双靶点GLP1/GIP创新药未来可期；首予买入

博瑞医药(688166)
    原料药和制剂业务稳定增长。公司贯彻执行原料药与制剂一体，仿制药与创新药结合的策略，聚焦于首仿、难仿、特色原料药、复杂制剂和原创性新药。公司以特色原料药及医药中间体为起点，并不断向下游制剂领域延伸。随着原料药和制剂产品数量的增加，公司的收入体量呈现快速增长趋势。2023年，公司实现营业收入11.80亿元，同比增长15.9%。2024年前三季度，收入同比增长6.8%至9.77亿元。公司的制剂产品持续丰富。截至2024年9月公司累计有16款制剂获批上市。2024年上半年，公司实现制剂产品收入1.10亿元，同比增长30.4%；制剂产品收入占产品销售收入的比例进一步提升至17.9%。
    未来公司重点布局复杂制剂和创新药。公司重视产品研发，随着业务的增长，公司持续加大研发投入。2023年公司的研发费用为2.49亿元，同比增长20.1%，研发费用占营业收入的21.1%。公司未来业务的重点将投向吸入剂、GLP-1类药物等复杂制剂及原创性新药。2024年上半年，创新药及吸入制剂合计研发投入占公司研发费用的53.0%，同比增长105.3%。公司自主研发的多肽类降糖和减重用BGM0504注射液目前已经进入三期临床阶段，长效多肽靶向偶联药物BGC0228目前已完成临床一期试验。
    BGM0504减重和降糖数据优异，已启动减重三期临床。BGM0504是公司自主研发的GLP-1/GIP受体双重激动剂，在国产周制剂中处于第一梯队。BGM0504在减重二期临床中，15mg剂量组治疗24周呈现出18.5%的安慰剂调整后的体重下降，在主流GLP-1类品种中具有显著的竞争优势。公司已启动BGM0504的三期减重临床，BGM0504减重适应症在美国的IND已获批，现已完成首例入组。在针对糖尿病的二期临床中，BGM0504单药展现出十分亮眼的疗效数据和安全性，经过12周治疗，最高剂量15mg组患者HbA1c较基线的平均降幅达2.76%，跨研究比较显著优于其他竞品，如替尔泊肽、司美格鲁肽等。BGM0504针对糖尿病的三期临床预计待获得伦理批件后将很快启动。中国GLP-1药物的研发竞争激烈，双靶点创新药具有升级迭代的优势。BGM0504在国产GLP-1/GIP双激动剂中处于第一梯队，具有先发优势。我们看好该产品在肥胖和糖尿病适应症的潜力，期待三期临床的推进。
    首次覆盖给予买入评级，目标价44.21元。我们预测公司营业收入将保持稳定增长，2024-2026年收入分别同比增长9.6%/11.5%/14.5%至12.9亿/14.4亿/16.5亿元。公司的创新品种BGM0504于2027年获批上市后，公司的营业收入增长有望进一步加速。我们预测2024-2026年，公司将分别录得2.0亿/2.3亿/2.9亿元的净利润，同比增速分别为13.7%/16.3%/27.9%。基于折现现金流模型，我们给予公司目标价44.21元（WACC:13.2%，永续增长率:2.0%）。

投资者日要点：国之重器，扬帆出海

联影医疗(688271)
    联影医疗于11月8日举行投资者日，介绍了公司的全球化业务布局，包括海外业务拓展，全球科研合作以及海外运营体系打造等。公司首次展示了先进的自研超声平台及样机。公司的超声产线旨在实现临床场景的全覆盖，包括中端系列、超高端系列、便携系列和无线掌超，涵盖全身、心脏、妇产和介入等领域。公司的超声系列产品已临近上市，正与多所国内顶尖医院开展合作，目标走向全球市场。
    高举高打海外战略成效显著，持续突破海外高端市场。凭借强劲的创新能力、比肩全球一流水平的产品力，年初至今，公司的各类高端机型已成功在全球超40个国家签单或装机近300台，覆盖欧美及拉美、非洲、中东、亚太等市场，涉及产品包括uCT960+、uMR Omega、MI、RT等。截至第三季度末，公司销售渠道已覆盖超75个国家，海外装机总数约2,700台。我们预计2024年底，公司海外装机总数有望超过3,000台。
    科研合作驱动创新研发，助力拓展全球市场。科研合作是联影医疗全球化发展的独特名片。公司与全球顶级临床科研专家合作共创，研发行业的领先技术，并提升公司在国际市场的品牌形象和专业认知。例如，公司与耶鲁大学、UC Davis合作研发的全球首款数字化脑专用PET/CT NeuroEXPLORER(NX)，其扫描得到的大脑图像荣获美国核医学与分子影像学会“2024年度最佳影像”。公司与UTHealth合作，把传统基于二维的PET-CT心脏图像拓展到三维，并实现车载应用，不仅提高了心脏成像的分辨率，也助推公司在美国市场实现从高端学术研究机构到广泛地区的延展。全美最大的车载心脏PET集团CII已从公司采购超13台PET设备。我们认为，持续深入的全球科研合作是公司长期保持技术领先和产品创新的重要动力之一，也为公司贯彻高举高打的出海战略奠定坚实基础。
    全球化生产布局，锻造全球供应链韧性。公司打造了全面的核心零部件自主生产研发能力，具备显著的成本优势和技术壁垒，打破供应链“卡脖子”瓶颈。同时，公司加速全球生产布局和海外供应链网络建设，以应对地缘政治挑战。目前，公司在美国休斯敦的生产基地年产能可达超500台/套，并初步计划在2025-27年在东南亚和拉美等区域建设生产基地。公司持续优化全球物流交付和海外备件库网络，已建成29个海外备件库（含中国香港），在建海外备件库共6个。极具韧性的全球供应链和生产网络，高效的全球物流和售后服务能力是公司快速全球化发展的基石。
    维持买入评级。我们预期国内公立医院招标活动将从四季度开始强势复苏，公司海外收入持续快速增长，看好公司业绩修复弹性。我们认为，公司超声产品线即将推出，为长期业绩增长再添重要动力。基于9年的DCF模型，维持162.81元人民币的目标价（WACC：8.3%，永续增长率：4.0%）。

LT growth intact; D/G to HOLD as the company goes through business model transformation

卓胜微(300782)
    Maxscend released its3Q24results.Revenue declined by23%YoY/1%QoQto RMB1.1bn,driven by a weaker seasonality as smartphone demand is notshowing strong recovery.NP declined by84%YoY/55%QoQ to RMB71mn,mainly due to GPM erosion(down4.3ppts sequentially to37.1%)on1)fabramp-up,2)an unfavorable product mix towards higher module shipments,and3)USD/RMB FX impacts.NPM dropped to6.6%from14.3%/32.1%in2Q24/3Q23on lower GPM,higher R&D costs(up66%YoY)and assetimpairment loss.Although Maxscend’s LT growth prospects remain intact,wedowngrade the stock to HOLD on ST pain from business transformation(fabless to fab-lite)that weighs on profitability.TP adjusted to RMB86,corresponding to45x2025E P/E(vs.44.5x before).
    Unlike a usual peak season in3Q(40%QoQ growth pre-pandemic in3Q18/19and48%QoQ in3Q23),quarterly sales were flattishsequentially(-1%),showing a weak market demand.Although we haveexpected weakness would be a drag to3Q24sales,top-line growth was stillbelow our/BBG consensus by21%/24%.Therefore,we revise down our2024/25E revenue forecasts by8%/7%,with FY24/25E revenue growthadjusted to4.7%/23%YoY.
    Module business to be the key driver of future growth.In9M24,Maxscend saw module revenue contribution increase(43%est.of sales vs.36%in2023)to~RMB1.4bn.We expect module share to increase furtherto49%/55%in2024/25E,as we believe modulization in RFFE industry hasbecome a mainstream trend providing a more integrated solution.
    GPM is expected to recover to40%+in2H25.We expect margin to faceongoing challenges in the next2-3quarters,due to capacity ramp-up atXinzhuo and utilization not yet achieving the optimized level(slow recoveryin demand).The margin headwind may persist at least into1H25as thecompany continues to transfer products fabrication to its own production line(est.RMB137mn depreciation in4Q24E and a total of RMB550mn in2024Eper mgmt.).We cut GPM estimates by1.9ppt/1.1ppt for2024/25E.
    Downgrade to HOLD,with adj.TP at RMB86,based on45x2025E P/E(close to peers’avg.of~41x2025E P/E).We believe Maxscend mustendure the trials of transformative business model shift through challengesbefore shining bright again on the global stage.Key upside risks:1)faster-than-expected recovery in demand and share expansions and2)depreciation’s less severe impacts on margins;key downside risks:1)slower-than-expected capacity ramp-up,2)weak recovery in demand,and3)escalating geopolitical tensions.

