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%).

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.

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

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%).

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.

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.

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.

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.

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.

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.

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.

强劲基本面无惧市场波动，重申买入评级

中际旭创(300308)
    2024年第二季度，三大海外云厂商（谷歌、微软和亚马逊）与Meta的资本开支总额高达529亿美元（高于此前彭博一致预期的506亿美元），同比增长57.1%，增速高于第一季度的30.4%。这四家公司的资本支出总额在2020年至2022年间实现了连续三年的快速增长（38%/34%/19%），并于2023年维持在高位（1,480亿美元）。这四家公司均确认将继续大力投资AI基础设施以满足不断增长的算力需求。正如谷歌首席执行官Sundar Pichai在最近的业绩会上所说，目前公司面临“投资不足的风险远大于过度投资的风险。”
    然而，近期有部分投资者对板块回调表示担忧。我们认为市场波动的原因主要有以下几点：1）海外科技企业业绩喜忧参半，2）对美国经济可能面临衰退产生担忧，3）美国大选等的影响。此外，上周日本央行意外加息导致套利交易被迫平仓，从而使市场抛售进一步加剧。
    尽管市场在近期受到以上利空因素的干扰，但是主要云厂商的资本支出在第二季度依旧强劲，并一致重申会继续加大投入。因此，我们对AI板块仍维持积极展望。作为行业的主要受益者之一，中际旭创是我们在AI投资主题下的首选标的。我们认为，公司股票在近期遭遇回调（自7月峰值以来下跌超过35%），目前估值具备吸引力（2024/25年市盈率分别为22.8倍/15.3倍）。我们重申对中际旭创的“买入”评级，目标价调整至150.76元人民币（前目标价为130.71元人民币（除权除息后））。
    我们预计公司业绩受到英伟达芯片设计缺陷的影响有限。有消息称，英伟达公司下一代GPU芯片存在设计缺陷，产品的出货时间将被推迟（链接）。该消息引发了市场对英伟达新一代产品可能面临推迟出货甚至砍单的担忧，投资人担心是否会进一步影响其供应链的业绩。我们认为，本次事件影响有限。该设计缺陷发现于早期阶段，我们认为产业链可以解决该缺陷产生的问题。Blackwell芯片预计将于2024年第四季度开始大规模量产，该系列大部分的收入贡献将于2025年产生。另外，我们预期Blackwell系列产品若有推迟，其负面影响或将被Hopper系列产品的生命周期延长所抵消。
    我们重申对中际旭创的"买入"评级，新目标价为150.76元人民币。受益于云厂商强劲的资本支出指引（2024和2025年的资本支出指引分别较2月份
    预测上调16%和21%，较5月份指引上调5%和8%），我们将公司2024和2025年的收入预测分别上调6%和11%，并将净利润预测分别上调11%和23%。根据近期的业绩说明会，头部云厂商会维持对AI基础设施的大规模投资（根据彭博一致预期，2024和2025年四大云厂商的资本支出总额将增长39%和13%）。中际旭创拥有丰富的产品组合（400G、800G和1.6T光模块），相信未来会继续受益于AI需求的增长和资本支出的增加。公司的新目标价基于2024年30倍市盈率，较5年历史平均远期市盈率（27.4倍）高出9%，PEG接近1倍（2024-2026年的每股收益复合增长率为32%）。我们认为中际旭创当前估值具备吸引力（2024和2025年市盈率分别为22.8倍和15.3倍）。重申“买入”评级。潜在风险：1）地缘政治风险加剧；2）新产品推出进度不及预期；3）云厂商资本支出增速放缓；4）供应链瓶颈。

