2Q earnings reinforce AI infrastructure spend momentum

中际旭创(300308)
    Innolight announced1H25preliminary earnings.1H25NP is guided to beRMB3.6bn-RMB4.4bn,up53%-87%YoY.2Q NP alone is estimated to beRMB2.0bn-RMB2.8bn,up50%-107%YoY/27%-78%QoQ.2Q NP beatBloomberg consensus of RMB1.9bn by9%-52%.According to the company,thestrong results were driven by1)robust topline growth on sustained AI demand(report)and2)margin increases due to a favorable product mix(highercontribution from800G and silicon photonics products)and yield improvement.Reiterate BUY with TP raised to RMB225.
    Sequential revenue growth in recent quarters driven by robust AIinfrastructure spend.Innolight's revenue grew by38%YoY/2%QoQ in1Q.We expect2Q NP to grow QoQ again,driven by1)strong capex fromoverseas CSPs and new entrants,2)strong demand for400G/800Gtransceivers from ASIC/Ethernet datacenter needs.By data rate,revenuecontribution from800G/SiPh products continues to grow.Looking ahead,mgmt.expects AI-driven demand to remain elevated through2026with800Gvolumes continuing to rise and1.6T adoption accelerating.We noticed thatEoptolink(300502CH,NR)also preannounced significant2Q NP growth of293%-386%YoY/35%-67%QoQ.In addition,FII(601138CH,NR)pre-announced2Q NP growth of48%-52%YoY/29%-32%QoQ.FII’s mgmt.highlighted that AI server sales growth exceeded60%YoY in2Q,and800Gswitch sales alone nearly tripled full-year sales in2024.BBG consensusforecasts major overseas hyperscalers'(MSFT/AMZN/GOOG/META)capexto grow by43%YoY and domestic Big Three’s(Alibaba/Tencent/Baidu)capex to grow by44%YoY in2025E.As a key beneficiary riding the AItailwind,we forecast Innolight's revenue to increase by52.5%in2025E.
    Further margin expansion on favourable product mix and better yields.With higher800G sales and incremental contribution from1.6T,we expect(3Q24/4Q24/1Q25:33.6%/35.1%/36.7%).SiPh demand is growing,offsettingthe impact of EML shortage and contributing to GPM.Innolight will provideSiPh solutions for1.6T products as well,per mgmt.,and we estimate NPM toreach a historical high in2Q while remaining at a high level going forward(CMBI est.:25%+).We expect the company's GPM to reach38.7%in2025E(vs.prev.35.3%),due to better-than-expected GPM in2Q.We have alsorevised up2025E NP to RMB9.2bn(77%YoY vs.prev.49%YoY).
    Reiterate BUY with TP raised to RMB225,based on27x2025E P/E(peers’avg.2025E P/E is28.1x),close to0.5SD above its5-yr avg.hist.forward P/E(21.8x).We have raised our revenue/NP growth forecasts to52.5%/77.3%YoY in2025on1)higher800G shipment volume,2)milderannual ASP adjustments and3)an enhanced GPM.We lift our target P/E to27x vs.prior21.5x given little impact from earlier tariffs.Key risks includeslower-than-expected shipments,geopolitical uncertainties,supply chainshortage,etc.

