipments now coming from its 70k sqm Thailand facility,which manufactures high-end 400G/800G products and benefits from zerotariff treatment under the current trade rules. However, we maintain acautious stance in light of ongoing geopolitical uncertainty.
    Maintain BUY with TP adjusted to RMB151. We believe Innolight'sfundamentals are intact, with revenue/NP revised up slightly by 3%/1% forFY25. The company remains a key beneficiary of AI infrastructureinvestment and enjoys growth potential from both overseas and domesticcloud capex. New TP is based on 21.5x 2025E P/E (vs. prior 27x), which ispeers avg. The company's stock is currently trading at 11.4x 2025E P/E,which is lower than 1SD-below historical 5-years avg. of 12.8x, undemandingin our view. Risks: 1) future tariff uncertainty that may affect the company’soperations; 2) rising raw material costs, and 3) slower-than-expected rampup speed.

2024 earnings way below expectations; outlook remains challenging

浙江鼎力(603338)
    Zhejiang Dingi’s (Dingi) net profit in 2024 came in at RMB1.63bn (-13% YoY),substantially falling short of our/Bloomberg consensus by 20%/21%. Thenegative surprise was due to: (1) advanced shipments of AWPs to the USwarehouses for customs clearance in 4Q24 to avoid upcoming tariff hikes, whichin turn resulted in early recognition of some costs; (2) the acquisition of CMECin mid-2024 that resulted in the consolidation of higher salary and warehouseexpenses. During the post-results call, Dingli revealed that the current AWPinventory (not subject to the recent increase in tariff) will be enough to cover thesales in the US until Sep 2025. We maintain our view that the unpredictable UStariff policy will (1) hurt the demand for AWPs in the US; and (2) put Dingli into aquandary given the high proportion of capacity in China serving the US market.We revise down our 2025E-26E earnings forecast by 13%, due to higher costassumptions. Maintain HOLD with new TP of RMB44 (previously RMB51), basedon an unchanged 12x 2025E P/E (derived from 1SD below the three-yearaverage P/E of 13.5x to reflect earnings slowdown).
    4Q24 results highlights. Dingli’s gross profit dropped 28% to RMB515mnin 4Q24, due to a weak revenue growth (+6% YoY) and a 14.9ppt YoYcontraction of gross margin (to 30.9%). Net profit plummeted 71% YoY toRMB168mn, due to a higher administrative expense ratio (+2.3ppt YoY), anincrease in asset impairment and share of JV loss that offset the increase inother gains.
    Measures to mitigate tariff impact. The US was the largest source ofrevenue in 2024 (30% of the total). Dingli’s current inventory of AWPs in theUS (not subject to Trump’s newly proposed tariff) is enough to cover salesuntil Sep 2025. Going forward, Dingli will likely pass through part of the tariffby raising ASP. Besides, in the case of a high level of tariff for a prolongedperiod, Dingli will expand the production capacity in the US, despite a muchhigher production cost compared with China.
    Upside risks: (1) Substantial reduction of proposed tariff on China; (2)stronger-than-expected demand in other countries that offsets theweakness in the US.? Downside risks: (1) Further increase in tariffs in the US; (2) furtherintensified competition in China’s AWP market; (3) continuous weakness ofoverseas demand.

2024 earnings inline; Emerging markets remain the key focus

三一重工(600031)
    SANY Heavy (SANY) net profit in 2024 came in at RMB5.97bn (+32% YoY),which is 0%/-2% versus our/Bloomberg consensus estimates. The proposeddividend implies a 51% pay-out ratio (up from 41% in 2023), which is the highestsince 2017. During the post-results call, SANY revealed that emerging marketssuch as Asia Pacific, Africa, the Middle East and South America will be the keyfocus, while it remained cautious on the US & Europe market due to geopolitics.Management also highlighted the potential of large-size/mining excavatorsgoing forward. We maintain our view that SANY remains the best proxy to playthe upcycle of excavators. We slightly revise up our 2025E/26E earningsforecast by 5/7%. Accordingly, we revise up our TP to RMB22 (from RMB21),based on an unchanged target P/E of 24x (equivalent to 0.5SD above theaverage of 20x since 2017). Our above-average multiple is to reflect theearnings upcycle. Maintain BUY.
    4Q24 results highlights. Revenue grew 12% YoY to RMB20bn. Grossmargin slightly contracted 4.2ppt YoY to 21.4%, while S&D expense ratiofell 5.4ppt YoY to 3.9%, largely due to a change in accounting treatment(warranty expense was included in COGS instead of S&D expenses).Administrative expense ratio increased 1.1ppt YoY to 5.1%, while R&Dexpense ratio dropped 1.5ppt YoY to 7.6% (a continuous YoY reductiontrend since late 2022). EBIT grew 9% YoY to RMB760mn. Net profit surged1.3x to RMB1.1bn, helped by other income and FX gains. For the full yearin 2024, net profit grew 32% YoY to RMB5.97bn. Operating cash inflowsurged 1.6x YoY to RMB14.8bn.
    Overseas revenue grew 12% in 2024 (64% of total revenue). In terms ofregion, Africa surged 44% YoY to RMB5.3bn (11% of overseas revenue);Asia Pacific (ex-China) grew 15% YoY to RMB20.6bn (42%); Europe grew2% YoY to RMB2.3bn (25%); America grew 7% YoY to RMB10.3bn (21%).Overseas gross margin was 29.7%, higher than the 21% in China.
    Outlook: SANY will continue to expand the overseas sales network andafter-sales service capability. SANY sees potential sales growth of 20% inmarkets such as the Middle East, Asia Pacific and Africa. South America isanother key market with potential sales growth of 25%. In terms of capacity,SANY is considering capacity expansion in Brazil.