Fundamentals remain strong despite recent market volatility, reiterate BUY

中际旭创(300308)
    CSP3 (Three Cloud Service Providers, namely Google, Microsoft and Amazon)plus Meta have announced their earnings recently. The Big Four spent anaggregate of US$52.9bn in capex in 2Q24 (vs. previous Bloomberg consensusest. of US$50.6bn), representing a surge of 57.1% following 30.4% growth in1Q24. The growth is on an already-high base after three years of growth hikesin capex (38%/34%/19% YoY) from 2020-22 and reaching a nearly historicalpeak (US$148bn) in 2023. Like Sundar Pichai said on Alphabet’s 2Q24 earningcall, “the risk of under-investing is dramatically greater than the risk of overinvesting.” The Big Four confirmed that they will continue to make heavyinvestments to meet the rising AI compute demand.
    A number of investors have shown concern about the recent market turmoil inthe tech sector, which we believe was driven primarily by 1) mixed earningsresults, 2) fear of a US recession, and 3) uncertainty over the upcoming USpresidential election. Market sell-offs intensified even further after theunexpected interest rate hike by the Bank of Japan as carry trades of USD andyen unwind.
    Despite those noises, we remain positive on the longer-term AI investmenttheme as growth of major CSPs’ capex remained intact in 2Q24. As a keybeneficiary, Innolight remains our top pick. We think Innolight’s currentvaluation (22.8x/15.3x 2024/25E P/E) appears attractive amid the recent marketpull-back (35%+ decline since peak in July). Reiterate BUY with new TP atRMB150.8. Previous target price of RMB130.71 had already accounted for theeffects of ex-rights and ex-dividends.
    The impact of Nvidia’s design flaws in new chips should be limited.Another concern on Innolight is Nvidia’s recent design flaws on its new GPUchip (link). Investors worry this may lead to delay or even cancellations ofNvidia’s products, which may negatively affect the revenue outlook ofInnolight’s supply chain. However, the impact should be limited in our view,given that this issue has been identified in the early stage and is a solvabletechnique difficulty. The mass production of Blackwell chips will begin in4Q24 and the majority of revenue contribution is expected to be in 2025. Inaddition, any impact of new chip shipment should be offset by an extendedlifecycle of H series.
    Reiterate BUY with adjusted TP at RMB150.76. We revise up revenueforecasts by 6%/11% and NP forecasts by 11%/23% for 2024/25E, onstronger capex outlook of cloud companies (16%/21% increase in 2024/25Ecapex forecasts from Feb and 5%/8% increase from May). Based on recentearnings calls, hyperscalers will continue to invest in AI infrastructure(39%/13% capex growth for the Big Four in 2024/25E by Bloombergconsensus). As a key beneficiary, Innolight‘s strong product portfolio(400G/800G/1.6T coming by 2024 year-end) is well-positioned to capitalizeon this AI momentum. The new TP is based on the same 30x 2024E P/E,which is 9% higher than 5-year historical avg. of forward P/E (27.4x),implying a PEG ratio close to 1x (vs. 32% 2024-26E EPS CAGR). Therefore,we think Innolight’s current valuation (22.8x/15.3x 2024/25E P/E) looksattractive. Reiterate BUY. Potential risks include: 1) intensified geopoliticaltensions, 2) slower-than-expected new product ramp-up progress, 3)slowdown in cloud capital spending and 4) supply chain bottlenecks.

Impressive order growth despite geopolitical uncertainties

药明康德(603259)
    WuXi AppTec reported 1H24 revenue of RMB17.24bn, down 8.6% YoY,attributable recurring net profit of RMB4.41bn, down 8.3% YoY, and attributableadjusted non-IFRS net profit of RMB4.37bn, down 14.2% YoY. 1H24 revenue /attributable adjusted non-IFRS net income accounted for 45.3%/ 46.0% of our2024 full-year estimates and 43.8%/ 44.7% of Bloomberg consensus, both ofwhich were largely in line with its historical range. The non-COVID D&M revenue(within the Chemistry segment) experienced a slight decline of 2.7% YoY in1H24, following a relatively high base in 1H23. Notably, WuXi AppTec’s backlog,excluding COVID-19 commercial projects, increased by 33.2% YoY in 1H24,indicating strong customer demand amid geopolitical uncertainties. Mgt. hasreiterated its revenue guidance of RMB38.3-40.5bn for 2024, forecasting YoYgrowth of 2.7% to 8.6% for revenues excluding COVID-19 commercial projects.Mgt. expects the adjusted non-IFRS net profit margin to align with the 2023level.
    Impressive order growth driven by solid demand. As of June 2024, WuXiAppTec's backlog reached RMB43.1bn, marking a robust YoY increase of33.2% excluding COVID-19 commercial projects. Revenue from its globalTop20 pharmaceutical clients reached RMB6.59bn, contributing 38.2% ofthe total revenue and increasing by 11.9% YoY excluding COVID-19commercial projects. Mgt. highlighted that over 80% of the backlog wasexpected to convert into revenue within the next 18 months, which shouldalleviate market concerns about clients' early bookings due to geopoliticalconsiderations (with the ATU segment being an exception). Additionally,mgt. indicated that new orders signed in 1H24 increased by ~25% YoY. Thestrong order growth demonstrates the resilient demand for WuXi AppTec'shigh-quality services, indicating a positive outlook for FY25 growth.
    TIDES business continued to be a major growth engine. Revenue ofTIDES business reached RMB2.08bn in 1H24, demonstrating robust YoYgrowth of 57.2%, following a significant 64.4% YoY increase in 2023. As ofJune 2024, the TIDES backlog grew substantially by 147% YoY. In January2024, the Company’s new peptide production facilities commencedoperation, which expanded its total capacity to 32,000 liters, positioning theCompany as a leader in global TIDES CDMO. With the robust backlog andreadily available production capacity, mgt. expects TIDES revenue to growby over 60% YoY in 2024 and to maintain the strong momentum in 2025.Our model projects TIDES revenue to exceed RMB8.6bn in 2025,contributing ~20% to WuXi AppTec’s total revenue, a significant increasefrom ~4% in 2022.
    Maintain BUY. Factoring in the positive trend of customer demand, we liftour TP from RMB53.23 to RMB54.27 (based on a 10-year DCF model withWACC of 10.38% and terminal growth of 2.0%). We forecast revenue togrow by -4.4%/ +10.9%/ +10.8% YoY and adjusted non-IFRS net income togrow by -8.3%/ +11.6%/ +12.1% YoY in 2024E/ 25E/ 26E, respectively