Anticipating a rapid rebound in domestic business

联影医疗(688271)
    United Imaging’s 9M24 revenue declined by 6.4% YoY to RMB6,954mn, with 3Q24revenue down by 25.0% YoY to RMB1.6bn. This downturn was primarily due to achallenging domestic market environment, marked by stringent industry regulationsand delays in equipment renewal projects. Attributable net profit in 9M24 decreasedby 36.9% YoY to RMB671mn, with net profit margin falling by 4.7 ppts. Despitethese near-term challenges, United Imaging maintained its R&D expenditures andactively pursued expansion in international markets, which impacted profitability inthe third quarter. Looking forward, as the implementation of equipment renewalprojects has gradually picked up pace, United Imaging's revenue and net profitmargins are expected to significantly improve in 2025E, in our view.
    Robust overseas growth momentum. In 9M24, United Imaging’s overseasrevenue grew 36.5% YoY to RMB1,404mn, accounting for 20.2% (+6.35 ppts)of total revenue. This accelerated growth continued into the third quarter, withrevenues increasing by 51.7% YoY to RMB471mn. Strong performances werenoted across North America, the Asia-Pacific region, and emerging markets. AsUnited Imaging continues to enhance its overseas localization and servicecapabilities, we believe it is poised to strengthen its global competitiveness,better navigate geopolitical challenges, and sustain rapid growth internationally.
    Strong growth in recurring revenue. In 9M24, revenue from maintenanceservices increased by 27.3% YoY to RMB967mn, accounting for 13.9% (+3.7ppts) of the total revenue. With a global installed base now exceeding 31,000units, United Imaging's service revenue contribution remains lower comparedto global industry leaders like GE Healthcare (32.9% in 2023) and Philips(27.7% in 2023). However, with the expanding installed base and an enhancedglobal service network, we expect United Imaging’s recurring revenue tocontinue its rapid increase, offering resilience against industry fluctuations.
    Medical equipment renewal projects set to materialize. Mgmt. has notedthat medical equipment renewal projects began implementation in earlyOctober, with multiple procurement activities underway. Additionally, somepreviously delayed equipment procurements, halted due to policy uncertainties,have now restarted. These developments lay the foundation for a recovery inUnited Imaging’s domestic business in 4Q24 and 2025. However, due tostringent industry regulations, the procurement process has become moreprotracted. The installation and revenue recognition timelines for largeequipment are also relatively long. Consequently, the positive impact of thisprocurement rebound is expected to be primarily reflected in 2025, in our view.
    Maintain BUY. We expect hospital procurement to recover from 2025 and weare optimistic about the Company's long-term growth potential driven by thecontinued import substitution and strengthened global competitiveness.Therefore, we revise up the terminal growth rate forecast from 3.0% to 4.0%.Based on a 9-year DCF model, we adjust the target price to RMB162.81(WACC: 8.3%, terminal growth rate: 4.0%).

Expect domestic business to rebound from 2025

迈瑞医疗(300760)
    Mindray reported9M24revenue of RMB29.5bn,up by8.0%YoY.Attributable netprofit increased by8.2%YoY to RMB10.6bn.Revenue in3Q24grew by1.4%YoY to RMB9.0bn while attributable net profit decreased by9.3%YoY toRMB3.1bn.The slowdown in revenue growth can primarily be attributed tolackluster procurement activities in domestic public hospitals and weakeneddemand for IVD testing,particularly in lower-tier hospitals.Consequently,Mindray's domestic revenue fell by9.7%YoY in3Q24.Additionally,GPM in3Q24decreased by4.8pcts QoQ due to updates in accounting guidelines.
    Domestic market remained under pressure,although signs of recoveryin procurement are emerging.1)IVD:Domestic revenue grew by17%YoYin9M24.Nationwide DRG implementation had a negative impact on thediagnosis demand in lower-tier hospitals which were the main contributors toMindray's domestic IVD revenue.To counter act this,Mindray activelyexpanded its IVD business into top hospitals through its TLA and IT solutions.We expect Mindray to install over150TLAs in2024E.2)MIS:Domesticrevenue grew by over10%YoY in9M24driven by the strong volume ramp-up of ultra-high-end Resona A20ultrasound system.3)PMLS:Domesticrevenue decreased by28%YoY in9M24.The decline was influenced by
    environment.However,with accelerated issuance of special bonds,andstronger government support to address local debt issues,we expectdomestic equipment demand to recover in2025E.
    Healthy growth in overseas business.In3Q24,Mindray’s overseasrevenue increased by18.6%YoY with strong performances in Europe(+29%YoY),APAC(+32%YoY)and LatAm(+25%YoY),although there was someweakness in the US market.Driven by breakthroughs in medium-to-largevolume labs,Mindray’s overseas IVD revenue increased by32%YoY in9M24,accounting for28%of total overseas revenue.Mindray hasaccelerated its overseas localization efforts.As of3Q24,Mindray launchedlocal manufacturing in9countries,8of which are related to IVD.Additionally,emerging businesses such as minimally invasive surgery(+50+%YoY),AED(+50+%YoY)and animal medical(+30+%YoY)grew significantly in9M24.These emerging businesses contributed over10%to Mindray’s overseasrevenue.We expect IVD and emerging businesses to become the primarygrowth drivers for Mindray’s overseas businesses.
    Maintain BUY.We lowered our earnings forecasts with target price adjustedto RMB328.81(WACC:9.3%,terminal growth rate:3.0%).

Solid Q3 earnings signal intact growth trajectory

北方华创(002371)
    Naura announced 3Q24 results. Q3 revenue was RMB8.0bn, up 30.1% YoYand 23.8% QoQ, driven by significant growth in semiconductor equipment sales(up 47.0% in 9M24). NP was RMB1.7bn, up 55.0% YoY and 1.7% QoQ. GPMwas 42.3%, up 5.9ppts from 3Q23 but declined 5.1ppts sequentially, mainly dueto 1) higher photovoltaic (PV) equipment sales that had a lower GPM and 2)seasonal fluctuations in gross margins of semiconductor equipment business.Overall, Q3 was a solid quarter with robust revenue and net profit growth.Maintain BUY, with TP adjusted to RMB426, reflecting 30x rollover 2025EP/E (vs. prev. 35.8x).
    9M24 results showed Naura is on track with stellar growth. 9M24revenue grew 39.5% YoY, benefiting from continuously strong sales ofdomestic semiconductor equipment (up 47.0% YoY in 9M24) due to China’ssemi localization trend. 2025E bookings remain a key focus for mostinvestors but have not been announced yet (2024 bookings wereannounced in Jan, 2024). We maintain our sales growth forecasts for2024/25E at 39.7%/26.5% YoY.
    Margin decreased 5.1ppts QoQ in 3Q24, a similar seasonality observedin 3Q23 (down 7.0ppts) in addition to a negative impact from increased PVequipment sales. We revise down our 2024/25E GPM forecast by1.3ppts/1.1ppts to reflect the seasonality trend in 2024/25E, but we expectGPM to continue its upward trend (43.7%/44.3%) in 2024/25E on afavourable product mix. We slightly lower our NP forecasts by 3%/4% in24/25E considering continued investments in R&D.
    Maintain BUY with TP adjusted to RMB426, based on 30x rollover2025E P/E, close to its historical 2-year forward P/E. New TP also reflects1.0x PEG. Potential risks include 1) worsening China-US trade relations, 2)heightened geopolitical tensions, 3) slower-than-expected R&D.

3Q results review: Solid revenue growth with lower margin

深南电路(002916)
    Shennan Circuit released its 3Q24 results. Revenue went up 37.9% YoY/8.5%QoQ to RMB4.73bn, beating Bloomberg consensus by 19.7%. Net profit rose15.3% YoY but declined 17.6% QoQ. GPM declined to 25.4% QoQ in 3Q24from 27.1%/23.4% in 2Q24/3Q23. Mgmt. attributed this to 1) higher salescontribution from lower margin PCBA business (GPM at c.15%), 2) Guangzhoufactory ramp-up suppressed substrate margin, and 3) high copper price (avg.copper price in 3Q24 was ~US$9.9k/t), and increased auto sales weighed onPCB’s profitability. NPM declined 3.3ppts sequentially to 10.6%. MaintainHOLD on Shennan with TP adjusted to RMB115, reflecting 27x 2025E P/E(vs. prev. 30.8x), closed to its 3-yr avg. historical forward P/E.
    PCB GPM erosion on higher material costs and greater auto PCBsales. By end market, telecom remained the largest market with c.40% ofsegment sales in 3Q24. Aside from telecom, datacom/auto/industrial &medical/energy markets contributed ~20%/13%/10%/5% of PCB revenue.GPM declined QoQ due to 1) increasing material costs (i.e., FR4) and 2)auto PCB growth, which has a relatively lower margin than other products.Mgmt. highlighted relatively high utilization rate (~90%) from AI-related PCBproduction, while that of non-AI production remained at between 85-90%.Looking forward, we expect PCB revenue to grow at 11% in 2025E.
    Strong growth in PCBA sales offset substrate weakness. We think thebeat in 3Q revenue is mainly due to higher-than-expected PCBA sales,which weighed on margin (down 1.7% sequentially). Substrate businesscontinued to be weak in 3Q due to challenging demand, especially in theconsumer electronics market. Substrate (excl. Guangzhou factory)utilization rate maintained at level of c.70%. For Guangzhou factory, mgmt.mentioned mass production capability for sub-16 layered PCB products thathave been shipped to a few domestic clients. Looking forward, we expectsubstrate revenue to grow at 7% in 2025E.
    Maintain HOLD, with TP adjusted to RMB115, based on 27.0x rollover2025E P/E, closed to 3-yr avg. historical forward P/E. We revise up our2024/25E revenue forecasts by 9%/3%, reflecting higher-than-expectedPCBA sales. EPS was up by 7% for 2024E but remained unchanged for2025E, considering ongoing margin pressure. Potential risks include: 1)weaker-than-expected demand recovery, 2) slower product certification atclients, and 3) slower capacity ramp-up.