受益于半导体产业链加速本地化趋势的推动，2024年业绩保持稳健

北方华创(002371)
    北方华创公布了2024年全年业绩快报及2025年一季度业绩预告。公司2024年收入同比增长35.1%至298亿元人民币（低于我们的预测3.3%，符合彭博一致预期）。强劲的收入增长得益于集成电路装备领域多款新产品取得突破，工艺覆盖度及市场占有率显著增长。2024年净利润同比增长44.2%至56亿元人民币（低于我们的预测/一致预期3.2%/1.6%）。公司全年净利率提升至18.8%（FY23为17.7%），主要由于运营效率的提高。2025年一季度，公司预计收入中值同比增长39.3%至82亿元人民币（超出一致预期5.5%），净利润中值同比增长40.3%至16亿元人民币（超出一致预期12.5%）。一季度净利率中值预计为19.4%（相较去年同期为19.2%）。我们重申对北方华创的“买入”评级，目标价上调至512元人民币，基于36倍FY25预测市盈率（此前为30倍），与同业平均市盈率一致。
    在核心产品线的持续创新和技术突破的推动下，公司的市场份额稳步提升。管理层将收入的强劲增长归因于多款新产品成功实现批量出货，包括电容耦合等离子体刻蚀设备（CCP）、等离子体增强化学气相沉积设备（PECVD）、以及原子层沉积设备（ALD）等，这提升了公司在国内半导体设备市场的产品覆盖范围和竞争力。我们预计公司2025年收入将同比增长30.8%，主要得益于市场份额的持续提升和新产品的不断推出。
    重申“买入”评级，目标价上调至512元人民币。我们维持此前对公司2025/26年的预测。新目标价基于36倍（同业平均值）2025年市盈率（此前为30倍）。我们预计中国半导体行业的整合将在今年加速，这是我们在2025年策略报告中提及的四大主题之一。中国半导体设备龙头公司有望继续受益于国内半导体自主可控政策的支持和产业内并购整合趋势的推动。同时，我们认为美国对中国施加的对等关税（4月2日生效）在短期内对公司的影响不大，鉴于其收入仅由国内市场贡献（无海外收入敞口）。从长期来看，本次关税事件将成为供应链本地化加速推进的催化剂，从而利好北方华创等行业领军企业。
    主要风险：国内晶圆厂资本支出低于预期、公司研发进展不及预期、上游原材料成本上升等。

Solid FY24 earnings amid accelerated semisupply chain domestication

北方华创(002371)
    Naura announced key financials regarding its FY24/1Q25 earnings. FY24revenue went up by 35.1% YoY to RMB29.8bn (3.3% below our estimate/in-linewith consensus). The strong revenue growth was driven by technologybreakthroughs in core product lines that enabled broader product coverage andsupported continued market share gains. In FY24, net profit went up by 44.2%YoY to RMB5.6bn (3.2%/1.6 below our /consensus). During the period, NPMimproved to 18.8% (vs. 17.7% in FY23) on better operating efficiency. For 1Q25,the company expects the mid-point revenue to increase by 39.3% YoY toRMB8.2bn (beating consensus by 5.5%), and mid-point net profit to grow 40.3%YoY to RMB1.6bn (beating BBG consensus by 12.5%). 1Q25 mid-point NPMwould be 19.4% (vs. 19.2% in 1Q24). Reiterate BUY with TP revised up toRMB512, based on 36x FY25E P/E (vs. prev. 30x), in-line with industrypeers’ average P/E of 36x.
    Backed by ongoing innovation and technology breakthroughs in coreproduct lines, the company sustained steady market share gains.Mgmt. attributed the strong revenue growth to the successfulcommercialization and volume shipment of several new products, includingCCP etchers, PECVD, ALD vertical furnaces, etc., which significantlyenhanced the company’s product coverage and competitiveness in thedomestic SME segment. We project the company’s revenue to grow by30.8% YoY in 2025E on continuous market share gains and new productlaunches.
    Reiterate BUY with TP revised up to RMB512. We maintain our forecastsfor 2025/26E. The new TP is based on 36x FY25E P/E (peers avg.) vs.previous 30x. We expect semi-industry consolidation in China to acceleratein 2025, which is one of the key themes in our 2025 outlook report. China’sleading semi cap players are well-positioned to benefit from domestic selfsufficiency initiatives and M&A momentum. Meanwhile, we believe therecently announced US reciprocal tariffs on China (effective 2 April) aregoing to pose a minimal impact on the company in the near term, as itgenerates all revenue domestically with no exposure to foreign markets. Inthe long term, the tariff serves as a catalyst for faster supply chainlocalization efforts, a clear tailwind for leading domestic players like Naura.
    Key risks: lower-than-expected domestic foundry capex plan, slower-thanexpected R&D progress, higher raw material costs, etc.

Challenging situation with pressure from bothend demand and US tariff; D/G to HOLD