Strong 1H25 results underscore AI-driven strength

生益科技(600183)
    Shengyi Tech announced its1H25preliminary earnings.The companyprojected1H25NP to surge by50%-56%YoY,reaching RMB1.40bn-RMB1.45bn.2Q NP alone is estimated to be RMB836mn-RMB886mn,implying55%-64%YoY/48%-57%QoQ growth,and exceeding Bloomberg consensus ofRMB611mn by37%-45%.The strong results were driven by1)volume growth ofCCL products,2)surging PCB sales(85%-97%YoY in1H25)and3)GPMincrease from a favorable product mix.Reiterate BUY on Shengyi Tech as thecompany is one of the key beneficiaries in the global AI supply chain(report).TPis revised up to RMB41.1.
    Surging PCB sales underscore AI-driven strength.The company’s PCBsubsidiary Shengyi Electronics(688183CH,NR)also released prelim.1H25results,projecting revenue growth of85%-97%YoY to RMB3.7bn-RMB3.9bn,and NP growth of432%-471%YoY to RMB511-549mn.ShengyiElectronics has showed sequential growth in2Q.Its latest quarterly salesare estimated to be RMB2.1bn-RMB2.3bn,showing90%-111%YoY/31%-46%QoQ growth(following5%QoQ growth in1Q).2Q NP is guided to beRMB311mn-RMB349mn,with346%-401%YoY and56%-75%QoQincreases.We believe that such strong performance is supported by resilientAI-driven demand and further product mix enhancement,which togetherdrove margin expansion and earnings acceleration.
    Margin continues to improve,which may offset the rising copper costheadwinds.Shengyi Tech’s mgmt.sees GPM increase in its CCL business,driven by optimization in product structure.In addition,NPM of Shengyi’sPCB segment continues to recover,with mid-point NPM rising to15.1%in2Q25vs.12.7%/6.4%in1Q25/2Q24.Meanwhile,we have observed thatrising copper price appears to be headwinds to its PCB segment.Copperprice remains at its high level at above US$9.6k/tonne during the month.Thematerial cost pressure may sustain in our view,primarily attributable to thetariffs and growing demand from AI/data centers,auto and etc.However,wethink Shengyi Elec.will manage the impact,as it focuses on high valueproducts and has strengthened its competitiveness in the mid-to high-endmarket.
    Reiterate BUY with TP raised to RMB41.1based on30x2025E P/E(vs.30.6x prev.),close to1-SD above its5-yr hist.forward P/E.We raise ourrevenue/NP growth forecasts to39%/92%YoY in2025on higher volumesales and better GPM.We think the valuation is justified as the company isexperiencing upcycle and robust growth(revenue/NP to grow).Key risksinclude:slower-than-expected capacity ramp-up,intensified competition,geopolitical uncertainties,etc.

数智化+流水化转型，打造增长新引擎

迈瑞医疗(300760)
    迈瑞医疗于近期举行投资者日，重点介绍了公司设备业务的数智化转型及流水型业务的拓展战略，致力于构建覆盖全科室的“设备+IT+AI”和“设备+耗材”整体解决方案。核心亮点包括：1）三大产线基于IT+AI技术构建数智医疗生态。2）持续拓展业务边界，丰富流水型业务布局，为长期增长提供支撑。
    生命信息与支持业务：公司以设备为载体，通过“瑞智联”设备数据中台整合信息，构建患者数字画像，并利用AI专科智能体赋能临床诊疗。未来还有望形成辅助决策与医疗设备的反馈回环。公司的AI医疗布局主要聚焦急诊、手术和重症，启元重症大模型已在24年12月发布，预计今年可完成超30家医院的装机。25年底，公司预计将发布麻醉垂类大模型，急诊、心血管、超声和检验的专科大模型也有望在未来1-2年内陆续发布。我们认为，IT+AI业务发展周期较长，短期内难以产生实质收入贡献，但长期将进一步提升产品性能，以更优质的解决方案赋能临床，从而增强产品粘性和竞争力。
    超声业务：公司的全栈全景超声AI智能解决方案可提升检查效率和诊断质量。以Neuwa A20的妇产智能解决方案为例，可覆盖孕期全周期筛查及产前诊断，通过1）自动测量等提升检查效率，2）图像自动获取、切面质量评分等赋能质控，3）远程解决方案和AI训练模型等功能可助力基层医生能力提升。展望未来，公司的超声垂类大模型将优化扫描策略和工作流，实现智能撰写与质控。
    体外诊断业务：自动化流水线是IVD业务高端突破的尖刀，2024年全球新增装机超200套。我们预计，2025年流水线新增装机将达到约300套。完善的IVD布局支持公司的多学科流水线全面自产，因此具备成本与迭代效率优势。例如，公司有望在25-26年相继推出MT8000迭代版本和面向基层/急诊的紧凑型流水线。化学发光试剂方面，通过整合海肽生物的SEMS和高亲和力抗体开发等技术，公司加速追赶进口品牌，计划年增至少15项化学发光项目，并在心肌（如心肌长肌钙蛋白复合物）、激素（如HCG、PRL和E2/Testo/Prog）检测项目实现突破。此外，公司持续拓宽IVD领域新业务。2025年6月，全自动核酸检测一体机MN2880发布，聚焦于门急诊场景，可与血球、生化等优势项目协同。公司的临床质谱也在研发中，未来或将与流水线业务融合创新。
    新兴业务：公司流水型业务主要聚焦于介入治疗、微创治疗和IVD。介入治疗领域方面，除心血管外，公司还将在呼吸、泌尿等领域全面布局治疗设备、导航设备及相应耗材，构建泛介入治疗生态。至于微创治疗领域方面，依托腔镜系统、能量平台、手术器械研发经验，公司将布局手术机器人，剑指世界一流水平。
    维持买入评级，目标价272.90元人民币。我们认为，数智化转型将助推公司的全球高端突破，而新兴业务的高速发展将驱动业绩增长。因此，我们小幅上调公司盈利预期，并基于9年的DCF模型，上调目标价至272.90元人民币（WACC：9.2%，永续增长率：3.0%）。