Earnings recovery underway

药明康德(603259)
    WuXi AppTec reported 3Q24 revenue of RMB10.46bn, slightly down 2.0% YoY,and attributable adjusted non-IFRS net profit of RMB2.97bn, down 3.2% YoY.Total non-COVID revenue and non-COVID Chemistry revenue growth reboundedto 14.6% YoY and 26.4% YoY, respectively, in 3Q24. Despite the challenginggeopolitical environment, mgmt. reiterated its revenue guidance of RMB38.3-40.5bn for 2024, indicating 2.7%~8.6% YoY non-COVID revenue growth.Additionally, mgmt. reiterated its commitment to maintaining an adjusted nonIFRS net profit margin consistent with the levels achieved in 2023.
    Strong global competitiveness led to fast order growth. As of 3Q24, WuXiAppTec's backlog climbed to RMB43.82bn, representing a YoY increase of35.3%, maintaining the encouraging momentum of 33.2% YoY growth(excluding COVID-19 commercial projects) in 1H24. The rapid backloggrowth signified the enduring trust that global clients place in WuXi AppTec'shigh-quality and efficient services. This is further evidenced by a robust 23.1%YoY rise in revenues from global Top 20 pharmaceutical companies in 9M24,a notable acceleration from the 11.9% growth observed in 1H24.Management has indicated that 80% of the backlog is expected to convertinto revenue within the next 12 to 18 months, providing strong earningsvisibility for WuXi AppTec in 4Q24 and throughout 2025, in our view.
    TIDES continues to exhibit strong growth. TIDES revenue grew by 71.0%YoY in 9M24, with the growth accelerating to 98.6% YoY in 3Q24. The TIDESbacklog as of 3Q24 saw a substantial YoY increase of 196%. In Jan 2024,WuXi AppTec expanded its peptide production capacity from 10k liters to 32kliters, with plans to expand to 41k liters by the end of 2024 and further to 100kliters by 2025. This ambitious expansion underscores WuXi AppTec'scommitment to meeting the rapidly growing global demand for peptideservices, positioning TIDES as the strongest growth driver for the Companythrough 2026.
    Overseas peers struggle to compete with Chinese chemical CDMOs inthe medium term. In our in-depth report published on 21 Oct 2024, weanalyzed the business fundamentals of 30 companies from Europe, the US,and India engaged in API and chemical CDMO services. The findings revealthat these companies significantly trail WuXi AppTec in terms of businessscale and capacity. Specifically, most Indian peers primarily offer bulk andspecialty APIs, with limited capabilities in supporting innovative drugs R&D.Meanwhile, European firms, despite having an established pharmaceuticalmanufacturing base with several well-known chemical CDMOs, tend to focusmore on formulation instead of API. Their manufacturing sites, primarilylocated in Central and Western Europe, face higher labor costs compared toWuXi AppTec, further disadvantaging them in the competitive market.
    Maintain BUY. Factoring in the positive trend of customer demand, we lift ourTP from RMB67.72 to RMB72.37 (based on a 10-year DCF model withWACC of 9.42% and terminal growth of 2.0%). We forecast revenue to growby -3.6%/ +11.4%/ +13.6% YoY and adjusted non-IFRS net income to growby -3.9%/ +11.9%/ +15.5% YoY in 2024E/ 25E/ 26E, respectively.

3Q24 net profit +38% YoY, beat expectations; US remains the most promising market

浙江鼎力(603338)
    Zhejiang Dingli’s (Dingli) EBIT in 3Q24 grew 20% YoY to RMB672mn, driven bya 38% revenue growth (YoY) that offset the 4.8ppt YoY decrease in gross margindue mainly to an exceptional high base in 3Q23. Reported net profit grew 38%YoY to RMB636mn, helped by an increase in net finance income (FX gains). Theresults suggest Dingli’s strong execution in expanding overseas. In the postresults call, management reiterated the strategy to focus on the US market, whereoutlook will remain the most promising in 2025E. In the near term, the antidumping (AD) results in the US (preliminary duties: down to 9.33% from 31.54%)and EU (from nil to 31.3%) could be released over the coming 1-2 months, whichshould help remove the overhang. We have left our earnings forecast unchanged.Maintain BUY with an unchanged TP of RMB75 (18x 2024E P/E, 1SD below thehistorical average of 31x).
    Full consolidation of CMEC in 3Q24. This is the first quarter with fullcontribution after the consolidation of CMEC, the major US subsidiary.Based on our understanding, revenue in the US was ~RMB1bn in 3Q24,with an estimated net margin of ~10%.
    US sales target unchanged. Dingli maintains the revenue target ofUS$500mn (~RMB3.5bn) in 2024E for the US market, which implies~RMB600mn potential sales in 4Q24E. Dingli believes that the incrementalimpact of a potential increase in tariffs in the case of Trump presidencyshould be manageable, as the reduction of anti-dumping duties couldmitigate the impact.
    Boom lift target overseas. Dingli targets to deliver a total of 6k units ofboom lifts overseas, including 2k units in the US (target unchanged).Overseas revenue from boom lifts will likely exceed scissors lifts for the fullyear, per our estimate.
    Product differentiation to mitigate the impact of AD duties in EU. Dingliexpects sales in Europe will be relatively stable this year. Dingli will continueto offer differentiated products to increase pricing power, which will enableit to partially pass through the AD duties to the downstream.
    Key risks: (1) Further intensified competition in China’s AWP market; (2) aslowdown of overseas demand; and (3) higher-than-expected anti-dumpingduties in the US and EU.

PCB outperformed CCL in 3Q; margin improved sequentially

生益科技(600183)
    Shengyi Tech announced3Q24results.Revenue was RMB5.1bn,up14.5%YoY but down1.7%QoQ,in-line with Bloomberg consensus.GPM was22.9%,up1.1ppts from2Q24,benefitting from favourable product mix and loweredmaterial costs.NP was RMB440mn,up27.8%YoY but down18.6%QoQ.NPMlowered to8.6%(vs.10.4%in2Q24).Bottom line missed Bloomberg consensusby26%,mainly due to SBC cost of RMB150mn(~2.9%of revenue).Lookingforward,we expect Shengyi’s revenue to grow at20%/16%YoY in2024/25E,with improved margin at22.1%/23.6%.Maintain BUY with adjusted TP atRMB28.75(vs.prev.RMB26.41),reflecting rollover25.5x2025E P/E,whichis closed to its3-yr historical forward P/E.
    PCB sales grew on strong AI demand.GPM recovered both YoY andQoQ.3Q24PCB revenue was RMB1.2bn,up49.3%YoY and10.8%QoQ.The growth was mainly driven by a significant rise(20.9%YoY in9M24)inserver revenue(42.5%of PCB sales).Overseas market outperformed with32.1%YoY sales increase.GPM recovered to24.9%from20.4%/14.2%in3Q23/2Q24,mainly on favourable revenue mix.NPM rose to7.5%vs.-3.4%/6.4%in3Q23/2Q24.We raise our projection for PCB sales by5%/1%for2024/25E,on quicker-than-expected ramp-up of related products for AIserver market.We expect the segment to grow at35%/20%in2024/25E.
    CCL revenue was up YoY but down QoQ(est.5-6%lower),likely onweaker-than-expected demand in non-AI market,which suppresses ASPrecovery.Margin slid sequentially,as copper price remained at its highs(avg.price in3Q24:~US$9.9k/t).But Shengyi managed to offset partialimpact of material cost headwinds with pre-procurement activities.However,this led to an8%QoQ increase(RMB365mn)in inventory.We cutour forecasts for CCL sales by8%/6%for2024/25E,on slower-than-expected market recovery.We expect the segment to grow at14%/15%in2024/25E.
    Maintain BUY with adjusted TP at RMB28.75.We slightly revised downour sales/NP estimates by4%/6%for2025E.New TP is based on25.5xrollover2025E P/E,which is close to its3-yr historical forward P/E.Potentialrisks include copper price volatility and weaker-than-expected demandrecovery.

3Q24 earnings below expectations due to margin contraction

恒立液压(601100)
    Hengli’s EBIT in 3Q24 dropped 6% YoY to RMB445mn, due to gross margincontraction of 1.9ppt YoY despite an 11% YoY increase in revenue. The margincontraction, which was due to lower utilisation rate based on our understanding,is slightly below our expectation. Reported net profit grew 6% YoY toRMB504mn, helped by increases in net finance income and other gains. We arestill positive on Hengli over the medium term, as (1) revenue contribution fromnon-excavator components continues to increase; (2) electric cylinders, ballscrews and linear motion will likely serve as new growth driver in 2025E. Thatsaid, we think the potential Trump presidency could be a risk in the near term,given the potential increase in tariff that might affect the upcoming exports fromthe new production base in Mexico to the US market. We therefore believebetter entry points may emerge after the election. We have left our earningsforecast unchanged. Our TP is also unchanged at RMB64, based on 31x 2024EP/E (historical average). Maintain BUY.
    Key highlights in 3Q24 results: Revenue in 3Q24 grew 11% YoY toRMB2.1bn. Gross margin contracted 1.9ppt YoY and 2.1ppt QoQ to 41%.Selling & distribution expense ratio was under good control (2.1%, -0.2pptYoY), while administrative and R&D expense ratio increased 2.9ppt YoY to17%. In 9M24, net profit slightly increased 2% YoY to RMB1.79bn,accounting for 65% of our full-year forecast (run rate in 9M23: 70%).
    Production plan in Oct: We understand that Hengli has scheduled aproduction volume of 42k units of hydraulic cylinders (for excavators) in Oct,down ~5% YoY. For non-standardized cylinders, the planned production inOct is expected to drop ~10% YoY to 17k units, due to the high base effect.On the positive side, scheduled production volume of small-sizepumps/valves has increased ~40%/~90% YoY in Oct.
    Risk factors: (1) further weakness in the demand for hydraulic componentsfor excavators; (2) slower-than-expected new business development; (3)potentially higher tariffs upon Trump presidency.

Both semi/ODM segments showed turnaround signals with sequential growth

闻泰科技(600745)
    Wingtech released3Q24results and we attended the mgmt.call.Q3revenue wasRMB19.6bn(a record quarterly revenue since2020),up28.7%YoY/12.9%QoQ,beating Bloomberg consensus by16%.GPM was11%vs.9.2%/9.7%in1Q/2Q24,beating consensus of10.5%.Net profit was RMB274mn,turningpositive after Q2loss(-RMB3mn).Both ODM and semiconductor segmentsachieved sequential growth in sales(15%/6%QoQ)and GPM(both up1.8ppt),suggesting the business gradually recovered from the cyclical trough.We reviseup EPS forecast for25/26E by22%/15%on further margin improvement.Maintain BUY with TP adjusted to RMB52,based on25x2025E P/E basedon0.5SD below1-yr historical forward P/E(previously23.5x reflecting1SDbelow)as we think the worst has passed for both segments and turningpoint is in near sight.
    Semiconductor sales grew on strong domestic auto demand andseasonal consumer electronics procurement;margin back to40%.3Qsemiconductor sales were RMB3.8bn(20%of3Q revenue),down4%YoYbut up6%QoQ.Revenue mix remained similar(vs.1H24),with autocontributing~60%.For3Q24,1)auto sales increased modestly,with mixedgrowth from domestic(strong)and overseas(weak);2)consumer electronicssales grew by double digits QoQ,driven by soaring computing demand andrecovering personal electronics restocking behaviour due to the upcomingholiday season;3)industrial/power/NE had weaker recovery with mild growthsequentially.Heading into Q4,we anticipate semiconductor sales to decline3%QoQ on seasonality,and Q4GPM to remain stable at40.5%.
    Legacy ODM grew with revenue structure improvement;net lossnarrowed.ODM sales was RMB15.7bn in3Q24(80%of3Q revenue),up46%YoY and15%QoQ.Within the segment,smartphone/tablet contributed~50%of revenue(vs.~100%previously).The rest came from homeappliances/auto/IoT sales.Smartphone/tablet business began to profit thisquarter,while home appliances profited for two consecutive quarters.GPMrose to3.8%(vs.2%in2Q24)due to higher ASP,lower BOM costs and betteroperating efficiency.Excluding FX impacts,net loss narrowed in Q3at lessthan RMB10mn vs.RMB42mn in Q2.We expect Q4ODM sales to slightlydecrease2%,a mixed impact from seasonality and platform transition.
    Maintain BUY,with TP adjusted to RMB52,based on25x2025E P/Ewhich is0.5SD below1-yr historical forward P/E as both segmentsindicate a turning point towards recovery.Potential risks include:slower-than-expected recovery in demand,heightened China-US trade relations,and unfavorable exchange rates.