浙江鼎力(603338)
    We believe the US’s newly proposed tariff on China will place Dingli into achallenging situation, given that the US has long been the most important marketfor Dingli (close to 30% of total revenue in 2024E, based on our estimates). Wesee several downside risks: (1) the policy uncertainties will likely affect the capexplan of AWP operators in the US, thereby affecting the procurement for AWPs;(2) the proposed 34% incremental tariff on China’s exports exceeds the 19%reduction of anti-dumping (AD) duties approved by the US last year. While weunderstand that Dingli will potentially expand the manufacturing capacity in theUS, we believe it will take time to see the actual impact. We revise down our2024E/25E/26E earnings forecast by 3%/12%/18%, due to lower salesassumptions in the US and lower gross margin due to tariffs. We now expect only5% earnings growth in 2025E. Downgrade to HOLD from Buy with new TP ofRMB51 (previously RMB75), based on 12x 2025E P/E.
    New tariff to more than offset the decline in AD duties in the US. Dingli’sAD duty in the US was finalized at 12.39% in 2024, down substantially fromthe 31.54% set in 2022. However, the newly proposed tariff on Chinesegoods (34%) exceeds the 19ppt reduction on AD duties. This, together withthe countervailing duties (CVDs) of 11.95% and the existing tariff onChinese goods (20%), adds up to a total of >78% tariffs and duties.
    Accelerated shipment to the US to avoid tariff impact. We understandthat Dingli has been accelerating the AWP shipment to the US since earlythis year to mitigate the impact of upcoming tariffs on China. Given the fullconsolidation of CMEC in 3Q24, we expect these AWPs (already in Dingli’swarehouse in the US) will gradually translate into actual sales and revenuein 2Q and 3Q25E.
    New target multiple to reflect the uncertainties. Our previous TP ofRMB75 was based on 18x 2024E P/E (1SD below the historical average of31x). Our new TP of RMB51 is based on 12x 2025E, based on 1SD belowthe three-year average P/E (13.5x), as we expect earnings growth to slowsubstantially from previous years.
    Upside risks: (1) Substantial reduction of proposed tariffs on China; (2)stronger-than-expected demand in other countries that offsets theweakness in the US.
    Downside risks: (1) Further increase in tariffs in the US; (2) furtherintensified competition in China’s AWP market; (3) continuous weakness ofoverseas demand.

Striving for large-scale loss reduction in 2025

用友网络(600588)
    Yonyou hosted (2 April) an earnings conference call following its 2024 annualresults. In 2024, Yonyou’s total revenue reached RMB9.2bn, down 7% YoY,owing to postponed customer demand amid macro headwinds, and Yonyou’sstrategy to promote the subscription business model with greater intensity. Netloss attributable to ordinary shareholders expanded to RMB2.1bn in 2024 (2023:RMB967mn), mainly due to: 1) the decline in revenue generation; 2)compensation provided to the employees that have left their jobs; and 3)provisions for goodwill impairment. Management guided to strive for large-scaleloss reduction in 2025 through improving labour productivity and improving thequality and efficiency of product delivery. Although we remain positive thatYonyou will benefit from increasing digitalization demand nationwide over thelong term, and think the international expansion plan should help revive revenuegrowth in the coming years, we remain cautious in the near term. The 40% risein its stock price YTD has largely priced in positive market sentiment regardingincremental benefits brought by the “DeepSeek moment”, in our view, andconcrete evidence on incremental monetization from AI is the next key to watchto drive a further rerating. We lift our TP to RMB14.49 (was RMB9.08) based on5.3x 2025E EV/sales, in line with its two-year average. Maintain HOLD.
    Solid progress made in large enterprise customer acquisition. By theend of 2024, Yonyou recorded 7 new contract wins from central state-ownedenterprises, bringing the total number of contract wins to 44. Revenuegeneration from the core BIP3 product reached RMB3.14bn in 2024, and itsrevenue contribution to total revenue was up by 2.4ppts YoY. The overallsubscription revenue growth of 26% YoY was also higher than that of totalrevenue, demonstrating an improvement in revenue structure. Subscriptionrelated contract liabilities reached RMB2.31bn in 2024, up 25.9% YoY.
    High R&D capitalization rate remains a concern. In 2024, Yonyou’s R&Dexpenditure came in at RMB2.1bn, flat YoY, which in our view demonstratedYonyou’s effort in optimizing cost while maintaining investment to driveproduct feature enhancement. However, R&D capitalization rate rose to arecord high of 52% (vs. 48/50% in 2022/2023, compared to Kingdee’s 32%in 2024). Although Yonyou suspended the disclosure of ARR contribution in2024, it needs to improve ARR contribution and further optimize R&Dcapitalization, to drive a better long-term profitability outlook, in our view.The number of employees for Yonyou was 21,283, down 3,666 YoY (or 15%YoY), and we expect the improvement in labor productivity to help drivebetter operating efficiency ahead.
    Maintain HOLD with a new TP of RMB14.49. We lower 2025E and 2026Erevenue forecast both by 18% to factor in slower-than-expected revenuegrowth in both large-sized enterprises and mid-sized enterprises. However,our TP is lifted to RMB14.49 based on 5.3x 2025E EV/sales (previouslyRMB9.08 on 3.1x 2024E EV/sales), in line with its two-year average, tofactor in the industrywide rerating trend brought by more positive sentimenton AI-related monetization.

LT prospects intact; Maintain HOLD on continued margin pressure

卓胜微(300782)
    Maxscend released its FY24results.Revenue went up by2.5%YoY toRMB4.5bn,missing CMBI estimates/BBG consensus by2%/1%.NP declinedsignificantly by64.2%YoY to RMB402mn,missing CMBI estimates/BBGconsensus by28%/21%.GPM/NPM declined by7.0ppt/16.7ppt to39.5%/9.0%in FY24(vs.46.4%/25.6%in FY23)due to margin pressure from subsidiaryXinzhuo’s ramp-up as the company transitions from a fabless model to a fab-litestrategy.We remain constructive on Maxscend’s long-term growth prospects asit builds platform-level manufacturing capability and strategic supply chainindependence.However,we maintain HOLD rating as near-term marginpressure persists,with TP adjusted downward to RMB82.0,based on arolled-over45x2026E P/E.
    4Q24experienced net loss for the first time due to fab ramp-up;marginpressure remains an overhang in2025.In4Q24,revenue declined by14.2%YoY but increased by3.4%QoQ,while bottom-line saw a net loss ofRMB24mn.Mgmt.attributed the loss to increased depreciation and highmask costs tied to the migration of key products onto its in-house6/12-inchlines.NPM was-2.1%in4Q24(vs.6.6%/23.2%in3Q24/4Q23).We believeMaxscend will face ongoing margin headwinds especially in1H25(GPM:38.0%,on our estimates),given fabs’ramp-up and slow recovery in end-market demand.We forecast Margin to gradually recover in2H25(GPM:41.7%,on our estimates)on seasonality and emerging demand from AIedge devices.We project overall GPM to be slightly up to40.2%in FY25E(39.5%in FY24).
    Module momentum continues as vertical integration starts to pay off.Module sales(42%of total rev.)grew by18.6%YoY in FY24,while discretesales(56%of total rev.)declined by7.6%YoY.The growth in modulerevenue reflects the modularization trend in RFFE industry.Lookingforward,we expect module business to be the key growth driver(+25%YoYin2025E).The rise in module shipments reflects Maxscend’s in-housewafer and packaging capabilities,enabling faster product iteration andtighter component integration.Gross margins for module/discrete segmentswere36%/42%in FY24,down from46%/47%in FY23,but are likely toimprove as utilization increases,in our view.
    Maintain HOLD,with TP adjusted down to RMB82.We view2025as atransition year for Maxscend,and we revise down our revenue/NP forecastsby7%/42%in FY25E,given a slower-than-expected recovery in demandand stronger margin erosion on fab ramp-up.Our new TP is based on45x2026E P/E,10%higher than peers’avg.of40.7x considering its leadingposition in RFFE market and important role in semiconductor localization.Potential upside catalysts:stronger-than-expected recovery and fastersemiconductor localization due to geopolitical risks.Potential downsiderisks:slower-than-expected capacity ramp-up,delay in R&D progress.