NDR takeaways: Expanding product portfolio to reinforce domestic SME leadership

北方华创(002371)
    We held an NDR with Naura yesterday. The company’s new orders rose by~25% YoY in 2024 driven by strong IC orders, and the momentum continued in1Q25. It expects no material impact from geopolitical tensions (i.e., the entity list)with new bookings expected to grow at a similar rate this year. The company isproactively expanding its product coverage, through internal R&D and externalacquisitions. Its key IC equipment categories include etching, deposition, thermalprocessing, cleaning, and newly covered ion implantation (since Mar 2025). Italso plans to acquire a 17.9% stake in Kingsemi (link), a photolithography coatingequipment maker. This reinforced our positive stance on the company as China’sleading SME player with the most comprehensive product portfolio. ReiterateBUY as Naura continues to benefit from China's accelerating semiconductorlocalization amid tightening export restrictions, while expanding its productbreadth to strengthen its position as a one-stop equipment platform forcustomers. TP remains unchanged at RMB512 based on 36.8x 25E PE.
    Industry consolidation remains a key theme, exemplified by Naura’sintended acquisition of ~18% stake in Kingsemi (688037 CH, NR).Kingsemi’s 2024 revenue was RMB1.8bn (vs. Naura: RMB29.8bn), with a37.7% GPM (vs. Naura: 42.9%). The company believes this strategic moveenhances Naura’s evolution into a comprehensive semiconductor equipmentplatform, combining organic growth with targeted M&A to deepen productcoverage and customer penetration. The transaction is expected to close by3Q25. The deal also validates our prior view that domestic semiconductorindustry consolidation will gain pace in 2025E.
    Naura remains confident in the domestic SME capex cycle, citing strongdemand from both mature and advanced node projects. SEMI estimatedChina se equipment capex topped US$50bn (+35% YoY) in 2024, driven byfront-loaded spending amid geopolitical uncertainty. SEMI projects Chinamarket size to decline to US$38bn in 2025E after the 2024 peak. Nauraexpects a normalization of demand for overseas products, creating morespace for local vendors. Mgmt. expects investment in domestic mature nodesto stabilize over the next 2–3 years, while advanced logic and memory, whichalready accounted over half of 2024 sales, will likely drive future upside. Weforecast Naura’s revenue to grow at a higher-than-peers’ avg. rate of 30% toRMB38.9bn in 2025E, implying a 6% share gain based on SEMI’s forecast.
    Maintain BUY with TP unchanged at RMB512. We view Naura as the bestpositioned player in China’s SME landscape, given its comprehensive productsuite, growing industry partnerships, and rising exposure to advancedprocess nodes. We slightly lower 2025E NP by 2% on GPM revision whilemaintaining revenue forecast. The stock is currently trading at 31.2x 25E P/E.TP is based on 36.8x 25E P/E, close to 1SD above 3-yr hist. avg. of 31.2x,as we believe there is ongoing rerating of the sector amid increasinggeopolitical uncertainties. TP reflects 1.1x PEG and 18% upside. Potentialrisks: declining domestic capex and intensified competition.