3Q24 recovery on track; Poised to benefit from XR/TWS/gaming product launches in 2H24/FY25E

歌尔股份(002241)
    Goertek’s 3Q24 revenue/ net profit rose +2%/+138% YoY, exceeding previousmarket expectations. 3Q24 GPM lifted to 11.4% (-2.2 ppts QoQ/+1.2 ppts YoY),mainly due to improving efficiency and better scale effect. Looking into4Q24/FY25E, we expect Goertek’s earnings will continue to rebound givenimproving GPM YoY, prudent cost control and better AR/VR/gaming demandwith multiple product launches from major VR/AR players. We raised FY24-26EEPS estimates by 0-6% to reflect 3Q24 results, better operating leverage andexpense control. In the longer term, we believe Goertek is well-positioned tocapture opportunities in AR/VR product cycle from players such as Meta, Sony,Google, Samsung and Huawei. Maintain BUY with new TP of RMB27.39, basedon same 25x FY25E P/E.
    3Q24 above expectations on better efficiency and cost controls. 3Q24revenue/ net profit rose +2%/+138% YoY, beating market expectations,mainly driven by higher utilization, efficiency improvement and prudent costcontrols. We believe Goertek’s profitability recovery will continue into 4Q24Eand we estimate 4Q revenue/net profit will grow 36.3%/166.7% YoY,benefiting from the launch of Meta Quest 3S, AirPods 4 Series and otherARVR products.
    4Q24/2025 Outlook: Continued profitability recovery and sales growthfrom edge AI and wearable product launches. In addition to order recoveryof AirPods (after share loss in last two years) and product cycle of AirPods 4,we think Meta’s Quest 3S and upcoming Sony PS5 Pro will boost revenuegrowth in 4Q24/1H25E. Overall, we expect Goertek’s net profit to grow164%/30% YoY in FY24/25E.
    Maintain BUY. We think Goertek’s industry leadership and productroadmap in XR/acoustics/gaming segments will allow it to benefit fromindustry recovery and upcoming new XR/gaming console product cycle inFY24/25E. We lifted our FY25/26E EPS estimates by 6%/6% mainly forbetter wearable product revenue and operating efficiency. Our new TP ofRMB27.39 is based on same 25x FY25E P/E. Maintain BUY. Upcomingcatalysts include new XR/gaming product launches and continued marginrecovery.

Solid 3Q with intact near-term prospects; Maintain BUY

中际旭创(300308)
    Innolight released its3Q results.Revenue went up by115.2%YoY/9.4%QoQ,while net profit went up by104.4%YoY/3.3%QoQ,in-line with our expectations.Mgmt.attributed the slower sequential revenue growth(9.4%in3Q24vs.31.3%/23%in1Q/2Q24)to two main factors:1)supply chain bottlenecks of keycomponents(like DSPs&EMLs),and2)unfavorable fluctuations in the USD/RMBexchange rate during3Q.Excluding the impact of exchange rate movements,thecompany still achieved double-digit revenue growth in3Q.GPM remained steadyat33.3%in3Q24(vs.33.4%/33.5%in2Q24/3Q23),while NPM was21.4%(vs.22.7%/22.5%in2Q24/3Q23).We remain confident in the company’s growthtrajectory,driven by the ramp-up in400G/800G shipments and the upcomingproduction ramp-up of1.6T products.Maintain BUY,with an adjusted TP ofRMB186,reflecting26.9x rollover2025E P/E(previously30x2024E P/E).
    Sequential slowdown due to exchange rate and supply chain issues:The company highlighted that3Q performance was negatively impacted byunfavourable USD/RMB exchange rate fluctuations.Excluding this impact(~RMB100mn),the company still posted double-digit sequential growth,continuing the strong growth momentum seen in previous quarters.Additionally,supply chain challenges related to key components constrainedshipment growth,with mgmt.noting that order growth outpaced shipmentgrowth,contributing to the slower-than-expected sequential revenueincrease.
    Demand intact,400G/800G shipments to ramp through4Q24:Mgmt.reiterated strong demand for the company’s high-speed optical products,particularly400G&800G,which remain key growth drivers.Looking aheadto2025,the company expects faster adoption of800G products compared to400G as customers progress towards newer tech.Additionally,massshipments of1.6T products will begin in the coming months.Mgmt.emphasized strong demand from overseas hyperscalers,which contributedto over half of the company's400G/800G orders in2024..
    Price increases in the optical supply chain driven by AI demand:Therecent announcement(link)by Marvell(MRVL US,NR)of price hikes acrossits entire product line due to sustained AI-driven demand could lead to higherraw material costs for Innolight.However,we believe the company is well-positioned to mitigate these impacts by passing on price increases to itscustomers,given the strong demand for its products that gives company thebargaining power.
    Maintain BUY,with TP adjusted to RMB186,corresponding to rollover26.9x2025E P/E,the same as its5-year historical avg.The stock iscurrently trading at22.5x2025E P/E.Risks:1)China-US trade tensions,2)rising raw material costs,and3)weaker-than-expected ramp-up speed.

地缘政治扰动有限，业绩企稳复苏

药明康德(603259)
    美国众议院在当地时间2024年9月9日投票通过了《生物安全法案》（法案编号H.R.8333）。我们在9月12日发布报告，认为即使法案通过，可能仅影响极少部分政府资助的项目，公司的美国业务有望维持基本稳健。此外，我们认为药明康德相比印度和欧美的化学药CDMO公司积累了显著的产能优势，预计海外同行中期内不太可能承接中国化学药CDMO行业的产能。基于公司快速增长的在手订单，特别是多肽业务的强劲增长趋势，以及美联储降息趋势下医药融资的恢复，我们认为公司盈利有望复苏。
    生物安全法案预计影响有限。我们认为，众议院版本的议案限制美国政府机构以及接受美国政府补贴或者贷款的实体从相关中国公司采购商品或者服务，这大概率对药明康德的业务影响范围有限，并且议案内具有允许现有合同执行至2032年的“祖父条款”。虽然法案在众议院获得通过，但其中49%的民主党议员未投赞成票，包括36%的反对票，因此我们预计生物安全法案在民主党主导的参议院将面临更大的阻力。同时，参议院和众议院在年内剩余的投票窗口期很短，单独立法有一定概率无法完成。
    预计海外同行中期内无法承接中国化学药CDMO行业的产能。我们整理了30家位于欧洲、美国和印度的从事API和化学药CDMO业务的公司情况，发现这些公司在收入体量和产能投入上显著落后于药明康德。印度专门从事API和化学药CDMO的公司大多提供大宗和特色原料药，对于创新药领域的涉足相对有限。与药明康德相比，印度相关企业的研发团队规模很小。欧洲的制药工业基础较好，区域内有众多历史悠久的化学药CDMO公司。但欧洲的化学药CDMO企业偏重制剂业务。同时，他们的主要分布在中欧和西欧地区，导致人工成本高于药明康德。
    公司业务有望企稳复苏。药明康德管理层富有前瞻性地布局了多肽研发和生产业务。随着近几年司美格鲁肽和替尔泊肽等多肽类药物在代谢类疾病领域展现出重磅销售潜力，药明康德的多肽业务也随之快速增长，成为公司最重要的增长引擎。我们预计美联储进入利率下降通道后，医疗健康融资额将恢复增长，驱动全球早期医药研发需求的改善，药明康德早期业务也有望复苏。公司1H24的在手订单相比2023年底增长22.4%，复苏趋势已现。
    维持买入评级。上调药明康德目标价至67.72元（WACC：9.42%，永续增长率：2.0%），以反映法案的不确定性降低以及在手订单增长带来的业绩复苏。我们预计公司在2024E/25E/26E收入同比增长-4.4%/+10.9%/+13.2%，经调整non-IFRS净利润同比变化-8.4%/+11.5%/+14.4%。

Still positive, but wait for a better entry point after 3Q24E results

潍柴动力(000338)
    We trim our HDT engine sales volume forecast by 7%/7%2% in 2024E/25E/26E,after incorporating our new industry HDT sales forecast (for details, please referto our sector report “China Heavy-duty Truck – Headwinds in 4Q24 in bothChina & export; Eyes on policy-driven recovery in 2025”). In the near term, webelieve the narrowed LNG/diesel price spread will be unfavourable to Weichai’sgas engine segment. While our earnings forecast in 2024E-26E is only reviseddown by 1-3% due to a relatively solid margin outlook, our new forecastssuggest profit growth to decelerate from 51% in 1H24 to 7%/2% in2H24E/2025E. Our SOTP-based TP for A/H (rolled over to 2025E) is reviseddown to RMB17.9/HK$17.7 (from RMB18.0/HK$19.5). We still maintain BUYrating as valuation (10.7x 2025E P/E) is not excessive even under our newearnings forecast, but we see a better entry point after the upcomingannouncement of 3Q24E results (30 Oct).
    Risk factors: 1) weakness in engine exports; 2) lower-than-expectedreplacement demand in China; (3) further contraction of diesel/gas priceratio.