Wey could be key to FY25 earnings growth

长城汽车(601633)
    Maintain BUY.Great Wall’s4Q24earnings were a mixed bag,in our view,asrevenue missed but GPM and SG&A expenses beat our prior estimates.Webelieve a stronger model cycle in FY25E than FY24could be a positive catalystfor its share price.In particular,new Wey-brand models could be key to GreatWall’s sales volume and profit growth in FY25E.We still see room for GreatWall’s overseas sales growth,as it expands its footprint in Latin America.
    4Q24revenue miss,GPM and SG&A beat.Although Great Wall’s4Q24net profit was in line with the company’s preliminary results announced inJan2025,its4Q24revenue missed our prior forecast by9%,as theaverage selling price(ASP)declined QoQ.4Q24GPM without the warrantyprovision adjustment was19.1%,or0.4ppts higher than our projection.4Q24SG&A expenses(incl.warranty provision)were about RMB900mnlower than our forecast.Forex loss from ruble depreciation was also lowerthan most of its peers.
    FY25E outlook.We project FY25E sales volume to rise9%YoY to1.35mnunits(10,000units lower than our prior forecast),driven by the Haval andWey brands.A plethora of new models(likely3for Haval and3for Wey)in FY25E and overseas growth(+28%YoY to0.58mn units in FY25E)arekey to FY25E sales volume,in our view.We also expect vehicle ASP tocontinue rising1%YoY in FY25E to about RMB143,000,aided by highersales contribution from Wey.
    We project Great Wall’s FY25E gross profit to rise RMB3.0bn YoY toRMB42.5bn,with36%of the growth being from Wey,as sales volumegrowth from Tank slows down.We also expect its net cash position to befurther strengthened in FY25E,which could lift net finance income.Apossible forex gain in FY25E could also aid Great Wall’s net profit.Takentogether,we cut our FY25E net profit estimates by5%to RMB13.1bn,aswe revise down its overseas ASP and GPM slightly.
    Valuation/Key risks.We maintain our BUY rating for both A and H shares.Our H-share target price of HK$17.00is based on10x(unchanged)ourrevised FY25E EPS and our A-share target price of RMB32.00is based onGreat Wall’s current A/H premium of about100%(vs.the average A/Hpremium of about120%in the past12months).Key risks to our rating andtarget prices include lower sales volume and margins,slower techtransformation than we expect,as well as a sector de-rating.

Strong engine margin expansion in 2024; 55% dividend payout ratio a record high

潍柴动力(000338)
    Weichai’s net profit in2024grew27%YoY to RMB11.4bn,which is in line withour expectation.Net profit in4Q24grew19%YoY to RMB3bn,driven by28%/13%YoY reduction of S&D/R&D expenses despite a flat(YoY)revenue.Weichai proposed a final dividend of RMB0.347/shr.This,together with theinterim dividend,implies a payout ratio of55%(up from50%in2023),which isa record high level.We revise up our2025E/26E earnings forecast by9%/11%,mainly due to higher margin assumptions for engine segment.We see severalcatalysts for Weichai:(1)HDT demand recovery driven by new subsidies;(2)strong growth of engines for data centres;(3)potential re-rating of KION Group(KGX GR,NR).Our SOTP-based TP for A/H is revised up toRMB18.7/HK$18.0.Maintain BUY.
    Key highlights in2024results:
    Strong margin expansion for engine segment.Weichai delivered a totalengine sales of734k units(flat YoY).Exports,which grew5%,accountedfor9%of total engines sales.The segment revenue was down2%YoY toRMB59.4bn,due to a slight decrease in blended ASP(as a result of a8%sales volume decline in HDT engines which carried a higher ASP,in ourview).That said,the segment profit surged35%YoY to RMB10.3bn,drivenby a4.8ppt YoY expansion of segment margin(to17.5%).We forecast thesegment margin to expand to17.7%/17.8%in2025E/26E,driven by therecovery of HDT engine demand and strong growth of engines for datacentres.
    HDT exports accounted for half of total HDT sales.Weichai delivered118k units of HDTs(1.7%YoY).Exports grew13%YoY to59k units(50%of total HDT sales).The segment recorded RMB563mn in profit in2024,with segment margin of0.9%.
    Forklifts&supply chain solution(KION Group)profit grew driven bymargin.The segment profit grew21%YoY to RMB6bn in2024.WhileKION’s latest guidance for2025E is conservative(adjusted EBIT isexpected to be down5%-21%),we are positive on the medium-termoutlook thanks to Germany’s latest approval of the infrastructureinvestment plan.
    Solid margin expansion for agricultural machinery.While the segmentrevenue growth slowed to3%in2H24from25%in1H24,the segmentmargin continued to expand.
    Risk factors:1)weakness in engine exports;2)lower-than-expectedreplacement demand in China;(3)contraction of diesel/gas price ratio.Earnings Summary-2338HK

