20Jan2025
CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdate
Wingtech(600745CH)
Entering2025withacleanslate,withtheworst
leftbehind
WingtechannounceditspreliminaryFY24results.Thecompanyexpectsanet
losstobearoundRMB3.5-4.55bn(vs.RMB1.1bnNPinFY23).Mgmt.attributed
theNLprimarilyto1)impairmentrelatedtothesaleofODMbusinessannounced
inDec(link),2)awrite-downondeferredtaxassets,and3)furthergoodwill
impairments(RMB600mn/RMB500mnin2022/23,withRMB200mntobefully
impairedin2024).Despiteshort-termfinancialsetbacks,webelieveWingtechis
better-positionedforLTvaluecreationasitmovesforwardwithalighterloadas
ittransformsitselftoapredominatelysemiconductor-focusedcompany.Maintain
BUYwithTPunchangedatRMB52.
NetlossinFY24duetoone-offimpairmentsfromODMspin-off.Per
Counterpoint,thetopthreeODMplayers(Longcheer,Huaqin,Wingtech)
Counterpoint,thetopthreeODMplayers(Longcheer,Huaqin,Wingtech)
accountedfor75%oftotalmarketin1H24inChina.Wingtechrankedthird
with17%share,down3pptsvs.1H23.Despiteachallenging1H24,itsODM
businesscontinuedtoimprovein4Q(after+46%/15%YoY/QoQin3Q),with
arecordrevenue(est.double-digitYoYandsingle-digitQoQ).Excludingthe
impairments(ODMbusinessspin-off,write-downonDTA,andgoodwill),the
segmentturnedprofitablein4Qasmgmt.expected.However,ODMisalow-
marginbusiness,withthetopthreeODMplayersinChinaseeing<3%NPM
onaveragein9M24.WeseeNo.2playerHuaqin(603296CH,NR)isactively
diversifyingitsbusinessportfoliotowardshigher-marginopportunities
(recentlyacquired75%ofHCTRobot).WebelieveWingtechisbetter-
positionednowasitmovesforwardwithalighterload.
Semibusinesscontinuedtoshowresilienceamidseasonalslowdown.
SemibusinessrevenuegrewsequentiallyinFY24(2Q/3Q:10/15%QoQ).
While4Q24salesfacedseasonalsoftness,thebusinessstillrecordedsingle-
digitYoY(~7%)andflattishQoQgrowth,drivenbystrongdemandin
consumer,datacenter,andautosectors.Notably,Chinacontributed~40%
oftotalsemirevenue,offsettingweaknessoverseasresultingfromcontinued
inventorycorrection.4QGPMwasnear2Qlevel(1Q/2Q/3Q:31.0%/
38.7%/40.5%).Mgmt.expectsoverseasautoOEMstoresumerestockingin
2025,withautorevenuecurrentlyaccountingfor60%oftotalsemirevenue.
Lookingforward,weexpecttoseemoreupsideinWingtech’svaluation,
liftedby1)increasingsemiconductorrevenueshare,2)robustdomesticauto
demandwithgradualrecoveryoverseas,and3)are-ratingopportunitygiven
itsbusinesstransformationtobeingasemi-centriccompany.MaintainBUY,
withTPunchangedatRMB52,correspondingto24.8xFY25EP/E,based
onunchangedfinancialforecasts.PotentialrisksincludeheightenedUS-
Chinatraderelations,unfavourableexchangerates,andweaker-than-
expectedoverseasautoinventorycorrection.