《生物安全法案》靴子基本落地，业务有望保持稳健

药明康德(603259)
    美国众议院在当地时间9月9号投票通过了《生物安全法案》（以下简称“法案”，法案编号H.R.8333），该法案旨在限制美国政府机构以及接受美国政府补贴或者贷款的实体从相关中国公司（包括药明康德）采购商品或者服务的能力。该法案仍需美国参议院通过并经美国总统签署才能最终成为法律。目前来看，即使法案通过，可能仅影响极少部分政府资助的项目，公司的美国业务有望维持基本稳健。基于公司快速增长的在手订单，我们认为公司盈利有望复苏。我们的分析表明目前股价可能已反映美国业务极度悲观预期（见图3），看好估值反弹。
    美国众议院投票通过《生物安全法案》，靴子基本落地。美国众议院版本的《生物安全法案》自今年1月份提出后，经历过两次修订。今年5月份的第一次修订版本中增加了允许现有合同执行至2032年的“祖父条款”。此次获得众议院通过的法案在文本内容上与5月份的修订版几乎没有变化。该法案仍需等待美国参议院通过并经美国总统签署才能最终成为法律。值得注意的是，该法案在今年6月份没有进入众议院的《2025财年国防授权法案》（草案）修订案中。同时，美国参议院也提出了类似的草案（法案编号S.3558），该草案内容与众议院的版本基本一致，并已在今年3月获得参议院国土安全委员会投票通过，但仍未推进至参议院全体投票。参议院的《2025财年国防授权法案》（草案）修订案中包含S.3558草案，“夹带”立法最终是否成功仍需观察。两院的草案内容基本一致，假设最终获得通过，我们认为Medicare、Medicaid相关的药品大概率不受约束，仅影响小部分受政府资助的项目，对于公司收入影响可能较小。
    客户需求有望逐步改善。药明康德看到了积极的客户需求改善信号。截至6月，公司在手订单金额达到431亿元，剔除新冠商业化项目后同比增长33.2%，同时1H24的新签订单增长约25%。强劲的订单需求表明全球客户对于公司高质量服务的持续信任。多肽业务（TIDES）继续成为推动公司业绩增长的重要引擎，1H24TIDES收入同比强劲增长57.2%，在手订单同比大幅增长147%。公司在今年1月将多肽产能从1万L提升至3.2万L，将有效支持多肽业务的快速发展。此外，我们预计美国降息将带动全球生物医药投融资复苏，以及公司的订单增长。
    维持买入评级。上调药明康德目标价至61.89元（WACC：9.42%，永续增长率：2.0%），以反映法案的不确定性降低以及在手订单增长带来的业绩复苏。我们预计公司在2024E/25E/26E收入同比增长-4.4%/+10.9%/+13.2%，经调整Non-IFRS净利润同比增长-8.4%/+11.5%/+14.4%。

Revenue grew while GPM deteriorated due to intense competition and capacity ramp-up

卓胜微(300782)
    Maxscend reported 1H24 results. Revenue grew 37% YoY to RMB2.3bn from a lowbase in 1H23, driven by clients’ restocking behavior. GPM declined to 42.1%, down6.9ppt from 1H23. Margin erosion was mainly due to 1) an unfavorable revenue mixtowards higher module sales, 2) ramp up in fab production and 3) intensifiedcompetition. Despite a slow recovery in consumer demand and prolongedreplacement cycle of handsets, we expect Maxscend to outperform its peers, withits unique fab-lite model to support 1) supply chain security, 2) better productperformance and 3) potential in cost optimization once utilization reaches a higherlevel. Maintain BUY with adj. TP at RMB100.
    We remain optimistic that Maxscend’s module business will drive futuregrowth. By segment, discrete products revenue grew 15% YoY in 1H24, whilemodule products grew 81% YoY. Module revenue contribution increasedsteadily from 29%/36% in 2022/23 to 45% in 1H24. We expect module sales togrow further by 37%/30% YoY in 2024/25E, driven by the modulization trend inRFFE sector. We hold a positive outlook for Maxscend with the company’srecent development in filters, which will enhance Maxscend’s capabilities inmeeting clients’ customization and miniaturization requirements that eventuallylead to market share gains.
    We see domestic RFFE suppliers are all facing ASP pressures from adeteriorating industry environment, as competition gets intensified.However, we think the impact will be mitigated eventually as the sectorcontinues to consolidate. In addition, Maxscend is increasing its high-endproduct coverage with its own fabrication capacities. Looking forward, thelaunch of new products will be in focus. We think new product ramp-up willweigh on GPM in the near term. We project overall GPM to be 41.9%/42.2% for2024/25E.
    Maintain BUY rating. We cut 2024/25E earnings forecasts by 31%/27% onGPM pressure from longer-than-expected price war. TP is trimmed to RMB100,based on 44.5x 2025E P/E, which is 1SD below 1-year hist. avg. fwd. P/E, givennear-term GPM pressures and uncertainties in mobile recovery. We thinkMaxscend will be a key beneficiary of the semiconductor localization trend inChina. Despite a challenging market, the company’s growth story is intact, inour view. Its fabrication capabilities will serve as a pillar stone for its long-termdevelopment.

Robust performance in a challenging industry environment

迈瑞医疗(300760)
    Mindray achieved a revenue of RMB20.5bn in 1H24, marking an 11.1% increaseYoY, and reported an attributable net profit of RMB7.6bn, up 17.4% YoY. Despite theongoing regulatory adjustments in the healthcare industry and the delay in medicalequipment renewals projects, which have led to a cautious approach towards biddingand procurement activities in public hospitals, the revenue from domestic equipmentbusiness decreased by 12% YoY. However, thanks to the rapid growth of the IVDbusiness and the domestic high-end/ultra-high-end ultrasound business, Mindray stilldemonstrated strong resilience and steady growth. The increase in the revenue sharefrom IVD reagents and high-end ultrasounds drove the Company's gross margin upby 0.7 ppt YoY to 66.3% in 1H24. Additionally, Mindray announced a mid-termdividend plan, distributing a total cash dividend of approximately RMB4.9bn, whichrepresents a payout ratio of more than 65%, indicating an ongoing increase in thedividend payout.
    Domestic equipment business faces pressure. In 1H24, the continued delayin bidding and procurement activities led to a 12% YoY decrease in revenue fromdomestic equipment business. Due to the high market share of Mindray's PatientMonitoring and Life Support (PMLS) products in China, the domestic businesswas significantly affected by the industry environment, with the PMLS segmentexperiencing a 7.6% YoY decrease in revenue, including about a 20% drop indomestic revenue. The Medical Imaging segment benefited from the volumeincrease of the first domestic ultra-high-end ultrasound Resona A20 and otherhigh-end ultrasounds, resulting in a 15.5% YoY revenue growth in this segment,with high-end and ultra-high-end ultrasound revenues increasing by over 40%.
    Accelerating the shift towards consumables-related business. In 1H24, theIVD reagent business was minimally affected by domestic industry regulation,with revenue increasing by 28% YoY to RMB7.7bn, accounting for over 37% oftotal revenue. Domestic IVD revenue grew by over 25%, and domestic reagentrevenue increased by 30%, with reagent revenue representing over 80% ofdomestic IVD revenue. Internationally, Mindray successfully penetrated over 60overseas third-party chain laboratories in 1H24 and installed the first MT 8000TLA, driving a more than 30% YoY increase in overseas IVD revenue. We believethat the continuous increase in domestic diagnostic demand and theimplementation of IVD VBP are expected to help Mindray rapidly expand itsdomestic market share, while accelerated cooperation with high-end clients willsupport long-term rapid growth of the IVD overseas market. Additionally, theminimally invasive surgery business grew by 90% YoY in 1H24. The Company’sacquisition of APT Medical also filled the gap in its cardiovascular consumablesbusiness. Currently, consumables-related businesses led by IVD already accountfor over 50% of the Company’s domestic revenue.
    Maintain BUY. We believe that industry regulation has not affected the essentialdemand for hospital procurement. As industry regulation becomes normalizedand equipment renewal policies are implemented, hospital procurement isexpected to gradually recover. Based on a 9-year DCF model, we adjust thetarget price to RMB 352.84 (WACC: 10.3%, perpetual growth rate: 3.0%).

Expect a better 2H24E but consensus remains high; Maintain HOLD

三一重工(600031)
    During the post-results call, SANY Heavy (SANY) remained positive on theoverseas outlook despite the recent weakness of excavators in Europe and theUS. SANY expects the sales in the US to see potential stabilisation in 2025E,while the growth in emerging countries will continue to be strong. For 2H24E,SANY expects China’s sales to stabilize (-12% in 1H24) while overseas salesgrowth will accelerate (+4.8% in 1H24). Given that our 2024E-26E earningsforecasts (unchanged after 1H24 results) remain 13-29% below consensuseven taking into consideration of growth acceleration in 2H, we maintain ourHOLD rating with an unchanged TP of RMB14.8, based on 24x 2024E P/E.
    2Q24 results highlights. Revenue dropped 3% YoY to RMB21.2bn. Grossmargin slightly contracted 0.4ppt YoY to 28.6%. S&D / administrativeexpense ratio increased 0.3ppt / 0.4ppt YoY to 8%/3%, while R&D expenseratio reduced 0.5ppt YoY to 6.2% (a continuous reduction trend since late2022). Pre-tax profit slightly increased 0.5% YoY, as the FX loss (versuslarge gain in 2Q23) was offset by a reduction of fair value loss. Net profitincreased 5.5% YoY to RMB2bn, helped by lower tax rate. Operating cashinflow surged 1x YoY to RMB4bn from a low base.
    Overseas revenue growth driven by Africa in 1H24. Overseas revenuein 1H24 (62% of total revenue) grew 4.8% YoY to RMB23.5bn. In terms ofregion, Africa surged 66% YoY to RMB2.3bn (10% of overseas revenue).Asia Pacific (ex-China) grew 3% YoY to RMB9.2bn (39% of overseas).Europe grew 1% YoY to RMB8.2bn (35% of overseas). America revenuedropped 4% YoY to RMB3.8bn (16% of overseas). In terms of products,overseas’ excavator / concrete machinery / crane were -7%/+10%/+20%.Overseas gross margin expanded 0.6ppt YoY to 31.6%.
    Outlook for emerging markets: SANY expects Africa (+60% YoY in1H24), Latin America (+70% in 1H24) and the Middle East will see explosivegrowth potential across different products. India is expected to maintain30% growth going forward and SANY will increase the production capacitythere. For Indonesia (where SANY has 30% market share for excavators),sales were affected by the election but have been recovered recently.
    Outlook for Europe and the US. Sales in the US market were affected byhigh inventories, and SANY expects a recovery in 2025E. For Europe,cranes will see decent growth in 2H24E.
    Outlook for China. Small-size excavators have maintained an acceleratedgrowth trend, while medium & large-size excavators are stabilizing.Concrete machinery and cranes remain on a downtrend

1H24 results review： Challenging 1H; looking for recovery in 2H

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.