2024 results below expectation; Still positive on the structural overseas growth trend

中联重科(000157)
    Zoomlion’s2024results were weaker than our expectation,due to a slowdownof overseas revenue growth(14%)in4Q24,reduction of other income,andincrease in inventory turnover days.While we revise down our2025E/26Eearnings forecast by7%/8%,after incorporating lower sales volume growth andhigher distribution expenses due to overseas expansion,we remain positiveon Zoomlion’s structural overseas growth strategy with priorities on emergingeconomies.On inventory,management is confident of a reduction of theinventory level in2025E.Our TP for Zoomlion A/H is revised down/up toRMB9.9/HK$7.4,based on2025E target P/E multiple of19.5x for A-share and30%discount for H-share.We see buying opportunities following the post-results pullback.Maintain BUY.
    4Q24earnings highlight.Revenue in4Q24dropped4%YoY toRMB11.1bn,as the decline in China revenue(-18%YoY to RMB5.36bn)offset the growth overseas(+14%YoY to RMB5.74bn).Overseas revenueaccounted for52%of total revenue in4Q24,slightly down from57%in3Q24.Blended gross margin expanded0.6ppt YoY to27.5%,as overseasmarkets commanded a higher margin.Given the decline of non-operatingincome(-89%YoY to RMB61mn),EBIT dropped19%YoY to RMB519mn.Net profit declined45%YoY to RMB382mn,as a result of higher minorityinterest due to higher growth of non-wholly owned AWP business.For thefull year in2024,revenue/net profit dropped1.2%/0.8%YoY toRMB53bn/RMB3.5bn.Zoomlion proposed a dividend of RMB0.3/shr,representing a pay-out ratio of74%.
    Low exposure to domestic property sector.Domestic property relatedproducts such as concrete machinery and cranes sales accounted for only13%of Zoomlion’s total sales in2024.For tower cranes,managementrevealed that only30-40%are related to property,with the balance relatedto infrastructure,wind power installation and chemical plants construction.For truck cranes,only10%of the demand comes from property,with thebalance related to infrastructure,energy and municipal projects.
    2025outlook.Management did not provide much quantitative guidance inthe post-results call,but provided some key directions:(1)overseas marketexpansion will be accelerated;(2)earth-working,mining,and agriculturalmachinery will continue to be growth drivers;(3)share-based expenses,which surged2.1x YoY to RMB866mn,is expected to drop>50%in2025;(4)other operating expenses are expected to be on a downtrend.

4Q24 margins lay foundation for FY25 earnings

比亚迪(002594)
    Maintain BUY.BYD’s strong4Q24earnings once again underscored theimportance of economies of scale.We expect BYD to prioritize sales volumeagain in FY25E,by leveraging new models,overseas expansion,batterytechnology upgrades and AD catch-up,which could lead to solid earnings inFY25E again.
    4Q24results beat with high quality earnings.BYD’s4Q24revenue beatour prior forecast by6%.In fact,BYD’s average selling price(ASP)excluding BYDE rose sequentially for two consecutive quarters,despitethe prolonged price war.The accounting standard change by moving after-sales provision from selling expenses to COGS lowered its4Q24GPM to17.0%.4Q24GPM by previous accounting standards would have been21.5%,0.9ppts higher than our forecast.Meanwhile,BYD’s4Q24R&Dexpenses were about16%higher than our estimates(BYD investedRMB54bn in R&D and expensed98%of it in FY24),leading to a beat of14%from our estimates at the net profit level.
    More comprehensive model portfolio,overseas expansion,batterytechnology upgrade and AD catch-up to fuel FY25sales growth.Weare of the view that BYD’s4Q24earnings once again underscored theimportance of economies of scale.We project BYD’s FY25sales volumeto rise23%YoY to5.25mn units,maintaining its current EV market sharein China.We expect its overseas sales volume to double YoY to0.8mnunits,following strong momentum in Jan-Feb2025.We expect a plethoraof new models,especially the Han L,Tang L and Denza N9,to lift its ASPand GPM.We project its premium brands(Denza,Fangchengbao andYangwang)to deliver0.37mn units in FY25E.We also expect moretechnological upgrades in FY25to strengthen its brand value.The recentlyshowcased1kW fast charging could also aid its energy storage batterysales.We are of the view that BYD could absorb its extra costs fromautonomous driving(AD)functions(which we estimate to be RMB3,000-4,000per vehicle),should it deliver our projected sales volume.
    Earnings/Valuation.We revise up our FY25E net profit by8%toRMB57.5bn,implying net profit of RMB10,900per vehicle(vs.RMB9,400in FY24).We maintain our BUY rating and raise target price to HK$470forH share and RMB440for A share,both of which are based on23x(prior20x)our FY25E EPS to reflect BYD’s leading position and recentlyimproving investor sentiment.Key risks to our rating and target priceinclude lower sales or margins than we expect,and a sector de-rating.

