Q-Tech delivered strong 2H24 results in terms of volume, ASP and margins. Excluding India tax provision of RMB154m, net income would have been RMB318m, a massive beat. For smartphone, Company will continue to benefit from CCM and FPM premiumisation trend thanks to the cost down of periscope, OIS and ultrasonic FP. For non- smartphone, Company successfully seizes key design wins with top OEMs in automotive, drone, XR, LiDAR and robotics projects, opening up huge business growth potential. Maintain BUY with a new target price of HK$11.6 (was HK$5.70), based on 22x 2025E EPS.
　　Key Factors for Rating
　　2H24 results beat excluding India tax impact: Revenue reached RMB8,476m, up 20% YoY and 10% HoH, exceeding BOCIe and consensus by 7% and 2% respectively, primarily driven by robust CCM ASP (+11% YoY) and strong fingerprint volume and ASP growth (+71% YoY/+19% YoY). GPM expanded 1.7ppt HoH to 6.9% as a result of both better CCM and FPM margins.
　　In particular, FPM GPM increased 13ppts HoH to positive 9.3%, massively beating expectation thanks to improved product mix and utilisation. OP of RMB256m exceeded BOCIe and consensus by 78% and 21% respectively. NI of RMB164m was in line with previous profit alert but if adding back RMB154m one-time India tax provision made in 2H24, NI was a massive beat. Net debt to equity ratio improved to 1.1% (from 19.5% in 1H24) following bank loan repayment. In 2024, Newmax delivered 23.2% YoY revenue growth with GPM improving 2.5ppts YoY to 4.5%. n Key NDR takeaways: 1) Phone CCM: During 2H24, 32MP+ CCM shipment mix was 52%. Increase in OIS mix (13%, up +10% HoH) and periscope mix (3%, +4x HoH) drove ASP of Phone CCM up 3.3% HoH to RMB31.2. Mgmt. guides 32MP+ CCM mix to exceed 55% in 2025, with periscope CCM sales volume growing over 100% YoY. 2) Non-phone CCM: Auto CCM grew 445% YoY in 2024, driven by both domestic and overseas tier-one. Throughout 2024, Q-Tech established strategic partnerships with 7 leading global EV Tier-1 suppliers, a prominent global VR headset OEM, and several top-tier domestic robotics companies in LiDAR and depth cameras. Meanwhile, Company has achieved milestone qualification with key domestic drone player in VR headset and LiDAR projects. Mgmt. projects non-phone CCM volume to grow over 40% in 2025. 3) FPM: FPM achieved positive GPM of 9.3% in 2H24, improving 13ppts HoH driven by strong shipments and higher UTR. Meanwhile, ultrasonic FP solution is reviving the market momentum with brands actively launching ultrasonic FP smartphones. Ultrasonic FPM shipments reached 8.1m units in 2H24, growing 19.6x HoH and driving ASP up 15.1% HoH to RMB7.7. Mgmt. guides over 20% FPM shipment growth in 2025.
　　Key Risks for Rating
　　1) Slowdown in CCM upgrade; 2) new client and new product qualification progress; 3) economic and geopolitical risk on tech end demand; and 4) intensified price competition.
　　Valuation
　　We revise up 2025/26 sales by 19%/16% and net profit by 52%/36% to factor in 1) smartphone recovery, premiumisation and national subsidy, 2) automotive and IoT project ramp up faster expected, 3) the significant recovery of FPM. We use 22x 2025 EPS (was 16x) to value Q-Tech as the Company enters a solid uptrend. Our new target price is HK$11.6 (was HK$5.7). Maintain BUY.