1H24 profit alert points to solid 2Q results

北方华创(002371)
    Naura announced a 1H24 profit alert. 1H revenue is expected to be within the rangeof RMB11.4-13.1bn, representing 35.4% to 55.9% YoY growth, respectively. Netprofit is estimated to be RMB2.6-3.0bn (YoY growth of 42.8% to 64.5%). This impliesthat 2Q24 revenue (mid-point) could be RMB6.4bn (40.8% YoY and 9.5% QoQgrowth), 5% below consensus estimate. 2Q24 net profit (mid-point) is expected to beRMB1.6bn (35.7% YoY and 45.4% QoQ growth), 9% above consensus estimate.2Q24 mid-point NPM is 25.5% vs. 19.2%/26.5% in 1Q24/2Q23. The companyattributed the growth to 1) its broad coverage of semiconductor equipment (etching,deposition, cleanser, etc.), 2) increasing market share, 3) economies of scalegradually showing, and 4) improving operational efficiency and stable decrease inexpense ratio. Maintain BUY with an unchanged TP at RMB405.
    1H24 revenue in-line with seasonality: 1H24 revenue/NP (mid-point)accounted for 40%/50% of our 2024 full-year estimates (Rev./NP:RMB30.9bn/RMB5.5bn), or 41%/51% of Bloomberg consensus estimates(Rev./NP: RMB30.0bn/RMB5.4bn). Revenue seasonality remains consistent,with mid-point 1H24 revenue representing 40% of that of FY24E (RMB30.9bn,per our forecast), similar to 1H23 (38% of FY23 revenue). This historical patternsuggests the potential for strong sequential growth in 3Q-4Q24E, in our view.
    Looking forward to 2H24, we expect the pace of semi supply chainlocalization in China to remain steady. Naura signed new equipment ordersexceeding RMB30bn in 2023, with over 70% related to semiconductormanufacturing tools. We expect Naura to deliver robust revenue growth on capexexpansion from downstream clients (including memory and foundry) and thesemi localization trend. In addition, we believe the company could be one of thebeneficiaries amid the recently launched “Big Fund III” (US$47.5bn) in China.
    We reiterate our BUY rating for Naura, with an unchanged TP at RMB405,based on 39x 2024E P/E. Naura is currently our favourite pick under the semilocalization theme. Risks: 1) intensified competition from overseas and domesticpeers, and 2) escalating geopolitical tensions.

Impressive 618 with makeup brand making its debut to TOP 1; Maintain BUY

珀莱雅(603605)
    Proya reported impressive results during the 618 promotion event with totalGMV ranking top/second on Tmall/Douyin’s cosmetic sector, buoyed byeffective hero product strategy and possibly more discounts. GMV growthreached +70%/+110% YoY on Tmall/Douyin, largely surpassing the platforms’sector total and international peers. Growth might be lower at the revenue levelas the return rate is raising industrywide. Proya makeup/hair care brands’ranking climbed to the top/top 10 on Tmall for the first time, suggesting newbrand development is proceeding well. We raise our 2024E/25E earningsestimates by c.20% to reflect success in 618 and solid 4Q23/1Q24 earnings.Maintain BUY with TP revised to RMB135.57, reflecting 35x 2024E P/E.
    Impressive 618: retained throne on Tmall, ranked 2nd on Douyin.Based on data from third-party statistics, during the 618 shopping festival,Proya’s GMV maintained its champion status on Tmall and ranked secondon Douyin in cosmetic sector (behind Kans), surpassing all internationalpeers (Figure 1). YoY growth reached +70% and +110%, respectively,significantly outperforming the cosmetics GMV growth on platforms (-13.3% for Tmall+JD+PDD, +47.6% for Douyin) (Figure 2-3). The successis primarily due to: 1) effectiveness of the hero product strategy. Mainskincare brand ranked the first/second by GMV on Tmall/Douyin,respectively. 2) Possibly more discounts were offered as our preliminaryestimates indicate that Proya offered 7% more discount during 618compared to Double 11 2023 on Li Jiaqi's live broadcast event (Figure 4).
    Makeup made its debut to the top, hair care entered top 10. During618, GMV of Timage on Tmall's makeup ranking reached the top for thefirst time (ranked the 7th/2nd during 2023’s 618 and 2023’s Double 11),with 80% YoY growth in GMV on Tmall, significantly outpacing theindustry's -14.2% (Tmall+JD+PDD). The company's makeup GMV on theDouyin platform remained flat YoY, possibly due to a strategic decision toforgo platforms with intense competition and higher cost. Hair care brand,Off&Relex (OR), made a notable entry into the top 10 of Tmall's hair caresector, with a 70% YoY increase in GMV. We believe that after this initialbreakthrough, OR is poised to become the company's next star brand.
    Raise estimates. We raise 2024/25E revenue by c.20%. With a relativelystable GPM, we also lift NP estimates by c.20% in 2024/25E to reflect thesuccess in 618 and the solid 4Q23 & 1Q24 earnings (+39% & +46% YoY).Maintain BUY with TP revised to RMB15.57, representing 35x 2024E P/E.Risks: worse-than-expected macro climate, surprisingly high return ratefor 618 events, selling expense surge, and management changes