Strengthened earnings certainty drives valuation recovery

药明康德(603259)
    WuXi AppTec reported a YoY revenue decline of 2.73%, to RMB39.2bn, and a2.5% decrease in adjusted non-IFRS net profit, to RMB10.6bn. However,earnings showed encouraging improvement throughout 2024, resulting in apositive revenue and profit growth in 4Q24. The TIDES business remained theprimary growth engine, with full-year revenue up by 70.1% YoY. The Company'sbacklog as of year-end 2024 expanded significantly, growing 47% YoY toRMB49.3bn. Notably, TIDES backlog experienced a substantial 103.9% YoYincrease in 2024. Fuelled by robust order book, management offered a positiveoutlook for 2025, forecasting 10-15% YoY revenue growth in continuingoperations and further enhancement of the adjusted non-IFRS net profit margin.
    Strong order growth bolsters future revenue visibility. WuXi AppTec'sbacklog at end-2024 grew by a significant 47% YoY, reaching RMB49.3bn.This represents an acceleration from the 35.2% growth seen at the end of3Q24. Positive trends were evident across segments. CDMO businesssecured 25 new Ph3 and commercial projects in 2024 (vs 20 added in 2023).Biology segment returned to positive revenue growth in 4Q24, posting YoYand QoQ increases of 9.3% and 9.2%, respectively, signaling an improvingtrend in early-stage R&D demand. Furthermore, revenue from Top20 globalpharma clients rose by 24.1% YoY (excl. COVID related projects), expeditingfrom the 23.1% growth in 9M24. These metrics underscore the increasingvisibility of the Company's future revenue. Given the positive outlook for futuredemand, the Company plans to boost capex by 75%-100% YoY in 2025 toRMB7-8bn.
    TIDES business sustains strong growth trajectory. TIDES revenue in2024 climbed 70.1% YoY, with backlog expanded by 103.9% YoY. Underlyingdemand for polypeptide manufacturing remains robust in the market. TheCompany's polypeptide capacity reached 41k liters by end-2024, with plansfor a further increase exceeding 100k liters by late 2025, demonstrating WuXiAppTec’s commitment to meeting the growing customer demand. Mgmtanticipates TIDES revenue growth of over 60% YoY in 2025.
    Ongoing commitment to shareholder returns. Amidst macroeconomicuncertainties in 2024, WuXi AppTec strengthened its commitment toshareholder returns. The Company completed RMB4.0bn in sharerepurchases and cancellations in 2024 and maintained a dividend payoutratio of 30% for the year. To further enhance returns, mgmt announced a onetime special dividend of RMB1.0bn, alongside a 2025 interim dividend. Mgmtalso indicated plans to repurchase RMB1.0bn of A-shares in 2025.
    Maintain BUY. We raise our TP from RMB78.51 to RMB94.05 (based on a10-year DCF model with WACC of 9.42% and terminal growth of 2.0%), tofactor in the earnings recovery. We forecast the continuing operation revenueto grow by 14.4%/ 15.2%/ 16.3% YoY and adjusted non-IFRS net income togrow by 11.7%/ 19.0%/ +16.1% YoY in 2025E/ 26E/ 27E, respectively. Our2025E/ 26E/ 27E forecasts of adjusted non-IFRS profit are 6.9%/ 14.9%/19.6% higher than consensus.

24财年业绩稳健，受益于产业链自主可控趋势，上调至“买入”评级

深南电路(002916)
    深南电路发布2024财年业绩。公司收入同比增长32.4%至179亿元人民币，高于我们/彭博一致预期2%/7%。净利润同比增长34.3%至19亿元人民币，符合我们的预测，但低于彭博一致预期2%。期内毛利率提升至24.8%（2023年为23.4%），主要是随着需求恢复而改善；但受到新建工厂产能爬坡的影响，部分抵消。我们将公司2025/26年的收入预测分别上调15%/21%，主要由于1）产能利用率的提升（2025年1季度约为90%），2）国内云厂商资本支出加速，拉动公司数据中心、AI相关收入的增长，3）高端自动驾驶应用的渗透率快于预期，推动汽车PCB收入增长。同时，我们将公司2025/26财年的净利润预测上调12%/16%，其中毛利率略有下降，部分抵消了收入增长的影响（随着广州工厂产能投产，设备、原材料和人力成本将被计入生产成本）。上调至“买入”评级，目标价146.81元人民币（前目标价：115元人民币），对应2024-26财年28.5%的净利润复合年增长率，以及1.1倍PEG。
    PCB业务收入同比增长30%至105亿元人民币，得益于数据中心（占PCB收入的20%）和汽车业务（占约14%）的强劲需求，但电信业务（收入占比<40%）在2024年承压。2024年PCB业务毛利率提升至31.6%（2023年为26.6%），得益于公司产能利用率的提升和产品组合的优化（AI相关产品的占比增加）。PCBA业务同比增长33.2%，公司把握住数据中心、汽车市场的需求，拉动收入增长，同时毛利率维持在14.4%。我们预计，在这两个市场快速增长的推动下（国内AI领域资本支出的大幅增加、自动驾驶方案渗透率的提升），公司2025年PCB业务收入将同比增长25%，毛利率维持在当前的31%水平。
    基板业务收入同比增长37.5%至32亿元人民币。因下游市场补库存的拉动，基板业务的增长主要集中在上半年。该业务毛利率承压（2023/24年为23.9%/18.2%），主要受广州工厂产能爬坡、原材料成本上升（管理层表示金价在下半年增长20%+）、下半年BT基板需求疲软的影响。若剔除广州工厂产能爬坡因素，BT基板在下半年的毛利率较上半年下降约2个百分点（vs.整体部门毛利率下降10多个百分点）。我们预计公司2025年基板业务收入将同比增长18%，主要由存储产品收入快速增长驱动。毛利率仍受到广州工厂持续爬坡带来的影响，预期将温和上升至19.5%。
    上调至“买入”评级，目标价上修至146.81元人民币。新目标价基于31倍5年历史平均远期市盈率。我们注意到深南电路在行业下行周期中的表现优于预期。展望未来，公司凭借在PCB市场的领先地位和FC-BGA基板产线的扩张，有望成为中国半导体产业链自主可控趋势下的受益者。

Solid FY24 results; Upgrade to BUY being key beneficiary in domestic localization