To navigate macro uncertainties with a good start in 1Q25

药明康德(603259)
    WuXi AppTec reported impressive 1Q25 financial results. Revenue increased by21.0% YoY to RMB9.65bn, with revenue from continuing operations rising by23.1% YoY to RMB9.39bn. Adjusted non-IFRS net profit surged by 40.0% YoY toRMB2.68bn. Both revenue and net profit continued the quarterly improvementtrend seen throughout 2024, which further accelerated significantly in 1Q25. Asof the end of 1Q25, the Company’s backlog grew by 47.1% YoY to RMB52.33bn.Despite ongoing macro uncertainties, mgmt. has reaffirmed its full-year guidance,projecting a 10–15% YoY increase in revenue from continuing operations andexpansion in the adjusted non-IFRS net profit margin.
    TIDES business gained momentum with strong growth. WuXi AppTec’sTIDES business experienced strong growth 1Q25, with revenue soaring187.6% YoY to RMB2.24bn, an acceleration from the 70.1% growth in 2024.According to mgmt., the growth was driven by the ramp-up of new capacitiesand contributions from oral GLP-1 programs. TIDES backlog more thandoubled, increasing by 105.5% YoY as of 1Q25, providing a solid foundationfor sustained growth. The Company remains on track to expand its peptidecapacity to over 100k liters by the end of 2025. Hence, Mgmt. continued toexpect TIDES revenue to grow more than 60% YoY in 2025.
    Early-stage business remained under pressure with signs of moderaterecovery. Revenue from Biology segment grew 8.2% YoY in 1Q25, marking asecond consecutive quarter of positive growth, indicating a recovery in clientdemand for drug discovery services. In Chemistry segment, small-molecule drugdiscovery revenue declined 7.1% YoY, an improvement from the 28.7% YoYdrop in 2024. Testing segment remained affected by pricing pressure. Lab testingrevenue slid 4.9% YoY (vs. -8.0% YoY in 2024), with safety assessment revenuefalling 7.8% YoY (vs. -13.0% YoY in 2024). Mgmt. noted that pricing appeared tohave reached a trough, although a meaningful recovery will still take time.
    Strengthening shareholder returns amid market uncertainties. WuXiAppTec’s Board of Directors has proposed a series of shareholder returninitiatives, including maintaining a 30% annual cash dividend payout ratio,issuing a one-time RMB1bn special dividend in 2025, introducing the interimdividend plan in 2025, and repurchasing and cancelling RMB1bn A-shares(announced on March 17). In addition, the Company announced a secondRMB1bn A-share repurchase and cancellation plan on April 8, which has nowcommenced. Combined, the proposed dividends and share repurchaseprograms total nearly RMB6bn, equivalent to 62% of 2024 attributable netprofit, underscoring WuXi AppTec’s strong commitment to shareholder return.
    Maintain BUY. Due to the macro uncertainties such as the US-China tradewar, we revise down forecasts and now expect revenue from continuingoperation business to grow by 13.3%/14.9%/15.9% YoY and adjusted nonIFRS net income to grow by 9.7%/17.5%/15.9% YoY in 2025E/ 26E/ 27E,respectively (previously: 14.4%/15.2%/16.3% and 11.7%/19.0%/+16.1%YoY). We thus cut our DCF-based TP from RMB94.05 to RMB77.22 (WACC:9.42%, terminal growth: 2.00%; both unchanged). Our estimates are higherthan Bloomberg consensus, reflecting our confidence in earnings resilience

1Q25 earnings turnaround: strong overseas growth and domestic market recovery

联影医疗(688271)
    In 2024, United Imaging’s revenue declined 9.7% YoY to RMB10.3bn, withattributable net profit decreasing 36.1% YoY to RMB1.3bn mainly due to thechallenging domestic market environment. Due to delays in equipment renewalpolicies and prolonged industry rectification, the domestic medical equipmentmarket contracted by 12.4% YoY in 2024, according to IQVIA. Despite thechallenging environment, United Imaging’s GPM improved by 1.5 ppts YoY,supported by higher proportion of revenue from mid-to-high-end products (+0.9 pptsequipment GPM) and services (+1.7 ppts GPM from scale/cost optimization). In1Q25, United Imaging achieved turnaround in earnings with revenue andattributable net profit increasing by 5.4% and 1.9% YoY respectively, indicating arecovery in the domestic market.
    Overseas business remained robust. In 2024, overseas revenue grew 35.1%YoY to RMB2.3bn, accounting for 22.0% of total revenue (+7.3ppts YoY). ExNorth America revenue rose ~28% YoY to RMB1.6bn, accounting for ~71% ofthe total overseas revenue. United Imaging continued to expand in Europeanand emerging markets, with installation breakthroughs in France, Germany, andemerging markets such as South Africa, Morocco, and Brazil in 2024. Its marketshare in India rose to second place. The strong momentum of overseasbusiness persisted in 1Q25, and we expect overseas business to remain a keygrowth driver in 2025E. With North America contributing only ~6% of totalrevenue, the impact of trade frictions may be limited. Proactive inventorymanagement and global supply chain diversification will further help mitigatethe risks of trade tensions.
    Domestic business was under pressure but signs of recovery haveemerged. In 2024, domestic revenue fell by 17.5% YoY to RMB8.0bn.However, the Company’s market share in domestic imaging equipment(excluding ultrasound and DSA) increased significantly, ranking first in marketshare, with significant share gains (+5ppts) in the high-end market. Domesticprocurement recovered strongly in 1Q25, with the domestic medical equipmentbidding value up 67.5% YoY, according to Joinchain. Given the long revenuerecognition cycle for large equipment, we expect meaningful recovery ofdomestic revenue from 2H25E.
    Services income grew fast. Services revenue increased by 26.8% YoY toRMB1.4bn in 2024, with revenue contribution growing to 13.2% (+3.8ppts YoY).However, there remains a significant gap compared to GE Healthcare’s 34%service revenue share in 2024, indicating large room for improvement. As of2024, the Company’s global installed base exceeded 34,500 units. Withexpanding installed base, we expect service revenue to maintain rapid growth.
    Maintain BUY. Given the uncertain pace of domestic market recovery andongoing trade frictions, we revise down our 2024-2027E revenue forecasts to aCAGR of 18.1%.Thus, we adjust our TP to RMB149.83, based on a 9-year DCFmodel (WACC: 8.2%, terminal growth: 4.0%)

