We hosted Q-tech at CMBI Technology Corporate Day on 26 Jun. Key takeaways include: 1) smartphone CCM: mgmt. is positive on GPM recovery in FY24E driven by Android recovery, higher UTR and better product mix and; 2) non-smartphone CCM: accelerated growth in auto CCM thanks to Huawei and overseas tier-1 customers’ order wins; 3) FPM: profit breakdown on track given rising adoption of ultrasonic FPM and rising ASP. Overall, we expect high-end Android recovery and spec upgrade will boost ASP/earnings upside in FY24E. Trading at 11.9x/8.7x FY24/25E P/E, we think the stock remains attractive (vs 18x P/E 8-yr hist. avg). Maintain BUY with TP under review.
　　Smartphone CCM: GPM recovery on track thanks to Android recovery, high-end spec upgrade and rising UTR/ASP. Mgmt. reiterated their guidance on 1) smartphone CCM shipment growth of 5% YoY and 2) high-end CCM (32M and above) CCM sales mix to reach 45%+ in 2024, mainly driven by Android recovery and high-end spec upgrade (e.g. periscope and OIS). In addition, mgmt. is positive on GPM recovery thanks to improving UTR (70-80% in FY24E, vs. 60-70% in 1H24), ASP hike (mid-single digit YoY) and better product mix. As for AI smartphone, mgmt. believes it will stimulate smartphone replacement cycle but will take time for supply chain to embrace new technologies for optics upgrade, such as 3D photo shoot, image correction & discrimination and multispectral cameras.
　　Non-smartphone CCM: accelerated growth with sales mix to reach 12% in FY24E. Mgmt. expects auto CCM to accelerate growth with sales mix to reach 6-7% in FY24E (vs.1.2% in FY23) thanks to Huawei and overseas tier-1 customers’ orders. Additionally, IoT CCM remains rapid growth thanks to order wins and capacity ramp-up. Overall, mgmt. guided non-smartphone sales mix to reach 12% in FY24E, vs 7-8% in FY23.
　　FPM: ultrasonic fingerprint is the bright spot; Target to turn profitable in FY24E. Q-tech’s ultrasonic FPM shipment started in April and mgmt. expected shipment to reach 1kk/month in 2H24E driven by major customer orders including Vivo and OPPO. Mgmt. expects encouraging ASP is likely to drive FPM segment to turn profitable due to ASP hike by 100%+. Overall, mgmt. expects stable sales mix of 7-8% with minor upgrade for FPM applications in the future.
　　Earnings recovery on track in FY24E; Maintain BUY. We expect high-end Android recovery and spec upgrade will boost ASP/earnings upside in FY24E, and non-smartphone CCM/ultrasonic FPM segments will continue to accelerate growth in FY24/25E. Trading at 11.9x/8.7x FY24/25E P/E, we think the stock is attractive. Maintain BUY.