深南电路(002916)
    Shennan released its FY24 results. Revenue went up by 32.4% YoY toRMB17.9bn, 2%/7% above our estimate/BBG consensus. Net profit rose by34.3% YoY to RMB1.9bn, in-line with our estimate but 2% below BBG consensus.During the period, GPM was 24.8% (vs. 23.4% in FY23), showing gradualimprovement as demand recovered but offset by new factory ramp-up. We reviseup our revenue forecasts by 15%/21% for FY25/26E, reflecting 1) higherutilization (~90% for 1Q), 2) higher-than-expected DC/AI-related revenue asdomestic Cloud companies increase capex budget and 3) better auto PCBrevenue growth as high-end autonomous driving systems may have faster-thananticipated penetration. Meanwhile, we revise up our NP estimates by 12%/16%in FY25-26E, partially offset by lower GPM estimates considering the continuouscapacity ramp-up of Guangzhou factory with costs from equipment, labor and rawmaterials now recognized in COGS as production ramps up. Upgrade to BUY,with new TP of RMB146.81 (previous: RMB115), implying a NP CAGR of 28.5%and PEG of 1.1x during 2024-26E.
    PCB sales grew by 30% YoY to RMB10.5bn, driven by robust demand indata centers (20% YoY) and auto (~14% of total sales), despite a telecomdecline (contributing to less than 40% of total PCB sales in FY24). PCB GPMimproved to 31.6% in FY24, compared to 26.6% in FY23, reflecting highercapacity utilization and an enhanced product mix consisting of more AIrelated products. PCBA segment increased by 33.2% YoY, also driven byrobust data center and auto sales, with a stable GPM of 14.4%. We expectthe segment revenue to grow 25% YoY in 2025, driven by strong growth inDC/auto markets (domestic AI capex and higher penetration of autonomousdriving vehicles). We project GPM will be stable at current ~31% level.
    Substrate sales grew by 37.5% YoY to RMB3.2bn. The growth weightedmore towards 1H24 as demand was strong due to inventory restockingbehaviors. The segment experienced margin pressure (18.2% in FY24 vs.23.9% in FY23) due to capacity ramp-up, rising material costs (specificallygold price, which surged by more than 20% in 2H24, per mgmt.), and weakerBT substrate demand in 2H24. Excluding the impact of the initial capacityramp-up of Guangzhou factory, BT substrate’s GPM in 2H would have been2ppts lower compared to 1H (instead of 10ppts drop). We expect substraterevenue to grow by 18% YoY in 2025E, led by higher growth in memoryproducts as demand recovers. GPM may rise modestly to 19.5%, consideringthe ongoing ramp-up dilution, in our view.
    Upgrade to BUY, with new TP of RMB146.81. The new TP is based on 5-year avg. historical forward PE of 31.0x. We believe SCC performed betterthan expected during the sectoral downcycle. Looking forward, the companyis set to ride the tailwind of domestic localization with its leading position inPCB market and capacity addition from its FC-BGA substrate line.

拥抱AI，与联影智能深入协同

联影医疗(688271)
    联影智能是联影医疗控股股东联影集团旗下的AI医疗公司，联影集团持股24.1%。联影智能以全栈全谱的医学影像AI赋能临床、科研及影像设备。联影医疗与联影智能深入协同合作，已在全线设备产品中融入AI应用，通过高效的诊断辅助和数据处理能力，优化医疗设备的使用体验，并提升影像和放疗设备性能及成像质量。我们认为，依托与联影智能的业务协同，联影医疗正从传统设备制造商转型为智慧影像解决方案提供商。联影医疗将凭借“设备+AI”的领先优势进一步巩固行业龙头地位，构建更强的竞争壁垒。
    全栈全谱AI布局，多维度赋能医疗场景。联影智能的全栈全谱医学影像AI能力贯穿成像、筛查、随访、诊断、治疗的完整工作流，覆盖XR、CT、MR、MI等多模态场景。联影智能的业务分为三个方向：1）赋能临床：业务占比约60-70%，利用AI帮助医生进行临床任务和决策，目前主要在影像科落地。截至2024年底，联影智能已推出超100款医疗AI产品，共获得12张NMPA三类证，21张NMPA二类证，13款应用获CE认证，15款应用获FDA认证。2）赋能科研：业务占比约20%，即协助医生进行科研工作。3）赋能设备：业务占比约10%，即与联影医疗合作，助力影像设备的智能化升级与性能提升。目前，在国内影像AI的应用方面，联影智能具备较强的先发优势，其获证数量远超GPS等国际同行。
    软硬件协同创新，共建“设备+AI”一体化竞争力。联影医疗和联影智能形成了软硬件协同创新优势，引领全球“医疗设备+AI”的技术创新。例如，联影智能将AI算法直接嵌入联影医疗的影像设备，实现患者智能摆位、扫描参数智能优化、图像重建加速等功能，提升成像效率和质量。我们认为，AI可加强影像设备竞争力与议价能力，“影像诊疗+AI”带来的市场增量将一部分体现在联影医疗的设备收入中。目前，AI及智能化应用已覆盖联影医疗的全产品线。凭借与联影智能的协同合作，联影医疗已形成“设备+AI”一体化竞争力。在政策驱动设备更新与AI应用渗透率提升的背景下，联影医疗的收入有望持续快速增长。

Solid results despite supply chain constraints; expect for another strong year in 2025

