Q-Tech reported a strong Jan shipment recovery in mobile/non-mobile camera modules and fingerprint modules thanks to strong smartphone demand, high- end product ramp-up and customers’ project cycle. Following a weak 2023, we are positive that Android recovery and spec upgrade in 1H24E should drive smartphone CCM growth, and non-mobile CCM (auto/ARVR/IoT) should remain steady thanks to a customer order rebound, new product launches and mass production. We trim FY24/25E EPS by 33/36% mainly to reflect weak FY23E earnings preannouncement (down 35-45% YoY) and mild shipment/GPM recovery in FY24/25E. We estimate FY24/25E EPS to grow 283%/39% YoY, backed by shipment/GPM recovery. Trading at 8.5x FY24E P/E (1sd below 5- year avg.), the stock is extremely attractive, in our view. Maintain BUY with new TP of HK$3.74 (valuation rolled over to 10x FY24E P/E).
　　Jan shipment beat on strong demand rebound. Q-Tech reported strongJan shipments with mobile CCM volume growth of 11% MoM/90% YoY, in which high-end 32M+ CCM climbed 5% MoM/143% YoY. Mgmt. attributed the strong growth to a smartphone demand rebound, mid-to-high-end CCM product ramp-up and customers’ project cycle. For non-smartphone CCMs, shipments jumped 22% MoM/413% YoY on stronger auto CCM demand.
　　FPM shipments increased 13% MoM/112% YoY thanks to smartphone recovery and market share gains. Overall, we believe smartphone recovery and Android restocking are well on track, and Q-Tech is set to benefit from the industry trend in FY24E.
　　High-end smartphone CCM the bright spot; steady non-mobile CCMgrowth. After a prolonged weak smartphone market in 2023, we expect an industry recovery in 2024 driven by Huawei high-end models’ comeback and inventory restocking. We expect Q-Tech’s high-end CCM (32M+) sales contribution to climb to 43% in FY24E (vs.42%/30% in FY23/22). In addition, spec upgrade including OIS and periscope should drive the ASP upside in 2024. For non-mobile biz, we expect steady automobile CCM sales on NEV customer and domestic Tier-1 customer order wins, and mass production of ARVR/IoT products (DJI, smart watch, sweeping robots) in 2024.
　　Expect solid earnings recovery in FY24/25E; maintain BUY. We believethe market has priced in Q-Tech’s 2023 earnings weakness, and Android recovery and spec upgrade in 1H24E should be positive catalysts. We cut FY24/25E EPS by 33/36% to factor in FY23 earnings preannouncement and mild ASP/shipment recovery. Trading at 8.5x FY24E P/E (1-sd below 5-yr avg.), the stock is extremely attractive, in our view. Maintain BUY with new TP of HK$3.74, based on 10.0x FY24E P/E.