Higher expenses are transitory; eyes on new products

恒立液压(601100)
    Hengli’s reported net profit in 4Q24 /1Q25 was -4% YoY /+3% YoY and camein slightly lower than our expectation due to higher administrative expenses.That said, the higher expenses were due to the booking of depreciation ofMexico production plant and precision business (ball screws and linear motion)as a result of the transfer of construction-in-progress to fixed assets. We finetune our 2025E/26E earnings forecast by -2%. We are staying positive on Hengliand revise up our TP to RMB92 (previously: RMB64), based on 35x 2025E P/E(equivalent to historical average + 1SD) as: (1) we roll over our valuation to2025E, and (2) we believe humanoid robots components such as ball screwswill serve as the important growth driver in the medium term. Maintain BUY.
    Key highlights in 2024 results: Revenue in 2024 grew 5% YoY toRMB10bn (1%/10%/2%/2% growth of hydraulic cylinders / pump & valve /hydraulic systems / components). Blended gross margin expanded 1.4pptYoY to 42.6%, driven by hydraulic cylinders. EBIT, however, was flat YoYlargely due to a 1.8ppt YoY increase in administrative expense ratio (to6.3%). Net profit was RMB2.5bn, stable YoY. In 4Q24, net profit dropped4% YoY to RMB717mn, due to a 7% YoY decline in revenue and higheradministrative expense ratio (+3.4ppt to 8.7%).
    Key highlights in 1Q25 results: EBIT dropped 9% YoY to RMB579mn, asthe 3% YoY increase in revenue was offset by 0.7ppt YoY contraction ofgross margin (to 39.4%) and an increase in expense ratio in general. Helpedby a 2.6x YoY increase in net finance income, net profit in 1Q25 grew 3%YoY to RMB618mn, which accounted for 21% of our full-year estimates (runrate in 1Q24: 22%).
    Potential reduction of segment loss in 2025E. We understand that theloss attributable to Mexico production plant and precision business was~RMB100mn, due to the depreciation of newly-added fixed assets. Henglisees chances of loss reduction in 2025E when product delivery increases.
    Outlook on ball screws. The current annual capacity of ball screws isenough to support production value of RMB700-800mn. Hengli targets toincrease the capacity to RMB2bn, equivalent to ~100k units of ball screws.
    Risk factors: (1) further weakness in the demand for hydrauliccomponents; (2) slower-than-expected new business development