中际旭创(300308)
    Innolight released its FY24 prelim. results. The company expects NP to go upby 111.6%-166.9% to RMB4.6bn-5.8bn. Mid-point value of RMB5.2bn implies139.2% YoY growth and is largely in-line with consensus and our estimate(3.2%/1.4% below, respectively). We continue to view Innolight as a keydomestic beneficiary amid the ongoing AI infra. investment cycle driven byresilient demand for more computing power globally. Recent additional AIspending developments (i.e., $60-65bn from Meta, $12bn from ByteDance, andup to $500bn Stargate project) show intensifying capex in AI. We also believethe recent fear of CPO solution becoming mainstream is overly concerned.Recent share price pullbacks provide excellent buying opportunities. MaintainBUY on Innolight with TP unchanged at RMB186.0.
    4Q24 NP is expected to improve sequentially on margin expansionwith favourable product mix, which is partially offset by the impactfrom supply chain bottleneck. The company’s mid-point NP grew by64.9% YoY/3.8% QoQ in 4Q24, compared to 33.7%/3.3% QoQ in 2Q/3Q24.We think the sequential slowdown in growth in 2H24 was mainly due to EMLshortage that caused a delay to shipments, while the demand for 400/800Goptical transceivers remained strong. The impact of component shortage on2H24 earnings was offset by margin upside (favourable product mix plushigher yield). Mgmt. expects this issue will be largely alleviated in 2H25.
    800G to be the main growth driver in 2025, while 1.6T to ramp upsequentially. In FY24, Innolight saw strong demand for its 400/800Gproducts with product mix leaning heavier towards 400G. We anticipate amore favourable product mix with a higher portion of 800G sales in 2025,with additional contribution from 1.6T products. Mgmt. expects highervolume to come in 2026 as more cloud companies deploy 1.6T products.The company has also ramped up its 400G SiPh products throughout FY24,with 800G SiPh products expected to begin volume shipments in 1Q25.
    Multiple major AI spending developments fuel AI infra. buildoutmomentum： 1） $500bn AI initiative Stargate Project in the next fouryears, 2) $60-65bn capex planned by Meta for 2025E, up as much as 70%YoY compared to 2024 (Bloomberg), largely driven by AI spending increaseand deployment of a new datacenter. ByteDance also considered US$12bnin AI capex for 2025. Reliance is reported to build the world’s largestdatacenter. These spending sprees indicate that demand for AI computepower is still in full swing with robust outlook. AI networking products,such as optical transceivers, should continue to enjoy the AI tailwind.
    Imminent ramp-up + adoption of CPO solution seem to be overlyconcerned. Admittedly, CPO normally reduces power consumption by over30%, there are still several technical hurdles to overcome to make itmainstream (i.e., low yield, high repair cost). From our communication withindustry experts, we believe networking players are exploring LRO/LPO toachieve some power savings as at least one DSP is typically removed inthese technical approaches. Maintain BUY, with TP unchanged atRMB186, corresponding to ~27x FY25E P/E. The stock is currentlytrading at 18.5x FY25E P/E, which we believe underestimates thecompany’s future growth potential. Potential risks include: 1) China-UStrade tensions, 2) rising raw material costs, and 3) slower-than-expectedramp-up speed.

Embracing AI and moving on to a new growth trajectory

生益科技(600183)
    Shengyi Tech released its preliminary FY24 earnings. The company expects itsNP to rise by 46.0-54.6% YoY to RMB1.7bn-1.8bn. Mid-point NP of RMB1.75bn(+50.3% YoY) is lower than Bloomberg consensus/our estimate by 6.1%/3.3%.Our forecast of RMB1.8bn is at the high-end of the range. We are optimistic aboutShengyi Tech, as the company benefits from growing AI-related demand,particularly through its ultra-low-loss CCL products used in AI supply chain.Maintain BUY with TP adjusted to RMB34.5, corresponding to 30.6x 2025EP/E (prev. TP: RMB28.75) as we think the sector is 1) embarking upon anupcycle, and 2) the company’s CCL products are expected to be used inNvidia’s upcoming AI accelerators in 2025. .
    Shengyi Tech has climbed out of the trough with revenue improvement(from both CCL and PCB, with higher growth from PCB) and net marginexpansion (up +1.8ppts) in 2024. By segment, in the preliminary results, 1)CCL/Pregreg’s NP is estimated to be RMB1,421mn, up 19.5% YoY, drivenby higher production and sales volume, favourable product mix, as well asbetter GPM. 2) PCB’s (~20% rev. contribution) NP is estimated to beRMB329mn (mid-point of Shengyi Electronics’ revenue estimate), vs. net lossof RMB25mn in 2023. The turnaround in bottom-line is driven by increasingdemand for multilayer PCB.
    Despite sequential net profit decline in 4Q24, we think Shengyi Tech iswell-positioned to enjoy the significant upside as dollar value of PCBused in upgraded datacenter (new GPUs, cooling tech, high-densityinterconnect, etc) has increased substantially. Mid-point 4Q24 NP isestimated to be RMB378mn, up 43% YoY and down 14% QoQ. NPM isestimated to be ~7.4% vs. 8.6%/6.3% in 3Q24/4Q23. By segment, 1)CCL/Pregreg’s NP is estimated to be ~RMB235mn, down 14% YoY and down33% QoQ. We believe it is likely due to weaker-than-expected demand innon-AI market (e.g., consumer electronics), which has suppressed ASPrecovery. Meanwhile, copper price remained at its highs (avg. price in 3Q24:~US$9.9k/t). 2) PCB’s NP is estimated to be RMB142mn, up 57% QoQ (vs.4Q23 was net loss of RMB7mn). We think it is a continuation of 9M24 growthmomentum driven by rising contribution (20.9% YoY in 9M24) from serverrevenue (42.5% of PCB sales). (report)
    Maintain BUY. We like Shengyi Tech given 1) products adopted in AImarket (Ultra Low-loss and Extreme Low-loss CCL products), 2) leadingmarket position (No.2 with 12% market share of the global CCL market in2023 per Prismark). We maintain our NP growth forecast for 2025 at 51%YoY. We believe the sector is on the way of an upcycle plus AI theme. NewTP is RMB34.5, based on 1SD above 5-year hist. avg, corresponding to30.6x 2025E P/E. Potential risks include US-China tariff escalation, rising USinterest rates, exchange rates fluctuation, etc.