Resilient 1H24 performance amid market headwinds

联影医疗(688271)
    United Imaging reported 1H24 revenue of RMB5,333mn, up by 1.2% YoY.Attributable net profit increased by 1.3% YoY to RMB950mn. Despite facing achallenging domestic market environment characterized by stringent industryregulations and delays in equipment renewal projects, United Imaging deliveredresilient performance thanks to the rapid growth of overseas business andmaintenance services. The rising revenue contribution from mid-to-high-endproducts and services drove the company's gross margin up by 1.7ppts YoY to50.4% in 1H24. Additionally, United Imaging announced an interim dividend plan,committed to distributing a total cash dividend of approximately RMB98.2mn, whichrepresents a more than 10% payout ratio.
    Market share expanded in domestic medical equipment market. In 1H24,United Imaging’s equipment revenue decreased by 1.8% YoY toRMB4,540mn, primarily due to the delays in procurement activities. However,leveraging its product innovation and new product commercialization, thecompany’s high-end and ultra-high-end products gained market share. Forinstance, the market share of mid-to-high-end and ultra-high-end CT systemincreased by 11ppts YoY and 8ppts YoY, respectively. Its 3.0T MRI systemsalso gained 1.3ppts in market share of 3.0T MRI market. The companycontinues to hold a significant lead in ultra-high-filed MRI market with its 5.0TMRI system and saw a 5.3ppts YoY increase in market share of RT systems.
    International operations sustained strong growth momentum. In 1H24,the company's overseas business achieved revenue of RMB933mn, up 29.9%YoY, accounting for 17.5% (+3.9ppts) of total revenue. The company deliveredrobust performance in Asia-Pacific, North America, and emerging markets,where revenues grew over 40% YoY, 26% YoY, and 132% YoY, respectively.Despite a 30% decrease in revenue from Europe due to seasonal fluctuations,efforts aimed at localizing operations in key European markets such as France,Italy, Germany, and Spain are anticipated to drive recovery in 2H24.
    Growing contribution from services. In 1H24, revenue from maintenanceservices increased by 23.8% YoY to RMB617mn, accounting for 11.6%(+2.1ppts YoY) of the total revenue. Currently, United Imaging’s global installedbase has exceeded 20,000 units. With a growing installed base, we expect theservices revenue will continue to increase rapidly.
    Maintain BUY. We expect hospital procurement to gradually recover from4Q24. Based on a 9-year DCF model, we adjust the target price to RMB 125.83(WACC: 8.8%, perpetual growth rate: 3.0%).

Solid 1H24 earnings; high copper price to have modest impact in near term

生益科技(600183)
    Shengyi Tech released its1H24earnings.Revenue improved by22.2%YoY/10.6%HoH to RMB9.6bn,driven by solid demand of AI servers,growingauto orders and inventory restocking.During the same period,GPM improvedto21.6%(vs.19.3%/19.2%in1H/2H23),benefiting from improving utilizationand a favorable product mix towards high-margin products.Consequently,NPincreased by68.0%YoY/53.1%HoH to RMB932mn.1H24revenue/NPaccounted for47%/43%of our FY24E forecast.From a sequential perspective,Q2revenue/NP were up26%/76%YoY and18%/38%QoQ,while GPMincreased to21.8%(vs.21.3%/18.9%in1Q24/2Q23).The stock is currentlytrading at1SD below5-year historical avg.Given copper price is likely tomaintain at its highs,we think Shengyi’s CCL business will gradually recover.Maintain BUY with TP unchanged at RMB26.41.
    By segment,both CCL and PCB segments delivered double-digitgrowth and margin expansion.Shengyi’s CCL/Prepreg sales increasedby20.7%YoY with GPM improving by2.0ppts.PCB revenue increased by23.5%YoY with GPM improving by1.6ppts.Sales from server and automarkets grew;while telecom segment faced ongoing challenges due to softinvestments.According to the mgmt.,PCB revenue from server marketaccounted for38%of the segment sales in1H24,up~20%from1H23.
    CCL business is likely to recover on elevated copper price.3M LMEcopper prices peaked above US$10k/t in May before retreating to US$9k/tby late-July.Current price is US$9.3k/t.We believe the impact from copperprice volatility was mild in1H(Shengyi’s CCL GPM was up1.2ppt from2H23).Based on recent channel check,the downstream saw some materialprice adjustment starting from2Q.If copper price maintains at current level,we expect Shengyi’s CCL ASP is likely to increase.We project thecompany’s overall GPM to be21.8%/23.3%in2024/25E(up2.5ppts and1.2ppts each year),on higher sales contribution from AI(Shengyi achievedmass shipment in1H),rising CCL ASP and better consumer sentiment.
    Maintain BUY with unchanged TP at RMB26.41,implying a~10%premium to its5-year historical avg.forward P/E,considering its AI upside.2024/25E NP forecasts are slight adjusted by1%/-2%.The stock is currentlytrading at1SD below5-year historical avg.of26x.Maintain BUY.Potentialrisks include copper price volatility and weaker-than-expected demandrecovery.

Best earnings among peers, strong momentum sustained

珀莱雅(603605)
    Proya’s 2Q24 results beat consensus with revenue/net profit +41%/37% YoY (1H24revenue/net profit +37.9/40.5% YoY), mostly contributed by the accelerated salesgrowth of main brand to 37.7% YoY. The earnings ranked the top among peers. 1H24GPM dropped by 0.7 ppt. and steadied at 69.8%, accompanied by the 3 ppt. increasein selling expense ratio to 47%, due to the prolonged 618 promotion cycle, continuousrise in unit cost of livestream marketing, and high e-commerce return rate. Full-yearguidance wise, the company aims to maintain GPM at ~70% and maintain the NPMin a slight upward trend. Maintain BUY with TP slightly trimmed to RMB 133.86, basedon 35x 2024E P/E.
    Hero SKUs outperform consistently benefiting earnings. Proya continued toconsolidate the “hero product strategy”, 1H24 image promotion fees +50% YoYand selling expense ratio hiked 3 ppt. YoY to 46.7%. Thanks to the hero productsthat powered up re-purchase rates on both Tmall and Douyin (now at 40%+ and30%+, respectively) and its contribution of revenue further increased to 57%, upfrom 55% in 1Q23. Considering the high margin of hero products, we see boththe top line and bottom line growth to remain intact for 2024E. Amid thechallenging landscape, the company’s priority of achieving steadfast marketshare in the upcoming 11.11 may increase marketing expense ratio in 2H, givenDouyin’s unfavourable mechanism and the high return rate circumstancebroadened.
    Visible sustainability of sub-brand growth. The skincare segment reported+37% YoY revenue growth on a relatively high base, while both make-up andbody & hair segment achieved growth exceeding 42% YoY, demonstrating the allthree major BUs are now on track of sustainable growth. Meanwhile,management reaffirmed the overseas expansions plans on major sub-brands,especially TIMAGE and Hapsode. Looking forward, we believe that the readiedproducts portfolio targeting wide price ranges and the experienced BUmanagement team should provide solid support to overseas’ steady growth.
    Solid customer base ready for improving offline presence. With the changingcircumstances, Chinese consumers continue to embrace the concept of"upgrading and replacing with domestic brands". We believe that Proya's trackrecord of educating consumers positions the company for further growth. Lookingahead, after exiting the KA channels, the company will continue to leverage itsonline and offline marketing resources to launch premium anti-aging skincareseries and gradually establish offline counters in shopping mall of tier 1 & 2 city,in line with its premiumization development strategy.
    Valuation. We largely maintain our 2024E-26E earnings forecasts. Maintain BUYwith TP slightly trimmed to RMB133.86, based on 35x 2024E P/E, to reflect theweakening consumer sentiment in 2H.