Awaiting domestic demand rebound

迈瑞医疗(300760)
    In2024,Mindray reported revenue of RMB36.7bn(+5.1%YoY)and attributablenet profit of RMB11.7bn(+0.7%YoY).GPM dropped by1.1ppts YoY to63.1%,primarily due to1)pricing pressure on IVD reagents and mid-to low-end medicalequipment,2)weaker IVD testing demand following DRG2.0implementationand inter-hospital recognition of test results.The proportion of revenue from IVDreagent declined in4Q24.The Sino-US trade frictions may raise costs for US-sourced raw materials in2025E,while Mindray is actively seeking substitutes toprotect margins.In1Q25,Mindray’s revenue fell by12.1%YoY to RMB8.2bn,mainly due to1)over20%YoY decline in domestic revenue,as revenuerecognition lagged behind procurement recovery,2)a high overseas revenuebase in1Q24(up nearly30%YoY),resulting in slow1Q25overseas growth of4.3%YoY.
    Steady growth from overseas.In2024,overseas revenue grew by21.3%YoY to RMB16.4bn,accounting for44.7%of total revenue(+6.0ppts).Ex-North America revenue rose26%YoY to RMB13.8bn,with Asia-Pacificcontinuing as the growth engine.Mindray achieved further breakthroughs inhigh-end markets,with high-end strategic customers contributing14%ofoverseas revenue.With enhanced localization and installations of high-endproducts such as the MT8000,we expect the overseas revenue to grow bya mid-teens percentage in2025E.As the US contributed only~6%ofMindray’s total revenue,the impact of trade frictions may be moderate.Diversified manufacturing across13countries and proactive inventorymanagement should help mitigate related risks.
    Domestic market remained under pressure.In2024,domestic revenuedecreased by5.1%YoY to RMB20.3bn.Revenue from PMLS and MISsegments fell31%YoY and2%YoY,respectively,due to weak hospitalprocurement.According to IQVIA,China’s medical equipment marketdecreased12.3%YoY in2024.Policy headwinds including DRG2.0,inter-hospital recognition of test results,and reagent price cuts further weighedon IVD revenue.IQVIA estimated a decline in the biochemical market andflat growth in immunology market in2024.Therefore,Mindray’s domesticIVD revenue increased1%YoY in2024.However,Joinchain data shows a67.5%YoY increase in medical equipment bidding value in1Q25,indicatingpotential recovery of domestic medical equipment procurement.Weanticipate the revenue recovery will occur in2H25E,primarily due to thetime lag between the bidding process and revenue recognition.
    Maintain BUY.Given the uncertainties of the timeline of domesticprocurement recovery and trade frictions,we revise down our earningsforecasts.We expect revenue and attributable net profit to grow9.4%and6.5%YoY,respectively,in2025E.Based on a9-year DCF model,we adjustour TP to RMB249.19(WACC:9.2%,terminal growth rate:3.0%).

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

1Q25 earnings on track

比亚迪(002594)
    Maintain BUY. We are of the view that BYD’s 1Q25 results, including all thekey metrics, continued to show its high earnings quality, despite the ongoingvehicle model transition. We believe both sales volume and gross margin in1Q25 are on track to achieve our full-year forecasts. New models, including theHan L, Tang L and Titanium 3, could boost its sales from 2Q25. Although it ispossible for BYD to lead another round of price war in 2H25 to maintain itsmarket share, we believe its high earnings quality could help keep its net profitper vehicle above RMB10,000.
    Net profit of RMB9,148 per vehicle in 1Q25. BYD’s 1Q25 net profit ofRMB9.2bn was in line with its preliminary announcement of RMB8.5bn-10bn. Gross margin of 20.1% was in line with our prior forecast. R&Dexpenses of RMB14.2bn in 1Q25 were about RMB1.5bn higher than ourprojection, which was offset by lower selling expenses and higher forexgains than we had expected.
    Both sales volume and gross margin in 1Q25 are on track to achieveour full-year forecasts. We are of the view that BYD’s 1Q25 sales volumeis on track to meet our full-year forecast of 5.25mn units. Its 1Q25 grossmargin of 20.1% despite rising discounts for inventory clearance of oldmodels is also close to our full-year forecast of 19.7%, taking extra costsfrom ADAS into consideration. It is also possible for BYD to lead anotherround of price war in 2H25 given its current inventory level, in our view.Although we do not expect ADAS functions equipped on the Model Year2025 vehicles to bring significant new demand, BYD’s comprehensivemodel line-up, leading cost reduction capabilities and new technologies,especially those related to batteries, could make itself well positioned inmaintaining its market share in FY25. Overseas sales volume of 0.2mnunits (or 20% of total sales volume) in 1Q25 also exceeded our priorexpectation.
    Earnings/Valuation. We fine-tune our FY25E earnings forecast bylowering average selling price slightly and raising R&D expenses and forexgains a bit, which results in an unchanged net profit of RMB57.5bn. Wehave also added our FY27E earnings forecasts. We maintain our BUYrating and target price of HK$470 for H share and RMB440 for A share,both of which are still based on 23x (unchanged) our FY25E EPS. Keyrisks to our rating and target price include lower sales or margins than weexpect, and a sector de-rating.