Valuation to improve on ODM business spin-off

（以下内容从招银国际《Valuation to improve on ODM business spin-off》研报附件原文摘录）
闻泰科技(600745)
On December 31, 2024, Wingtech signed a “Letter of Intent for Sale” for ninewholly-owned ODM subsidiaries with Luxshare Limited in an all-cash deal. Thismove follows its recent addition to the US trade blacklist (news). According tomgmt., this transaction serves two primary purposes: (1) to align with the riskpreferences of certain ODM clients, and (2) to mitigate potential risks to itssemiconductor leg. The deal reflects a broader 2025 trend of event-driven M&Aopportunities in China's semiconductor sector amid strategic geopolitical shiftsand favourable policies, as indicated in our 2025 outlook report as a newinvestment theme (link). Maintain BUY on Wingtech, with TP unchanged atRMB52.
The sale exclusively involves its Android-focused ODM business, aburden on the company’s financial performance and valuation.Together, these subsidiaries held a total asset value of RMB28.2bn as of9M24, representing 36.1% of the company’s total assets and over 50% oftotal revenue (triggering one of CSRC’s asset restructuring regulations) in3Q24. In 9M24, the ODM segment contributed ~79% of total revenue butrecorded a substantial net loss of RMB1.2bn.
Wingtech will focus on its high-margin semiconductor business,Nexperia. In 9M24, semi segment generated RMB10.9bn in sales (~20%of total revenue), with GPM at 37% (RMB4bn) and NPM at 16%(RMB1.7bn), outperforming the company’s overall 9% GPM and 1% NPMduring the same period. In 2Q/3Q24, semi segment saw sequential growthof 6%/6%, driven by 1) strong domestic auto sales, recovering consumerelectronics and robust computing demand. We expect the company’s semisegment sales to grow by 11.8%/12.9% in FY25/26E, compared toBloomberg consensus of 9%/9%.
Maintain BUY, with TP unchanged at RMB52, corresponding to 24.8xFY25E P/E. We expect this business transformation will lead to a highervaluation for Wingtech, as it has almost transformed into a predominatelysemi-focused company. The company currently trades at 17.7x/12.2xFY25/26E P/E, which is appealing comparing to its domestic peers thattrade at an average 25/26E P/E of 30.3x/23.8x. Potential risks include:heightened China-US trade relations, and unfavourable exchange rates.