Strong 1H24 results w/ double-digit growth across segments & meaningful margin expansion

深南电路(002916)
    SCC released 1H24 results. Revenue went up by 38% YoY to RMB8.3bn, withdouble-digit growth across all segments (PCB/Substrate/PCBA: 25%/94%/42%YoY). NP increased by 108% YoY to RMB987mn, on higher GPM (26.2% in 1H24vs. 22.9%/23.8% in 1H/2H23) and cost optimization. SCC delivered strong 1H24results, driven by 1) strong AI demand, 2) Eagle Stream upgrades, 3) robust autoorders, 4) inventory restocking on consumer electronics market, and 5) marginexpansion. However, we expect demand in the consumer electronics market tobecome softer in 2H and estimate 1H24 revenue/NP to be 52%/56% of our FY24Eforecast (vs. 45%/34% in 1H23). SCC’s share price is currently trading at ~30x 2024EP/E, which is fair in our view. Maintain HOLD, with TP unchanged at RMB106.4.
    A very solid 1H24 with margin expansion surprise. By segment, PCB (58%of 1H24 sales) grew by 25% YoY/16% HoH to RMB4.9bn, with strong growthin DC and auto sales. Telecom was stable with greater contribution from wiredcommunication, including switches, routers and optical-related sales (100%YoY growth). Wireless side and industrial/medical sectors remained weak.Substrate revenue (19% of 1H24 sales) grew by 94% YoY/7.4% HoH toRMB1.6bn, driven by recovering demand with low inventory in the channel.PCBA business (15% of 1H24 sales) also grew 42% YoY to RMB1.2bn,benefitting from higher PCB sales. GPM increased to 27.1% in 2Q, up from22.8%/25.2% in 2Q23/1Q24, benefitting from a favourable product mix.
    Expect SCC’s FY24E revenue to be 1H weighted. In our previous sectorreport (report), we pointed out 7 out of the 16 leading PCB manufacturers inChina have announced profit alerts, with an avg. 75%-105% YoY and 21%-43% QoQ increase in NP for 2Q24. This supported a strong momentum forPCB sector as the market expected a meaningful recovery in end-marketdemand. We maintain our view that the sector is recovering from the cyclicaltrough with modest growth in 2024E (5.0% YoY). However, the growth won’tbe evenly distributed across end markets. We expect SCC’s revenue will be1H weighted this year on weaker consumer demand in 2H due to fewer rushorders and inventory restocking behavior. This will also put pressure on ASP,which could limit revenue growth. We estimate 2H24 revenue to grow by 3.2%YoY but decline by 7.1% HoH from 1H24 to RMB7.7bn.
    Maintain HOLD, with TP at RMB106.4. We revise up 2024/25E NP forecastsby 5%/2% on higher GPM and lower R&D expenses. We expect GPM toreturn to ~25% level in 2H24 (vs. 27.1% in 2Q), considering weaker demandand higher material costs. R&D expenses are projected to decline QoQaccording to mgmt. Our TP of RMB106.4 implies a 30.8x 2024E P/E, whichis 5% below 5-year historical avg. forward P/E (32.5x). Key risks include: 1)volatility in raw material prices, and 2) weaker consumer sentiment andslower-than-expected demand recovery.

Boom lifts & US market remain the key drivers

浙江鼎力(603338)
    Zhejiang Dingli’s (Dingli) EBIT in 2Q24 grew 72% YoY to RMB612mn, driven byrevenue growth of 34% YoY and gross margin expansion of 2.6ppt YoY. Reportednet profit grew only 2% YoY to RMB522mn, but largely a result of the reduction ofnet finance income due to the lack of FX gains. During the post results call,management reiterated the positive outlook for the US market, with an unchangedfull-year boom lifts sales target of 2k units. Besides, management expects theincremental impact of a potential increase in tariffs after the US presidentialelection should be manageable, as the reduction of anti-dumping duties couldmitigate the impact. We have left our earnings forecast unchanged. Maintain BUYwith unchanged TP of RMB75 (18x 2024E P/E, 1SD below the historical averageof 31x).
    Strong revenue growth and margin in 2Q24. Revenue grew 34% YoY toRMB2.4bn. Gross margin expanded 2.6ppt YoY to 31.8%. Administrativeexpense ratio remained relatively stable at 2.5%. Net finance expensedropped 96% YoY to RMB10mn due to the lack of FX gains.
    Boom lift remains the growth driver. In 1H24, revenue from boom liftssurged 58% YoY to RMB1.8bn (representing 49% of revenue from mainoperations), while revenue from scissor lifts was flat YoY. Boom liftsreported growth in both overseas and China markets. For scissor lifts,capacity was allocated mainly to the overseas market due to fiercecompetition in China.
    Overseas markets: US > Asia & others > Europe. Overseas revenuegrew 50% YoY in 1H24. North America was the region with the highestgrowth (+100%), followed by Asia & others (+40%) and Europe (+10%).
    Key risks: (1) Further intensified competition in China’s AWP market; (2) aslowdown of overseas demand; and (3) higher-than-expected anti-dumpingduties and countervailing duties in the US and EU.

Revenue acceleration with margin expansion in 2Q24; new products development on track

恒立液压(601100)
    Hengli’s EBIT in 2Q24 surged 58% YoY to RMB644mn, driven by accelerationof revenue (+22% YoY) and a surprising gross margin expansion of 6.3ppt YoY.Reported net profit grew only 5% YoY to RMB686mn, but largely due to highbase effect as large fx gains were recognized in 2Q23. We continue to seepositive development going forward, as (1) revenue contribution from nonexcavator components continues to increase; (2) delivery of electric cylindersand ball screws (a key component of robots) started in Jul while linear motionsaw fast production ramp-up. All these will serve as growth drivers in 2025E; (3)the hydraulic components production base in Mexico is expected to commenceoperation in Dec (designed annual output value: US$450mn). Our earningsforecast is largely unchanged despite fine-tuning of our assumptions. Our TP isunchanged at RMB64, based on 31x 2024E P/E (historical average).
    Key highlights in 2Q24 results: Revenue in 2Q24 grew 22% YoY toRMB2.47bn. Blended gross margin expanded 6.3ppt YoY and 3ppt QoQ to43.1%, a positive surprise. EBIT surged 58% YoY as SG&A expense ratiowas under good control. Operating cash inflow was RMB452mn, down 29%YoY but up 3.8x QoQ from a low base.
    Decent growth of non-excavators cylinders in 1H24. Sales volume ofnon-excavators cylinders in 1H24 rose 21.5% YoY to 139k units, driven bytunnel boring machines, cranes and AWPs. Non-excavators cylindersrevenue grew ~20% to RMB1.3bn while revenue from cylinders forexcavators dropped 13.5% YoY to RMB1.1bn.
    Motors, pumps & valves all reported growth in 1H24. Pumps and valvesfor excavators grew 10% YoY in 1H24. Non-excavator pumps/valves grew18%/35% YoY. Motor revenue grew 12% YoY (breakdown: excavators+9%; AWPs +13%).
    Risk factors: (1) further weakness in the demand for hydraulic componentsfor excavators; (2) slower-than-expected new business development.

Robust earnings with margin expansion;Maintain BUY

北方华创(002371)
    Naura announced 1H24 results. 1H revenue grew 46.4% YoY to RMB12.3bn,while NP grew 54.5% YoY to RMB2.8bn, both aligning with the mid-point ofcompany’s earnings pre-announcement. 1H24 revenue/NP were 40%/46% ofour FY24E forecast, consistent with the company’s historical seasonality, whichsaw 38%/46% in 1H23. GPM improved to 45.5% in 1H24 (vs. 42%/41% in1H23/FY23), while NPM expanded to 22.5% in 1H24 from 17.7% in FY23. Wethink Naura’s 1H24 results confirm that the company’s growth trajectory remainsintact. Looking forward, we expect Naura to 1) ride the tailwinds ofsemiconductor localization trend, 2) grow on product coverage expansion andmarket share gains, and 3) benefit from economies of scale and improvingGPM. Reiterate BUY with TP unchanged at RMB405.
    1H24 revenue in-line with expectation. From a quarterly standpoint, 2Q24revenue/NP increased by 42.2%/37.0% YoY (vs. 38%/120% YoY in 2Q23)and 10.5%/46.8% QoQ. We maintain our previous revenue projection for2024/25E, given the in-line results. The company’s 1H24 semiconductorequipment revenue increased by 55.1% YoY, making up 92% of totalrevenue (vs. 87% in 1H23). We believe that escalating geopolitical tensions,coupled with the push for faster domestication of semiconductor equipmentand favorable policies/subsidies, have contributed to the company’senhanced revenue in 1H24. We expect the equipment segment to grow45.9%/28.5% YoY in 2024/25E, and maintain our total revenue projectionat RMB30.9bn/RMB39.0 for the same period, implying 39.7%/26.5%growth.
    Better-than-expected GPM expansion, driven by favourable productmix and economies of scale. 2Q GPM was 47.4%, up 4.0ppt sequentially.We revised up our 2024/25E GPM forecasts by 5.2ppt/3.9ppt, as we believeNaura will continue to benefit from these tailwinds and maintain GPM at asimilar level. We revised up our 2024/25E NP forecasts by 9%/1%, onhigher GPM estimates. The accretive impact will be partially offset by higherR&D and other operating expenses, since Naura’s priority is to expand itsproduct coverage.
    We reiterate our BUY rating for Naura, with an unchanged TP atRMB405. The TP implies a valuation at 35.77x 2024E P/E, close to 1SDabove 2-year historical average forward P/E, which we think is justifiedconsidering Naura’s leading position in domestic semiconductor equipmentmarket. Naura is our favourite pick under the semiconductor localizationtheme. Risks: 1) intensified competition from overseas and domestic peersand 2) escalating geopolitical tensions.

1H24业绩稳健，CIS业务持续复苏

韦尔股份(603501)
    韦尔股份公布了2024年上半年业绩。上半年收入同比增长36.5%至120亿元人民币，净利润较去年同期的低基数（1.53亿元人民币）同比增长790%至13.7亿元人民币。按季度来看，公司二季度收入为64亿元人民币（同比增长42.5%，环比增长14.2%，符合彭博一致预期），创历史新高。二季度净利润为8.09亿元人民币，环比增长45.1%（2023年二季度为净亏损）。公司二季度毛利率提升至30.2%（上季度和去年同期分别为27.9%、17.3%）。毛利率的改善表明公司业务正在稳步恢复。同时，得益于成本结构的持续优化，二季度净利润率上升至12.6%（上季度和去年同期分别为9.9%、-1%）。管理层认为，公司的强劲业绩主要得益于：1）2024年上半年消费市场的逐步复苏；2）公司产品在高端智能手机市场（尤其是国内安卓机型）上的份额提升、以及汽车CIS销售的持续增长；3）产品组合优化推动毛利率改善。维持“买入”评级，目标价调整至115.39元人民币，基于40.7倍2024年预测市盈率。
    CIS市场在2024年上半年延续了强劲的增长势头（收入同比增长49.8%，环比增长0.1%）。其中智能手机/汽车/物联网/医疗CIS收入同比增长78.5%/53.0%/77.8%/41.6%，仅安防/笔记本电脑CIS收入同比下降26.7%/9.0%。虽然终端市场需求尚未实现全面复苏，但是韦尔股份在智能手机、汽车、物联网和医疗领域市场实现了CIS销售额的同比强劲增长，其主要原因为：1）公司智能手机CIS产品在国内高端安卓机市场上的份额稳步提升（如高端图像传感器OV50H）；2）更高级别的自动驾驶功能和安全要求推动ADAS系统的普及和舱内摄像头的快速增长；3）工业自动化趋势的进一步深化；以及4）来自下游客户补库需求的驱动。我们预计，公司下半年CIS销售额环比将增长15%，2024年全年CIS销售额同比将增长29%，2025和2026年公司CIS业务收入将实现21%、18%的同比增长。
    显示解决方案业务仍显疲软，模拟解决方案业务则呈现复苏迹象。受到行业供需关系不平衡的影响，公司显示相关产品平均单价持续承压，上半年显示解决方案收入同比下降28.6%。随着消费电子等行业库存去化接近尾声，以及公司模拟产品市场份额稳步提升，模拟解决方案业务销售额同比增长24.7%。我们预计，随着低功耗产品和车载显示驱动产品的推出，公司显示解决方案业务有望在2025年实现复苏。同时，受益于市场需求逐渐回暖、公司产品市占提升等利好影响，模拟解决方案业务销售额有望实现双位数增长。
    维持对韦尔股份的“买入”评级，目标价调整为115.39元人民币，基于40.7倍2024年预测市盈率，较1年历史平均远期市盈率高出1个标准差，主要考虑到公司在行业的领先地位以及市场份额的持续扩张等因素。鉴于公司计划不断推出新产品，研发成本或将提升，我们将公司2024年和2025年的净利润预测小幅调整-1%、+3%。主要风险：1）终端市场需求复苏不及预期；2）行业竞争加剧。

Solid 1H24 results with continued recovery in CIS business

韦尔股份(603501)
    Willsemi released 1H24 results. Revenue increased by 36.5% YoY toRMB12bn, while net profit grew 790% YoY from a low base in 1H23(RMB153mn) to RMB1.37bn in 1H24. On a quarterly basis, the companyachieved a record revenue at RMB6.4bn in 2Q24 (42.5% YoY/14.2% QoQ, inline with consensus estimate). Q2 net profit was RMB809mn, up 45.1% QoQ(2Q23 was in net loss). GPM improved to 30.2% in Q2 (vs. 27.9%/17.3% in1Q24/2Q23), suggesting a steady recovery. NPM expanded to 12.6% in 2Q24(vs. 9.9%/-1% in 1Q24/2Q23) with a better cost structure. Mgmt. attributed theresults to 1) steady recovery of consumer sentiment in 1H24, 2) growingadoption of Willsemi’s products in the high-end smartphone market (esp. indomestic Android models) and strong growth in auto CIS, and 3) an improvingGPM on a favourable product mix. Maintain BUY with TP adjusted toRMB115.39, based on 40.7x 2024E P/E.
    CIS sales continued strong growth momentum in 1H24 (49.8% YoY/-0.1% HoH). Mobile/auto/IoT/medical CIS grew 78.5%/53.0%/77.8%/41.6%YoY, while security/notebook CIS declined 26.7%/9.0% YoY, respectively.Without a broad recovery of end-market demand, Willsemi’s CIS sales formobile/auto/IoT/medical delivered resilient growth, driven by 1) share gainsin domestic high-end Android market (i.e., new flagship OV50H sensor), 2)demand for ADAS and in-cabin cameras continuing to increase to fulfillautonomous driving and security needs, 3) the industrial automation trend,and 4) inventory restocking behaviours. We expect CIS sales to growanother 15% HoH in 2H24, implying 29% YoY in 2024. We project thesegment revenue to grow 21%/18% YoY in 2025/26E.
    Touch/display business remains weak, while analog segment showssigns of recovery. Touch/display revenue decreased 28.6% YoY, due toongoing inventory digestion and ASP pressure. Analog sales were up24.7% YoY on improving market conditions and share gains. We expecttouch/display segment to recover in 2025, driven by the introduction of lowpower-consumption and auto-grade products. Analog sales are forecastedto grow double-digits on better market conditions and share increases.
    Maintain BUY with slightly adjusted TP at RMB115.39, based on 40.7x2024E P/E, which is 1-SD above 1-year historical avg. forward P/E,given Willsemi’s leading market position and continuous share gains.We revise NP forecasts for 2024/25E by -1%/3%, on higher R&D costs, asthe company plans to ramp up new products and enhance itscompetitiveness. Key risks are 1) slower-than-expected end-marketdemand recovery and 2) intensified competition.

Solid GPM recovery in 1H24; Poised to benefit from “AI+XR” trend in 2H24E

歌尔股份(002241)
    Goertek’s 1H24 revenue/ net profit growth of -11%/+190% YoY was largely inline with its earlier positive profit alert (net profit +180-200% YoY). 2Q24revenue/net profit delivered +0.1%/+168% YoY, and GPM came in at 13.6%(+4.4 ppts QoQ/5.9 ppts YoY), mainly due to improving efficiency and betteracoustics product/smart product profitability. Looking ahead to 2H24/FY25E, weexpect Goertek’s earnings will continue to rebound given improving GPM andbetter AR/VR/gaming demand with multiple product launches from major VR/ARplayers. We raise FY24-26E EPS by 19-38% to reflect 1H24 results, a strongerGPM and better operating leverage. In longer term, we believe Goertek is wellpositioned to capture opportunities in the AR/VR product cycle from playerssuch as Meta, Sony, Google, Samsung and Huawei. Maintain BUY with new TPof RMB25.9, based on rollover 25x FY25E P/E (prior 25x FY24E P/E).
    1H24 in-line with profit alert, impressive GPM across all segments.Goertek’s1H24 revenue/attributable net profit growth of -11%/+190% YoYwas largely in-line with its positive profit alert. Strong revenue growth inprecision components and acoustic products segments (+21%/+38% YoY)was partly offset by smart product weakness (-32% YoY), due to the lateproduct cycle of Sony gaming console/VR and Meta Quest 3. 2Q GPM camein at 13.6% (+4.4 ppts QoQ/5.9 ppts YoY), mainly due to improving efficiencyand better acoustics product/smart product profitability.
    2H24/25 outlook: Expect continued GPM recovery; positive on “AI+XR”trend in 2H24E. In addition to solid recovery of acoustic product segment,we believe Goertek is well positioned to benefit from new product launchesof Meta Quest 3S and Sony PS5 Pro gaming console in 2H24E, along withAR glass product launches from multiple players, which should continue todrive profitability recovery and topline growth. Overall, we expect Goertek’snet profit to grow +164%/23% YoY in FY24/25E.
    Maintain BUY. We think Goertek’s industry leadership and product roadmapin XR/acoustics/gaming segments will allow it to benefit from industryrecovery and the upcoming new XR/gaming console product cycle inFY24/25E. We lift our FY24/25E EPS estimates by 19-38% mainly for betterGPM and operating efficiency. Our new TP of RMB25.9 is based on a rolledover 25x FY25E P/E (vs prior 25x FY24E P/E). Maintain BUY. Upcomingcatalysts include new XR/gaming product launches and continued marginrecovery.

Mixed 1H24 results

中兴通讯(000063)
    ZTE’s announced 1H24 results. Revenue increased by 2.9% YoY toRMB62.5bn, while net profit grew by 4.8% YoY to RMB5.7bn in 1H24. Despitethe headwinds from declining capex of domestic telcos for ZTE’s carrierbusiness, non-carrier businesses managed to grew double-digits (14.3% and56.1% YoY growth in consumer and gov’t/enterprise segments). On a quarterlybasis, Q2 revenue increased by 1.1% YoY / 4.4% QoQ, while net profitincreased by 5.7% YoY / 9.1% QoQ. GPM declined sequentially to 39%, mainlydue to unfavorable product mix (i.e., lower contribution from high-margin carriersegment). NPM improved sequentially to 9.4% (vs. 9% / 7.5% in 1Q24/FY23) in2Q24 on operating cost optimization. Looking forward, we think non-carriersegments will maintain double-digit growth, offsetting the weakness in carrierbusiness. The stock is currently trading at 11.9x 2024E P/E. Maintain BUY,with adjusted TP at RMB32.86.
    The carrier segment faced headwinds as domestic telecom companiesbecome disciplined in capital expenditures, as the built-out of the 5Gnetwork in China has already achieved significant milestone. The aggregatecapex of China telcos is projected to be RMB334bn in 2024 (down 5% YoY),with the investment focus shifting to computing power/industrialdigitalization/cloud markets, in line with our previous expectations (report).Given RAN business accounted for more than half of ZTE’s carrier businesssales, the Company's carrier revenue fell by 8.6% YoY to RMB37.3bn in1H24. Carrier’s GPM remained strong at 54.3% in 1H24 (vs. 54.4%/44.2%in 1H/2H23). Overall, the Company’s GPM was stable at 40.5% in 1H24 (vs.41.5% in 2023).
    Consumer and govt/enterprise saw significant growth (14.3%/56% YoY),offsetting the weakness in carrier business. Consumer sales grew on robustdemand on FTTR market and recovering consumer electronics demand.Govt/enterprise revenue growth was driven by a surge in server andmemory storage sales, however, these relatively low-margin products putpressure on the segment’s GPM (21.8% in 1H24 vs. 34.9% in 2023).Looking forward, we expect these segments will maintain decent growth, asthe spending of consumer and enterprises may continue to recover.
    Maintain BUY on ZTE. TP adjusted to RMB32.86, based on 15x FY24EP/E, which equals to its 3-year historical avg. We revised down ourrevenue forecasts by 3%/2% for FY24/25E, given continuous headwindsfrom domestic telecom market (lower spending in RAN). We trimmed netprofit forecasts by 3%/7% on lower GPM but partially offsetting by betteroperating efficiency. Potential downside risks include 1) Sino-US tradetensions, 2) softer capex of domestic telcos and overseas 5G deploymentdelays, 3) weaker-than-expected consumer/enterprises’ spending.